The European Gas Market 2015-2020 Rodrigo Pinto Scholtbach Senior Gas Market Analyst International Energy Agency Paris 3th September, The Hague
Europe: an atypical market Growing demand / Increase of self sufficiency Declining - Stagnating demand/declining production Growing production / growing exports Growing demand and imports / Limited production Growing demand, growing production and imports Growing demand and production Large new LNG exporter Prices Demand/supply balance Suppliers 2020
Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 USD/Mbtu A New reality: Collapsing LNG prices Global gas price development in key regions, Apr 2009 - Feb 2015 25 Lower Asian demand 20 15 10 5 New LNG capacity online: Papua New Guinea, Algeria and Australia. Converging Prices 0 Henry Hub NBP Japan import price (average) Asian spot price Strong relation oil and gas prices: 80% of all contracts oil-indexed, production associated gas and major oil & gas companies
Gas demand is going to accelerate again due to lower prices bcm Trend of global gas demand, 2005-2020 4500 4000 3500 1.3 % 2 % 2.9 % 3000 2500 2000 1500 1000 500 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Very high import prices in 2013 and 2014 have undermined gas consumption growth, especially in the power sector. Several Asian countries took active steps to limit the share of gas usage in their power mix, using more coal.
98% of global gas demand growth outside Europe Regional share in incremental global gas demand growth, 2015-2020 Europe 2% Latin America 4% Africa 6% Non-OECD Asia 15% OECD Asia 2% FSU/non-OECD Europe 3% China 34% OECD Americas 13% Middle East 21%
The power sector drives global demand growth Incremental global gas demand by sector, 2015-2020 Energy Industry own use 5% Residential / commercial 9% Transportation 11% Power 48% Industry 27%
OECD Europe (without Turkey): slight recovery after a dramatic fall in demand bcm Trend of gas demand in OECD Europe 600 529 bcm -108 bcm -119 bcm 500 35bcm 445 bcm 421 bcm 410 bcm 400 300 200 100 0 1996 2010 2014 2020 Demand in weather-adjusted terms will show a mild recovery, mostly driven by the power sector. Also decommissioning of old coal power plants will contribute to a slight recovery.
USD/MWh Coal will keep affecting gas 80 Generation costs based on futures Gas, Coal and CO2 Average Price: Coal futures: 60 USD/per tonne Gas futures 7 USD/mbtu C02 Futures 7 USD/per tonne 70 60 50 40 30 20 10 Generation costs: Gas and CO2 round USD 45 /MWh Coal and CO2 around USD 32 /MWh 0 2010 2012 2014 2016 2018 Coal Gas
A different approach: the case of the UK Emissions Performance Standard (EPS) National Carbon Price Floor (2013) Capacity Market Mechanism A part of remaining 19 GW of coal power plant capacity will be reduced due to increase of Carbon Price floor from 9.54 to 18.08. Including the ETS price total price will be 23 per tonne. ( 32 per tonne CO2)
bcm Europe: the only region with a declining production Regional share in incremental production by 2020 140 120 100 80 60 40 20 0-20 - 40-60 200 bcm 50 % - 35 bcm OECD Americas OECD Asia/Oceania Middle East FSU/non-OECD Europe China Africa Non-OECD Asia Latin America EU 28 The only region with a declining trend is Europe, going down from around 254 bcm in 2014 to 217 bcm in 2020. Almost 50% of the incremental growth of the production will take place in the US, Canada and Australia.
The need to increase gas imports 35 bcm extra demand 35 bcm less production 2020 70 bcm extra imports Who is going to deliver the needed volumes?
The New Energy Union and the projects of common interest Midcat pipeline 7.5 bcm Algerian gas + LNG) Galsi pipeline 8 bcm Algerian gas Tanap/ Tap pipeline 16 bcm Online 2018 Azerbaijan Offshore gas Cyprus (Aphrodite field) & Israel (Leviathan field)
Russia has still capacity to deliver more gas supply when the European demand will be there Nord Stream 2 55 bcm Online 2019 Turk Stream 60 bcm Europe will remain the main destination of Russian gas. Around 120-130 bcm by 2020 With the extension of Nord Stream (consortium Gazprom, Shell, Germany's E.ON and Austria's OMV) and Turk Stream Russia aims to bypass Ukraine by 2019.
Second wave of additional LNG supply is coming soon Additional LNG capacity, 2005-2015 (bcm) 17 new projects with total export capacity of 175 bcm are under construction as of today, with Australia and the United States accounting for roughly 80% of total.
Is Europe going to cook on American shale gas? Some European companies have signed contracts for delivery of US gas. Contracts without destination clauses. Because of converging prices the destination could be Europe.
Global LNG Trade flows will shift: Europe ready to import 80 bcm by 2020 Change in LNG imports: 2014-20 (bcm) Capacity 180 bcm Capacity 200 bcm 50% 25% Capacity 220 bcm 40% 2010 2014 2020
An increasing import dependency but a more diversified portfolio Regional share in the supply of Europe, 2014-2020 LNG 9% North Africa 6% Domestic production 33% LNG 18% Azerbaijan 1% North Africa 5% Domestic productio n 25% Russia 29% Norway 23% Russia 29% 2014 2020 Norway 22%
Key highlights Global gas demand is projected to grow around 2% on average by 2020. The declining demand trend in Europe will stop and a slight recovery will take place Competitiveness of gas in Europe will be challenged again by other fuels such as coal. Europe options to diversify are limited, despite supportive policy of the European Union. Russian gas remains a large component of Europe s supplies, LNG is the only alternative. LNG imports will double by 2020. The bulk of new LNG supplies from Australia and the United States will provide more comforts to the market. LNG prices will remain relatively low.