2020 OutlookForewordFive themes

InfographicAn eye on 2020

Oil supplyOil demandOil productsRefiningNGLsLNGNorth American gasEuropean gasNorth American powerEuropean powerGlobal powerCoalPetrochemicalsGrains and soybeansBiofuelsPolicy and technology

© 2019 S&P Global Platts, a division of S&P Global Inc. All rights reserved.

Energy transitionEnergy transition is going to be ever-present, driving discussions and strategic planning in 2020. World leaders in both politics and industry are under mounting pressure from consumers to deliver increased energy produced with dramatically lower emissions and in more sustainable ways.

China’s economic slowdownTariffs and trade wars will continue to dictate global pricing and trade flows for multiple commodities in 2020, but the consequences of the ongoing dispute between China and the US, particularly, are now rippling out into the economy, sparking fears of another recession.

The rise of new marketsInvestments are under way globally to support significant changes, such as the emergence of electric vehicles and a move from virgin to recycled plastics. But as with all nascent markets, infrastructure that makes these industries truly scalable and markets commoditized will take time to develop.

Weather-driven market eventsWeather-related demand swings have always been a feature of commodity markets, particularly natural gas and electricity, but the cycle of significant climate events is increasing. As agriculture and biofuel demand grows, these swings will get larger, as will the demand for heating fuel.

Beyond blockchain2020 could be the year of the centralized ledger, but potentially without blockchain technology itself. Smart contracts that offer a similar level of security are already a reality, albeit with centralized ledgers. These efforts could reduce costs and lower barriers to entry across commodities markets.

This year has been marked by a tug of war between geopolitical tensions and macroeconomic concerns, rangebound commodity prices and – perhaps most importantly – rising consumer awareness of climate change. As we look ahead to 2020, the year will bring some of these themes into even sharper focus.

Martin FraenkelPresident

S&P Global Platts

© 2019 S&P Global Platts, a division of S&P Global Inc. All rights reserved.

© 2019 S&P Global Platts, a division of S&P Global Inc. All rights reserved.

IMO

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Decision due on huge Romanian gas field

Germany takes rotating EU presidency

2-year anniversary of Chinese tariffs on US LNG

Groningen gas quota to be cut further

High stakes for climate and energy in US election

UK to host global climate change talks

TAP gas pipeline to start End of China’s 13th Five-Year Plan

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Guyana election could impact oil investmentJohan Sverdrup raises Norway oil output

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An eye on2020Hover over the eventsto read more

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© 2019 S&P Global Platts, a division of S&P Global Inc. All rights reserved.

Oil supply

The global economy is expected to stabilize in 2020, as policy makers respond to support economies around the world. Global oil demand growth is forecast to accelerate to 1.2-1.3 million b/d in 2020, from just under 1 million b/d in 2019, but the improvement is almost entirely due to changes in sulfur specifications for bunker fuels, a transformative industry regulatory change that will (temporarily) price off-spec fuel oil into power generation (creating more demand). Underlying demand growth (omitting bunker fuel spec change) is steady at around 1 million b/d in 2020. Demand growth will be driven by China, India, and emerging markets, and we see strength in the US petrochemicals sector.

Global oil supply growth is poised to improve dramatically in 2020, growing by 1.7 million b/d, after a 0.1-0.2 million b/d contraction in 2019. Little OPEC

supply will be left to lose in 2020, following 2 million b/d of losses in 2019 tied to US sanctions on Iranian and Venezuelan oil. Saudi Arabia is expected to continue exercising restraint in supplying markets in order to support balances and prices. US shale growth is set to slow materially (0.7-0.8 million b/d), from well over 1 million b/d during the prior two years, although contributions will still be meaningful and significant. Elsewhere, major new projects across non-OPEC countries are coming online, such as Brazil’s pre-salt, Norway’s giant Johan Sverdrup field, and the first project in high-potential Guyana.

Geopolitical risks to supply will remain high. US export restrictions on Iranian oil should persist through 2020, and Iran will continue to push back against sanctions pressure. More oil tanker skirmishes and maybe even attacks on oil infrastructure in the region are expected, not unlike the major attack at Saudi Arabia’s Abqaiq facilities last September. New US-Iran nuclear talks are possible, although unlikely. Still, the potential for some 2 million b/d of Iranian oil supply coming back to market, dependent on unpredictable US sanctions policy, will continue to serve as a potential supply overhang, weighing on the market.

2019 2020

Global oil supply disruptions

Source: S&P Global Platts Analytics

(million b/d)

YemenLibyaSyriaIraqNeutral ZoneIranSudanNigeriaVenezuelaSaudi Arabia

0

1

2

3

4

5

6

Q4Q3Q2Q1DecNovOctQ3-19Q3-18Q3-17Q3-16Q3-15Q3-14Q3-13

Global oil supply growth will exceed demand growth in 2020, but this does not a loose market make. Stocks will be down slightly on the year, as supplies must make up for a wider deficit from end-2019.

Shin KimHead of Supply and

Production Analytics

More from PlattsInteractivePlatts Periodic Table of Oil (Sep 2019)

PodcastShale shake-up: The IEA’s new oil forecasts and what they mean for the IOCs (Nov 2019)

InfographicNorth Sea oil’s fight-back: Johan Sverdrup boosts an embattled industry (Nov 2019)

Shifts in global oil market balances

Implied cumulative surplus, in this case, starts with supply growth in excess of demand growth in 2015, adds the next year’s excess supply over demand growth and subtractsthe change in the SPR build rate. Totals may not add due to rounding.

Source: S&P Global Platts Analytics

ForecastAnnual change (million b/d)

USOther non-OPECNGLsBiofuelsRefinery gainOPECDemandSupply/demandSPR

Implied cumulativesurplus since 2015

-3

-2

-1

0

1

2

3

4

202020192018201720162015 202020192018201720162015

© 2019 S&P Global Platts, a division of S&P Global Inc. All rights reserved.

Diesel demand growth will be extraordinary in 2020, due to the IMO specification change. Petrochemical feedstock and aviation demand will also grow fast, driven by increasing middle class consumption in emerging markets. Conversely, gasoline demand will continue to decelerate, as growth in China and India is compensated for by a contraction in OECD countries and lackluster growth in Latin America and the Middle East.

As a result, 2020 global oil demand growth will stay below its long-term trend of 1.5 million b/d year on year (see chart below). This sign is not necessarily ominous. In fact, oil demand had grown well above trend during 2015-18, spurred by low oil prices and booming oil consumption in OECD markets. This temporary phenomenon has now come to an end, and OECD countries are

expected to resume flat or produce negative oil demand growth in the coming years. Therefore, we forecast global oil demand will grow by 1.25 million b/d in 2020 and by a similar pace in 2021.

After that, we expect it to resume its long-term trend at around 1.5 million b/d. It is worth noting that less than 10% of global growth is expected to come from OECD countries in the coming years and more than 70% will come from Asia.

Potential downside risks will come from recessions or higher oil prices. Currently, we pin the likelihood of a “normal recession” – that is, an economic downturn significantly milder than the 2008 Great Recession – at 30%. Such an occurrence would curtail oil demand growth to 0.4 million b/d.

Higher oil prices are also a possibility. However, in our fundamentals-driven oil price forecasts, we expect Brent crude to increase slightly and not to exceed $70/b throughout 2020. This implies limited year-on-year Brent price changes, with minor impacts on oil demand.

Global demand growth by product

Source: S&P Global Platts Analytics

Forecast

IMO 2020

Year-on-year change (million b/d)

GasolineJKNaphtha/LPG/EthaneFuel oilOther productsGasoil/diesel

-2

-1

0

1

2

3

4

20202019201820172016201520142013201220112010

Global demand growth will stay below trend due to economic weakness, with the likelihood of recession around 30%. Distillates demand will be boosted by IMO 2020, while petrochemical demand will remain robust. China is still crucial to growth.

Claudio GalimbertiHead of Demand, Refining and Agriculture Analytics

Global demand growth by region

Source: S&P Global Platts Analytics

Long-term trend

Above trend

Below trend

Year-on-year change (million b/d)

Atl. Basin OECDAsia-Pacific OECDChinaIndiaOther AsiaLatin AmericaMiddle EastAfricaFSU/E. Eur.

-1

0

1

2

3

4

20202019201820172016201520142013201220112010

Forecast

More from PlattsSpecial reportNational champions: State oil companies evolve to face the future (Oct 2019)

VideoOil demand growth worries take center stage (Sep 2019)

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The change will require a major shift in the blendstocks used for bunker fuels, initially creating a huge disposition issue for 3 million b/d of high sulfur fuel oil (HSFO).

This volume will be replaced by various low sulfur blends of residual fuels and distillates (VLSFO) and marine gasoil.

Alternative solutions for the shipping industry, such as exhaust gas scrubbers or LNG bunkers, will only be used by a small percentage of the fleet in 2020 (about 15-20%).

Refiners will need to take more expensive steps than are currently being used to rebalance product markets and that will drive prices much higher for VLSFO and middle distillate fuels (jet, diesel, MGO), while HSFO prices will fall.

These changes began to occur in the autumn of 2019 as shippers and refiners

geared up for the change.

The peak impacts are expected to emerge in March-May 2020, but they

will then ease off, as refiners, shippers and bunker blenders work out more

efficient ways to cover their requirements.

With higher bunker fuel costs, the cost to ship goods will increase not just for

the oil tanker industry, but also for bulk shipping, container ships and all other

segments of the industry.

This change will be one of the most disruptive to the downstream oil industry in

many years. But its major effects will ease quickly.

Diesel-HSFO price spreads($/b)

2019

2018

Five-year avg

10

20

30

40

50

60

DecNovOctSepAugJulJunMayAprMarFebJan

Source: S&P Global Platts

Five-year rangeFive-year range

Tighter specifications for global bunker fuels for 2020 (IMO 2020) will have a disruptive impact on shipping, refining, oil product prices, crude price differentials, and oil trade flows.

Oil Products

Richard JoswickGlobal Head of Oil Pricing and Trade Flow Analytics

Forecast

Global bunker fuel demand(million b/d)

0

1

2

3

4

5

6

7

8

202520222019201620132010

VLSFO (0.5%S blends)

LSFO/VLSFO

Distillates

LNG

Source: S&P Global Platts Analytics

More from PlattsPodcastIMO 2020-friendly fuel oil trumps gasoline as cracks tell a surprising story (Nov 2019)

Special reportTurning tides: The future of fuel oil after IMO 2020 (Feb 2019)

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Refinery runs will move higher in 2020, given additional capacity and lower downtime than the record amount experienced in 2019. Expected new capacity will amount to 2.26 million b/d by the end of 2019, net of closures.

The pace of growth will slow considerably in 2020 to just under 1 million b/d of new crude distillation unit capability, but the new additions in both 2019 and 2020 significantly exceed predicted net demand growth, especially after adjusting for NGLs, biofuels and other related products.

A unique feature of the new capacity added in 2019 that will have an impact on 2020 is the number of mega-refineries being constructed. Just five facilities represent almost 1.5 million b/d of new capacity added during 2019, including

the 400,000 b/d Hengli Petrochemical facility at Dalian and the 400,000 b/d Zhejiang Petrochemical complex at Zhoushan.

What is also distinguishing about much of this new capacity is that a number of refineries will be geared toward making chemicals, both olefins and aromatics. Indeed, as much as 40-70% of the output could go toward chemicals and away from traditional refined products.

Refinery margins will follow diverging trends. Due to the International Maritime Organization bunker fuel spec change, refiners processing sweet crudes and making low sulfur fuel oil are expected to produce higher margins than normal. Moreover, diesel crack spreads are expected to gain strength.

This will support margins in sophisticated deep conversion refineries that do not produce high sulfur fuel oil. On top of that, Atlantic basin refineries will continue to show higher margins than most other regions, supported by the poor performance of Latin American and African refiners, which will most likely continue in 2020.

World crude distillation outages(million b/d)

0

2

4

6

8

10

12

DecNovOctSepAugJulJunMayAprMarFebJan

Source: S&P Global Platts

2014-18 range

2019

2014-18 average

2018 final

Oct 1 GRO forecast

2020 forecast

2019 refinery runs have been lower than in 2018, as planned/unplanned outages have been extraordinarily high. In 2020, outages will decrease while additional refining capacity will be commissioned, boosting crude demand significantly.

Kang WuHead of

Asia Analytics

Global CDU capacity additions by year

Source: S&P Global Platts Note: Updated with Q3 2019 data

Forecast(million b/d)

AfricaAsiaEuropeFSULatin AmericaMiddle EastNorth AmericaWorld

-2

-1

0

1

2

3

2020201920182017201620152014201320122011

More from PlattsBlogSpotlight on Shandong’s small independent refiners (Oct 2019)

Special reportTurning tides: The future of fuel oil after IMO 2020 (Feb 2019)

BlogIMO 2020: Are Asian refiners ready? (Sep 2019)

© 2019 S&P Global Platts, a division of S&P Global Inc. All rights reserved.

NGL volumes will continue to grow in North America, particularly on the back of increased natural gas production from the Permian Basin supporting gas processing and NGL recovery over flaring.

Even in the face of lower production on the crude side, natural gas production is expected to grow steadily, resulting in more NGLs at the gas plant.

With limited upside for demand domestically, ethane is expected to stay in rejection. LPG and natural gasoline will likely move to export markets. LPG exports are expected to continue near nameplate terminal capacity throughout 2020.

The product length in LPG may exceed export capacity, in which case, incremental butane — and more so propane — could displace ethane at the steam cracker.

The US-China trade conflict and Saudi supply disruption will continue to impact LPG markets. Chinese buyers, particularly PDH operators, are largely captive to the monthly Aramco contract price, and are likely to continue seeing higher prices due to supply limitations and higher freight costs.

At least three PDH plants are expected to start up in China in 2020 on top of two others set to come online by the end of 2019, representing 118,000 b/d of propane demand.

Freight costs will remain elevated through much of 2020 based on fuel costs surrounding the low-sulfur fuel restrictions as well as limited new ship capacity on the water.

India was a notable surprise for LPG demand in 2019, taking cargoes at a steady rate from the US and Middle East to support domestic fuel use.

The government of Prime Minister Narendra Modi announced it had met its target of 80 million new households with LPG infrastructure in September 2019, and 2020 demand will hinge on the ability of the government to support the market at low retail prices.

To that end, an influx of investment in LPG receiving terminals (over 12 million mt/year) and distribution pipelines (over 14 million mt/year) will support fuel-use LPG in India.

US LPG exports(million b/d)

0.0

0.5

1.0

1.5

2.0

Oct-19Sep-19Aug-19Jul-19Jun-19May-19Apr-19Mar-19Feb-19Jan-19

Source: S&P Global Platts Analytics

AfricaAsiaCaribbeanIndiaLatin AmericaMediterraneanNorthwest EuropeUndetermined

Production gains, driven by unconventional growth in North America, will keep NGL markets well supplied in 2020, while infrastructure projects will support increased exports into world markets, which have shown sufficient appetite to take up more LPG.

Andrew NealManager,

Global NGLs Analytics

Forecast

US Gulf Coast LPG exports, terminal capacity(million b/d)

0.0

0.5

1.0

1.5

2.0

2020201920182017201620152014201320122011

Propaneexports

Butaneexports

USGC terminalcapacity

Source: S&P Global Platts Analytics

© 2019 S&P Global Platts, a division of S&P Global Inc. All rights reserved.

The projected 32 Bcm growth rate in 2020 LNG supply will be the slowest in the past five years, but will still be large enough to stretch the market’s ability to consume it. LNG demand growth will not occur at a fast enough pace in 2020 to absorb all of this incremental supply unless it is priced low enough to do so. This mismatch will force down spot prices to clear demand at lower levels in order to push additional LNG into the power generation sector. Otherwise, even more LNG will end up in seasonal gas storage.

Additional LNG volumes coming from the US will primarily push their way into European markets unless price signals in Asia attract larger volumes during peak demand periods. In the second and third quarters of 2020, more and more LNG will find its way into European gas storage as a buyer of last resort. Within this context, the need to access more Ukrainian storage capacity will continue to build.

To release pressure on Europe, a major policy change or weather event would need to occur in order to spur additional LNG demand in Asia than is currently forecast. Candidates for such an event include China forcing more coal retirements, Japan extending restrictions on recovery in nuclear output, or India lowering pipeline tariffs, which would make inland LNG consumption more financially palatable.

LNG markets will need to watch Russian gas marketing policy closely, as it continues to evolve at both a commercial and structural level. Russia will continue to push more gas production into the market during gas injection season and also green-light additional final investment decisions (FIDs) on future pipeline and LNG export projects.

More broadly, additional FIDs on new global LNG production capacity will move ahead without being connected to long-term contracts with end-users. The LNG market will need to respond more broadly by incentivizing additional investment in LNG use and gas demand.

Forecast

Year-on-year change in LNG supply

Source: S&P Global Platts Analytics

-50

0

50

100

150

202020192018201720162015

(million cu m/d)

-50

150

Africa

Asia Pacific

Middle East

North America

Other

The surge in new LNG supply

will finally come to an end by

the middle of 2020, but not

before it risks pushing down

spot prices to lower levels for

an extended period.Ira Joseph

Head of Global Gas and Power Analytics

New LNG supply investments surge in 2019

Source: S&P Global Platts Analytics

0

50

100

150

20192018201720162015201420132012201120102009200820072006200520042003200220012000

(Bcm/year)

US capacity FIDs

Other capacity FIDs

AnnouncedQatari expansion

More from PlattsSpecial reportNew horizons: The forces shaping the future of the LNG market (Jul 2019)

VideoAsia LNG stocks: High storage levels yield low spot buying potential (Oct 2019)

InfographicEurope’s balancing role challenged by fundamentals (Aug 2019)

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What is somewhat different about next year is that the demand-laden imbalance will not create a bullish situation for Henry Hub.

On top of the excess supply, which has pushed storage levels above the five-year average, the price of Henry Hub will be forced to stay in a range that will support a continual rise in the dispatch of US LNG cargos.

This emerging connection to European and Asian gas markets will place a ceiling on any sustained Henry Hub rallies in 2020.

Over 50% of US demand growth in 2020 will come from LNG feedgas, as the next 12 months will be a pivotal period for the LNG export capacity buildout. Total LNG capacity will increase by 3.0 Bcf/d and push LNG feedgas to 11.3 Bcf/d by December 2020. Europe already has record level storage inventories caused by the region absorbing excess LNG supply.

If Europe is not able to draw down on storage inventories this winter, the region will not be able to absorb excess volumes in 2020 and this could cause the spread to tighten between Henry Hub and the Dutch TTF.

S&P Global Platts Analytics still expects LNG feedgas utilization to average around 93% in 2020, similar to 2019, supported by positive netbacks. Other demand outlets offer limited upside risk despite weak prices.

On the flip side, production growth in 2020 will drop to a three-year low, largely driven by weak futures prices and tighter financing terms.

The 2020 Henry Hub calendar strip has struggled to rise above $2.50/MMBtu for most of 2019, resulting in an inability for producers to hedge at a level above the average breakeven prices for most dry gas basins.

These prices make it hard to justify dry gas drilling next year. Most gas production growth will come from associated volumes in the oil-rich Permian Basin, although delays in pipeline infrastructure will limit the ability of this gas to flow to primary downstream markets.

US production growth (December vs January)

Source: S&P Global Platts Analytics

(Bcf/d)

0

2

4

6

8

10

12

2020 (forecast)201920182017

For the first time since 2016, demand growth will exceed production growth in 2020. Fueled by feedgas into LNG export facilities, overseas exposure will upend historical pricing norms for Henry Hub, as North American balances go global.

Anne Swedberg-RobbaHead of Americas

Gas & Power Analytics

2020 fundamentals compared to 2019

Source: S&P Global Platts Analytics

2020 vs 2019 change (Bcf/d)

-1 0 1 2 3 4 5 6 7

Industrial

Power burn

ResComm

Mexican exports

LNG feedgas

Total demand

LNG sendout

Canadian imports

Production

Total supply

More from PlattsBlogsRapid US natural gas storage injections put pressure on prices (Jul 2019) Mexico’s liberalized natural gas market in an era of nationalism (May 2019)

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The 2020 market will be defined not only by its own bearish drivers but also by the legacy impact of 2019. Mild weather, abundant LNG inflows, and a persistent price contango during 2019 created a strong incentive for storage injections, such that 2020 will start with stocks well above the five-year average at close to full capacity.

Exacerbating this oversupply dynamic from 2019 will be the fact that winter 2020 will see not only continued resilience in US LNG inflows but also more Norwegian production. As winter turns into summer, the impact of these marginal volumes will lessen but remain key drivers, as will potentially faltering Asian LNG demand incentivizing greater LNG flows into Europe. Factors mollifying the excess of supply over demand will include the later-than-

expected start-up of the Nord Stream 2 pipeline, and the yet-to-be determined outcome of the Russia-Ukraine transit negotiations, which expire on January 1. Renewed Russian gas flow restrictions on Germany’s Opal pipeline will also constrain Russian gas flows in Central Europe. Driven by policymaking, dramatically reduced Dutch flows from the Groningen field and at least a 7 million cu m/day decline in Russian imports will help prevent the oversupply situation from worsening. Additional coal/lignite-to-gas switching will also be triggered and provide minor demand-side respite from additional downward price pressure. Any demand-side response to weaker spot prices will be largely limited to the power sector.

Market saturation and a weaker macroeconomic outlook limit demand growth elsewhere. If Asian LNG demand does not recover in 2020 from its relative lull in 2019, additional incremental LNG volumes from the US will push their way into Europe during the second and third quarters. Europe cannot repeat its 2019 role of storing 40% of incremental LNG supply in 2020 due to a lack of incremental storage capacity, so it is important to focus increasingly on the Asian gas demand outlook as a primary driver of European price.

Northwest Europe 2020 storage balance drivers

Source: S&P Global Platts Analytics

-15

-10

-5

0

5

10

15

20

Storagebalance

Demandchange

Net supplychange

Supply sourcesY/Y change

(Bcm)

-15

-10

-5

0

5

10

15

20

LNG

NCSUKCS

Exports

Other

Russia

Netherlands

With demand fragile, storage at record high levels, and bloated supplies seemingly paying little heed to market fundamentals, 2020 is shaping up to be a continuation of the weak price environment that characterized most of 2019.

Andrew HillHead of EMEA Gas and

Power Analytics

Northwest Europe gas stocks

Source: S&P Global Platts Analytics

Max capacityGY-19GY-19forecast

GY-18

Five-yearavg

0

10

20

30

40

50

SepAugJulJunMayAprMarFebJanDecNovOct

(Bcm)

Five-year range

More from PlattsPodcastGECF gas exporters summit to take place in Equatorial Guinea (Nov 2019)

BlogHow big oil’s bet on gas turned sour: Fuel for Thought (Aug 2019)

InfographicEast Mediterranean natural gas: A rising supply source for Europe on its doorstep (Mar 2019)

© 2019 S&P Global Platts, a division of S&P Global Inc. All rights reserved.

Weather-adjusted grid-level demand for electricity in 2020 will stay flat in most of the US and Canada. The US Gulf (especially ERCOT) and Mexico will likely see meaningful growth driven by industrial and population growth. Continued energy efficiency gains, “behind-the-meter” generation growth and trade issues are going to limit load gains in the rest of North America.

With low natural gas prices contributing to challenging economics for coal-fired and nuclear generation, gas burn in the power sector will be higher year on year, despite weak load growth and continued increases in renewable generation. Among nuclear generation units, Indian Point Unit 2 (New York) and Duane Arnold Unit 1 (Iowa), totaling around 1.7 GW of capacity, are slated to retire, with little potential for postponement. Support mechanisms for other struggling coal and nuclear units in the US remain possible after the legality of recent legislative policy measures in Illinois, Connecticut, New York, and Ohio was upheld by courts.

Gas burn in the Mexican power sector is also going to increase in 2020, as new combined cycle plants and new gas pipeline infrastructure enter service. However, a return to more normal hydroelectric generation in 2020 (after the recent low of 2019) is likely to temper some of the year-on-year gas burn growth.

While ambiguity remains around PJM Capacity Market rules, smaller load growth, lower cost of new entry, and narrower reserve requirements point to weaker prices in the upcoming auction. Downward revisions to the PJM load forecast and the policy support for nearly 7 GW of distressed capacity in western PJM point to additional obstacles for new entry. Similarly, in ISO-NE, an update to the Installed Capacity Requirement will shift the demand curve inwards, leading to a lower clearing price forecast.

Reserve margins are forecast to be robust (over 15%) in most of North America, with the exception of ERCOT. As a result, prices in Jun-Sep 2020 could be strong in ERCOT.

Summer 2020 reserve margins by region

Source: S&P Global Platts Analytics

(%)

0

5

10

15

20

25

30

ERCOTSoutheast USSPPMISONYNew EnglandPJM

NERCstandard

Reservemargins

Weak load growth in North America (except West South Central US and Mexico) will limit price upside in 2020. Gas burn will still grow, due to sub-$3/MMBtu prices, new gas-fired generation build will slow and renewable generation will increase.

Manan AhujaManager, North American

Power Analytics

2020 capacity retirements and additions by region

Source: S&P Global Platts Analytics

(GW) Retirements Additions

-3 -2 -1 0 1 2 3 4

WECC (ex CA)

SPP

SERC

PJM

NYISO

MISO

ISONE

FRCC

ERCOT

CAISO

-3 4

Coal

Gas

Hydro

Nuclear

Oil

Other

Solar

Storage

Wind

More from PlattsPodcastEnVision Forum fosters dialogue on fuel transitions (Oct 2019)

BlogUS Northeast power markets are unwell. What’s next? (Sep 2019)

InfographicMultitude of California energy market challenges stoked by summer heat (Jul 2019)

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Combined wind and solar generation in the major western European markets is expected to grow by around 10% year on year in 2020, with Spain seeing particularly robust capacity gains in response to policy incentives.

Building on an emerging trend in 2019, power demand across western Europe is expected to remain weak in 2020. Economic slowdowns weighted to Germany and the UK have compounded the effects of energy efficiency improvements and reducing industrial energy intensity. Overall, S&P Global Platts Analytics forecasts power prices to fall by 10% in 2020, underpinned by lower demand, growth in renewables, and pressure on fuel prices. In most markets, gas use in power will remain well supported versus coal in 2020, reflecting strong carbon prices and lower gas prices.

Though changes in coal, gas and carbon market prices in 2020 will signal a retreat from record gas generation posted this year, we still expect European

gas prices to fall to levels needed to trigger near maximum coal-to-gas switching again next summer.

However, the Great Britain market will see a downturn in gas running – by around 30% for next summer vs Summer 2019. The higher carbon price in Great Britain means coal has already been priced out for summer (three coal plants will close this winter), and the start of a new interconnector (ElecLink) with France in early 2020 will favour higher imports over domestic gas. However, any change in Great Britain’s carbon cost structure after Brexit will impact its power premium to neighboring markets.

Germany’s lignite fleet will come under further pressure from high carbon, low gas, and environmental restrictions on mining, and should again produce a repeat in turndowns of output witnessed for the first time this year. French nuclear generation – one of the biggest drivers of European power prices – is forecast to be relatively robust in 2020, though we expect to see more use of downward flexibility, which has allowed France, unlike its neighbors, to avoid experiencing negative prices since June 2019.

French nuclear flexibility increases in Summer 2019

Source: S&P Global Platts Analytics

(GW)

20

30

40

50

60

Sep-19Aug-19Jul-19Jun-19May-19Apr-19Mar-19

2019Range 2012-18

Falling top-line demand and continued growth in renewables will lower prices and squeeze the operating space for thermal generation in European power markets during 2020, though gas will continue to outcompete coal for the remaining market share.

Glenn RicksonHead of European Power

Analytics

Forecast

Western European power supply 2017-2020

Source: S&P Global Platts Analytics

(GW)

0

50

100

150

200

250

300

Q3-20Q1-20Q3-19Q1-19Q3-18Q1-18Q3-17Q1-17

Nuclear

Wind

Solar

Hard coal

Gas

Other

Lignite

More from PlattsInfographicFrench nuclear stutters through Q4 (Nov 2019)

VideoInsight Conversation with Erik Nygard, Limejump CEO (May 2019)

BlogAs demand for “green” power soars, utilities turn to Guarantees of Origin (Aug 2019)

© 2019 S&P Global Platts, a division of S&P Global Inc. All rights reserved.

While solar photovoltaic additions remain the go-to technology in terms of annual installations, the pace of development continues to face uncertainties. In spite of a fairly large amount of capacity awarded through competitive auctions in 2019, official statistics continue to point to sluggish solar PV capacity growth, especially in China, the major market for solar PV. Growth elsewhere in the US and Europe has, so far, not accelerated to the extent that makes up for the declines in Chinese growth. A slowdown in wind capacity additions is also on the cards.

In this context of enhanced uncertainty for renewables development, S&P Global Platts Analytics continues to see renewable and hydro growth in 2020 accounting for slightly more than half of the power demand growth globally (up 2.8% year on year), leading to an additional call on conventional capacity.

After posting strong growth in 2019, nuclear will continue to trend higher globally in 2020, largely as a result of China’s ambitious newbuild program. Platts Analytics also forecasts a relatively large increase of 50 TWh in nuclear power generation for 2020 in South Korea. The boost in generation comes from new reactors and restarts at existing units after prolonged maintenance related to earthquake safety issues. Japanese nuclear output will be slightly below 2019 levels, as work related to terror-proofing affects availability.

Coal-fired generation continues to shift from the West to the East, with coal representing an affordable option in emerging countries that have growing electrification needs. In Southeast Asia, power demand growth is well above global trends, leading to higher coal use. As large coal retirements take place in the US and Europe, coal will continue to be built in Asia.

In LNG importing countries across Asia, coal is also particularly sticky, but the key question will be to what extent policy actions in response to air quality or other pollution concerns will further undermine coal usage.

Forecast

Power sector transition: renewables additions slowing...

Note: 2019 is a preliminary estimate

Source: IRENA, S&P Global Platts Analytics, S&P Global Market Intelligence World Electric Power Plant Database

GW (total added globally)

0

50

100

150

200

2020201720142011200820052002

Solar

Wind

Hydro

Forecast

...but outpace fossil fuel new buildsGW (total added globally)

0

50

100

150

200

2020201720142011200820052002

Nuclear

Coal

Gas

Oil

Note: 2019 is a preliminary estimate

Source: IRENA, S&P Global Platts Analytics, S&P Global Market Intelligence World Electric Power Plant Database

Renewables additions are stalling, while thermal generation needs continue growing across the globe. Uncertainty remains around policy actions targeting unabated coal plant growth in emerging markets.

Bruno BrunettiHead of Global Power

Planning Analytics

More from PlattsNewsAnalysis: China’s coal addiction is too deep to quit too soon (Nov 2019)

PodcastsGlobal US and solar outlook: Uncertainties and market impacts (Nov 2019) Solar PV growth slows as sector transitions to new phase (Sep 2019)

© 2019 S&P Global Platts, a division of S&P Global Inc. All rights reserved.

Coal prices were down by roughly a third on the year at their lowest point of 2019, as coal had to compete with weakening natural gas in Europe. Coal demand growth also slowed in China. Producers ramping up during the previous bull market left global coal markets in oversupply despite blistering growth in Southeast Asian imports and solid coal demand in India.

Chinese coal demand growth should rebound from very low levels in 2019, but growth will be limited by stagnant power demand growth, as the economy continues its shift from manufacturing, and GDP growth shifts into a lower gear. Higher-than-normal coal stockpiles at the start of the year and slowing hydro generation growth will keep downward pressure on coal demand. China’s own domestic coal production (over half the world’s coal output) is rebounding due to industry restructuring, which presages falling import demand by the world’s largest thermal coal importer.

In Europe, abundant gas supply is expected to keep European gas storage nearly full and prices constrained. With weaker gas prices, we may again see the coal-gas switching channel (the range of coal plants displaced if gas plants are cheaper to run) maximized next summer, as was the case in 2019. Even low-cost lignite generation is at risk of being displaced. While we reassert our standing view that US and Colombian exporters will pull back from selling into 2020 seaborne markets due to a lack of price support, signs are emerging that Russian coal exporters are seeking to grow market share in both the Atlantic and Pacific basins, which will drag on prices.

While we expect continued brisk growth in Southeast Asian coal imports in 2020 to soak up some of the current oversupply in the market, we believe that additional production cutbacks will be needed to bring the market back into equilibrium. The potential is there to see consolidation and reorganization in the Indonesian coal industry next year, but until major cutbacks from global miners emerge, a bearish stance on coal prices remains.

Forward coal pricing (Cal-20 contract history)

Source: S&P Global Platts Analytics

($/mt)

FOB Newcastle (Australia)

FOB Richards Bay(South Africa)

FOB ARA (Europe)

60

70

80

90

100

110

Nov-19Sep-19Jul-19May-19Mar-19Jan-19Nov-18

After a bull market that ran from 2016 to 2018, global coal prices appeared to bottom out by the third quarter of 2019. Looking out to 2020, we remain cautious regarding any significant rebound. Overall global demand lacks upside signals.

Joe AldinaManager,

Global Coal Analytics

China raw coal output and year-on-year change

Source: S&P Global Platts Analytics

Forecast

Total output (billion mt) Year-on-year change (%)

0

1

2

3

4

5

20202019201820162016201520142013201220112010-30

-20

-10

0

10

20

More from PlattsPodcastPlatts SEAT to cater to growing coal demand in Southeast Asia (Sep 2019)

InfographicTurkish coal-fired plant expansion stalls, with 70 GW shelved since 2009 (Aug 2019)

BlogBooming Asian coal demand to drive exports from North America’s West Coast (Oct 2019)

© 2019 S&P Global Platts, a division of S&P Global Inc. All rights reserved.

Ethylene cracking margins throughout 2020 are once again expected to favor light feedstocks, particularly propane and butane (LPG), owing to the growing surplus in North American NGLs, which has created a supply push into the global market.

To take advantage of these margins, the ethylene cracker fleet outside North America will operate at maximum LPG feedslates, while North America will continue to consume ethane-heavy feeds.

Cracking of ethane in North America has resulted in an oversupply of ethylene and polyethylene. Entering 2020, new ethylene export capacity located along the US Gulf Coast will commence operations.

The capacity will allow for ethylene to be exported primarily to Asia, narrowing the wide open arbitrage opportunity between the two regions.

Coincidentally, light paraffinic naphtha supplies will be tight, as refiners adjust yields to meet marine gasoil demand upon the implementation of the 0.5% sulfur limit for marine fuels on January 1, commonly known as IMO 2020. With this yield shift, refiners are expected to operate their fluid catalytic cracking (FCC) units at lower severity (maximum distillate mode), which reduces the supply of refinery grade propylene (RGP) by up to 15% and could incentivize higher utilization rates for propane dehydrogenation (PDH) units to produce on-purpose propylene.

Shifting cracker feedslates away from light naphtha will reduce the production of butadiene and aromatics such as benzene, toluene, and xylenes (BTX) at these units. However, new Chinese refinery-to-petrochemicals projects, including Zheijiang’s Rongsheng and Sinopec-KPC’s Tlajin, are slated to start operations in 2020 and will more than compensate for the lower aromatics supply from ethylene crackers.

These projects will bring roughly 4 million mt/year of incremental aromatics supply to the Asian market to support production of polyester for use in polyethylene terephthalate (PET bottles) and fibers.

Forecast

Global ethylene feedstock demand(million b/d)

0

2

4

6

8

10

12

2021202020192018

Source: S&P Global Platts Analytics

NaphthaEthanePropaneButane

The flexibility of the global petrochemical fleet will be tested in 2020, with more light feeds coming to the market, while naphtha supplies will tighten due to refinery yield shifts.

Jennifer van DinterHead of NGL and

Petrochemical Analytics

Forecast

PDH fills the FCC yield shift in 2020Operating rate (%)

70

75

80

85

90

20212020201920182017201620152014

Source: S&P Global Platts Analytics

PDH

FCC propylene

More from PlattsSpecial reportsPlastics recycling: PET and Europe lead the way (Oct 2019) A sea of challenges: The impact of IMO 2020 on petrochemicals (May 2019)

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For the 12 months ended September 1, 2017, China imported 94 million mt of soybeans, a volume which until then had sustained growth of 3% a year. By the end of September 2019, imports were down to 83 million mt as China admitted its hog herd had been infected by ASF, a disease with a 100% mortality rate.

With Chinese imports down 12% in 24 months, US exports fell 20% over the same period as non-China buyers could not make up for the loss in demand. In 2020 demand for soybeans will be flat as ASF continues to spread in Asia.

Peronism staging a comeback in Argentina could reduce supply from the world’s leading soy meal supplier and also contribute to rising soy oil prices.

Barring a major weather event, Brazil will produce 125 million mt of soybeans in 2020, a record high, while US plantings add considerable acreage after a

rough 2019 planting season. Excess global supplies of the oilseed will total over 100 million mt resulting in a $9.00-$9.40 a bushel forecast.

Corn has demand woes of its own. Ethanol faces an uncertain future after 19 ethanol plants in the US were shuttered in 2019 due to strong cash markets in the east from delayed plantings, along with weak demand.

Survival of the fittest will continue to be the theme for ethanol in 2020, given uncertainty around government mandates.

Global import demand in 2020 is expected to be 167 million mt, up almost 5% from 2019, but given increased competition from Brazil, Ukraine, and others, US exports are expected to be 20% lower than in 2018.

At just over 300 million mt, global supplies of corn in 2020 will set a three-year low. Chinese demand for corn, non-existent of late given abundant domestic supply, will play a key role in pricing, with an expected range in 2020 of $3.60-$3.80/bu, up slightly from 2019 and 10% higher than in 2018.

Soybeans trade flow

Source: S&P Global Platts

Producers

Importers

ASF countries

The proliferation of African swine fever in Asia remains the biggest factor weighing on global demand for soybeans, even though the two-year trade dispute between China and the US has been grabbing the headlines.

Peter MeyerHead of Grain and Oilseed Analytics

S&P Global Platts Soybex CFR China

Source: S&P Global Platts

350

370

390

410

430

Nov-19Sep-19Jul-19May-19Mar-19Jan-19

($/mt)

More from PlattsInfographicChina’s African Swine Flu crisis and the global soybean trade (May 2019)

NewsChina’s soybean imports from Argentina spike amid trade tensions with US (Nov 2019)

PodcastBulls, bugs and beans: dry freight markets in Q2 and Q3 (Jul 2019)

© 2019 S&P Global Platts, a division of S&P Global Inc. All rights reserved.

By contrast, world biofuel production is projected to increase by 118,000 b/d to only 2.8million b/d in 2020. The rise in the US, the largest consuming market, is expected to be relatively small, with more robust growth forecast for Asia, Brazil, and Europe. Ethanol accounts for around 70% of total biofuel output and is projected to grow 73,000 b/d to 2.0 million b/d by 2020 and to account for 7.6% of the world gasoline pool. Over 80% of the world’s ethanol is currently produced in the US and Brazil.

Biomass-based diesel output is expected to grow by 45,000 b/d to 862 million b/d in 2020, making up about 4.1% of the world diesel market. Europe is the dominant consumer, but similar to ethanol, the Asian market is growing at a faster pace.

In the US, both ethanol and biomass-based diesel demand will remain relatively unchanged at 944,000 b/d and 167,000 b/d respectively for 2020. The only segment expected to grow faster is renewable diesel made from the

hydrogenation of fats and oils. Several new renewable diesel facilities are expected to come online over the next two years.

Brazil is the second largest ethanol producer after the US and produces nearly all of its ethanol from sugarcane. Though corn ethanol represents only 4% of total production, its growth has been exponential and is expected to continue in the medium term. Fuel price reform in July 2017, along with higher crude prices, has completely transformed the dynamics of the sugarcane industry and has led to a dramatic change in the ethanol fuel mix. This trend is expected to continue into 2020 and could become the norm in light of the implementation of the RenovaBio program to boost the use of biofuels at the expense of fossil fuels in 2020.

China alone will account for 27% of incremental biofuel demand in 2020 with demand increasing by 42,000 b/d to 126,000 b/d. S&P Global Platts Analytics forecasts an implied ethanol blend of only 3.5% in gasoline.

Falling corn inventories, high import tariffs on US ethanol, and the slow rollout of new capacity will prevent China from meeting its 10% mandate in 2020.

US renewable diesel production

Source: S&P Global Platts Analytics *Forecast

0

10

20

30

40

2020*2019201820172016201520142013201220112010

(’000 b/d)

Biofuels demand will grow by an extra 156,000 b/d to 2.9million b/d or 5.9% of the road transportation fuel market in 2020, compared with 5.7% in 2019. About 87% of total demand now comes from government mandates and this share is expected to remain high for years to come.

Patricia LuismansoHead of Sugar and Biofuel

Analytics

World biofuels demand

Source: S&P Global Platts *Forecast

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2020*20192018201720162015201420132012201120102009

(million b/d)

More from PlattsPodcastRenovaBio puts ethanol under the spotlight at Sao Paulo sugar week (Nov 2019)

NewsIEA raises global biofuels forecast as China expands ethanol support (Oct 2019)

BlogEurope, US aim to boost ethanol share in gasoline, but obstacles remain (June 2019)

© 2019 S&P Global Platts, a division of S&P Global Inc. All rights reserved.

S&P Global Platts Analytics expects a ramp-up of electric vehicle sales in the EU in 2020, which would reduce manufacturer exposure to fines in the first year of the new EU Vehicle Standards. After a slower 2019 (given shifting policies and auto sector weakness), China’s New Energy Vehicle Mandate will ramp up in 2020, driving EV adoption. Providing headwinds, China will likely phase out consumer EV purchase subsidies by year-end 2020.

The stage is set for growth of battery storage in 2020. Some 70 GW of batteries have requested interconnection across the US, as FERC Order 841 will provide more clarity on revenue models. Solar plus storage will be competitive in select regions, supported (for now) by federal investment tax credits. Residential solar plus storage installations in Germany are accelerating, as customers decrease reliance on the grid. South Korean battery storage will look to recover from a 2019 beset by fires and safety concerns.

2020 could be a banner year for versatile use of hydrogen. The Japan Olympics will see $350 million allocated for subsidized fuel cell electric vehicles in addition to plans to power a residential Olympic village. Greater hydrogen uptake will drive cost reductions. Germany continues to test injection of hydrogen into the natural gas grid – as low-carbon hydrogen could help integrate renewables and decarbonize key sectors of the economy.

Expiring tax credits in the US are impacting EVs and renewables, and the federal government continues to roll back environmental policies. States and regions are countering by driving new efforts and setting goals of 100% clean power. Existing environmental markets (EU ETS, WCI, RGGI, LCFS, and RECs) continue to face challenges as they shift to more stringent phases.

US presidential elections will command a lot of attention – but special care should be paid to the US Senate, which historically has dampened dramatic shifts in policy. All eyes will be on the planned launch of China’s national carbon pricing effort. Paris Agreement commitment updates will also be communicated in 2020, as the US formally withdraws.

US Senate seats up in 2020

Source: S&P Global Platts Analytics

RepublicansDemocrats

Energy sector policies ebb and flow – with changes in subsidies, tax incentives, carbon pricing (and elections ahead in the US). But the trends toward more competitive clean technologies continue.

Roman KramarchukHead of Energy Scenarios,

Policy and Technology Analytics

Plug-in passenger light duty electric vehicles sold (BEV + PHEV)(’000 vehicles)

0

50

100

150

200

250

300

Sep-19Mar-19Sep-18Mar-18Sep-17Mar-17Sep-16Mar-16

Source: S&P Global Platts Analytics

US

EU-28

China

South andSoutheast Asia

Japan

Other OECD

Other non-OECD

More from PlattsPodcastsStationary storage market today and expectations for the future (Nov 2019) Democrats’ fracking ban proposal already having impact on US energy investment (Oct 2019)

BlogAlternative tech could dent diesel demand in US road freight sector (Sep 2019)

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PLATTS 2020 OUTLOOKDigital Content Leader: Mark Pengelly

Quality and Digital: Alisdair Bowles, Jon Dart, Felix Fernandez, James Leech

Design and Production: Martina Klančišar

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Timeline Contributors: Abache Abreu, Jared Anderson, Rocco Canonica, Christopher Davis, Henry Edwardes-Evans, Stuart Elliott, Joe Fisher, Andreas Franke, Siobhan Hall, Yi-Jeng Huang, Paul Hickin, Jack Jordan, Diana Kinch, Jasmin Melvin, Jeffrey McDonald, Luke Milner, Jeff Mower, Anthony Poole, Philip Reeder, J Robinson, Rohan Somwanshi, Jeff Ryser, Eric Su, Keith Tan, Herman Wang, Frank Watson, Harry Weber, Oceana Zhou

2019 REVIEW AND 2020 OUTLOOK

S&P Global Platts Analytics customers will have access to a more detailed, cross-commodity review of 2019 and outlook for 2020 through their subscriptions.

With a focus on forecasting global energy market fundamentals and prices, Platts Analytics digs deeper into the stories, numbers and trends that drive prices, helping customers understand where markets are headed.

If you’d like to learn more about Platts Analytics and the outlook for 2020, please contact your Platts sales representative or email sales.platts.analytics@spglobal.com.

2018 REVIEW AND 2019 OUTLOOK PLATTS ANALYTICS SPECIAL FEATURE December 12, 2018

EXECUTIVE SUMMARY

2018 Review

Global energy demand remained robust over 2018, as the global economy continued to grow at about trend rates with industrial activity growing in almost all economies, fuller employment resulting in greater consumer purchasing power, and infrastructure spending (particularly in US and China) boosting demand. Lower oil prices in 2017 and early 2018 helped to stimulate healthy demand growth. 2018 marked the first year where annual global oil demand surpassed the 100 MMB/D mark, rising by over 1.6 MMB/D from 2017 levels to reach 101.2 MMB/D. While China remained one of the key drivers of global oil demand growth coming in at just under 0.5 MMB/D in 2018, its demand growth slowed from over 0.7 MMB/D in 2017. Demand growth in the US accelerated to 0.6 MMB/D from 0.3 MMB/D in 2017, surprisingly claiming the top spot for oil demand growth.

LNG markets further came of age in 2018 with Platts JKM increasing in liquidity along with strong demand from China as it increasingly pushed its industrial and residential sectors to cleaner burning gas rather than coal. With rising oil prices, Platts JKM rose to oil parity pricing during peak demand in the winter months (helped by cold weather this year), and fell to coal parity pricing in Europe during the shoulder months as LNG needed to compete with coal in the power sector. JKM prices peaked in the summer at over $12/MMBtu further supported by an unexpected increase in unplanned shutdowns or delay in start-up of liquefaction capacity (including US, Nigeria, Malaysia, and Australia).

Early in the year, the “Beast from the East” cold snap in Europe sent local gas demand skyrocketing, with system reliability in some markets saved only by unusually strong wind output and a modest rebound in coal-fired generation. During the summer, European gas prices again surged as the strong demand from Asia diverted cargos and incentivized reloads out of Europe, tightening supply and incentivizing increased utility coal demand. This in turn helped support European carbon prices, which were already on the upswing given the upcoming supply cuts related to the Market Stability Reserve implementation in 2019. In the US, natural gas prices at Henry Hub stayed flat lined below $3/MMBtu for the majority of the year as strong production significantly supported by associated gas from Permian oil production growth offset significant increases from LNG export growth and demand from utilities as a result of increased coal generation retirements. Despite this, global thermal coal market enjoyed multi-year bullish cycle on demand strength driven by Europe and China resulting in a resurgence in coal exports.

Footer : Never change the footer text on individual slides. Change, turn on or off footer by using Data color order: Complimentary colors:

Commodities Index, June 2018 – Dec 2018

Source: S&P Global Platts

JKM

EUA

CoalBrent

Henry Hub

50

100

150

200

Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18

Index: Jun-18 = 100

JKMNBP

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