Energy Security of Supply and Russian-Ukrainian gas crisis: history, causes, lessons learned and strategies for Europe?

Transcription

1 Energy Security of Supply and Russian-Ukrainian gas crisis: history, causes, lessons learned and strategies for Europe? Manfred HAFNER Fondazione Eni Enrico Mattei (FEEM) 10th IAEE European Conference Vienna, 7-10 September 2009

2 Contents 1) The SECURE project 2) The role of Russian gas for Europe 3) Russia-Ukraine Gas crisis: history, causes, lessons learned, strategies for Europe

3 1) The SECURE Project

4 Project co-financed by the European Commission DG Research FP7 Comprehensive framework of all issues related to energy security including geopolitics, economic/regulatory and technical design of energy markets both inside and outside the EU Analysis of all major energy sources and technologies (oil, natural gas, coal, nuclear, renewable and electricity) from upstream to downstream (supply and demand side approach) Development of tools, methods and models (global and sectoral) to measure and assess security of supply Policy recommendations on how to improve energy security taking into account costs, benefits and risks of various policy choices Consortium of 15 major European research institutions Intensive Stakeholders consultations Duration: 3 years (39 months: January March 2011) Total Budget: 3.77 Million Euro

5 WP1. Methodological developments Definition of concepts and general methodology of the project WP2. Value of energy security Estimation of consumers risk aversion and willingness to pay for security WP3. Long term policy lines Qualitative analysis of energy policy options and scenarios for the EU WP4. Quantitative global models - Long term energy scenarios based on policy lines - Adaptation of the POLES model to include risk assessment - Development of energy risks assessment model (ERA) - Quantitative analysis of policy recommendations WP5. Models and tools by energy source 5.1. Oil 5.2. Natural gas 5.3. Coal 5.4. Nuclear 5.5. Renewable energy sources 5.6. Electricity - External supply - Internal supply 5.7. Impact of accidents and terrorist threats 5.8. Demand dimension of energy security - Geopolitical risks - Technical risks - Economic & regulatory risks WP6. Results and policy recommendations WP7. Stakeholders consultations and dissemination WP8. Scientific coordination WP9. Administrative management 5

6 SECURE partners PARTNER SHORT NAME COUNTRY Observatoire Méditerranéen de l Energie (Coord.) OME France Fondazione Eni Enrico Mattei (Deputy Coord. + Scientific Coord.) FEEM Italy Ramboll Oil & Gas RAMBOLL Denmark Lietuvos Energetikos Institutas LEI Lithuania Fraunhofer-Gesellschaft zur Förderung der angew. Forschung Fraunhofer Germany Joint Research Centre JRC Belgium Technische Universität Dresden TUD Germany Paul Scherrer Institut PSI Switzerland ERSE (ex CESI RICERCA) ERSE Italy Energy Research Institute - Russian Academy of Sciences ERI RAS Russia The University of Bath Bath United Kingdom Gulf Research Center Foundation GRCF Switzerland Centre for European Policy Studies CEPS Belgium Vienna University of Technology, Energy Economics Group TU-WIEN Austria Centre National de la Recherche Scientifique University Grenoble / LEPII CNRS France

7 2) The role of Russian gas for Europe

8 Gas Supply for EU-27 Cons. 545 bcm Imports 310 bcm (57%) Gas Supplies to EU-15 6,000 km Trinidad 330 4,000 km Venezuela ,000 km U.K. 700 Netherlands 1800 Algeria 4520 N 84 bcm Norway Norway 27% 3000 Libya 1310 Egypt 1660 SEMCs 73 bcm (23%) 56 bcm Algeria 8,4 bcm Nigeria SLibya ,5 bcm Egypt Other Africa 11 bcm Nigeria (4%) Iran Qatar Oman 800 Abu Dhabi 6000 NE 130 bcm Russia Russia % Turkmenistan bcm Gulf 2% SE

9 Russia holds the largest gas reserves worldswide (almost 1/3 of World total reserves) Gas Supplies to EU-15 Norway 3000 Russia U.K. 700 Netherlands ,000 km Trinidad 330 4,000 km Venezuela ,000 km Algeria 4520 Nigeria 3510 Libya 1310 Egypt 2100 Iran Qatar Oman 800 Abu Dhabi 6000 Turkmenistan 4860

10 All of Russia s gas export infrastructure is directed to Europe (mainly through Ukraine)

11 Proven natural gas reserves of Gazprom (tcm) 75% located in Western Siberia (Nadym Pur Taz) Source: Gazprom

12 Future Russian gas supply Some super-giant gas fields (Gazprom) In Western Siberia: Initial reserves Urengoyskoe (8,000+ bcm) Yamburgskoe (4,700 bcm) Zapolyarnoe (3,500 bcm) Medvezhye (1,800 bcm) «Big Three» (Urengoy, Yamburg, Medvezye) are in declining phase Braunfield management, rehabilitation of «Big Three» Development of deeper horizonts in existing NPT fields Development of satellite fields in NPT Independent producers Plus additional gas provinces: Barents Sea (Shtokmanovskoye: 4000 bcm) Yamal Ob Taz Bay Kara Sea, East Siberia/Irkutsk (Kovytka), Russia Far East (Sakha & Sakhalin) Import potential from Central Asia Difficult and expensive production conditions 2

13 Major upstream projects Shtokman Yamal Caspian offshore NPT Eastern Siberia & Far East Sakhalin

14 Russian gas production, bcm

15 Russian gas export potential, bcm 400,0 350,0 300,0 250,0 East 200,0 150,0 CIS Europe 100,0 50,0 0,

16 Different long-term gas demand projections for EU bcm 600 Bcm WETO (reference) WETO (carbon constraint) DG-TREN (reference) DG-TREN (soaring price) IEA (reference) IEA (low carbon)

17 Different gas demand projections for EU-27 New Energy Policy (NEP) IEA bcm Bcm NEP DG-TREN bcm bcm WETO (reference) WETO (carbon constraint) DG-TREN (reference) DG-TREN (soaring price) IEA (reference) IEA (low carbon)

18 Russia s Market-oriented flexible approach

19 Transport infrastructure from Central Asia

20 Russian potential gas imports Kazakhstan very oil rich reserves and potential three giant (oil) fields: Karachaganak, Kashagan, Tengiz gas underdeveloped, but good prospects for associated gas Turkmenistan the most important producer in the region Uzbekistan already an important producer, but mainly for the local market (population 26.5 million). in October 2008 Gaffney Cline & Associates presented the first results of Turkmen gas reserves audit. According to this research, the South Yoloten-Osman deposits, situated in the south-east of the country, contains 4 tcm of gas at the low estimate, 6 tcm at the best estimate making it one of the biggest gas fields in the world

21 Russian governmental policy in gas sector Increase domestic gas prices to the level of equal profitability with the export markets Stabilize or decrease share of gas in the energy consumption, especially in power generation Increase investments in resource base replacement and exploration Control the major fields by the state-controlled companies Increasing gas production Increasing utilization of associated gas UGSS renovation and development, including new regions in Eastern Siberia and Far East Increasing volumes of export to far abroad, decreasing volumes of export to CIS European or net-back parity prices for CIS Export markets diversification, entering the most profitable markets (including LNG)

22 3) Russia-Ukraine gas crises of 2009: history, causes, lessons learned and possible strategies for Europe.

23 Gas prices, $/1000 cm EU (spot) Ukraine (russian gas) Transit Ukraine Q EU (russian gas) Russia (Central Asian gas) the main route for Russian gas export since the USSR with huge storage capacities on the Ukrainian western border initial transit capacity 140 bcm, but decreasing due to the system`s aging and underinvestment regular transit conflicts as transit usually becomes a part of the price dispute on the Russian gas price for the Ukrainian domestic market Ukraine was importing ~ 50 bcm of gas from Russia (mainly Central Asian gas re-exported by Russia) with a huge discount to the European price

24 Gas Crises of January 2009: by far the most serious gas crises in the History of Europe Russia and Ukraine failed to agree (before the previous agreement expired on 31 december 2008) on a: Price for Russian supply to Ukraine Tariff for the transit of Russian gas to Europe Russian gas exports to Ukraine was cut on 1st of Jan 2009 Exports to 18 European countries were drastically reduced on Jan 6 and completely cut on Jan 7 In the Balkans: humanitarian emergency (part of the population unable to heat their homes); Significant economic problems (but not humanitarian) in several central European countries

25 Background on Ukraine Soviet Union break-up in 1991 Ukraine second largest country of the CIS Population : 46 million Largest single Russian gas customer Gas demand: ~ 60 bcm (in 2000: ~ 70 bcm) Gas Production: ~ 20 bcm (in 2000: ~ 20 bcm) Gas Imports: ~ 40 bcm (in 2000: ~ 57 bcm) 80% of Russian gas export to Europe (20% of EU gas imports) transit Ukraine

26 History of Ukrainian Gas Soviet Times 1) Infrastructure for Ukrainian industry and associated urban development was geared to gas as the main energy source 1960s: supply mainly from Ukrainian onshore gas fields 1970s: Ukrainian gas fields declined 1991: Ukraine was heavily dependent on Russian (west siberian) gas fields Ukraine has one of the highest energy intensive economies worldwide 2) Russia was completely dependent on Ukraine for its gas export to Europe 100% of export gas crossed the Ukraine no separation between the transit gas network and the domestic gas network Pipelines had been built on the assumption that the two Republics would continue to be part of the Soviet Union

27 History of Ukrainian Gas Post Soviet Times 3) Post Soviet economic slump in both Russia and Ukraine during highlightened the mutual dependence: For Russia: European gas sales were a crucial source of reliable income in hard times Ukraine (along with other CIS countries) struggled to pay for gas but had no way of replacing it as a fuel source

28 History of Ukrainian Gas During the 1990s: - Large scale gas deliveries to Ukraine at very low prices (which probably did not even cover cost of delivery) - Accumulation of Ukrainian debts to Russia linked to domestic non-payments - The resulting disputes lead Gasprom to cut off supplies to Ukraine on several occasions during the 1990s - Ukraine served itself with gas from the transit system - Russia pressured Ukraine to exchange equity in the transit network and storage capacity for gas debts

29 History of Ukrainian Gas In the late 1990s: Gazprom and the RF Gov. adopted two significant tactics to manage the Ukrainian gas trade: a) Encouraged Turkmenistan (2 nd largest CIS producer) to sell to Ukraine, freeing up Russian volumes for Europe b) Used a series of intermediary trading companies (Itera from 1998, Eural Transgas from 2003, RosUkrEnergo from 2005) (RosUkrEnergo: 50% Gazprom, 45% Dmitry Firtash, 5% Ivan Fursin)

30 History of Ukrainian Gas s 1) Economic recovery of Russia and Ukraine in the 2000s: allowed some improvement in this caotic relationship, raising the prospect that their post-soviet politicised horse-trading could be converted into commercial relationship 2) From 2002, World oil prices rose steadily, and so did European gas prices Differential between European prices and those charged to the CIS countries widened sharply Gazprom called for CIS prices to be raised to the level of European Netback 3) RF Government influence was responsible for the Netback Principle to be applied unevenly: Countries which agreed to share ownership of their pipeline system with Russia (eg. Belorus and Armenia) were able to negotiate much longer timetables for import price increases Gazprom was allowed to raise prices more rapidly in countries whose governments showed a hostile attitude towards Moscow (e.g. Georgia and Ukraine)

31 Jan 2006 Russia-Ukrainian gas crisis Nov-Dec 2005: Orange Revolution (Yushchenko/Timoshenko <-----> Yanukovich) January 2006: Ukraine-Russia gas crises: - disagreement on prices - Russia cut off supplies to Ukraine for 3 days - Ukraine diverted volumes destined to Europe - Supply to some Central European countries fell briefly - Supplies were never cut off completely => Agreement: - little progress towards European net-back prices - ended barter deal - Gasprom buys all gas from Turkmen border, resells it to RosUkrEnergo, which ships and sells it to Ukraine plus 7-10 bcm/y to Central Europe - Prices: «Net-Forward» from Turkmen border export price

32 After the January 2006 events: Russia intensifies diversification of routes strategy (Nord Stream and South Stream) Nov 2006 RF Gov. declared intention to bring Russian gas prices to an equivalent level with European prices by 2011 (netback: transport export tax) : World oil price increase accelerated, so did European gas price => growing gap between CIS and European gas prices Jan 07: Russia-Belorus crises: - Belorus agreed to sell 50% of its transit network to Gazprom by 2010 and accepted a three year timetable for transition to European netback prices (67% in 2008, 80% in 2009, 90% in 2010) - Jan 2007: no major dispute with Ukraine

33 January 2009 Russia-Ukraine Gas Conflict In Jan 2009, transit of Russian gas through Ukraine was completely cut for two weeks. This dispute which should never have occurred had the two parties behaved completely rationally - will have long term economic consequences and will affect the reputation of both Russia and Ukraine as reliable suppliers and will increase interest in diversification projects (gas sources, gas routes, energy sources) Russia was continuing its policy of transferring to market gas prices with all former socialist partners Ukraine found itself in a deep economic and political crises by the end of 2008 The situation between Russia and Ukraine, involving Naftogaz Ukraine debt repayments for the Russian gas could have been called a draw in December In the beginning of 2009, however, it developed into a gas war also due to some Ukrainian domestic political interference On 19 January 2009 in Moscow Russia and Ukraine signed a 10 year contract (2009 to 2019): o Naftogaz will be buying Russian gas at the price formulae stipulated in Gazprom s European contracts, however, it has a 20% discount for o Transit rates for 2009 will remain at 2008 level: 1.7$/1000 m3/100 km. o For 2010, both the gas price and the transit fee will be renegotiated on the basis of the European standard. The new contracts are signed directly between Naftogaz Ukraine and Gazprom, bypassing the previous intermediary, RosUkrEnergo. With huge non-payments on the domestic market, paying for import is now a real challenge for Ukraine

34 Consequences for Russia and Ukraine Gazprom s reputation for reliability of supply has been severely and lastingly damaged Russian strategy: Ownership of Ukrainian transit system (by a consortium involving Ukrainian, Russian and European gas companies) Bypass pipelines (North Stream, South Stream) Ukraine s reputation as a reliable transit country has also been severely damaged. Moreover: Ukraine, due to the economic crises, might have difficulty to respect the Jan 20 agreements Political divisions persist in Ukraine (Yushchenko raised the issue of renegotiating the agreements in the week after they were signed) 17 Jan 2010: Presidential elections => Expect the «gas issue» to become a bargaining chip during election campaign destabilizing factor On the short term, Ukraine s dominant transport position gives it a strong position over price negotiations On the long term, if by-pass pipelines are build, Ukraine will lose both infuence and transit revenue income Ukraine s strategy: Reduce dependence on imported gas: energy saving measures, increasing own gas production (already attempted in the 1990s and 2000s, policies have failed because of political and economic weaknesses)

35 Russian view: New Pipelines in European Part Yamal- Ukhta Yamal- Yamburg Vidyaevo- Volkhov SRTO- Torjok Nord Stream Yamal-Europe Pochinki- Izobilnoe CAC South Stream CAC-3 Blue Stream II

36 Strong interdependence: EU & Russia Role of Russian gas for Europe Russia Role of gas export to EU for Russia 26% 25% Gas Export European Gas Consumption The Rest Russian Budget Revenues EU needs Russian oil and gas, their replacement is impossible. This dependence could be reduced only partially using other sources of hydrocarbon supply and nuclear & renewable energy This dependence is compensated by the Russian desire to assure its social-economic development. Sales of Russian hydrocarbons to EU are as necessary for Russia, as hydrocarbon imports for Europe Both partners don`t have any serious alternatives

37 Lessons learned for Europe The gas crises showed that the internal EU gas market does not function: a well functionning, well interconnected and more transparent internal EU gas market would allow to absorb much better possible supply interruptions

38 Strategies for Europe Europe needs Russian gas (and Russia needs European markets) 1. Short-Term: Focus mainly (but not only) on Central and South-East Europe: add interconnections add gas storage fuel switch capability add reverse flow capabilities in interconnection pipelines create regional coordination units to deal with future crisis (incl. cross border operation of pipeline and storage) joint operation of the Ukrainian gas transit system by European gas companies together with Naphtogaz and Gazprom (investment to rehabilitate the aging pipeline system, prevent undue offtakes, cheaper than building new bypass pipelines) build LNG receiving terminals in Central and South-Eastern Europe 2. Mid- to Long Term North-Stream South-Stream Large scale Caspian and Middle-Eastern gas to Europe through 4th corridor Trans-Saharan pipeline (Nigal) Pursue climate change policies: energy efficiency, nuclear, renewables, clean coal with CCS =>Properly assess the mid- to long term gas import requirements taking into account both SoS and CC considerations => «Secure Project»

39 Thank you for your attention