Pricing, markets and investments SPM 9541 December 2010 Aad Correljé
Programme Visions on gas prices Gasmarkets Market prices? Pricing systems June 29, 2011 2
Dutch gas price to domestic households 10,2% 2,7% 12,9% 19,0% 55,2% Commodity VAT Eco-Tax Distribution Transport June 29, 2011 3 Gasunie
Hybrid gas pricing Production: Long term term Take or Pay, Destination clause, Net Back contracts Transmission: Cost plus Storage: Cost plus or. Distribution: Cost plus or. Retail: Oil parity pricing, market segmentation En Title Transfer Facility June 29, 2011 4
Market places NL GOS: bilateral, long term (1 y.), specific oil parity based contract TTF: bilateral, short term (1 m.), standard contract, gas-to-gas price TTF: APX, short term (1 d.), standard contract, gasto-gas price TTF: Endex, Long term future (1 j.), standard contract, gas-to-gas prijzen June 29, 2011 5
Consumer contracts via traders Contractprijs Variable prijs Max. prijs Prijs range Vaste prijs June 29, 2011 6 A. Correlje Marktprijs
Gas prices since 1993 June 29, 2011 7 Gasunie
Once there was a country. June 29, 2011 8 FERC
USA Gas Transport Infrastructure 5-10 major interstate Gas Infrastructure Companies
US Supply June 29, 2011 10
FERC Existing and Proposed North American LNG Terminals 27 32 20 33 19 18 As of July 21, 2005 29 26 5,31 6 D 2 1 28 8 11 23 36 9 34 35 12 30 37 E 14 13 17 * US pipeline approved; LNG terminal pending in Bahamas Office of Energy Projects C B A 10 25 21 7 24 15 38 39 22 3 4 16 US Jurisdiction FERC US Coast Guard CONSTRUCTED A. Everett, MA : 1.035 Bcfd (Tractebel - DOMAC) B. Cove Point, MD : 1.0 Bcfd (Dominion - Cove Point LNG) C. Elba Island, GA : 0.68 Bcfd (El Paso - Southern LNG) D. Lake Charles, LA : 1.0 Bcfd (Southern Union - Trunkline LNG) E. Gulf of Mexico: 0.5 Bcfd, (Gulf Gateway Energy Bridge - Excelerate Energy) APPROVED BY FERC 1. Lake Charles, LA: 1.1 Bcfd (Southern Union - Trunkline LNG) 2. Hackberry, LA : 1.5 Bcfd, (Sempra Energy) 3. Bahamas : 0.84 Bcfd, (AES Ocean Express)* 4. Bahamas : 0.83 Bcfd, (Calypso Tractebel)* 5. Freeport, TX : 1.5 Bcfd, (Cheniere/Freeport LNG Dev.) 6. Sabine, LA : 2.6 Bcfd (Cheniere LNG) 7. Elba Island, GA: 0.54 Bcfd (El Paso - Southern LNG) 8. Corpus Christi, TX: 2.6 Bcfd, (Cheniere LNG) 9. Corpus Christi, TX : 1.0 Bcfd (Vista Del Sol - ExxonMobil) 10. Fall River, MA : 0.8 Bcfd, (Weaver's Cove Energy/Hess LNG) 11. Sabine, TX : 1.0 Bcfd (Golden Pass - ExxonMobil) 12. Corpus Christi, TX: 1.0 Bcfd (Ingleside Energy - Occidental Energy Ventures) APPROVED BY MARAD/COAST GUARD 13. Port Pelican: 1.6 Bcfd, (Chevron Texaco) 14. Louisiana Offshore : 1.0 Bcfd (Gulf Landing - Shell) CANADIAN APPROVED TERMINALS 15. St. John, NB : 1.0 Bcfd, (Canaport - Irving Oil) 16. Point Tupper, NS 1.0 Bcf/d (Bear Head LNG - Anadarko) MEXICAN APPROVED TERMINALS 17. Altamira, Tamulipas : 0.7 Bcfd, (Shell/Total/Mitsui) 18. Baja California, MX : 1.0 Bcfd, (Sempra) 19. Baja California - Offshore : 1.4 Bcfd, (Chevron Texaco) PROPOSED TO FERC 20. Long Beach, CA : 0.7 Bcfd, (Mitsubishi/ConocoPhillips - Sound Energy Solutions) 21. Logan Township, NJ : 1.2 Bcfd (Crown Landing LNG - BP) 22. Bahamas : 0.5 Bcfd, (Seafarer - El Paso/FPL ) 23. Port Arthur, TX: 1.5 Bcfd (Sempra) 24. Cove Point, MD : 0.8 Bcfd (Dominion) 25. LI Sound, NY: 1.0 Bcfd (Broadwater Energy - TransCanada/Shell) 26. Pascagoula, MS: 1.0 Bcfd (Gulf LNG Energy LLC) 27. Bradwood, OR: 1.0 Bcfd (Northern Star LNG - Northern Star Natural Gas LLC) 28. Pascagoula, MS: 1.3 Bcfd (Casotte Landing - ChevronTexaco) 29. Cameron, LA: 3.3 Bcfd (Creole Trail LNG - Cheniere LNG) 30. Port Lavaca, TX: 1.0 Bcfd (Calhoun LNG - Gulf Coast LNG Partners) 31. Freeport, TX: 2.5 Bcfd, (Cheniere/Freeport LNG Dev. - Expansion) PROPOSED TO MARAD/COAST GUARD 32. California Offshore: 1.5 Bcfd (Cabrillo Port - BHP Billiton) 33. So. California Offshore : 0.5 Bcfd, (Crystal Energy) 34. Louisiana Offshore : 1.0 Bcfd (Main Pass McMoRan Exp.) 35. Gulf of Mexico: 1.0 Bcfd (Compass Port - ConocoPhillips) 36. Gulf of Mexico: 2.8 Bcfd (Pearl Crossing - ExxonMobil) 37. Gulf of Mexico: 1.5 Bcfd (Beacon Port Clean Energy Terminal - ConocoPhillips) 38. Offshore Boston, MA: 0.4 Bcfd (Neptune LNG - Tractebel) 39. Offshore Boston, MA: 0.8 Bcfd (Northeast Gateway - Excelerate Energy)
Utilization June 29, 2011 12
The gas market 13
TTF Gasprices 1,00000 0,90000 0,80000 0,70000 0,60000 0,50000 0,40000 0,30000 0,20000 0,10000 0,00000 Gasday June 29, 2011 14 15-1-2008 15-12-2007 14-11-2007 14-10-2007 13-9-2007 13-8-2007 13-7-2007 12-6-2007 12-5-2007 11-4-2007 11-3-2007 8-2-2007 8-1-2007 8-12-2006 7-11-2006 7-10-2006 6-9-2006 6-8-2006 6-7-2006 5-6-2006 5-5-2006 4-4-2006 4-3-2006 1-2-2006 1-1-2006 Gasunie Imbalance prices HGP /m3 Neutral Gasprice Imbalance prices LGP /m3 Neutral Gasprice Imbalance prices TTF price /m3 Neutral Gasprice
1-01-2003 1-01-2004 1-01-2005 1-01-2006 1-01-2007 1-01-2008 Million m3 Gas supply Daily volumes TTF 1 Jan 2003-9 Feb 2008 200 Traded volume 70 180 160 140 Net volume Number of active parties 60 50 120 40 100 80 30 60 20 40 20 10 0 0 June 29, 2011 15
Existing and potential gas hubs in Europe June 29, 2011 16 CERR
European Gas Infrastructure Companies Most transport companies are private and belong to integrated midstream players
Current pattern of supply June 29, 2011 18 Gasunie, 2000 The European gas market
Future pattern of supply? June 29, 2011 19 Gasunie, 2000 The European gas market
Market power: Reduces welfare Price (P) Pm demand Supply Monopoly supply Pe Dead-weight loss June 29, 2011 20 A. Correlje Qm Qe Quantity (Q)
Competitive market? Many suppliers Many consumers U-shaped average cost function Homogeneous product Full information No transaction costs Free entry and exit June 29, 2011 21
Producers June 29, 2011 22 EDI, 2007
Producers consume a lot June 29, 2011 23 EDI, 2007
Reality Complexity Uncertainty Strategic behaviour June 29, 2011 24
European Gas Supply/Demand Outcomes High Growth Gas Shortages DEMAND High Gas Prices Managed Market Low Gas Prices Low Growth 25 Tight SUPPLY Abundant MC Kinsey
Pressures that Can Change the Supply/Demand Outcome for European Gas High Growth DEMAND Gas Shortages High Gas Prices Coal Plants Selected Recession GASPEC Gazprom Efficiency Programs Yamal Delays Low Russian Domestic Market LNG Hiatus North Sea Independents Caspian Managed Market Constraints Infrastructure Delays 26 Low Growth Tight Sonatrach Controls Egypt/Libya exports Gas - Powergen Fuel of Default Norway Policy Iran Exports SUPPLY N American Unconventional Gas Low Gas Prices Abundant MC Kinsey
6) Gas markets as a globalizing system Transit issues become important Value chains stretches out over several (different) jurisdictions Systems of governance stem from different institutional traditions Variation in maturity and spatial characteristics of systems June 29, 2011 27