September 12, 2013

September 12, 2013

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
European Gas Supply.jpg
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?

Asian Demand

The other giant caveat is… Asian demand…

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China Watcher?

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

Since 2000, the cost of basic, essential needs in our GBNI have risen over 87%, while the consumer prices (CPI) are up less than 39%.

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