Changing Oil Realities - Possible Medium Term Impacts on the EU Gas And Energy Developments

Size: px

Start display at page:

Download "Changing Oil Realities - Possible Medium Term Impacts on the EU Gas And Energy Developments"

Dustin Crawford
6 years ago
Views:

1 Changing Oil Realities - Possible Medium Term Impacts on the EU Gas And Energy Developments Yaroslav Minullin Holger Rogner Manfred Strubegger Alaa Alkhatib Vienna, E-Control, 27 January 215

2 What has happened since the last meeting Geopolitics Russia vs. the IMF World Currency flux (Swiss frank, USD/EUR, Ruble) Infrastructure Oil SouthStream out TAP TANAP fixed Alternatives discussed Oil price dropped down more than 5% Some shale oil producers are below breakeven Investments in non-conventional and offshore dropping 1

3 GACs contribution and value Remember the slide from September 214 presentation? Preceding the High/Low Road Drastic deterioration of geopolitical relations: EU-Russiua From 4-regional EU-28 model to 8-regional model Motivation: ranging by access to gas infrastructure, renewables potential and green policy compliance Threats to logistics of Russian gas delivery Ukrainian PM announcement of closing the transit for Russian gas Continued blockade of the South Stream Careless policy and political messages, leading to additional escalation GAC is needed now more than ever in its history 8 WE ARE HAPPY GAC IS BACK! 2

4 Oil: capacity vs. price analysis OPEC Spare Capacity, its Proportion of World Oil Demand & Brent Price (real 215 terms, reverse axis) Source: Wood Mackenzie, 215 3

Oil: new price curves to introduce to the study Brent price required to retain current net debt levels in the near-term (215 216) INPEX, Santos and Repsol are in a capital-intensive phase of

5 Oil: new price curves to introduce to the study Brent price required to retain current net debt levels in the near-term ( ) INPEX, Santos and Repsol are in a capital-intensive phase of investment; execution success should drive strong cash flow growth in the second half of the decade. Tullow s options are further cuts in exploration spend and project deferrals; but asset sales are still key Source: Wood Mackenzie, 215 4

6 Given all that, we chose these oil and gas scenarios Crude Oil Prices by scenario [$/boe] Oil price fixed at 4, 5, 6 and 8 $/bbl for 3 years. Afterwards approaches the earlier forecasts $/b 5 $/b 5 to 85 $/b 8 $/b REF 214 Cheap Gas REF15 Gas prices are modeled with a linear regression coefficient, by country of origin with a lag of 1 year relative to oil prices Average Gas Prices [EUR/GJ] REF 6$/b Oil 4 Oil 5 Oil 5to85 Oil 8 REF 214 Cheap Gas Expensive Gas 5

Shaping scenario filed: dimensions and stress-points Essential Output: Gas TPES, Imports, Bill, 5 4 3

7 Shaping scenario filed: dimensions and stress-points Essential Output: Gas TPES, Imports, Bill, CO2 Scenario 3 CO2 Scenario Extreme low Oil Scenario 1 Oil Scenario 2 Extreme high CO2 Scenario 1 6

8 We were seeking answers to the following questions How would the EU energy system react to Short term, foreseeable shocks in oil price (3 years downtime, slow recovery) How would the current EU model (215 research state) react in extreme high and extreme low gas prices? If results are valid, what vectors do these extreme scenarios indicate for the EU and exporters (including Russia) What would it mean for natural gas in terms of : Indigenous EU production Use in power generation Final use Exporters revenue and infrastructure incentives What additional impacts on the EU energy system would the CO2 reduction policies (targets and taxes) deliver? Finally, is this crisis bearable for the EU and the gas exporting countries? 7

9 Planned and protocolled by GAC changes to the Integrated Modeling Environment Supply modeling Demand modeling Regional structure Introduction of the scenario field First glance at the results: high aggregation figures 8

10 European Regions North NW CW CE East ib South SE 9

11 Gas Import Routes 1

12 Indigenous Gas Connections 11

13 Prices and Restrictions Targe CO2 Oil Price ts tax trajectory REF-15 YES NO 6 $/b REF-14 YES NO 8 $/b (old) OIL 4 YES NO 4 $/b OIL 5 YES NO 5 $/b OIL 8 YES NO 8 $/b TAX 2 NO YES 6 $/b TAX 3 NO YES 6 $/b TAX 4 NO YES 6 $/b REF TAX 2 YES YES 6 $/b REF TAX 3 YES YES 6 $/b REF TAX 4 YES YES 6 $/b OIL4 TAX3 NO YES 4 $/b OIL5 TAX3 NO YES 5 $/b OIL8 TAX3 NO YES 8 $/b No Targets NO NO 6 $/b Cheap Gas YES NO 61 $/b Expensiv e Gas YES NO 62 $/b $/b 5 $/b 5 to 85 $/b 8 $/b REF 214 Cheap Gas REF

14 CO2 tax The Scenarios target nolim oil price [Euro/boe] cheap expens cheapg as oil4 oil5 REF oil8 Oil4Noli m Oil5Noli m NoCO2limit2 NoCO2limit3 NoCO2limit4 Oil8Noli m expenga s Additional scenarios: Africa FreeScen NoCrisis 13

Total Gas Imports to the EU 215 to 225 [bcm] 7 6 5

15 Total Gas Imports to the EU 215 to 225 [bcm] target nolim 1 cheap expens 14

16 Gas Imports from Russia 215 to 225 [bcm] target nolim 5 cheap expens 15

17 Value of Gas from Russia 215 to 225 [bill EURO] target nolim 1 cheap expens 16

18 CO2 tax CO2 tax CO2 tax In Numbers for 215 to 225 Total Gas Imports [bcm] oil price [Euro/boe] cheap expens target nolim Gas Imports from Russia [bcm] oil price [Euro/boe] cheap expens target nolim Value of Gas from Russia [billeuro] oil price [Euro/boe] cheap expens target nolim

19 Gas Use [bcm/year] (cheap and expensive gas scenarios) Power Generation Industry & Others Service HH Transport

20 Oil market fundamentals and surrounding factors leading to the current crisis Detail results overview on the aggregated EU level Stress-testing: extreme scenarios for model 19

21 The international oil market - wither price of oil Lesson 1: The probability of occurrence of predicted energy trends is inversely proportional to the intensity of the underlying consent. (Henry Linden) Lesson 2: No running out in sight - Peak oil debunked. Note: Oil use will peak eventually but nor for reasons of scarcity Lesson 3: Economically recoverable reserves = f(market price, technology, demand, politics) 2

22 The international oil market - wither price of oil Lesson 4: Prices = f(demand, spare production capacity, investment, geopolitics (energy security), expectation [speculation]) Lesson 5: Prices costs short run versus long-run marginal cost 21

23 Oil market today Stagnating demand at best due to overall sluggish economic development Shale oil increased US oil output by 8% or 4 mmb/d versus 28 (remember North Sea & Mexico in the early 198s) Correction of the perverse situation that the lowest cost producers are the swing supplier Accelerating decline in rig counts for shale oil development & a general cut-back in capital outlays Some oil producing countries can weather the storm others encounter severe financial and budget shortages Volatile financial markets & exchange rates Uncertainty with respect to future environmental regulation 22

24 Oil market rebound Critical issues Change in Saudi leadership Turmoil in Nigeria Libya promising development halted Iran and Iraq Offshore developments around the world Short-run prices likely to stay low until new investments required Estimated transfer of $1.5 - $2 trillion from oil exporting countries to oil importing countries (D. Yergin) Stimulating economic growth and oil demand? 23

25 Crude oil prices, $/boe $/b 5 $/b 5 to 85 $/b 8 $/b REF 214 Cheap Gas REF15 24

26 Average gas import prices, /GJ REF 6$/b Oil 4 Oil 5 Oil 5to85 Oil 8 REF 214 Cheap Gas Expensive Gas 25

27 Mtoe Primary energy production: Ref Solar other Wind Biomass Hydro Nuclear Gas Oil Coal 26

28 Mtoe Primary energy supply: REF Solar other Wind Biomass Hydro Nuclear Gas Oil Coal 27

29 BCM Gas imports: Ref LNG USA LNG Rest World LNG Africa LNG ME LNG Norway Gas TAP Gas Afr Gas Nor Gas Rus

30 BCM Gas trade Russia to EU: REF Bel to North Bel to East Ukr to SE Ukr to East Rus to CE Rus to North

31 Gas use by sector: Ref15 BCM Transport Households Services Industry & Others Electricity

32 TWh Electricity generation by fuel: Ref Solar Wind Biomass Hydro Nuclear Gas Oil Coal 31

33 Mtoe Domestic primary energy production: CheapGas versus REF Solar other Wind Biomass Hydro Nuclear Gas Oil Coal 32

34 Difference in gas imports: CheapGas versus REF15 BCM LNG USA LNG Rest World LNG Africa LNG ME LNG Norway Gas TAP Gas Afr Gas Nor Gas Rus 33

35 Gas trade Russia to EU: CheapGas vs REF15 BCM Bel to North Bel to East Ukr to SE Ukr to East Rus to CE Rus to North

36 Difference in gas use by sector: CheapGas versus Ref15 BCM Transport Households Services Industry & Others Electricity

37 TWh Difference in electricity generation: CheapGas vs REF15 3 Solar 2 Wind 1 Biomass Hydro Nuclear -1 Gas -2 Oil Coal 36

38 Difference in final energy: CheapGas versus Ref15 Mtoe Solar & other Heat Electricity Biomass Biofuel Gas Oil products Coal

39 Domestic primary energy production: ExpensiveGas versus REF15 Mtoe 6 Solar other 5 Wind Biomass Hydro Nuclear Gas Oil Coal 38

40 Difference in gas imports: ExpensiveGas versus REF15 BCM LNG USA LNG Rest World LNG Africa LNG ME LNG Norway Gas TAP Gas Afr Gas Nor Gas Rus

41 BCM Gas trade Russia to EU - ExpensiveGas Bel to North Bel to East Ukr to SE Ukr to East Rus to CE Rus to North

42 Gas trade Russia to EU ExpensiveGas vs REF15 BCM Bel to North Bel to East Ukr to SE Ukr to East Rus to CE Rus to North

43 Difference in gas use by sector: ExpensiveGas vs Ref15 BCM Transport Households Services Industry & Others Electricity

44 TWh Difference in electricity generation: ExpensiveGas vs REF Solar Wind Biomass Hydro Nuclear Gas Oil Coal 43

45 Difference in final energy: ExpensiveGas vs Ref15 Mtoe Solar & other Heat Electricity Biomass Biofuel Gas Oil products Coal

January Christof Rühl, Group Chief Economist

January Christof Rühl, Group Chief Economist January 213 Christof Rühl, Group Chief Economist Contents Introduction Global energy trends Outlook 23: Fuel by fuel Implications Energy Outlook 23 BP 213 Introduction Global energy trends Outlook 23: