PGC B Strategy - Triennium November 18 20, 2014 Bratislava. By: Ashkan Esmaeilifar

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2 PGC B Strategy - Triennium November 18 20, 2014 Bratislava By: Ashkan Esmaeilifar 2

3 COUNTRY PROFILE Area (km 2 ): 49,035 Population: 5,379,000 Capital: Bratislava Member of OECD, WTO, NATO, EU Shengen area, Eurozone (2009) MARKET OF 300 MILLION IN 1000KM Strategic location with great export potential 3

4 European Gas Transmission Networks 3

5 European Gas Transmission Networks 4

6 Slovak Gas Transmission System UGS Lab Slovakia is the main transport corridor of Russian natural gas and oil to Europe 6

7 Slovak Gas Transmission System length of pipelines 2,200 km diameter of pipelines 1,200 and 1,400 mm ( 90%) max. transmission capacity 93 bcm/a maximum daily capacity 290 mcm installed power 1 GW 7

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9 UGS Lab Underground Gas Storage Facilities Total Capacity: 3.12 BCM 9

10 Russian Ukrainian crisis 14

11 Slovak Gas Industry celebrated its 158 anniversary /19 March 1856/ An independent association of 67 companies and 228 individuals active in gas, partly in crude oil and related industries, registered with the Administration Section of the Slovak Ministry of Interior 11

12 IGU Strategy Committee (PGC B) Study Group 1 World Gas Supply, Demand and Trade Status and Review Bratislava, Slovak Republic November

13 Activities for the Bratislava meeting PGCB SG 1 Overview on tentative presentations at the WGC 2015 Working Sessions World supply and demand - updates and regional developments Topical paper on LNG supply and demand Study Group s Final Report: draft outline 13

14 Recent Publications on Gas Supply and Demand IEEJ Asia / World Energy Outlook ERIRAS Global and Russian Energy Outlook 2040 Eurogas Long-term Outlook for Gas to 2035 IEA World Energy Outlook 2014 EIA Annual Energy Outlook

15 Development of trade in fossil fuels The new IEA report foresees massive changes in cash flows resulting from energy imports and exports. 15

16 IEA on LNG and Pipeline Gas The IEA expects higher growth rates for LNG with the effect that almost half the global trade volume will be LNG by

17 IEA sees growth in regional production Most major producing countries still have growth potential Enormous growth in China and still in USA. The two big European producers UK and Netherlands will shrink. 17

18 Power generation will shift away from coal Fossil fuels, in particular gas, will remain the backbone of electricity generation in most parts of the world. Global power generation will almost double by

19 Preliminary Consensus World Gas Demand by Region NAM LAC EUR CIS ME AFR ASIA APAC NAM LAC EUR CIS ME AFR ASIA APAC 3300 bcm 4800 bcm North America and the CIS currently make up more than 50% of world gas consumption. Other regions in particular Asia and the Middle East are expected to grow stronger than average, so that world demand will be more evenly spread in

20 Preliminary Consensus World Gas Production by Region NAM LAC EUR CIS ME AFR ASIA APAC NAM LAC EUR CIS ME AFR ASIA APAC 3300 bcm 4800 bcm North America and the CIS are also by far the largest producing regions. Production will strongly increase in Africa, Asia and the Middle East. 20

21 Regional Supply and Demand Balance Europe and the CIS will remain to be a couple - with Europe s import requirements covered to a large extent by CIS exports. bcm [40 MJ] Asia Pacific s import requirements 100 will be slightly less than today, but Asia will emerge as the second -200 largest importing region, drawing -300 from Africa, the Middle East and -400 partly from the CIS bcm [40 MJ] 5,000 4,000 World Gas Demand APAC ASIA bcm [40 MJ] 5,000 4,000 World Gas Production APAC ASIA 3,000 2,000 AFR ME CIS 3,000 2,000 AFR ME CIS 1, EUR LAC NAM 1, EUR LAC NAM 21

22 Natural Gas Flows The IEEJ presents a flow graph showing China as the single largest importer of natural gas in Europe remains one of the largest importing regions due to de-clining indigenous production. 22

23 Unconventional Gas 23

24 Unconventional Gas: Shale Gas The Russian study expects enormous growth in shale gas production which will continue to be centered in North America. 24

25 Selected papers for PGCB session (1) GLOBAL GAS DEMAND UNDERSTANDING THE NEXT 20 YEARS For each major country or region studied, we identify the driving forces that are assumed, explicitly or implicitly, to underpin natural gas demand; we describe these driving forces, whether they be sectoral trends, economics, demographics, market structures, pricing policies or others; and highlight how and to what extent changes in their behavior can lead to different outcomes and a different pathway for natural gas demand. We identify potential signposts and branching points to allow study users to anticipate and understand inflections from business-asusual trends and points of contrast with consensus outlooks.. BALANCING ACT FUNDAMENTAL DRIVERS OF GLOBAL SUPPLY AND DEMAND: A producer's perspective World population will continue to rise, driven mainly by Asia Pacific and Africa. Global economic growth will pick up in the OECD, but will be strongly supported by Asia Pacific and Africa. Increased energy efficiency and increased environmental awareness will continue to drive future energy choices. Natural gas will lead the growth; however coal and oil remain as main fuels in the global energy mix. LNG demand will outpace supply from 2018 as more gas will be used for electricity generation and other applications such as fuel for transport. New sources of LNG supply are required to sufficiently balance the growth in LNG demand, particularly in Asia. AN ASSESSMENT OF NORTH AMERICAN NATURAL GAS EXPORTS Our hypothesis is that a part of the LNG export debate in North America is inflated. Some of the existing analysis and forecasts have been based on the idea that spot market prices at Henry Hub will remain at record low levels as they did in mid As the data already show, it is unlikely that this price level will stay, impacting the potential for US and Canadian natural gas to be exported in the form of LNG. Moreover, in the case of Canada (as also the case of the US), there may be substantial constraints that will hinder LNG projects to get to the market in time to attract sufficient capital. Thus, it is highly uncertain what amount of North American natural gas will eventually find its way to international markets. 25

26 Selected papers for PGCB session (2) SOME FUTURE SCENARIOS OF NATURAL GAS IN EUROPE Our main conclusion is that natural gas supply to Europe until 2040 changes remarkably little in the different scenarios that we have considered. Even in the event of what we currently believe to be significant developments, such as South Stream not being built or Ukraine not being a transit country any longer, the impact on gas supply in Europe is modest, at best. Also, we expect LNG imports to further drop until 2015, but then recover to essentially fill up for the decline in domestic production. The United States will be a very significant supplier of LNG to the United Kingdom, and will also ship a substantial amount of LNG to the Netherlands and Belgium. The bulk of LNG though will come from African countries such as Algeria, Angola, Nigeria, Equatorial Guinea, and also Qatar and Trinidad and Tobago. BALANCING THE GLOBAL GAS MARKET: NORTHWEST EUROPE AS THE PIVOT POINT? This paper will argue that Northwest Europe is the pivot point for the global gas market. This means the market that will receive all excess or residual gas either flexible supply or contracted that does not have an alternative market. Determining the residual market is critical at this time as the global gas industry enters a phase of substantial build-up in liquefaction supply. This build in production calls for a reevaluation of gas price forecasts in different regions, which in turn rides largely on a critical question: Which markets can absorb incremental supply? This paper will demonstrate that one key prerequisite for a residual market is the access to active, liquid trading. GLOBAL MARKET TRENDS - OUR GAS INDUSTRY IN THE CONTEXT OF A LESS STABLE ENVIRONMENT Gas demand in Europe will depend on three factors, which the paper will analyse in more details: 1. An overall growth in power demand. 2. Consideration to be given to the competition-distorting impact of subsidies granted to renewable energy sources. 3. The importance of introducing fair CO2 price mechanisms, in order to correct today s biased market arbitrage in Europe - replacing coal by gas in power generation would be the most effective way to reach EU emission targets. The Asia-Pacific rim, led by China s growing appetite for gas from all sources domestic supply through conventional and unconventional gas basins, LNG imports through a rapidly increasing network of regasification terminals, and pipeline gas imports mostly from Central Asia and Russia. Other Asian markets also have supply-demand gap to fill, including the long-established LNG markets of Japan and Korea. The next wave of LNG projects: the large, on-going construction phase in Australia will soon be followed by new regional sources of supply: The US Gulf Coast, led by the commercially pioneer Sabine Pass LNG project. The Russian Arctic, led by the technically pioneer Yamal LNG project. East Africa, with its vast, newly-discovered reserves. The West Coast of Canada, where several projects have been announced. 26


28 Factors with major impact on regional balances North America Latin America Natural Gas Supplies Shale gas development, dimension of LNG exports Shale gas in Argentina Natural Gas Demand Shale gas production, gas prices (wrt coal prices) Europe Shale gas development Gas to power (vs. coal) CIS Exports to Asia Middle East Iran, Iraq development Iraq development Asia Asia Pacific Cost escalation Australia Economic growth 28

29 Timetable/ To do When What Who preparation of papers authors recieving contribution papers authors 30. January consolidation final report study group 1/ final review with authors 1. February Submission of results Study group to PCGB study group leader/ authors Study group leader 1. February Consolidation within PCGB PGCB/ study group 1. March 2015 Final editing CC/ PGCB 15. March 2015 Final submission of paper to IGU June 2015 World gas conference CC/ PGCB 29

30 Thank you for your attention! 30

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