Gas and power market analysis

February 2020

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Historically low mid-winter gas prices

Global gas benchmarks European gas benchmarks

PEG = French gas

PSV = Italian gas

PVB = Spanish gas

NBP = British gas

TTF = Dutch gas Source: NYMEX, ICE, Heren, S&P Global Platts ®Futures as of 09/01/2020

• NBP, TTF and JKM have fallen by between 10-20% since Oct-19 and are currently at their lowest winter levels since 2005.

• The drop in prices comes against a backdrop of strong gas supplies into Europe, record high European storage levels, growing LNG supply, lacklustre LNG demand growth in Asia and a new pipeline gas transit deal between Russia and Ukraine.

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20

30

40

2015 2016 2017 2018 2019 2020

€/MWh

PEG PSV PVB NBP TTF

0

2

4

6

8

10

12

14

2015 2017 2019 2021 2023 2025

$/mmbtu

European coal switching Oil parity

HH JKM

NBP TTF

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European pipeline imports recover following summer maintenance

Europe pipeline imports

AlgeriaNorway

RussiaTotal

Source: Official TSO Statistics

• Pipeline flows into Europe increased during 4Q19 following higher imports from Russia and Norway.• Algerian pipeline imports remain low year-on-year.

Total flows are from Russia, Norway, Algeria & Libya; Russia flows are to Central Europe only

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50

100

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350

400

2014 2015 2016 2017 2018 2019 2020

mcm/d

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40

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80

100

120

140

160

2014 2015 2016 2017 2018 2019 2020

mcm/d

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100

200

300

400

500

600

700

2014 2015 2016 2017 2018 2019 2020

mcm/d

4

400

500

600

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800

900

1,000

1,100

2014 2015 2016 2017 2018 2019 2020

mcm/d

Russian gas pipeline transit to Europe

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• Russia and Ukraine signed a 5-year gas transit deal in Dec-19, easing concerns of a potential disruption to Russian flows at the start of 2020. The deal includes 65 bcm/a of transport capacity in 2020 and 40 bcm/a during 2021-2024 (see right chart).

• The Russian TurkStream pipeline saw first gas flows on 01-Jan-20. The two-string pipeline bypasses Ukraine and has 31.5 bcm/a of capacity. Its start-up has led to a switch in flow direction at the Bulgaria-Turkey border (see left chart). Previously, Russian gas was delivered to Turkey via Ukraine and Bulgaria. Since the start-up of TurkStream, Russian gas has been delivered to Bulgaria via Turkey.

• Nord Stream 2: Danish permission to complete the pipeline has been granted. However, uncertainty remains on start-up.

Russian flows through Ukraine

-20

-10

0

10

20

12-Dec 17-Dec 22-Dec 27-Dec 01-Jan 06-Jan 11-Jan 16-Jan 21-Jan

mcm/d

Turkey to Bulgaria

Bulgaria-Turkey border flows

Bulgaria to Turkey

Source: ENTSOG, Official TSO Statistics

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20

40

60

80

100

2012 2014 2016 2018 2020 2022 2024

bcmAgreementHistory

European gas inventories remain significantly above historic levels

N.B. data from GIE does not incorporate all storage facilities in each country, but rather can be used as a proxy for total storage

Source: Gas Infrastructure Europe

• Robust pipeline imports and record high LNG deliveries in 2019 saw European storage levels reach all time record highs in 4Q19, with many individual storage facilities reaching full capacity.

• Continued strong supplies have reduced the need for storage withdrawals so far this winter. • European gas inventories were 21 bcm, or ~33% higher at the beginning of Jan-20 compared to the same time

last year.

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50

75

100

125

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

bcm

11-15 Range 2016 2017 2018 2019 2020

European GIE storage

Germany France

Netherlands Spain

Italy UK

Strong European storage injectionsGermany, France and Spain in particular have sustained high inventories.

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0

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20

25

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

bcm

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5

10

15

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

bcm

5

10

15

20

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

bcm

0

2

4

6

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

bcm

0

5

10

15

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

bcm

11-15 Range 2016 2017 2018 2019 2020

0

1

2

3

4

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

bcm

N.B. data from GIE does not incorporate all storage facilities in each country, but rather can be used as a proxy for total storage

Source: Gas Infrastructure Europe

LNG send-outs remain strong

N.B. data does not incorporate all regasification facilities in Europe, but rather can be used as a proxy for LNG send-outs

Monthly European LNG send-outs

Source: Official TSO Statistics

• During 2019, European LNG send-outs more than doubled year-on-year, as growing global LNG supply and a slowdown of LNG demand growth in Asia resulted in a wave of cargoes heading into Europe.

• After reaching a record ~350 mcm/d in Nov-19, send-outs have retracted, although remain historically high.

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0

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350

400

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

mcm/d

UK France Italy Spain Netherlands Belgium Lithuania Poland Portugal

Cumulative HDDs return to historical average

Europe Cumulative HDDs

Source: BP Analysis

While Nov-19 was colder than average, seasonally mild temperatures since then have brought cumulative HDDs back to historic average levels.

Gas Years

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0

5,000

10,000

15,000

20,000

25,000

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

'04 - '17 2018 2019 Average '04 - '17

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1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Oct Nov Dec Jan Feb

Europe Cumulative HDDs (Enlarged)

Carbon prices stabilise to end 2019 high

EUA carbon futures

Source: ICE

• EUA prices were stable during 4Q19, hovering around €25 per tonne. • Despite volatility earlier in the year, a stable 4Q19 makes 2019 the highest yearly average EUA price ever at

€24.86 per tonne.

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30

2015 2016 2017 2018 2019 2020

€/tonne CO2e

-30

-15

0

15

30

2014 2015 2016 2017 2018 2019 2020

£/MWh

UK power spreads

-30

-20

-10

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20

30

2014 2015 2016 2017 2018 2019 2020

€/MWh

Gas-coal Clean Spark Base Clean Dark Base

German power spreads

Source: Heren, ICE, EPEX, N2EX

Cheap gas and high EUAs send gas-coal spread negative in 2019• Clean Dark spreads have been considerably negative in Germany and the UK during 2019.• German Clean Spark spreads were positive on average in 2019 for the first time in many years.

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Source: gov.uk

UK wind capacity & generation Share of UK electricity generation

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5,000

10,000

15,000

20,000

25,000

30,000

0

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30,000

2012 2013 2014 2015 2016 2017 2018 2019

GWh MW

Onshore Wind Offshore Wind Installed Capacity

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2012 2013 2014 2015 2016 2017 2018 2019

Onshore wind Offshore wind

Shoreline wave / tidal Solar

Hydro Bioenergy and waste

UK Power generation from renewables grows• The share of renewable electricity generation in the UK hit a new high in 3Q19, at 39%, 6% points more than in

3Q18.• Wind capacity and generation continues to grow, with combined onshore and offshore wind power generating

19% of UK electricity in 3Q19.

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