Gas Pricing in Transi,on: different issues in different regions

Transcription

1 Gas Pricing in Transi,on: different issues in different regions Professor Jonathan Stern Chairman and Senior Research Fellow OIES Gas Programme UKERC Workshop: The Global Gas Challenge implica,ons for the UK Royal Geographical Society, February 28, 2012

2 OIES Natural Gas Research Programme WE ARE: A gas research programme at a Recognised Independent Research Centre of Oxford University, specialising in fossil fuel research Probably the only European academic research group focussed on natural gas. WE PRODUCE: independent research on na,onal and interna,onal gas issues WE ARE FUNDED BY: sponsorship by 19 companies and governments in gas producing and consuming countries WE ARE NOT: consultants, sellers of exclusive, high price business reports 2 Information about our Institute, our Programme and its publications can be found on our website: 2

3 OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme Published Work on Gas Pricing in The Transi,on to Hub- Based Gas Pricing in Con,nental Europe, Jonathan Stern & Howard Rogers The Pricing Debate over Russian Gas Exports to China, James Henderson Domes,c Gas Prices in Russia Towards Export Netback? James Henderson The Outlook for US Gas Prices in 2020: Henry Hub at $3 or $10? Michelle Foss The Impact of a Globalising Market on Future European Gas Supply and Pricing: the Importance of Asian Demand and North American Supply, Howard Rogers Natural Gas Price Vola,lity in North America and the UK, Sofya Alterman

4 OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme The Pricing of Interna,onally Traded Gas, ed. Jonathan Stern (forthcoming OIES/OUP 2012) 1. The Future of Gas in Global Energy Balances, Chris Allsopp 2. The Pricing of Gas in Interna,onal Trade an historical survey, Jonathan Stern 3. Natural Gas Pricing in North America, Michelle Foss 4. The Transi,on to Hub- Based Gas Pricing in Con,nental Europe, Jonathan Stern and Howard Rogers 5. Domes,c Gas Prices in Russia Towards Export Netback? Simon Pirani, James Henderson and Katja Yafimava 6. The Poli,cal Economy of Gas Pricing in Resource- Rich Countries Middle East, North and Sub- Saharan Africa, Hakim Darbouche

5 OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme The Pricing of Interna,onally Traded Gas, cont d 7. Pricing of Pipeline Gas and LNG in La,n America, Anouk Honoré and David Ledesma 8. Pricing of Pipeline Gas and LNG in South East Asia, David Ledesma 9. Gas Pricing in India, Anupama Sen 10. Gas Pricing in China, Michael Chen 11. LNG Pricing in Asia, Andy Flower and Jane Liao 12. The Interac,on of LNG and Pipeline Gas Prices: does greater connec,vity equal globalisa,on? Howard Rogers 13. The Gas Expor,ng Countries Forum: global or regional cartelisa,on? Anouk Honoré and Laura El- Ka,ri 14. Conclusions: globalisa,on, cartelisa,on or a con,nua,on of regional pricing? Jonathan Stern

6 Natural Gas Research Programme Analytical Problems of Gas Price Categorisation: the issue of regions l North America: US, Canada, Mexico (Caribbean?) l Europe: Great Britain, North West, Central, South (Spain, Italy, Balkans) l CIS: Russia, Western CIS, Central Asia l Asia: established markets (Japan, Korea, Taiwan), new markets (China, India) l Others marginal in global gas trade thus far: Latin America, Gulf, Sub-Saharan Africa, SE Asia, Pakistan All gas literature refers to geographical regions, but does this hold up analytically?

7 Natural Gas Research Programme Global Pipeline Gas and LNG Imports North America Europe CIS* Asia Four Regions % Total Imports Source: Cedigaz 7

8 Global LNG Imports Natural Gas Research Programme Asia Europe US Total Source: Cedigaz 8

9 Why Is There So Much Talk About Globalisation of Gas Markets? Natural Gas Research Programme Short Term LNG Imports by Region (Source: Cedigaz) Europe Asia North America Latin America Middle East TOTAL Spot sales were around 20% of total LNG trade by 2010; 5.5% of global gas trade 9

10 International Gas Prices Natural Gas Research Programme $/mmbtu Source: Howard Rogers OIES BAFA = Average German Import Price NBP = UK National balancing Point Price HH = Henry Hub US Price Brent crude Japanese cif LNG NBP 0 Jan- 07 Jul- 07 Jan- 08 Jul- 08 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 Jan- 12 Prices came together in 2007/08, by 2011/12 they had never been so wide apart! HH BAFA 10

11 Natural Gas Research Programme NORTH AMERICA: MAJOR PRICE LEVEL UNCERTAINTY 11

12 Natural gas price projections are significantly lower than past years due to an expanded shale gas resource base Natural gas spot price (Henry Hub) 2009 dollars per million Btu History 2009 Projections $9/MMBtu Updated AEO2009 AEO2010 $7/MMBtu AEO2011 Sources: EIA, Annual Energy Outlook 2011; EIA, Annual Energy Outlook 2010; and EIA, An Updated Annual Energy Outlook 2009 Reference Case AEO2011, April

13 North American LNG Receiving Terminals 10 in US, 1 in Canada, 2 in Mexico, 4 expansions under construction, 20 more approved

14 OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme CANADA: Kitimat, Douglas, Prince Rupert Is. = 14.4 mtpa US LNG Export Terminals Freeport (Texas) 9mtpa Marcellus Shales Texas and Louisiana Shales Cove Point (Maryland) 7.8mtpa Sabine Pass (Louisiana) mtpa Lake Charles (Louisiana) 15mtpa North 14 American LNG exports: 128 bcm/year of projects proposed

15 The US Gas Rollercoaster: Natural Gas Research Programme 1980s: US short of gas: prices are high, builds LNG terminals and imports but volumes are small 1990s: US gas bubble/sausage, prices are low, most LNG import capacity is mothballed Early 2000s: market becomes tight as conventional production begins to decline, prices begin to rise, huge LNG regas capacity >150 Bcm/year is built, starts to import significant volumes Late 2000s: unconventional gas boom, prices collapse and with them LNG imports US disconnects from the global market Early 2010s: regas holders start to re-export LNG and apply for permits to export starting in 2015 In 2011, conventional wisdom is that US could be exporting Bcm/year by late 2010s 15

16 Natural Gas Research Programme NORTH AMERICAN GAS PRICES IN THE 2010 s: $3 or $10/Mmbtu? NOBODY KNOWS (don t believe people who say they do!!) A RESPECTABLE CASE CAN BE MADE FOR BOTH PRICE LEVELS*; ECONOMICS AND POLITICS ARE COMPLICATED *US Natural Gas at 20 and Henry Hub at 2020: $3 or $10? Michelle Foss, OIES, December 2011; 16

17 Natural Gas Research Programme EUROPE: FROM OIL-LINKED TO HUB-BASED PRICING 17

18 General Problems of Oil Indexed Pricing in Europe: no longer logical or tenable for midstream players Natural Gas Research Programme ECONOMIC LOGIC: traditional netback market pricing based (largely) on oil products is no longer logical POSITION OF MIDSTREAM PLAYERS: a commercial situation where companies such as E.ON and RWE will make trading loss of nearly Euros 1Bn in 2011 is untenable Corporate and regulatory break-up of old gas structures eg E.ON Ruhrgas is well advanced

19 TTF (Hub) and Oil-Linked Contract Gas Prices, August 2010-January 2012 (Eur/MWh) Natural Gas Research Programme Source: Platts European Gas Daily Monthly Averages During 2010 and 2011, hub prices averaged 25% below oil-linked contract prices 19

20 EU gas suppliers which have accepted hub-based pricing Natural Gas Research Programme GASTERRA: l Seemingly little problem in converting to hub-based pricing l Determination to establish TTF as premier hub was an important driver? STATOIL: l Acceptance of hub pricing in principle (long experience of UK NBP) l Some (parts of) contracts converted to spot basis; ready to move to hub-based pricing any time but not eager to give up revenue until the time is right 20

21 EU gas suppliers which have not accepted hub-based pricing Natural Gas Research Programme SONATRACH: l Shortage of gas has meant refusal to sell at low spot prices and willingness to allow under-lifting of ACQ without take or pay penalty GAZPROM: l Leading the fight against hub prices: most visible, vocal, quotable opponent of changing the current system Some compromises on prices and volumes arbitrations/eu competition actions under way 21

22 Natural Gas Research Programme Long Term Gas Contract Transition: historical precedents l North American and UK gas markets moved to market pricing and away from long term contracts in the 1980s and 1990s l In both cases this was a horribly painful process which took 5-10 years to complete l Continental Europe is now facing the same changes which could be even more painful because most major sellers operate under a different legal/regulatory framework; could take a decade to complete with Russia and Algeria Possible cartelisation challenge in Europe? 22

23 Natural Gas Research Programme ASIA: JCC FOREVER, OR A TALE OF SEVERAL MARKETS? 23

24 Asian LNG Prices are Based on Japanese Imported Crude Oil Prices Natural Gas Research Programme l No significant signs of change (although some discussion) l Negotiations are about: l l the slope - how gas prices change in response to crude oil price changes the S-curve whether there is protection for the buyer at high oil prices and for the buyer at low oil prices l Prices reflect the era in which they were signed; by early 2010s, the range was very wide 24

25 Natural Gas Research Programme Possible Price Changes in Asia: established and new markets ESTABLISHED MARKETS (Japan, Korea, Taiwan): reluctant to move away from JCC pricing for security reasons; post-fukushima market situation may reinforce this NEW MARKETS: l China: domestic price reform plus mix of domestic and imported pipeline gas and LNG could create a Shanghai hub later this decade l India: less dependent on imported LNG; price reform may be key to unlock new domestic gas l SE Asia: unable to afford JCC-priced LNG (?) may create more spot trade at lower prices? 25

26 Natural Gas Research Programme Implications for the UK l UK gas supplies and prices will be increasingly influenced by: l what is happening across Continental Europe; in the February 2012 cold snap IUK kept exporting to the Continent despite prices touching 1/therm l what is happening in global LNG markets, especially in demand in Asia l Lead times for any new source of supply (North American LNG exports, shale gas) and substantial storage capacity, mean that the UK gas market has little resilience against tightening market conditions The UK will be increasingly subject to regional and global price changes and has little protection against volatility 26

27 UK Gas Imports and Price Volatility Natural Gas Research Programme Mmcm l l 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - Feb- 97 Jun- 97 October 1998: UK Interconnector opens, export/import flows begin Oct- 97 Feb- 98 Jun- 98 Oct- 98 Feb- 99 Jun- 99 Oct- 99 Feb- 00 Jun- 00 Oct- 00 Feb- 01 Jun- 01 Oct- 01 Feb- 02 Jun- 02 Oct- 02 Feb- 03 Jun- 03 Oct- 03 Feb- 04 Imports from Norway Imports from NL IUK Imports LNG Imports controlled volatility Volatility increases starting in October 2005 as, with the decline in domestic production, UK begins to rely on imported gas to mitigate seasonal variation in demand Volatility declines as global recession depresses demand and leads to an oversupply of LNG Source: Alterman, OIES October 2006: Langeled Pipeline from Norway to the UK is completed July 2005: Isle of Grain LNG importing terminal is completed Jun- 04 Oct- 04 Feb- 05 Jun- 05 Oct- 05 Feb- 06 Jun- 06 Oct- 06 Feb- 07 Jun- 07 Oct- 07 Feb- 08 October 2007: Ormen Lange gas field augments gas imports from Norway Jun- 08 Oct- 08 March 2009: first LNG tanker at South Hook import terminal Feb- 09 July 2009: first LNG cargo at Dragon import terminal Jun- 09 Oct- 09 Feb- 10 Jun- 10 Oct- 10 Feb % 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

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