South Eastern Europe Emerging Gas and Power Market

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1 South Eastern Europe Emerging Gas and Power Market Aleksandar Kovacevic Contents South Eastern Europe or Western Balkans energy scene Energy Community Treaty Electricity market Natural gas market Case study: 2009gas supply crisis Links to Black Sea markets and the way forward 1

2 Trade do adds value Della mercatura e del mercante perfetto, (On merchantry and the perfect merchant) written in 1458 by Benko Kotruljic or Benedikt Kotruljevic (Benedictus de Cotrullis, born in Dubrovnik, ) That is not necessary case with speculation - another ingredient of real life markets 2

3 Western Balkans Region Economic Overview 3

4 Energy Overview Energy Indicators 4

5 Some Comparisons SEE Energy Community Treaty Treaty between SEE countries and the EU Application of EU Acquis: Gas & electricity, Renewable energy, Environment, Competition, Adaptation Accession to the Kyoto Protocol not mandatory Internal energy market, external trade policy, mutual assistance Common regulatory board, Vienna secretariat plus political institutions Regional Coordination auctions office for capacity See and go to ENERGY and 5

6 Considerable increase of generating capacity is envisaged in the framework of the SEE Energy Community Treaty Tightening electricity supply situation 6

7 SEE lignite industry in the European context While about 1/3 of electricity is generated from hydro sources, that are unpredictable and getting more volatile Source: EPCG 7

8 Power markets structure Market Overview 8

9 Electricity trade patterns Gas market overview 9

10 Not integrated gas networks The 2009 Gas Supply Crisis Gas supply disruption Major industrial consumers already disconnected Further disconnections Use of back-up fuels Emergency imports of gas and back-up fuels Price responsiveness? Additional power generation and peak / off-peak conversions 10

11 Growing weather sensitivity in gas demand Secondary adjustments of industrial output 115 INDUSTRIJSKA PROIZVODNJA SRBIJE INDEKSI (Ø 2008 = 100) Originalna serija Desezonirana serija Trend-ciklus jan.01 apr.01 jul.01 okt.01 jan.02 apr.02 jul.02 okt.02 jan.03 apr.03 jul.03 okt.03 jan.04 apr.04 jul.04 okt.04 jan.05 apr.05 jul.05 okt.05 jan.06 apr.06 jul.06 okt.06 jan.07 apr.07 jul.07 okt.07 jan.08 apr.08 jul.08 okt.08 jan.09 11

12 Twofold increase in traded volumes of electricity (off-peak volumes stable) Electricity trade volumes MWh Dec 30-Dec 1-Jan 3-Jan 5-Jan 7-Jan 9-Jan 11-Jan 13-Jan Dates base load peak load off peak 15-Jan 17-Jan 19-Jan 21-Jan 23-Jan 25-Jan Insignificant price response Electricity prices Eur/MWh Dec 30-Dec 1-Jan 3-Jan 5-Jan 7-Jan 9-Jan 11-Jan 13-Jan Dates base load peak load off peak 15-Jan 17-Jan 19-Jan 21-Jan 23-Jan 25-Jan 12

13 Outcomes Relatively more energy consumed to cover demand at modestly low temperatures Lose of GDP Minor regulatory response Occasional strategic response (Bulgaria, Croatia) Performance of energy markets Involvement of politicians EnCT mechanism workable Lessons Learned Long term and sovereign gas supply contracts Weather sensitivity of energy demand undermines security of supply National emergency plans supported response Adjustments on expense of most vulnerable population Regulatory failures (network interrelations, tariffs ) Inadequate energy subsidies undermine response capacity Supplies from other sources were possible Even incomplete energy markets were performing 13

14 Betting on external geo-political appetite? Fishing for transit rents? Political PR? Recent Energy Charter research provides some real World insights: 14

15 Black Sea gas markets Russia Supply & demand drive Supply UGS Over 80bcm Electricity market Large Access to LNG No Link to other markets Long term contracts Seasonalit y Winter demand Ukraine Caspian Demand Supply Up to 62bcm Limited Large Fragmented No No Transit Emerging Winter demand - Turkey Balanced Limited Large, insulated Yes Emerging Managed Balkans demand potential Part of UCTE limited Emerging, EU rules significant Gas market spread and arbitrage Gazprom data reveal notion of the market spread between FSU and the European markets in Russian Rubles. Markets are effectively separated by long term supply contracts and destination clauses. 15

16 SEE potential gas infrastructure Source: Aleksandar Kovacevic, "Potential Contribution of Natural Gas to Sustainable Development in South Eastern Europe", Oxford Institute for Energy Studies, Concluding notes Incomplete and difficult markets still delivering value Great diversity and diversity potential Requires sophisticated development support Potential to add value to other European energy markets Niche market with outstanding growth potential and wider impacts 16

17 Add on slides Serbia lignite industry in the European context 17

18 More details available at: Black Sea Crossing Options Options: Blue Stream, South Stream, White Stream, Nabucco, LNG, CNG shipping, etc Geopolitical constraints Legal constraints in use of seabed Difficulty to match supply and demand Considerable break-even transport volumes: all options intended to supply non Black Sea markets under long term contracts Improvement in security of supply not likely despite eventual diversification of supply sources 18