Implications: Europe Out in the Cold?
Who are the beneficiaries of Europe’s precarious gas position?
Who will Benefit From Europe’s Gas Woes?
Europe is facing a multilateral squeeze on the natural gas front. This has interesting implications from an investor’s perspective.
Eurozone Economy Gathers Steam
On one side, demand is set to increase as the European economy gathers steam from its post-crisis lows. Historically, European gas demand has seen an annual growth rate of about 0.9 times that of overall GDP growth. Depending on how the ongoing recovery unfolds, as we look out to 2020 and beyond, this likely implies an annual growth of gas demand of between 1 and 2 percent.
On another side, Europe’s indigenous gas supply looks set to contract over the same time frame. Conventional European gas production (ex Norway) looks like it will be in a state of decline over the coming decade. Especially significant is the peak and decline of the Netherlands’ Groningen field, which has been driving Dutch gas production since the late 50s.
Indigenous Conventional European Gas Supply — A Inexorable Decline
BCMA = Billion cubic meters per annum
Source: Deutsche Bank
Where Will the Gas Come From?
So the question is — as conventional gas supplies peak, and unconventional gas supplies remains locked up, where will Europe get the gas it will need as it moves back towards historical growth levels?
The other giant caveat is… Asian demand…
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There is more fallout in China from President Xi Jinping’s anticorruption drive as it has taken down some top figures in a state oil company. Last week saw the firing of the supervisor of state-owned enterprises, and the investigation seems to be moving towards the country’s retired security chief. This is a familiar script for China watchers: a new leader consolidating power. We view Mr. Xi as a reformer, not a revolutionary, who wants to challenge corruption, but not threaten Party rule. We hope that his reform-minded governance will continue to strengthen Chinese public trust in the rule of law.
American Consumers Still Struggle With Wages
Where is the American consumer spending their income?
Guild Basic Needs IndexTM
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