Effects of Gas Deregulation in Europe. Chris Walters Gas Strategies Consulting Ltd. Monday 7 th June

Transcription

1 Effects of Gas Deregulation in Europe Chris Walters Gas Strategies Consulting Ltd. Monday 7 th June 1

2 Disclaimer The information on which this presentation is based derives from our own experience, knowledge, data and research. The opinions expressed and interpretations offered are those of Gas Strategies and have been reached following careful consideration. However, the gas business is characterised by much uncertainty and all of our comments and conclusions should be taken in that light. Accordingly, we do not accept any liability for any reliance which our clients may place on them. 2

3 Author Chris Walters Consulting Manager Gas Strategies In addition to managing Gas Strategies Consulting practice Chris is responsible for monitoring changes in the European energy market with a particular focus on liberalisation and regulation. He is also a key member of the team which produces gas and energy demand forecasts for our European Supply and Demand Service and contributes to numerous consulting projects. Recent assignments include a study examining the strategic response to liberalisation adopted by key European market players, a study on the development of the wider European gas market (25 countries) from 1990 to the present day and a study looking at LNG supply into Southern Europe and the potential for oversupply in the region out to Chris has a Ph.D. in economic history from King's College London. 3

4 Gas Market Liberalisation - Aims Aims [to create] a fully operational internal gas market, in which fair competition prevails EU Gas Directive 2003/55/EC to provide efficiently priced energy to all consumers thereby benefiting the European Union economy as a whole 4

5 Gas Market Liberalisation - Mechanisms 1 st EU Gas Directive 98/30/EC (June 1998) Key Provisions Non discriminatory access to gas infrastructure Accounts unbundling of monopoly activity Market opening timetable Dispute settlement authority Directive flawed failed push forward process 5

6 Gas Market Liberalisation Mechanisms II 2 nd European Gas Directive 2003/55/EC Addresses some key weaknesses in 1 st Directive Regulated Third party access now mandatory except for storage (Major Omission) Vertically integrated players now forced to separate monopoly businesses legally Market opening timetable brought forward Commission to benchmark progress annually Independent regulator to be set up in every country 6

7 Ranking of Market Opening by Key Indicators High Low D SW Fr Lux Irl Au NL Be Dk Sp It UK 7

8 Ranking by Market Share Indicators High Low Lux Sw Au It Dk Be NL Fr D Sp Irl UK 8

9 Liberalisation Matrix April 2004 High Ranking by Market Shares D SW Fr NL Au Sp It UK Low Low Ranking by Key Indicators High 9

10 Effects of Liberalisation So Far General view that despite progress, there remain too many barriers to a genuine competitive market However some progress has been made: Significant switching from incumbent suppliers in some markets esp. Spain Indications that gas prices particularly for large customers may be becoming more competitive evidence in published statistics though is still unclear Some incumbents increasingly under pressure in home markets from competition and legislative limitations on activity (market share restrictions) Companies increasingly looking outside home markets and core activity to mitigate risks at home 10

11 Strategic Response to Liberalisation Expansion by companies away from home gas markets Horizontal integration into electricity generation and sales Vertical Integration up and down the gas chain to secure supplies and market and mitigate risk Greater consolidation of companies operating in the European gas market - To date Merger and Acquisition Activity in the European utilities sector estimated at $328 billion 11

12 GDF Geographic Expansion and Horizontal Integration

13 E.ON Geographic Expansion and Horizontal Integration

14 Matrix of Horizontal and Vertical Integration versus Geographic Diversity HIGH Geographic Diversity OMV EDF Wintershall Gas Natural GDF Galp Suez E.ON ENI Edison RWE Centrica LOW Horizontal and Vertical Integration HIGH 14

15 Creation of Pan-European Energy Companies Is the creation of Pan-European Energy companies good or bad for the development of competition? Only time will tell The benefits of harmonising gas regulation may appeal to large companies operating across national boundaries But The risk that national monopolies will be replaced by a pan European oligopoly is a genuine possibility Regulation and the use of EU Competition rules will be the deciding factors 15

16 New Measures National regulatory authorities are not adequate to regulate a pan-european market The Madrid Forum provides a useful debate but carries no authority However two new initiatives could change the process The Formation in November last year of the European Regulatory Group for Electricity and Gas The proposed directive dealing with Cross Border Trade in Gas Also the Competition authorities have also been willing to show their teeth Ruhrgas and GdF Marathon settlement 16

17 Nirvana? Effective harmonisation of regulation across member states Effective regulation of cross border infrastructure Rigorous oversight and persecution of infringements of monopoly or cartel behaviour by national and EU competition authorities could lead to A fully functioning internal market for gas characterised by: Liquid trading hubs Gas on Gas pricing Entry Exit regimes Fair and transparent cross border capacity allocation UIOLI rules on all capacity Fair and transparent balancing regimes 17

18 Conclusions The Internal Market is moving slowly toward liberalisation Timing and extent will depend heavily on concerted regulatory pressure Competition authorities will play a key role Supply overhangs in key markets may boost competition on a temporary basis 18

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20 Supply Side Question EU 15 Imports by Source The EU 15 countries are dependent on imports for over 47% of total supply The EU 25 close to 50%. Import dependence is forecast to grow to 61% in 2010, 75% in 2020 and over 80% in 2030 Russia is currently responsible for 50% of imports to the EU % 0% Norway Russia Algeria Other 20

21 Supply Routes to Western Europe Current and Possible LNG Pipe Norway Russia & others Algeria Libya Iran, Turkmenistan, Azerbaijan Egypt & Middle East 21

22 Required New Supply v Potential New Projects Russia Yamal to Poland Nigeria Trans-Sahara to Italy Iran Iran 3-4 Russia Baltic to Germany Turkmenistan To Slovakia Iraq Turkey Corridor to Bulgaria Venezuela New Plant Iran New Plant Qatar New Plant Kazakhstan Kazakhstan to Slovak border Norway Baltic Pipe to Poland Libya New plant Egypt To Egypt-Libya-Italy Algeria GALSI to Italy/France Algeria New train Trinidad Atlantic 5&6 Iran Turkey Corridor to Bulgaria Turkmenistan Turkmenistan to Slovak border Norway Britpipe to UK Angola Train 1 Norway Snøhvit 2 Egypt BG Nigeria New plant Venezuela Trains 1-2 Norway Snøhvit 1 Qatar New trains Azerbaijan To Turkey/Greece/Italy Libya Green Stream to Italy Algeria Medgaz to Spain New Supplies Required 22

23 Estimated Supply Cost Curve NWE to 2020 Existing Technology 3.00 $/MMBtu 2.00 Pipeline LNG BCM 23