European gas security: longer term supply and infrastructure issues

Transcription

1 European gas security: longer term supply and infrastructure issues Dr Katja Yafimava Senior Research Fellow Natural Gas Research Programme, OIES 6 th UNECE Gas Centre Industry Forum, Geneva, 16 December 2015

2 European gas security: what is it? European gas security: acceptable level of threat of supply and price disruptions, which may arise in any part of gas supply chain (source, transport / transit) due to governmental, contractual, legal/regulatory, and facility risks with the potential to disrupt supply in the short and long term to individual countries and Europe (EU+Energy Community Treaty members) in general, from domestic (EU/EEA) & external suppliers Parts of gas chain: sources (domestic & external); transport/transit infrastructure (pipeline (domestic & external) & LNG); facilities (accident and technical failure) Risks: governmental (political relationships between suppliers, buyers & transit countries); contractual (renegotiation /arbitration/cancellation); legal/regulatory (e.g. EU/EnCT 3 rd Package); facility (e.g. underinvestment, sabotage) Perceptions of threat as well as acceptable levels of threat differ across Europe 2

3 European gas security: longer term supply and infrastructure questions Longer term supply: from where is Europe likely to receive additional gas post-2020? Infrastructure: which new pipelines and LNG terminals are likely to be built and how will they impact on European gas security? Perceptions of longer term gas availability, and security implications of new infrastructure, differ across Europe and impact EU policy making 3

4 European (EU/EEA) gas production Sources: GTS + updates Honoré Source: DECC, March 2015 (dotted line = March 2014) Source: Ministry of Petroleum and energy Norway (92-118) 78 (64-92) UK Netherlands Other Total ( ) 147 ( ) Norway/UK/Netherlands as % of total Sources: National statistics and Honoré/OIES (updated) Norwegian, Dutch and UK will continue to dominate European conventional gas production, which will decline Bcm (about 43%) by EU unconventional gas production is projected by IEA to remain well below 20 Bcm by 2035, hence will have little impact on the decline in conventional production (by 2030) 4

5 Gazprom s Long Term Take or Pay contracts with European customers to 2030 Source: ERI RAS in Henderson and Pirani (OIES 2014) Even at 70% ToP, Gazprom s average annual sales exceed 100 Bcm/year until the mid-2020s 5 5

6 European dependence on Russian gas based on 40 European countries, Source: OIES 2014 Europe overall depends on Russian gas for some 25-28% of demand a healthy share from a commercial point of view NW & SW European countries, which account for more than ¾ of Russian gas exports to Europe, maintain relatively low levels of supply concentration and (mostly) meet the N1 standard But CE, SE, Baltic countries, which account for less than ¼, remain highly dependent and vulnerable: Countries which did not meet the N-1 standard in 2013: Bulgaria, Greece, Lithuania, Estonia, Slovenia, Sweden, Ireland, Luxembourg and Portugal The Supplier Concentration Index (SCI) countries with SCI>30 in 2012: Austria, Bulgaria, Czech Republic, Estonia, Finland, Greece, Hungary, Lithuania, Latvia, Poland, Portugal, Slovakia. Outside the EU, SCI > 30 in 2013: Serbia, Bosnia & Herzegovina, FYROM, Turkey Europe overall is well diversified but the Baltic region, Central Europe, South East Europe are highly dependent on gas from one source Russia, this is problematic, irrespectively of whether viewed from commercial or geopolitical point of view, hence particular attention should be devoted to these regions 6

7 Non-EU/non-EEA non-russian pipeline gas supplies: Southern Corridor: Azerbaijan: 24.4 Bcm maximum by 2020 (half Turkey/half EU); possible increase to 27 Bcm post-2023 but 2015 request for imports from Russia suggests questions about export volumes; Middle East/Central Asia possible post 2030 North Africa: no increase in exports likely by 2020; outlook for 2030 is unpromising unless Egyptian discovery is even bigger than advertised East Mediterranean: 10 Bcm exports of Israeli gas as LNG via Egypt questionable since the Zohr discovery, and pipeline gas to Turkey now unlikely Russian volumes look secure for at least 10 years 7

8 Pipeline gas via the Southern Corridor Source: BP Southern corridor (PCI status, 2015): TAP + TANAP + South Caucasus pipeline TANAP legal/regulatory framework (non-eu/non-enct): Turkish-Azeri IGA & MoU Dispute resolution jurisdiction: Turkish law TAP legal/regulatory framework: Exemption from the EU 3 rd Package Southern Corridor is the major element of the EU supply diversification (route and source)/security policy since the late 1990s and enjoys favourable EU regulatory treatment & political support. However, despite large reserves in potential exporting countries, the only gas which has been contracted is 10 bcm from Shah Deniz 2 8

9 Bcma Global LNG supplies surge: Europe becomes a sink but until when? USA - Golden Pass USA - Jordan Cove USA - Lake Charles USA - Corpus Christi T3 USA-Sabine Pass T5 - T6 USA - Corpus Christi T1& 2 USA - Cameron LNG USA - Dominion Cove Point USA - Freeport USA-Sabine Pass T1 - T4 Russia-Yamal 1 Awaiting FID Australia-CSG Curtis (Shell/Petrochina) Australia-Icthys 350 Australia-Gorgon T2 Australia-Wheatstone Australia-Gorgon T1 Australia-Asia Pacific LNG (CP) 300 Malaysia-Sarawak Australia-Gladstone Santos Australia-Queensland Curtis Papua New Guinea-Hides 250 Existing Source: Rogers, OIES 9

10 LNG Availability for Europe There is a huge volume of new LNG supply from US and non-us projects - due to start exporting from 2015 onwards The main variables which will determine how much is available for Europe will be: Asian (especially Chinese) gas demand and price North American gas prices and therefore viability of LNG export projects Willingness of European buyers to compete internationally with Asia, Middle East and South American buyers NW and Southern Europe have substantial LNG import capacity; LNG availability up to 2020 (and beyond??) has potential to displace large volumes of Russian gas 10

11 Infrastructure for bringing LNG to Europe NW & SW European countries: access to LNG via massive regasification capacity & high level of interconnection CE, SE, Baltics European countries: The Baltics region: with Lithuanian (4 bcm), Polish (5 bcm) & two more new LNG facilities, the Baltics & Finland could diversify away from Russian gas (up to elimination) by 2020 if agree sharing facilities & expanding interconnections SE Europe: with (to be expanded to 7.3 bcm ) Greek LNG terminal, (to be built) Croatia terminal (2 bcm), reinforcements & interconnections, and access to Italy s LNG capacity, could diversify away from Russian gas (up to elimination) by 2020 CE Europe: given much higher demand, will depend on reverse flow of LNG from NW & SW Europe which could be limited due to infrastructure bottlenecks, could diversify away from Russian gas (reduction but not elimination) by 2020 Ability of most dependent/vulnerable east European countries to access non-russian supplies has been limited by infrastructure constraints but this can be solved by 2020 but at a cost (infrastructure & potential price differential) 11

12 LNG supplies versus Russian pipeline gas In a surplus global LNG market from 2015 until the early 2020s: Europe could be the recipient of substantial LNG supplies (even if it is not actively seeking them) Gazprom would need to compete against these supplies at prices which could go as low as Henry Hub + $2/mmbtu Failure of Gazprom to compete could lead to significant additional LNG supplies arriving in Europe which would (at least for the duration of the surplus) significantly reduce dependence on Russian gas But this will be time-limited as global LNG supply/ demand may tighten by early/mid-2020s, LNG will disappear when Asia needs it and.. dependence on Russian gas might increase 12

13 The pipelines carrying Russian gas to Europe Ukraine carries around half of Russian gas exports to Europe Risks potentially impacting security of transit across Ukraine Financial/commercial risk (payment issues); political risk (willingness to continue transit post 2019); legal/regulatory risk (post 2019 transit contract value); facility (technical state of the network) The EC has increased its leverage vis-à-vis Ukraine and can mitigate these risks but is it capable of guaranteeing that transit will remain secure before and after 2019? Source: Naftogaz Source: OIES 13

14 The Turkish (formerly South) Stream Pipelines Downing of the Russian SU-24 military jet by Turkey on 24 th November 2015 led Russia to carry out a fundamental reassessment of its political & security relationship with Turkey Construction of TS1 (to Turkey) and TS2 (to Trans Balkan reverse via Turkey) by 2020 might still be built but look doubtful & might be cancelled altogether, also depend on progress with Nord Stream 2; TS3 (TAP connection) & TS4 (CE & SE Europe connection) will certainly not happen If TS is cancelled (or limited to one line) would a return to South Stream (to Bulgaria) be possible? Source: OIES Source: OIES

15 The Nord Stream Pipelines Source: OIES 15 Nord Stream 1 (first string Nov 2011, second string Nov 2012) is operational (total capacity 55 bcm but OPAL use is restricted). In September 2015 Gazprom, EON, BASF, Shell, Engie & OMV signed a shareholders agreement to build Nord Stream 2 (third and fourth strings) (55 bcm) (Q4 2019) 15

16 Nord Stream 1 & 2: regulatory challenges Gazprom cannot use more than 50% of OPAL capacity (NS 1 onshore extension): The EC did not approve the negotiated compromise solution, which would allow Gazprom to use more capacity should no 3 rd party want it The fact that very little gas with delivery via OPAL was sold at the Gazprom s auction (Sep 2015) showed the lack of 3 rd parties interest in OPAL thus making the EC refusal to lift the cap look increasingly political rather than regulatory The resolution of OPAL issue is crucial for Gazprom to proceed with Nord Stream 2 (European buyers have supported the case for Nord Stream 2 onshore extensions exemption) The EC could delay Nord Stream 2 start of operations until the early 2020s & limit utilisation of onshore sections

17 The EC attitude towards new Russian pipelines The EC position appears to be that it expects Gazprom to meet its contractual supply obligations vis-à-vis European buyers while only using existing pipelines (e.g. Nord Stream 1 (capped), Ukraine & Belarus corridors, a link to Finland) Given that capacity of existing export pipelines is not sufficient for deliveries under existing contracts without using the Ukrainian corridor, Gazprom s ability to honour its commitments depends on security of transit across Ukraine The EC will have to play an increasingly important role by brokering the Ukraine-Russia gas relationship and underwriting security of Ukrainian transit both politically & financially (e.g. Winter Package 2014/15, 2015/16 and beyond) Significant resistance on part of the EC towards all new Russian gas export pipelines is to be expected on both 17 political & regulatory grounds

18 Whether/which new Russian pipelines will be built: scenarios No new pipelines : Gazprom would be able to deliver under existing LTSC (at 70% TOP) to Germany, France, Italy, Austria, Poland, Czech Republic & Slovakia (OPAL cap assumed lifted) but would be unable to do so at the 2014 export levels in respect of parts of Austrian, Hungarian and (especially) Italian demand as well as parts of east and (especially) south European demand and Turkey without using Ukraine Nord Stream 2 Expansion of OPAL and the Czech network would need to be built towards Baumgarten & additional interconnections for deliveries to SE Europe & possibly some capacity expansion towards Italy Turkish Stream 1 Elimination of Ukrainian transit in respect of deliveries to Turkey but no impact on security of supply in the rest of Europe 18 Under No new pipelines scenario, security of Ukrainian transit remains crucial as a disruption would have a (varied) impact on all European countries except NW Europe

19 European gas security ( ): conclusions Sources: global LNG and Russian pipeline gas will be the two main sources competing for European market up to No significant new non-russian pipeline gas for Europe before 2025, projections beyond 2025 highly speculative. Russian gas will be competitive with all other gas supplies (LNG & pipeline) in a hub-priced European market Transport/transit infrastructure: abundant LNG regasification capacity in NW/SW Europe, limited but expanding (with EU financial support) LNG capacity in CE/SE/Baltics + interconnections enabling the region s access to LNG and non-russian pipeline gas, but the issue of transit across Ukraine post-2019 remains unresolved Main risks are governmental (political), legal/regulatory, and contractual, threatening to upset existing commercial relationships, and must be mitigated Threat of supply & price disruptions up to 2030 from any source is acceptable for overall Europe but CE/SE/Baltics could reduce their overdependence/vulnerability by 2020 through additional infrastructure

20 OIES Gas Programme research on this topic: Pirani & Yafimava, Russian gas transit across Ukraine post- 2019: pipeline scenarios, gas flow consequences and regulatory constraints, OIES 2016 forthcoming Stern, Pirani & Yafimava, Does the cancellation of South Stream signal a fundamental reorientation of Russian gas export policy? OIES 2015 Stern (ed), Reducing European dependence on Russian gas: distinguishing natural gas security from geopolitics, OIES 2014 Henderson & Pirani (eds) The Russian gas matrix: how markets are driving change, OIES/OUP 2014 Yafimava, The transit dimension of EU energy security: Russian gas transit across Ukraine, Belarus, and Moldova, OIES/OUP 2011 Thank You! Katja.Yafimava@oxfordenergy.org 20