Research Highlights

Here you will find regular updates on some of the most notable research outcomes generated by our team of analysts.

Long-term demand trends and JBC Energy’s SuDeP transportation model findings are being discussed this week at the  JBC Energy Matters Seminar in Vienna

  • Diesel transport demand in EU28 is expected to fall by 14% to 3.5 million b/d by 2030.
  • The current shift to gasoline passenger vehicles is estimated to shave off some 200,000 b/d from diesel demand in that time-frame.
  • Biggest reductions are expected to come from efficiency gains in other segments such as freight and busses; demand from freight currently accounts for more than 50% of diesel transport demand in 2016.

Spare refining capacity is low and may stay so for some time  (see Market Watch – Issue 8)

  • The evidence is increasingly clear that global refining markets are tight compared to historical observations.
  • Outages, strong demand, and a lack of capacity growth contributed to tightening refining markets
  • Relatively slow pace of additions ahead will keep risk of margin spikes high
  • It may be some time before margins will need to be low enough to provoke cuts to swing utilisation

JBC Energy’s new  Middle of the Barrel Report provides monthly analysis and projections on the most important factors affecting the middle of the barrel (diesel, jet/kero and gasoil) across the world

  • Our assessment of global gas oil/diesel balances paints a tighter picture compared to one month prior with upward revision to our demand forecast and some downside to our supply estimates. As a result we now see the global gas oil/diesel balance tightening by 190,000 b/d y-o-y in H2-2017.
  • On the demand side, recent high growth figures coming from Asia, Europe, and the US has motivated our decision to revise our demand forecast for these regions. We expect the favourable economic developments there to continue supporting demand growth at a similar pace to the past several months.
  • Turning to supply, the exceptional strength in global regrades has resulted in a yield switch away from the gas oil/diesel segment in some regions.

European gasoline demand continues to hold almost at the same level as the last few years, with the last major sustained downside observed back in 2015  (see Top of the BarrelIssue 8)

  • Economic recovery and low outright prices have played a role in upward forecast revisions over the last years.
  • We expect renewed declines as of next year, however, although at a slower pace than those observed over 2012-2014.
  • Despite growing expectations about the role of EV’s, the trend of switching away from diesel towards gasoline is likely to prove supportive nonetheless.

Natural gas demand set to post robust growth (see Benigni on Oil Markets– Issue 7)

  • We anticipate a bright future for natural gas, predicated on demand increasing to 4.5 tcm by 2030, a leap of nearly 1 tcm compared to 2017 (SuDeP).
  • Global consumption is to be driven by East Asia, where we expect demand to skyrocket from 418 bcm in 2017 to 679 bcm by 2030. As can be expected, robust Chinese demand will underpin strengthening regional consumption.
  • Additional growth in global demand is spread out amongst regions, as the gas sector’s rapid expansion is driven by industrialisation and electrification. Both supporting factors will likely be sustained going forward, as economic development and fuel-switching from coal to gas underpin the latter’s further expansion in the industrial sector.

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Is OPAL a threat to gas transit through Ukraine? (see FSU/CEE Insight – Issue 31)

  • After six months of delay, Gazprom recently regained higher access to the 36 bcm per year OPAL natural gas pipeline. According to our estimates, Gazprom now has access to 23 bcm per year, from 12.8 bcm per year previously.
  • Daily auctions for the newly available capacity started on 1 August and by 7 August, utilisation rate of the OPAL pipeline reportedly increased from 44.3% to 84.5%. Additionally, capacity utilisation of 55 bcm per year Nord Stream pipeline rose from 85% to 93% over the same period.
  • Nonetheless, we expect transit of Russian gas through Ukraine to remain on a growth path in H2 due to strong growth in overall Russian exports to Europe.

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The pace of Chinese crude stock building from this point is a major wildcard for the development of stocks on a global level over the coming months (see Market Watch, Issue 7)

  • The pace of implied Chinese crude stock building has averaged more than 1 million b/d so far this year, allowing stocks elsewhere in the world to draw in recent months.
  • We estimate that if stock building were to continue at a moderate pace of some 400,000 b/d over the next 18 months, this would be sufficient to allow stocks in the rest of the world to essentially stabilise.
  • However, a sharper drop-off in the pace of builds to just 200,000 b/d would significantly change the picture for the rest of 2017 and 2018 and result in builds elsewhere, with y-o-y builds emerging from spring next year (this assumes a prolongation of the current OPEC/non-OPEC supply accord to the end of next year).

sample-image-twoWe do not see big potential for shale oil developments outside the US over the next 10 years (For this and other shale related aspects see Benigni on Oil Markets– Issue 6

  • The shale oil areas expected to see the most significant development over the next five years are located in Canada (+130,000 b/d), Argentina (+120,000 b/d), and Russia (+40,000 b/d). In these three countries, we see shale to be a somewhat competitive resource and we can imagine combined additions of some 850,000 b/d by 2030.
  • Shale oil is basically present everywhere we find conventional reservoirs. That means that in all of the traditional production areas, there is the theoretical potential to exploit the source rocks below the existing reserves.
  • The US remains unique in many ways due to excellent infrastructure, environmental legislation is comparatively relaxed, and there are enough companies present to supply needed equipment. On top of it, investors are numerous and bold enough to provide financing.

Libyan and Nigerian increases partly offset OPEC cuts (see Energy Market Report – July 19)

  • Libya is reportedly currently producing above 1 million b/d
  • Nigerian output is seen around 1.7 million b/d (pure crude) and we expect a gradual increase towards 1.8 million b/d in Q1 2018
  • This is in line with the recent agreement of Nigeria to join the OPEC/non-OPEC deal once they reach a sustainable level of 1.8 million b/d
  • Combined output from Libya and Nigeria is set to be 900,000 b/d higher by end of 2018  compared to the October 2016 level

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US shale production has the potential to increase another million b/d by 2018 (see Energy Market Report– July 11)

  • Based on EIA data, we believe it would be plausible that US shale output increases 1 million b/d by end of next year
  • A key assumption behind this is keeping current completion rates and 2017 average initial production rates stable
  • We modelled the additional declines from higher production
  • The increase is mainly driven from the string activity in the Permian Basin