Morgan Stanley Blue Paper-Global Gas
March 14, 2011 MORGAN STANLEY BLUE PAPER
MORGAN ST ANLEY RESEARCH
Global Energy 1 James R. Hubbard, CFA
+44 (0)20 7425 0749
Stuart Baker
+61 3 9256 8929
2
Evan Calio
5
+1 212 761-6472
Vinay Jaising
+91 22 6118 2252
4
Theepan Jothilingam, CFA
+44 (0)20 7425 9761
1
Stephen Richardson
+1 212 761-3741
5
Wee-Kiat Tan
3
Global Gas
A Decade of Two Halves
Significant LNG overcapacity will persist for five years, pressuring global gas markets … Against consensus, we do not believe that global liquified natural gas markets will tighten in 2011. There are many moving parts, but the key variable is that we believe China will be able to satisfy its own growing gas needs with increased local production. With no major change before 2015 in OECD countries’ LNG demand, we believe the 2011 oversupply will persist until mid-decade. … but then it all tightens—fast. After 2015, falling local production will dominate in Europe, and in China local gas production growth will eventually moderate. Unless major construction investment decisions are taken soon, we forecast the world to become structurally short LNG. By 2020, the shortfall will amount to about 100 million tonnes of liquefaction capacity (or almost 50% of current capacity). Our counter-consensus view reflects our close analysis of the regional supplydemand mosaic. To understand the regional dynamics and investment opportunities, this report brings together the perspectives of our analysts covering energy, petrochemicals, clean energy, and utilities across the major geographic regions. Six investment themes: 1) CNOOC, Kunlun Energy, Towngas China, Reliance, and CGG should benefit from domestic production increases in China and India; 2) InterOil, Gazprom, Chevron, Santos, Oil Search, BG, Saipem, and SBM should see new contracts in response to the predicted 2015 gas shortage; 3) Lyondell, Dow, and Petronas Chemicals should receive a boon from low gas prices in the US and
MORGAN ST ANLEY RESEARCH
Global Energy 1 James R. Hubbard, CFA
+44 (0)20 7425 0749
Stuart Baker
+61 3 9256 8929
2
Evan Calio
5
+1 212 761-6472
Vinay Jaising
+91 22 6118 2252
4
Theepan Jothilingam, CFA
+44 (0)20 7425 9761
1
Stephen Richardson
+1 212 761-3741
5
Wee-Kiat Tan
3
Global Gas
A Decade of Two Halves
Significant LNG overcapacity will persist for five years, pressuring global gas markets … Against consensus, we do not believe that global liquified natural gas markets will tighten in 2011. There are many moving parts, but the key variable is that we believe China will be able to satisfy its own growing gas needs with increased local production. With no major change before 2015 in OECD countries’ LNG demand, we believe the 2011 oversupply will persist until mid-decade. … but then it all tightens—fast. After 2015, falling local production will dominate in Europe, and in China local gas production growth will eventually moderate. Unless major construction investment decisions are taken soon, we forecast the world to become structurally short LNG. By 2020, the shortfall will amount to about 100 million tonnes of liquefaction capacity (or almost 50% of current capacity). Our counter-consensus view reflects our close analysis of the regional supplydemand mosaic. To understand the regional dynamics and investment opportunities, this report brings together the perspectives of our analysts covering energy, petrochemicals, clean energy, and utilities across the major geographic regions. Six investment themes: 1) CNOOC, Kunlun Energy, Towngas China, Reliance, and CGG should benefit from domestic production increases in China and India; 2) InterOil, Gazprom, Chevron, Santos, Oil Search, BG, Saipem, and SBM should see new contracts in response to the predicted 2015 gas shortage; 3) Lyondell, Dow, and Petronas Chemicals should receive a boon from low gas prices in the US and