Providing a secure natural gas supply for Europe

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Lionel Fox
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1 International Association of Oil and Gas Producers Providing a secure natural gas supply for Europe 3rd South East Europe Energy Dialogue on June

2 Who are OGP? International Association of Oil & Gas Producers: - Exploration and production - 67 companies + associations Members account for more than half of the world s oil output + about 1/3 of global gas production Courtesy of StatoilHydro Office in London for global affairs since 1974 OGP Europe in Brussels representing some 30 OGP members active in Europe towards the EU since

The global energy challenge Improved access to modern energy for the world

equivalent Other REW Hydro Nuclear Biomass Growing demand for energy to be

Gas Oil Low CO 2 energies, sustainable CO 2 storage 3 Climate Change 80

3 The global energy challenge Improved access to modern energy for the world More people 320 World Energy Demand Growth Billion tonnes oil equivalent Other REW Hydro Nuclear Biomass Growing demand for energy to be met by fossil fuels in the short term More energy per person Gas Oil Low CO 2 energies, sustainable CO 2 storage 3 Climate Change 80 Million bbl oil equiv/ day IEA 2008 (reference case) Coal

4 World gas production Billion cubic metres Asia Pacific Africa Middle East Europe Caspian Russian Fed. S & C America North America Global reserves are equal to about 60 years of current production Russia, Iran and Qatar hold 56% of the world s gas reserves Discoveries continue to exceed production World natural gas production is projected to rise: tcm in tcm in BP Statistical Review 2009 IEA World Energy Outlook

World reserves of natural gas 56.76 30.7% 8.87 4.8% 6.13 3.3% 14.65 7.9% 75.91 41.

5 World reserves of natural gas % % % % % % % World Total estimated at tcm BP Statistical Review

6 European energy demand Improved access to modern energy through interconnectors Security of supply Million tonnes oil equivalent Other REW Hydro Nuclear Biomass Demand for energy still largely met by fossil fuels Energy efficiency Gas Oil 500 Low CO 2 energies, sustainable CO 2 storage 6 Climate Change IEA 2008 (reference case) Coal

Europe Gas Supply and Demand bcm/yr Europe Gas Supply Demand bcm/yr 50 Europe Gas New Imports 100 Growth/Yr 2005-2030 0.

7 Europe Gas Supply and Demand bcm/yr Europe Gas Supply Demand bcm/yr 50 Europe Gas New Imports 100 Growth/Yr % 40 Near Term Demand is met 80 Demand Contracted Pipeline Contracted LNG New projects/ New sources ExxonMobil 7 Local Production Unconventional 10 Pipeline LNG Projects - existing & under development

8 Europe Supply Diversity 2008 Supply (~570 bcm/yr) N. Africa Caspian/ Middle East 2030 Supply (~720 bcm/yr) 2030 Capacity (~930 bcm/yr) Russia (Ukraine) Russia (Belarus) Russian (Other) Spare LNG Capacity LNG Local Production Russia (Ukraine) Russia (Belarus) 8 ExxonMobil

9 European gas production Billion cubic metres Other Europe UK Romania Poland Norway Netherlands Italy Germany Denmark European gas production peaked in 2004 at close to 330 bcm Norway is Europe s leading gas producer, the sixth largest in the world Growth from Norway has not offset a rapid decline in UK output European production is predicted to decline: bcm in bcm in BP Statistical Review 2009 IEA World Energy Outlook 2008

10 Natural gas production in Russia / Caspian bcm Kazakhstan Turkmenistan Russia IEA World Energy Outlook 2008

11 Natural Gas to the EU by pipeline 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Other former USSR Russia Iran Algeria UK Norway Netherlands Italy Denmark The European Union will see the biggest increase in imported natural gas volumes Additional long-distance gas pipelines will be required to meet demand Planned pipeline projects bringing gas to the EU present significant technical challenges Huge investments that represent a substantial call on capital are required IEA Natural Gas Information % Mcm

12 Worldwide LNG Production Prediction bcm / y All data from IEA and production company sources

13 Competition for world LNG supplies 100 Europe North America Asia Pacific 1.0% 0.5% 3.7% LNG 40 Pipelines 20 European Production ExxonMobil

14 Challenges and Recommendations To secure the future natural gas supply for Europe, the following should be considered: 14

15 Stimulate Investment Economic and regulatory frameworks Encourage investments with differing risk profiles Recognise the role of Third Party Access exemptions European regulators should also take the external view Speed up permitting procedures High risk, high capital investments need long-term contracts Solidarity agreements should not distort the market Accurate pricing signals at all times Rules for supply and use of non economic capacity 15

16 European Production Good communications with producers Promoting European production will promote production flexibility Claim the benefit of existing infrastructure Encourage unconventional gas Access to exploration acreage Promote development of marginally economic fields Promote proportionate application of environmental rules Flexible and attractive licence conditions 16

17 Technology development Less than half of the remaining natural gas resources can be recovered with existing technology - New technologies are required to unlock the potential of unconventional oil and gas resources and to enhance recovery 17

18 The increasing technical challenge 18

19 Transmission Pipelines Capacities devoted to flexibility Linkages to sources of supply: - Storages - LNG terminals - Adjacent countries Interconnection network that has spare capacity available Tariffs that reflect uneconomic capacity and direction flow provision Diversification of gas supply routes to the EU from producing countries 19

20 Natural Gas Storage Recognise the strengths and weaknesses of different types of storage Reliant on pipelines for transportation to the consumer. If strategic stocks are held, clearly define the conditions of their use Arbitrary use of gas stocks will undermine the market and may result in a loss of confidence for investors in commercial storage Allow the market to see accurate price signals at all times 20

21 LNG Recognise the global nature of the LNG market Increase access to multiple sources of LNG Additional LNG supplies will facilitate regional trading platforms with transparent pricing mechanisms Ensure the compatibility of LNG re-gasification facility capacity and transmission networks Encourage flexible import capacity and recognise the risk profile of providing spare capacity 21

22 External Gas Supply Relations Develop interdependent relationships with non EU producer and transit countries Maintain an effective dialogue with producer countries Encourage access to and development of, non EU oil and gas resources and infrastructure Foster a framework for energy trade that focuses on the investment challenge Allow companies, investors and governments to make realistic and reliable analysis of risk and reward Promote legal stability, reliable institutions and respect for contractual agreements 22

23 In summary Demand growth Surplus capacity Foreign relations Access to resources Political stability Technology Costs Regulation Taxation 23

24 Thank you for your attention! About OGP. The International Association of Oil and Gas Producers (OGP) is the single association representing companies and associations engaged in the exploration and production of oil and natural gas both at global and at EU level, with offices in London and Brussels. At EU level, OGP represents members who are active in Europe. OGP Europe participates in the Berlin Fossil Fuels Forum as well as the Madrid European Gas Regulator Forum and it is the prime interlocutor for energy policy, environmental and other issues related to this industry. Globally, OGP membership accounts for more than half of the world s oil output and about one third of global gas production. OGP fosters cooperation in the area of health, safety and the environment, operations and engineering, and represents the industry before international organisations, such as the UN, IMO and the World Bank, as well as regional seas conventions, such as OSPAR, where it has observer status. 24

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