Equinor laments 'dire' global gas market, non-committal on 2020 deferrals

London — Norway's state-controlled Equinor on Thursday described the global gas market as "dire" with the current low-price environment set to endure "deep into 2021."

Speaking to analysts after releasing its fourth-quarter earnings, Equinor CEO Eldar Saetre also said the company would not give any guidance on how much gas production it might defer through 2020 having curtailed significant volumes due to low prices through Q3 and Q4 2019.

"The current situation is a muted and weak market," Saetre said. "We expect that to be the situation for a while -- this year and also deep into 2021," he said.

Equinor's executive vice president for midstream, Irene Rummelhoff, said the low prices had triggered some new demand, including in Europe and from LNG buyers Pakistan and Bangladesh, providing some good news for the industry.

But overall, she said; "It is a pretty dire picture for the next year and a half at least."

Price fall

Gas prices globally have tumbled to multi-year lows, with the US Henry Hub price near a four-year low at $1.85/MMBtu, the Dutch TTF day-ahead price sliding below Eur10/MWh and the spot JKM Asian price hitting an all-time low of just $3/MMBtu on Thursday.

Saetre said the fall in prices globally was "not surprising" as the market had known LNG supply would build in the current timeframe.

But high stocks globally and the mild winter temperatures had added to the bearishness.

"We know where we are in gas prices, we are down there," Saetre said, adding that a recovery may only be seen from 2022 as the startup of new LNG projects being fed into the global supply begins to "dry up."

He added that a global gas price was emerging as prices converged and LNG supply ramps up.

"We see that the global gas business is becoming sort of 'one'. It's not a regional business anymore. It's really a global commodity. It looks more like the oil transition that we saw many years back," he said.

Despite the oversupply, Equinor CFO Lars Christian Bacher said the company remained competitive.

"Our gas position in Europe is strong, with a total supply cost well below $2/MMBtu, with low emissions and with flexibility, both in production volumes and when it comes to delivery points," Bacher said.

"We see this as a very competitive against LNG imports and other imports," he said.

Output deferrals

Equinor has two main flexible gas-producing assets -- Troll and Oseberg -- that it can turn down when prices are low.

The company has made full use of this "value-over-volume" strategy in recent months, keeping gas in the ground while it waits for higher prices.

Its Norwegian gas production in Q4 was 727,000 b/d of oil equivalent, down 3% year on year, as the flexibility in gas fields was used to defer production into periods with "higher expected gas prices," the company said.

The Q4 volume was, however, up from the 570,000 boe/d in Q3 when Equinor significantly cut output due to commercial turndown and a heavy maintenance schedule.

Equinor traditionally produces at capacity in the winter when European demand is high, but mild weather and low prices have seen the company curtail production.

According to S&P Global Platts Analytics, commercial turndown at Oseberg in January saw 10 million cu m/d of production curtailed.

Analysts have also questioned whether Equinor will repeat the strategy to the same extent in the coming summer.

Asked Thursday about Equinor's plans, Saetre was tight-lipped.

"On the deferral of gas, we are very cautious to give volumes and definitely not guidance because that would be sensitive market information," he said.

"And basically, when we predict the future, we don't add any assumptions on that. We deliver what the base assumption is in the production permits," he said.

"Production permits give us some flexibility. If there are deviations from this we will explain that and introduce it as part of decisions that we make continuously."

Equinor is given a certain volume it can produce from Troll and Oseberg, and can under- or overproduce in any given gas year depending on production in previous years.

Platts Analytics expects Troll to produce around 80 million cu m/d this summer compared with 65 million cu m/d last summer.

"The increase in the production assumption for Summer 20 is driven by the view that deferrals last year approximately balanced the Troll permit bank by the start of Gas Year 19 and it would be difficult to defer production to a greater extent than last year," it said.

Market sources say Equinor's move last year to defer so much production may have not been a good move as prices have remained low.