Gas and power market analysis

October 2019

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2

Gas prices increasing but remain low

Global gas benchmarks European gas benchmarks

PEG = French gas

PSV = Italian gas

PVB = Spanish gas

NBP = British gas

TTF = Dutch gas Source: NYMEX, ICE, Heren, S&P Global Platts ®

Futures as of 04/10/19

• A mild winter and strong supply saw NBP, TTF and JKM all fall by over 60% from Sep-18 to Jul-19. • Prices have increased from Jul-19 lows and have been volatile following news of potential European

supply reductions.

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2015 2017 2019

€/MWh

PEG PSV PVB NBP TTF

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2015 2017 2019 2021 2023 2025

$/mmbtu

European coal switching Oil parity

HH JKM

NBP TTF

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European gas supply – Groningen & OPAL

Source: NAM, OPAL Gastransport GmbH & Co. KG

Groningen gas production

…

OPAL flows to the Czech Republic

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Gwh

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mcm/d

Groningen Production

Rolling 12 Month Production

Proposed Cut

• Groningen – Gas extraction will stop mid 2022 from the Groningen gas field, following ongoing earthquakes

in the area, rather than the previously expected date of 2030, according to a Dutch government

announcement during Sep-19.

• OPAL – On 14-Sep-19, the ECJ overruled an EU decision allowing Gazprom to ship more gas via the OPAL

pipeline. This lead to a 40% flow rate decrease since 14-Sep-19, or about 400Gwh.

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European pipeline imports falling

Europe pipeline imports

AlgeriaNorway

RussiaTotal

Source: Official TSO Statistics

Pipeline flows into Europe have fallen with pipeline maintenance, high storage inventories and strong LNG supply.• Algerian imports fell from over 100 mcm/d in Jan-19 to 40 mcm/d, where they have remained steady. • Russian and Norwegian imports have fallen, resulting in a significant total European pipeline imports reduction in

3Q19.

Total flows are from Russia, Norway, Algeria & Libya; Russia flows are to Central Europe only

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2014 2015 2016 2017 2018 2019

mcm/d

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mcm/d

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mcm/d

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European gas inventories have built significantly above historic average levels

N.B. data from GIE does not incorporate all storage facilities in each country, but rather can be used as a proxy for total storage

Source: Gas Infrastructure Europe

European GIE storage

• A mild winter reduced the need for storage withdrawals, compared to 2018 where extreme weather caused storage levels to fall to their lowest in recent years.

• European gas inventories were on average 22 bcm higher year-on-year across 3Q19 with injections supported by strong LNG imports and pipeline supply in Europe.

• Consequently, storage levels are close to capacity.

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bcm

11-15 Range 2016 2017 2018 2019

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Germany France

Netherlands Spain

Italy UK

N.B. data from GIE does not incorporate all storage facilities in each country, but rather can be used as a proxy for total storage

Source: Gas Infrastructure Europe

Strong European Storage injectionsGermany, France and Spain have sustained high inventories whilst Italy, UK and the Netherlands tracked close to average levels.

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11-15 Range 2016 2017 2018 2019

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LNG send-outs remain strong

N.B. data does not incorporate all regasification facilities in Europe, but rather can be used as a proxy for LNG send-outs

Monthly European LNG send-outs

Source: Official TSO Statistics

• During 2019 European send-outs have more than doubled year-on-year, as strong global LNG supply and slower LNG demand growth in Asia resulted in a wave of LNG cargoes heading into Europe.

• After reaching a record ~340 mcm/d in April 2019, send-outs have retracted although still remain historically high.

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2011 2012 2013 2014 2015 2016 2017 2018 2019

mcm/d

UK France Italy Spain Netherlands Belgium Lithuania Poland Portugal

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Global LNG supply and demand

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2012 2013 2014 2015 2016 2017 2018 2019

MT/month

Asia Europe Rest of World

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MT/month

Middle East Asia Australia Atlantic Rest of World

Global LNG Demand Global LNG Production

• Asian LNG demand has grown 6% year on year, compared to a 16% growth in year on year Global LNG Production. • This growth rate discrepancy helps explain why more LNG cargoes are heading to Europe, increasing European

supply.

9Source: BP AnalysisYear-on-year analysis used data from Sep-17 to Aug-18.

European heatwave in June followed a mild winter

Europe Cumulative HDDs

Source: BP Analysis

Europe Cumulative CDDs

• A mild winter across Europe resulted in below average HDDs contributing to a reduced need for storage withdrawals.

• In late June 2019 much of Europe experienced a heatwave during which France hit a record temperature of 45.9˚C, resulting in a spike in CDDs across many European countries.

Gas Years

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'04 - '14 2015 2016 2017 2018 Average '04 - '17

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European LNG reloads JKM-TTF spread

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2014 2015 2016 2017 2018 2019

$/MMBtu

JKM-TTF TTF JKM

Source: BP Analysis, Heren, S&P Global Platts ®

JKM-TTF spread widened slightly in 3Q19 but remains historically narrowThe spread has widened in 3Q19, creating some arbitrage opportunities, albeit demand in Asia remained lacklustre hence subduing reloads.

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2014 2015 2016 2017 2018 2019

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Belgium Spain France Portugal Netherlands UK

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Carbon prices fall following recent highs

EUA carbon futures

Source: ICE

Volatility in EUAs continues, with prices rising over 15% from Jan-19 to Aug-19, but since decreasing, with Oct-19 prices lower year-on-year. Despite this prices remain high, giving support to European gas prices.

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

€/MT

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