THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.
Germany Oil & Gas Key View
- 23 Jun 2022
- Oil & Gas
Key View: We have made a further substantial downwards revision to Germany’s natural gas consumption forecast and now expect it to fall 12.0% in 2022, rather than 6.0% as previously forecast. As relations between Germany and Russia sink, Russia has constrained gas supplies through all routes, including the previously untouched Nord Stream 1. Germany has leased four FRSU terminals, leading to us to alter our gas trade forecast to 15.0bcm of LNG imports in 2023, up to 23bcm in 2024. We are increasingly bearish on the outlook for the downstream sector in Germany, as refined fuels are unlikely to rebound strongly in 2022 due to high prices at the pump, whilst high refining margins may pose some upside to production. In the longer term, refined fuels demand will be squeezed by regulation to decarbonise and penetration of electric vehicles.
Headline Forecasts (Germany 2020-2026)
|Indicator ||2020 ||2021 ||2022f ||2023f ||2024f ||2025f ||2026f |
|Crude, NGPL & other liquids prod, 000b/d ||136.8 ||135.2 ||130.1 ||125.3 ||120.6 ||116.1 ||111.5 |
|Dry natural gas production, bcm ||5.1 ||4.9 ||4.7 ||4.4 ||4.2 ||4.0 ||3.8 |
|Dry natural gas consumption, bcm ||91.3 ||93.7 ||88.1 ||86.3 ||84.6 ||82.9 ||81.3 |
|Refined products production, 000b/d ||1,961.9 ||1,960.0 ||1,999.2 ||1,991.1 ||1,982.9 ||1,974.8 ||1,966.7 |
|Refined products consumption & ethanol, 000b/d ||2,314.0 ||2,305.7 ||2,329.5 ||2,308.5 ||2,287.8 ||2,267.3 ||2,247.1 |
|Brent, USD/bbl ||43.21 ||70.95 ||100.00 ||90.00 ||85.00 ||88.00 ||88.00 |
|e/f = Fitch Solutions estimate/forecast. Source: BVEG, JODI, EIA, Fitch Solutions |
Latest Updates And Key Forecasts
- On June 14 2022, Gazprom announced that it was reducing flows through Nord Stream 2 by 40%, to less than 100mcm/d. Gazprom stated it was making the move due to technical issues, one of which was the failure of Siemens AG to return the gas pumping units that were off for repair. Whilst Gazprom blamed western sanctions for the failure to return the units, German officials suspected a political motivation for the move. On June 16 2022, Gazprom went further and stated that flows would be reduced to a maximum of 67mcm/d and blamed another technical reason.
- Germany, in response to the Russian invasion of Ukraine, has signed leases for four floating storage and regasification (FRSU) facilities, two of which are expected to be online by the end of 2022 and two by early 2023. The combined capacity of these facilities is almost 30bcm. Further land based LNG facility proposals are still in the works.
- We have further revised down our forecast for Germany's natural gas consumption to -12.0% in 2022, from -6.0% previously. Natural gas supplies from Russia are constrained on all routes as Russia seeks to crank up the pressure on Europe's energy markets.
- Germany has used new legislation to force the countries largest natural gas storage facility, Rehden, which was owned by Gazprom, to accept injections into gas storage. The facility had been hovering around 2% full, after Gazprom refused to accept injection.
- Germany has passed legislation that requires gas storage to be 80% full by October 1 and 90% full by November 1, which may drive extreme price movements towards Q322 to attract the necessary volumes of gas to meet this requirement.
- We maintain our forecast of 2.0% decline in Germany’s gas consumption from 2023-2031, as Germany accelerates the energy transition in a bid to become independent of Russian gas imports. Significant policy shifts in the EU and Germany have led to us viewing Germany’s medium-long term consumption forecast as increasingly bearish.
- German Chancellor Olaf Scholz announced on February 22 2022 that the certification process for Nord Stream 2 (NS2) - the controversial natural gas pipeline that bypasses central Europe - will be halted. The announcement came in response to Russian President Vladimir Putin recognising the independence of the self-proclaimed pro-Russian Donetsk and Luhansk People's Republics in Eastern Ukraine. It is our view that the pipeline is effectively dead.
- Our Power Team notes that the German Vice-Chancellor, Robert Habeck, has sought to accelerate the tabled Renewable Energy Sources Act so that it can be realised over H122. This will see binding legislation for 80% of the market's power generation to come from renewable sources by 2030 and 100% by 2035. In order to achieve this, our Power Team expecst to see suspended cuts to subsidies for some renewable segments, while reform to capacity auctions are being outlined.
- We maintain our refined product consumption forecast at 1.0% in 2022. High oil prices feeding through to the pump will incur some demand destruction, despite a return of some jet fuel demand.
- We have maintained our refined fuels production forecast this quarter at 2.0% due to high refining margins and heavy maintenance affecting refining runs at other European producers.
- We have revised our gas trade forecast to illustrate the increased LNG imports into Germany from the end of 2022 onwards. We have revised up 2022 to 3.0bcm of LNG imports as at least two FRSUs come online by the end of the year. We have revised up 2023 and 2024 to 15.0bcm and 23.0bcm respectively, as these FRSUs ramp up intake of the fuel.
- The LNG facilities are seen by Germany as a key method to reduce its energy dependence on Russia but have been met with some criticism regarding emission reduction goals. To combat this criticism, the planned these facilities would be able to handle hydrogen. We now expect that pipeline imports will account for 52bcm into Germany by 2031, down from over 70bcm previously.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.