Implications of U.S. Shale Gas and Russian Pipelines on European Gas Imports

Transcription

1 Implications of U.S. Shale Gas and Russian Pipelines on European Gas Imports Steven A. Gabriel University of Maryland Co authors: Seksun Moryadee, Hakob Avetisyan University of Maryland Prepared for the Links Project Final Meeting Oslo, Norway 28 August 2013

2 Organization of Talk Overview of WGM A Study of Pipelines, Part of LinkS Project (Funded by the Research Council of Norway) Results No Nord Stream pipeline (Base Case) Nord Stream pipeline only South Stream and Southern Corridor pipelines Nord Stream, South Stream, Southern Corridor pipelines combined with U.S. exports and shale gas in China 2

3 Representation of Gas Market in WGM 2012 Country 1 Country 3 C1 Producer C3 Trader T1 Pipeline T1 Transit countries T1 T1 T3 S1 Storage L1 LNG Node T1 Regas Node R3 S3 Sectors K1,2,3 M1 Marketer K1,2,3 M3

4 Producer Problem (Example of Market Players Optimization Problems) Revenue Cost Production Capacity Reserve Limitation Producers maximize their profit WGM distinguishes three type of producers for North America (Conventional, Shale, Unconventional) Cost function (Golombek Cost function) differs for each producer

5 Golombek Cost Function α = 10, β =40, γ = 120 5

6 Market Clearing Conditions

7 World Gas Model (WGM) Production/Consumption Nodes: 41 (Groups of countries, countries, regions) Covers over 95% of worldwide consumption 10 periods: , calibration year 2010 Typical decision variables Operating levels (e.g., production, storage injection) Investment levels (e.g., pipeline, liquefaction capacity) Other Market power aspects (traders ) LNG contracts database Seasonality of demand: low and high demand Environmental policy consideration: Carbon costs for supply chains Computational aspects Large scale complementarity problem (optimization conditions for all players + market clearing conditions) ~66,000 vars. Solves in ~95 mins (2GB, 1.2 GHz) INDUSTRIAL DISTRIBUTION SySTEM RESIDENTIAL COMMERCIAL GAS PROCESSING PLANT Impurities Gaseous Products Products Cleaner City GATE STATION TRANSMISSION SySTEM UNDERGROUND STORAGE Liquid Compressor Station GAS PRODUCTION Gas Well ELECTRIC POWER LNG VESSEL Associated Gas and Oil Well 7

8 Study Overview and Objectives Overview of current situation and new infrastructure Europe's dependence on Russian natural gas Russian future strategies Nord Stream pipeline South Stream pipeline Southern Corridor project U.S. liquefied natural gas exports Main questions, gauge impact of likely new production and transportation infrastructures in northern and southern Europe, specifically: The flows from Russia to Europe given new pipeline capacity The utilization factor (capacity) Nord Stream, South Stream, and Southern Corridor pipelines The investment decisions to increase capacities after

9 Europe's Dependence on Russian Natural Gas Natural Gas Imports from Russia* (BCM) and Percentage of Total Consumption in % 90% % 70% 60% 50% 40% % 20% 10% % import from Russia 0% *Number on the bar Source: BP Statistical Review 2012 About a quarter of European gas supplies comes from Russia, nearly all of it passes through Ukraine 13 countries depend on Russian gas more than 50% of their consumption 9

10 Russian Future Strategies for Natural Gas Trade Current Russian Situation The EU aims to help diversify gas supply routes in order to reduce the dependence on Russia of some of its member states* 1 Increase in mineral extraction taxes cost $2.2 billion more in 2011 for Gazprom* 2 LNG increases flexibility of suppliers for Europe (e.g., Qatar and Australia) Recent cold weather forced Russia to keep natural gas for domestic consumption *1http:// *2http:// natural gas dilemma analysis

11 Russian Future Strategies for Natural Gas Trade Russian Future Strategies Russia is diversifying export gas markets, focus on Asia to offset potential decline in supply to Europe* Russia is expanding LNG export capacity and will export more LNG to Asian markets Russia needs to maintain long term contracts Russia is increasing flows between Russia and Europe bypassing Ukraine * releases/russia diversifies gas export markets increasing focus on asia to offsetpotential decline in supply to europe html 11

12 European Natural Gas Pipeline Competing Projects Four pipeline projects compete against each other (TANAP TAP TIGI Nabucco) to bring gas from Central Asia to Europe Nabucco shareholders now believe that only a smaller version of the pipeline is realistic Source: The economist Russia aims to build second Baltic sea pipeline to increase supply to Europe as well as to bypass Ukraine 12

13 U.S. LNG Export Status As of August, 2013 FTA application Non FTA application Total of all applications Approved Pending Bcf/d ( Bcm/y ) Bcf/d ( Bcm/y) Bcf/d ( Bcm/y) 5.6 Bcf/d ( Bcm/y) 0.69 Bcf/d ( 7.13 Bcm/y) Bcf/d (244.0 Bcm/y) FTA with the U.S. requires national treatment for trade in natural gas, including Australia, Bahrain, Canada, Chile, Colombia, Dominican Republic, El Salvador, Guatemala, Honduras, Jordan, Mexico, Morocco, Nicaragua, Oman, Peru, Republic of Korea and Singapore Source: U.S. Department of Energy

14 Freeport LNG Expansion contracts Currently, DOE approved three non FTA Export Applications: Sabine Pass Liquefaction (2.2 Bcf/d) Freeport LNG Expansion (1.4 Bcf/d) Lake Charles LLC (2 Bcf/d) Sabine Pass Liquefaction contracts ir.net/phoenix.zhtml?c=101667&p=irol presentations approves lake charles llc s lng exports tonon fta countries.html

15 U.S. Liquefied Natural Gas Exports: Market Estimation Source: Cheniere Research estimates 15

16 U.S Exports Case (DOE Case): What If the U.S. Exports LNG 99 BCM/y to Asia and Europe? West coast terminal East coast terminal 2,800* 2,900* 3,800* South Korea 24 BCM/y 5,600* 8,600 * 5,100* Spain UK 27 BCM/y 24 BCM/y India 24 BCM/y SOURCE: EIA 2011 Gulf coast terminal *Distance in nautical miles 16

17 WGM Cases and Assumptions

18 Cases and Descriptions (as part of Links Study funded by Research Council of Norway) Cases Abbreviation Descriptions Base Nordstream All pipelines available Base Case Base NordOnly Nord All All Base Case without Nord Stream, South Stream nor Southern Corridor pipelines Only Nord Stream pipeline available Nord Stream, South Stream, and Southern Corridor pipelines available Low_Shale_DOE_All Russian pipelines vs.u.s. LNG export Low_Shale_DOE_Export_ All Low Chinese shale gas production along with exports from U.S. plus all Russian pipelines 18

19 Nord Stream Case and Model Assumptions Nord Stream Pipeline Nord Stream is built in 2010 Capacity reaches 151 mcm/d or 55 BCM/y in 2015 Pipeline connects N_RUW (Russia west node) and N_GER (Germany) 20% of initial capacity is considered for pipeline expansion (investment decision) every five years if necessary Only Russian trader can access this pipeline Source: 19

20 South Stream and Southern Corridor Case and Model Assumptions South Stream Pipeline Build South Stream in 2010 ( BCM/y) Connect N_RUW (Russian West) and N_ROM (Romanian node) Potentially start operating in 2015 with BCM/y Potentially add more capacity, (47.25 BCM/y) in 2015 Potentially operate at full capacity (63 BCM/y) starting 2020 Consider maximum pipeline expansion (20 % of initial capacity) if necessary BCM/Y 63.0 N_RUW N_ROM 20

21 South Stream and Southern Corridor Case and Model Assumptions (cont d) Southern Corridor N_ROM Southern Corridor Project Nabucco West 10 BCM/Y N_TRK TANAP 16 BCM/Y Build two new Pipelines: 1. Trans Anatolian gas pipeline project (TANAP* ) connects N_TRK (Turkish Node) and N_KZK (Kazakhstan Azerbaijan aggregated in this node) with capacity 16 BCM/y in Nabucco West connects N_TRK (Turkish Node) and N_ROM (Romania Bulgaria and Greece aggregated in this node) with capacity 10 BCM/y in 2015 Potentially start operating at full capacity in 2020 Consider maximum pipeline expansion 20% of initial capacity (3.2 BCM and 2.0 BCM every five years respectively) N_KZK Source: president ratifies tanap agreement 21

22 U.S. Gas Exports vs. Russian Pipelines All pipelines combined with U.S. Exports Nord Stream, South Stream, and Southern Corridor Pipelines available U.S. LNG exports already approved and under contract + pending DOE approval to Asia and Europe(March,2012) 24 BCM/y to India 24 BCM/y to South Korea 27 BCM/y to UK 24 BCM/y to Spain Base 21 BCM Low level of Chinese shale gas production Shipping Cost = $8/KCM/1,000 nautical miles DOE 99 BCM 22

23 Observed Model Outcomes for Russian Flows Only Nord Stream Available Flows at the maximum capacity of Nord Stream All Pipelines Available Decreasing flow from Russia to Europe via Nord Stream U.S. dominates in LNG markets Russia loses in LNG market, so it increases flows in all pipelines 23

24 Regional Prices Prices for 2030 in $/MMBTU North America increases significantly under export case European prices drop about cents/mmbtu ,75 11, ,03 7,77 9,78 9,72 10,61 10,19 9,23 8,60 8,67 8,98 Base Nordonly All 6 5,15 5,10 Low_Shale_Low_Export_allpipe 4 2,77 2,71 3,80 3, AFRICA ASPACIF CHINA EUROPE FRSVTUN JAPAN MIDEAST NRTH_AM STH_AM 24

25 European Prices European Prices for 2030 in $/MMBTU European prices drop under pipeline cases Romanian price decreases about 1$/MMBTU due to two new pipelines under all pipeline case Spanish and UK prices are cheaper because of US exports ,20 11,07 11,04 10,76 10,73 10,72 10,58 10,65 10,49 12,05 11,59 11,09 10,06 9,16 10,36 9,45 8,99 8,56 10,44 9,85 Base Nordonly 8 All Low_Shale_Low_Export_allpipe N_FRA N_GER N_ITA N_NED N_NOR N_POL N_ROM N_SPA N_TRK N_UKD 25

26 Impact of Increased U.S. LNG Exports: UK Base All Nordonly Low_Shale_Low_Export_allpipe UK consumption Domestic production Total imported by pipeline Total imported by LNG Total Supply Natural Gas Transported by Pipeline to UK in 2030 (BCM/y) Base Nordonly All Low_Shale_Low_Export_allpipe T_NED T_NOR T_RUS Total Under U.S. gas exports UK imports less by pipelines compared to other cases Total LNG transported to UK (BCM/Y) in 2030 ( BCM/y) Base NordOnly All Low_Shale_DOE_Export_allpipe T_ALG T_NIG T_RUS T_USA Total U.S. gas exports (26 BCM) replace existing LNG under US export case 26

27 Dynamic Change in Markets RUW Flows by LNG in 2045 BCM/y Base Nordonly All Low_Shale_DOE_Export_allpipe R_CAE R_FRA R_NED R_SPA R_UKD Total RUW Flows by Pipeline in 2045 BCM/y Base Nordonly All Low_Shale_DOE_Export_allpipe N_GER N_KZK N_POL N_ROM N_RUE N_TRK N_UKR Total Pipeline Export U.S. LNG reduces Russian LNG in Europe Russia loses European market share in LNG market Base: U.S. export 7.49 BCM to UK 4.60 BCM to Spain Export Case: BCM to UK BCM to Spain Therefore, Russia increases flows~1bcm by pipelines under Export case Note:Production capacity for N_RUW is set to 1700 MCM/d from

28 European Flows in 2030 (BCM/y) Wholesale Nodal Prices Base Case N_NOR 28.2 $ $10.44 N_UKD N_POL N_SPA N_GER 2.8 $11.59 $10.36 $ $11.07 N_FRA N_UKR N_ITA N_ROM $10.72 $9.16 $10.06 N_RUW The prices shown here are trader selling prices (wholesale price) At Norway, price (producer trader) is $4.50 /MMBTU Sabine Pass level $7.05* *This price does not include transportation cost $ $8.99 N_TRK $3.47 N_KZK 28

29 Sample Summarized Structure of Norwegian Natural Gas Market Base Case P_NOR $5.53* T_NOR $11.59 N_POL $11.04 N_GER *Producer selling price $12.20 N_NOR $11.07 N_FRA $10.44 N_UKD Decision to sell to domestic market or export made by the trader Trader decides to export to other nodes when it is profitable Existing traders at consuming node can insert market power and compete with other traders 29

30 Sample Summarized Structure of the U.S Natural Gas Export Market Base Case $7.05* T_USA P_US BCM $10.36 N_GER $7.05 N_US BCM *Producer selling price $10.44 N_UKD It is assumed that U.S. market is in perfect competition in WGM U.S. exports to Europe from Gulf coast under contracts 30

31 European Flows in 2030 (BCM/y) Wholesale Nodal Prices NordOnly *This price does not include transportation cost N_NOR 27.6 Sabine Pass level $7.12* 7.49 $ $10.27 N_UKD N_POL N_SPA 16.9 N_GER 2.8 $11.4 $10.33 $ $10.87 N_FRA N_UKR N_ITA N_ROM $10.69 $9.15 $10.03 N_RUW $ $8.99 N_TRK Less Russian flows through N_UKR and N_POL (less than 30% of Base Case) Prices in $/MMBTU, prices mostly decrease compared to the Base Case (Turkey stays the same, Kazakhstan slightly increases) U.S. gas stays only in UK or Spain (no flow out of UK and Spain) $3.52 N_KZK 31

32 European Flows in 2030 (BCM/y) Wholesale Nodal Prices All N_NOR Sabine Pass level $ N_UKD $ N_POL $11.16 N_GER $10.33 N_SPA 16.4 $ N_FRA $7.23* *This price does not include transportation cost $ N_ITA N_UKR 0 N_ROM $10.65 $9.16 $9.21 N_RUW $ $8.62 N_TRK Europe get more supply from central Asia Flow between N_UKR to N_ROM equal to 0 N_ROM exports 4 BCM to N_POL 5 additional BCM flow from N_FRA to N_UKD $3.55 N_KZK 32

33 European Flows in 2030 (BCM/y) Wholesale Nodal Prices Low_Shale_DOE_All N_NOR 25.4 DOE Level $ $9.85 N_UKD $11.08 N_POL N_GER $9.45 N_SPA 15.4 $10.72 N_FRA $ N_UKR 0 N_ROM $10.58 N_ITA $9.09 $9.15 $3.21 N_RUW $8.56 N_TRK Less supply from N_NOR and N_FRA sends to N_UKD due to U.S. LNG $8.85 *This price does not include transportation cost $3.48 N_KZK 33

34 Conclusions and Findings: Nord Stream and South Stream pipelines reduce the flows through Poland and Ukraine (30% for NordStream case and 45% of All pipelines case) Nord Stream pipeline capacity is favorable and expanded almost all time periods for all cases, therefore the total capacity reaches more than 100 BCM/y in 2050 South Stream pipeline capacity is not expanded as much due to Southern Corridor project and flow capacity Average European gas price drops 25 cents/mmbtu for NordStreamOnly Case and 40 cents/mmbtu for all pipelines case relative to Base Case U.S. gas exports do not significantly affect to Russia s flows but reduce natural gas prices in importing countries (UK and Spain) 34

35 Conclusions and Findings: Southern Corridor project is preferable for pipeline operator more than South Stream due to lower investment cost (onshore vs. offshore) N_GER is considered to be a main hub which distributes gas to Europe when Nord Stream is available 35

36 Extra Slides 36

37 Interesting Game Theory Counterflow Effect: Test Results from WGM Counterflow under Allpipe Case Assumptions: Market power causes counterflows among nodes We focus on only cycle of flows among N_GER N_ROM N_POL Market power level of existing traders at Poland is considered in this test Trader Base Test Test 1 Test 2 Test 3 T_ALG T_NIG T_AUS T_RUS T_KZK T_NED T_NOR T_QAT T_YAM T_TRI Level of market power Three tests on WGM Base Case, we use for reference Test 1, market power is set to be zero for all existing traders Test 2, market power is set to be 0.5 for all traders Test 3, market power is set to be 0.75 for all traders 37

38 Counterflow Effect: Test Results from WGM $5.91 N_POL] 14.2 $10.97 N_GER $9.31 N_ROM Counterflow Test 1 (market power for existing traders in Poland=0) $10.75 N_POL] $10.90 N_GER N_ROM Counterflow Test 2 (market power for existing traders in Poland = 0.5) $9.32 $12.2 N_POL] 22.5 $10.93 N_GER $9.36 N_ROM Counterflow Test 3 (market power for existing traders in Poland = 0.75) 38

39 Trader Problem Revenue Natural Gas Cost Storage Cost Transport Cost Storage Cycle Con Loss Trader Buys gas from producer Exerts market power Controls usage of storage Responsible for regulated and congestion fee Contractual obligations

40 Storage Operator Problem Revenue Expansion cost Injection Capacity Extraction Capacity Working Gas Capacity Storage Operator Provides an economic mechanism to efficiently allocate storage capacity to traders Maximizes the discounted profit resulting from selling injection capacity and extraction capacity to traders Maximum Expansion

41 Transmission System Operator Problem Revenue Expansion Cost Arc Capacity Maximum Expansion Transmission System Operator (TSO) Provides an economic mechanism to efficiently allocate transport capacity to traders Maximizes the discounted profit resulting from arc capacity to traders minus investment cost from expansion Congestion fees Tau come from market clearing condition between TSO and traders

42 Net Imports and Exports Net Imports(+) and Exports(+) in 2030 BCM/y North America displaces other natural gas exporters under export case European imports more gas for all cases compared to Base Case ,91 447, ,73 201,38 124,37 126,64 11,01 2,4 AFRICA ASPACIF CHINA EUROPE FRSVTUN JAPAN MIDEAST NRTH_AM STH_AM 36,6 26,29 22,02 86,75 179,11 168,01 Base Nordonly All Low_Shale_Low_Export_allpipe 278,2 271, ,52 383,

43 Country Nodes for Europe In WGM UK Spain France Norway Netherlands German y Italy Poland Romania Turkey Node Country Region GER Austria Europe GER Czech Republic Europe GER Denmark Europe GER Germany Europe GER Switzerland Europe POL Baltic Region Europe POL Finland Europe POL Poland Europe POL Sweden Europe POL Slovak Republic Europe FRA Belgium and Luxembourg Europe FRA France Europe ROM Bulgaria Europe ROM Greece Europe ROM Hungary Europe ROM Romania Europe UKD Iceland Europe UKD United Kingdom Europe ITA Italy Europe ITA Slovenia Europe SPA Spain Europe SPA Portugal Europe NED Netherlands Europe NOR Norway Europe TRK Turkey Europe Map source: atlas/europe map.htm WGM has 10 country nodes aggregated in Europe 43

44 Country Node for FRSVTUN In WGM Ukraine Russia West Kazakhstan Russia Sakhalin Node Country Region KZK Armenia FRSVTUN KZK Azerbaijan FRSVTUN KZK Georgia FRSVTUN KZK Kazakhstan FRSVTUN KZK Turkmenistan FRSVTUN KZK Uzbekistan FRSVTUN UKR Belarus FRSVTUN UKR Ukraine FRSVTUN RUE Russia East FRSVTUN RUL Russia Sakhalin FRSVTUN RUW Russia West FRSVTUN Source: 44

45 South Stream Flows 30 Flows between N_RUW N_ROM BCM/y 25 21,24 21,16 23,22 23,05 24,42 24,42 24,26 24,26 23,90 23,73 24,42 24,42 24,26 24, ,79 15,79 All Low_Shale_Low_Export_allpipe Flows through pipeline increase in small amount when the U.S. exports more gas to Europe 45

46 Nord Stream Utilization Factors in Term of Percentage Nordonly All Low_Shale_Low_Export_allpipe Year Capacity* Flows* %Utilization Capacity* Flows* %Utilization Capacity* Flows* %Utilization % % % % % % % % % % % % % % % % % % % % % % % % *BCM/y 46

47 European Net Imports and Exports European Imports(+) and Exports( ) in 2030 BCM/y ,88 115,62 101,07 101,72 For those countries new pipelines go through, imports increase 71,39 72,16 76,84 74,25 73,69 76, ,16 7,81 44,69 45,62 34,99 43,62 37,05 N_FRA N_GER N_ITA N_NED N_NOR N_POL N_ROM N_SPA N_TRK N_UKD 45,69 New pipelines bring more supply from Russia to Europe but they affect other producers Base Nordonly All Low_Shale_Low_Export_allpipe 119,51 115,

48 Regional Level Results

49 Production Production in 2030 (BCM/y) North America production increases about 20 BCM/Y Middle East production decreases under export case 1105, , ,55 760,5 707,48 779,79 Base Nordonly 600 All Low_Shale_Low_Export_allpipe ,03 405,28 300,14 299,27 173,97 227,31 173,96 223,53 278,21 278,43 0 AFRICA ASPACIF CHINA EUROPE FRSVTUN JAPAN MIDEAST NRTH_AM STH_AM 2,98 2,98 49

50 Consumption Consumption in 2030 BCM/Y North America consumption decreases 70 BCM/y under export case European consumption increases about 3 5 BCM ,59 701,39 670, ,47 692, ,45 539,48 Base Nordonly ,7 375,34 All Low_Shale_Low_Export_allpipe ,85 277,25 289,22 280, ,83 133,78 127,3 129, AFRICA ASPACIF CHINA EUROPE FRSVTUN JAPAN MIDEAST NRTH_AM STH_AM 50

51 Pipeline Capacity Expansion TANAP Capacity in BCM/y Low_Shale_Low_Export_allpipe 7,78 1,43 2, All 7,39 1,50 2, Total capacity expansion of this pipeline (decision variable in the model ) is about 10 BCM/y compared to actual capacity (16 BCM/y) 51

52 Southern Corridor Flows Flows between N_KZK N_TRK BCM/y 17,98 17,98 17,98 17,98 17, , , ,18 6,37 6,18 6,18 6,18 6,18 6,18 6,18 6,18 Base Nordonly All Low_Shale_Low_Export_allpipe Flows reach maximum capacity after 2030 This implies that more natural gas flows from central Asia to Europe 52

53 Pipeline Capacity Expansion N_TRK and N_ROM Pipeline Capacity Expansion BCM/y Low_Shale_Low_Export_allpipe 5, ,971 1, , All 5,3436 1,971 0, , This pipeline competes with South Stream It is expanded for almost all time period due to cheaper costs (onshore pipeline) 53

54 Southern Corridor Flows 12 Flows between N_TRK and T_ROM in BCM/y 10,44 10, ,99 8,27 8,55 6,90 Base 6 5,01 Nordonly All 4 Low_Shale_Low_Export_allpipe This pipeline competes with South Stream by sending gas to N_ROM U.S. exports do not affect the flows to N_ROM because there is no connection from N_UKD and N_SPA to N_ROM 54

55 Pipeline Capacity Expansion South Stream Capacity in BCM/y Low_Shale_Low_Export_allpipe 15,75 5,56 2,01 1,22 0, All 15,75 5,48 1,93 1,23 0, South Stream is not expanded as much due to the following reasons: 1. this pipeline competes with southern corridor project 2. In our model there is only one pipeline flow out from N_ROM and small capacity 3. South Stream has higher investment cost (offshore pipeline) compared to Southern Corridor project 55

56 South Stream Utilization Factors in Term of Percentage All Low_Shale_Low_Export_allpipe Year Capacity* Flows* %Utilization Capacity* Flows* %Utilization % % % % % % % % % % % % % % % % *BCM/y 56

57 Southern Corridor Utilization Factors in Term of Percentage Nordonly All Low_Shale_Low_Export_allpipe Year Capacity* Flows* %Utilization Capacity* Flows* %Utilization Capacity* Flows* %Utilization % % % % % % % % % % % % % % % % % % % % % % % % *BCM/y 57

58 Southern Corridor Utilization Factors in Term of Percentage (N_TRK N_ROM) All Low_Shale_Low_Export_allpipe Year Capacity* Flows* %Utilization Capacity* Flows* %Utilization % % % % % % % % % % % % % % *BCM/y 58

59 European Production 140 European Production in 2030 BCM/y ,48 116,83 Production in Norway declines due to new pipelines and US exports 80 Base Nordonly 60 49,47 49,4 All Low_Shale_Low_Export_allpipe ,89 14,89 16,74 16,72 12,25 12,22 8,94 8,94 2,98 2,98 1,48 1,47 N_GER N_ITA N_NED N_NOR N_POL N_ROM N_TRK N_UKD 59

60 European Consumption European Consumption in 2030 BCM/y ,58 130,27 109,89 110,52 Most European countries increase their consumption (cases left to right) ,39 93,48 Base 80 71,42 72,18 75,68 78,25 Nordonly All ,29 41,56 48,52 47,61 47,14 49,14 43,61 45,7 Low_Shale_Low_Export_allpipe ,98 0,98 N_FRA N_GER N_ITA N_NED N_NOR N_POL N_ROM N_SPA N_TRK N_UKD 60

61 Production Cost Function Production Cost Parameters, Maximum Production (MCM/d), and Prices ($/MMBTU) Producers Production cost parameters Maximum production mcm/d 2030 Producer prices lin mmq mmg ($/MMBTU) 2030 Wholesale prices ($/MMBTU) Norway Germany UK Poland At Norway, price (producer trader) is $5.53 /MMBTU 61

62 Counterflow Effect: Test Results from WGM Findings: Case Flow from Romania to Poland (BCM/y) Base test 4 Test 1 0 Test Test In the perfect competition case (market power =0), flow from N_ROM to N_POL reduces to 0 and no counterflow In the imperfect competition case (test 2 and 3), the flow from Romania to Poland increases corresponding to level of market power The greater the level of market power the trader has, the greater the flow 62

63 Nord Stream Pipeline Lubmin Vyborg Technical Information 1,224 km long 2 pipeline string (27.5 BCM each) 55 BCM/y full capacity Pipeline connects Vyborg, Russia and Lubmin, Germany through the Baltic Sea Gas source: the Yuzhno Russkoye field Source: stream_1_eng.jpg Project Timeline Month /Year Description April, 2010 Project started June, 2011 Line 1 completed (27.5 BCM/Y) November, 2011 Started transporting gas for line 1 May, 2011 Started construction line 2 (27.5 BCM/Y) April, 2012 Line 2 completed, total capacity is (55BCM/Y) October, 2012 Implement full capacity of pipeline (55 BCM/Y) 63

64 South Stream Pipeline Varna Anapa Technical Information 900 km long 4 parallel pipelines (15.75 BCM/each) 63 BCM/y full capacity Pipeline connects Anapa, Russia and Varna, Bulgaria through the Black Sea Project Timeline Source: south stream offshore pipeline Year Descriptions 2015 Start of Commercial Operation BCM BCM BCM BCM 64

65 Southern Corridor Project Technical Information This project will bring 16 BCM/y of natural gas from Shah Deniz 2 in Azerbaijan to Turkey Source: socar duo coup de grace to nabucco The Southern Gas Corridor is an initiative of the European Commission for gas supply from Caspian and Middle East to Europe Trans Anatolian gas pipeline project (TANAP) and Nabucco West were announced to bring gas to Europe on June 28, BCM/y will pass through Europe from Turkey to Bulgaria or Romania, and Turkey will retain 6 additional BCM/y Southern Corridor is expected to operate in

66 Applications

67 U.S. Liquefied Natural Gas Exports: Opportunity to Export 67

68 Project Timeline Implemented in WGM Nord Stream Pipeline Case Legend: Start Project Available Capacity Investment decisions 2010 Nord stream capacity = 0 Start building pipeline =55 BCM/y 2015 Nord stream capacity available = 55 BCM/y Investment decisions considered, additional capacity 11BCM/y every five years South Stream and Southern Corridor Pipelines Case 2010 South stream capacity = 0 Start building pipeline =15.75 BCM/y) 2015 South stream capacity available = 15.75BCM/y Additional BCM is started 2020 South Stream =63 BCM/y Consider 11 BCM/y for maximum expansion every five years 2010 Southern Corridor capacity = Start building 2 pipelines Line1 N_KZK N_TRK = 16 BCM/y Line2 N_TRK N_ROM =6 BCM/y 2020 Line1 N_KZK N_TRK = 16 BCM/y Line2 N_TRK N_ROM =10BCM/y Consider investment decisions, max pipeline expansion 20% of initial capacity for each line every 5 years 68

69 Source: online.co.uk/energy/uk/supply chain management in oil gas WGM Preliminary Results

70 Pipeline Capacity Expansion Low_Shale_Low_Export_allpipe 55,12 10,95 10,95 10,95 10,95 10,95 3,87 All 55,12 10,95 10,95 10,95 10,95 10,95 3, Nordonly 55,12 10,95 10,95 10,95 10,95 10,95 6, Nord Stream Capacity in BCM/y Nord Stream is expanded at maximum capacity expansion from 2020 to 2040 N_GER is treated as new hub of gas for Russia 70

71 Nord Stream Capacity Flows 120 Flows between N_RUW N_GER in BCM/y 111,78 111,78 109,53 109,53 105,82 105, ,31 95,31 84,80 84, ,28 74, ,26 53,26 63,77 63,77 Nordonly All Low_Shale_Low_Export_allpipe Flows through Nord Stream drops after 2040 under All case due to Southern Corridor project + South stream pipeline, and production level reach maximum production 71

72 Selected Russian Flows in 2030 (BCM/Y) N_RUW NordStream N_GER New pipelines provide flexibility to Russian delivery gas to Europe Russian production level does not significantly increase but flow patterns change greatly N_POL N_ROM N_UKR SouthStream 72

73 Selected Russian Flows in 2050 (BCM/Y) Nord Stream N_RUW N_GER The impact of new pipelines is becoming more pronounced in terms of flow bypassing Ukraine and Poland N_POL N_ROM N_UKR South Stream 73

74 U.S. LNG Export Status As of April, 2013 FTA application Non FTA application Total of all applications Approved Pending 29.9 Bcf/d (309.3 Bcm/y ) 28.5 Bcf/d (294.5 Bcm/y) 26.1 Bcf/d (269.7 Bcm/y) 2.2 Bcf/d (23.44 Bcm/y) 3.7 Bcf/d (38.2 Bcm/y) 26.2 Bcf/d (270.8 Bcm/y) FTA with the U.S. requires national treatment for trade in natural gas, including Australia, Bahrain, Canada, Chile, Colombia, Dominican Republic, El Salvador, Guatemala, Honduras, Jordan, Mexico, Morocco, Nicaragua, Oman, Peru, Republic of Korea and Singapore Source: U.S. Department of Energy ations.pdf