Changing Oil Realities - Possible Medium Term Impacts on the EU Gas And Energy Developments Yaroslav Minullin Holger Rogner Manfred Strubegger Alaa Alkhatib Vienna, E-Control, 27 January 215
What has happened since the last meeting Geopolitics Russia vs. the IMF World Currency flux (Swiss frank, USD/EUR, Ruble) Infrastructure Oil SouthStream out TAP TANAP fixed Alternatives discussed Oil price dropped down more than 5% Some shale oil producers are below breakeven Investments in non-conventional and offshore dropping 1
GACs contribution and value Remember the slide from September 214 presentation? Preceding the High/Low Road Drastic deterioration of geopolitical relations: EU-Russiua From 4-regional EU-28 model to 8-regional model Motivation: ranging by access to gas infrastructure, renewables potential and green policy compliance Threats to logistics of Russian gas delivery Ukrainian PM announcement of closing the transit for Russian gas Continued blockade of the South Stream Careless policy and political messages, leading to additional escalation GAC is needed now more than ever in its history 8 WE ARE HAPPY GAC IS BACK! 2
Oil: capacity vs. price analysis OPEC Spare Capacity, its Proportion of World Oil Demand & Brent Price (real 215 terms, reverse axis) Source: Wood Mackenzie, 215 3
Oil: new price curves to introduce to the study Brent price required to retain current net debt levels in the near-term (215 216) INPEX, Santos and Repsol are in a capital-intensive phase of investment; execution success should drive strong cash flow growth in the second half of the decade. Tullow s options are further cuts in exploration spend and project deferrals; but asset sales are still key Source: Wood Mackenzie, 215 4
Given all that, we chose these oil and gas scenarios 14 12 1 8 6 4 Crude Oil Prices by scenario [$/boe] Oil price fixed at 4, 5, 6 and 8 $/bbl for 3 years. Afterwards approaches the earlier forecasts 2 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 226 227 228 229 23 4 $/b 5 $/b 5 to 85 $/b 8 $/b REF 214 Cheap Gas REF15 Gas prices are modeled with a linear regression coefficient, by country of origin with a lag of 1 year relative to oil prices 16 14 12 1 8 6 4 Average Gas Prices [EUR/GJ] 2 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 226 227 228 229 23 REF 6$/b Oil 4 Oil 5 Oil 5to85 Oil 8 REF 214 Cheap Gas Expensive Gas 5
Shaping scenario filed: dimensions and stress-points Essential Output: Gas TPES, Imports, Bill, 5 4 3 2 1 CO2 Scenario 3 CO2 Scenario Extreme low Oil Scenario 1 Oil Scenario 2 Extreme high CO2 Scenario 1 6
We were seeking answers to the following questions How would the EU energy system react to Short term, foreseeable shocks in oil price (3 years downtime, slow recovery) How would the current EU model (215 research state) react in extreme high and extreme low gas prices? If results are valid, what vectors do these extreme scenarios indicate for the EU and exporters (including Russia) What would it mean for natural gas in terms of : Indigenous EU production Use in power generation Final use Exporters revenue and infrastructure incentives What additional impacts on the EU energy system would the CO2 reduction policies (targets and taxes) deliver? Finally, is this crisis bearable for the EU and the gas exporting countries? 7
Planned and protocolled by GAC changes to the Integrated Modeling Environment Supply modeling Demand modeling Regional structure Introduction of the scenario field First glance at the results: high aggregation figures 8
European Regions North NW CW CE East ib South SE 9
Gas Import Routes 1
Indigenous Gas Connections 11
Prices and Restrictions Targe CO2 Oil Price ts tax trajectory REF-15 YES NO 6 $/b REF-14 YES NO 8 $/b (old) OIL 4 YES NO 4 $/b OIL 5 YES NO 5 $/b OIL 8 YES NO 8 $/b TAX 2 NO YES 6 $/b TAX 3 NO YES 6 $/b TAX 4 NO YES 6 $/b REF TAX 2 YES YES 6 $/b REF TAX 3 YES YES 6 $/b REF TAX 4 YES YES 6 $/b OIL4 TAX3 NO YES 4 $/b OIL5 TAX3 NO YES 5 $/b OIL8 TAX3 NO YES 8 $/b No Targets NO NO 6 $/b Cheap Gas YES NO 61 $/b Expensiv e Gas YES NO 62 $/b 14 12 1 8 6 4 2 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 226 4 $/b 5 $/b 5 to 85 $/b 8 $/b REF 214 Cheap Gas REF15 227 228 229 23 12
CO2 tax The Scenarios target 2 3 4 nolim oil price [Euro/boe] cheap 4 5 6 8 expens cheapg as oil4 oil5 REF oil8 Oil4Noli m Oil5Noli m NoCO2limit2 NoCO2limit3 NoCO2limit4 Oil8Noli m expenga s Additional scenarios: Africa FreeScen NoCrisis 13
Total Gas Imports to the EU 215 to 225 [bcm] 7 6 5 4 3 2 target 2 3 4 nolim 1 cheap 4 5 6 8 expens 14
Gas Imports from Russia 215 to 225 [bcm] 3 25 2 15 1 target 2 3 4 nolim 5 cheap 4 5 6 8 expens 15
Value of Gas from Russia 215 to 225 [bill EURO] 7 6 5 4 3 2 target 2 3 4 nolim 1 cheap 4 5 6 8 expens 16
CO2 tax CO2 tax CO2 tax In Numbers for 215 to 225 Total Gas Imports [bcm] oil price [Euro/boe] cheap 4 5 6 8 expens target 6518 5396 5365 5348 5285 412 2 5283 3 5387 4 5444 nolim 5386 5384 5317 Gas Imports from Russia [bcm] oil price [Euro/boe] cheap 4 5 6 8 expens target 2642 284 274 269 239 896 2 234 3 275 4 295 nolim 263 264 241 Value of Gas from Russia [billeuro] oil price [Euro/boe] cheap 4 5 6 8 expens target 37 519 544 573 633 422 2 563 3 572 4 577 nolim 51 538 633 17
Gas Use [bcm/year] (cheap and expensive gas scenarios) 3 25 2 15 1 Power Generation Industry & Others Service HH Transport 5 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 18
Oil market fundamentals and surrounding factors leading to the current crisis Detail results overview on the aggregated EU level Stress-testing: extreme scenarios for model 19
The international oil market - wither price of oil Lesson 1: The probability of occurrence of predicted energy trends is inversely proportional to the intensity of the underlying consent. (Henry Linden) Lesson 2: No running out in sight - Peak oil debunked. Note: Oil use will peak eventually but nor for reasons of scarcity Lesson 3: Economically recoverable reserves = f(market price, technology, demand, politics) 2
The international oil market - wither price of oil Lesson 4: Prices = f(demand, spare production capacity, investment, geopolitics (energy security), expectation [speculation]) Lesson 5: Prices costs short run versus long-run marginal cost 21
Oil market today Stagnating demand at best due to overall sluggish economic development Shale oil increased US oil output by 8% or 4 mmb/d versus 28 (remember North Sea & Mexico in the early 198s) Correction of the perverse situation that the lowest cost producers are the swing supplier Accelerating decline in rig counts for shale oil development & a general cut-back in capital outlays Some oil producing countries can weather the storm others encounter severe financial and budget shortages Volatile financial markets & exchange rates Uncertainty with respect to future environmental regulation 22
Oil market rebound Critical issues Change in Saudi leadership Turmoil in Nigeria Libya promising development halted Iran and Iraq Offshore developments around the world Short-run prices likely to stay low until new investments required Estimated transfer of $1.5 - $2 trillion from oil exporting countries to oil importing countries (D. Yergin) Stimulating economic growth and oil demand? 23
Crude oil prices, $/boe 14 12 1 8 6 4 2 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 226 227 228 229 23 4 $/b 5 $/b 5 to 85 $/b 8 $/b REF 214 Cheap Gas REF15 24
Average gas import prices, /GJ 16 14 12 1 8 6 4 2 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 226 227 228 229 23 REF 6$/b Oil 4 Oil 5 Oil 5to85 Oil 8 REF 214 Cheap Gas Expensive Gas 25
Mtoe Primary energy production: Ref15 9 8 7 6 5 4 Solar other Wind Biomass Hydro Nuclear 3 2 1 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 Gas Oil Coal 26
Mtoe Primary energy supply: REF15 25 2 15 1 5 Solar other Wind Biomass Hydro Nuclear Gas Oil 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 Coal 27
BCM Gas imports: Ref15 45 4 35 3 25 2 15 1 5 LNG USA LNG Rest World LNG Africa LNG ME LNG Norway Gas TAP Gas Afr Gas Nor Gas Rus 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 28
BCM Gas trade Russia to EU: REF15 2 18 16 14 12 1 8 6 Bel to North Bel to East Ukr to SE Ukr to East Rus to CE Rus to North 4 2 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 29
Gas use by sector: Ref15 BCM 6 5 4 3 2 Transport Households Services Industry & Others Electricity 1 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 3
TWh Electricity generation by fuel: Ref15 4 3 5 3 2 5 Solar Wind Biomass Hydro 2 1 5 1 5 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 Nuclear Gas Oil Coal 31
Mtoe Domestic primary energy production: CheapGas versus REF15 5-5 Solar other Wind -1-15 -2 Biomass Hydro -25-3 -35-4 -45-5 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 Nuclear Gas Oil Coal 32
Difference in gas imports: CheapGas versus REF15 BCM 14 12 1 8 6 4 2 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225-2 LNG USA LNG Rest World LNG Africa LNG ME LNG Norway Gas TAP Gas Afr Gas Nor Gas Rus 33
Gas trade Russia to EU: CheapGas vs REF15 BCM 7 6 5 4 3 2 1-1 Bel to North Bel to East Ukr to SE Ukr to East Rus to CE Rus to North -2-3 -4 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 34
Difference in gas use by sector: CheapGas versus Ref15 BCM 1 9 8 7 6 5 4 3 2 1 Transport Households Services Industry & Others Electricity -1 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 35
TWh Difference in electricity generation: CheapGas vs REF15 3 Solar 2 Wind 1 Biomass Hydro Nuclear -1 Gas -2 Oil -3 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 Coal 36
Difference in final energy: CheapGas versus Ref15 Mtoe 2 15 1 5-5 -1-15 Solar & other Heat Electricity Biomass Biofuel Gas Oil products Coal -2 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 37
Domestic primary energy production: ExpensiveGas versus REF15 Mtoe 6 Solar other 5 Wind 4 3 2 1 Biomass Hydro Nuclear Gas -1 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 Oil Coal 38
Difference in gas imports: ExpensiveGas versus REF15 BCM 15 1 5-5 -1-15 -2-25 LNG USA LNG Rest World LNG Africa LNG ME LNG Norway Gas TAP Gas Afr Gas Nor Gas Rus -3 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 39
BCM Gas trade Russia to EU - ExpensiveGas 16 14 12 1 8 6 Bel to North Bel to East Ukr to SE Ukr to East Rus to CE Rus to North 4 2 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 4
Gas trade Russia to EU ExpensiveGas vs REF15 BCM 2-2 -4-6 -8-1 -12-14 Bel to North Bel to East Ukr to SE Ukr to East Rus to CE Rus to North -16-18 -2 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 41
Difference in gas use by sector: ExpensiveGas vs Ref15 BCM 2-2 -4-6 -8 Transport Households Services Industry & Others Electricity -1-12 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 42
TWh Difference in electricity generation: ExpensiveGas vs REF15 2 15 1 5-5 Solar Wind Biomass Hydro Nuclear -1-15 Gas Oil -2-25 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 Coal 43
Difference in final energy: ExpensiveGas vs Ref15 Mtoe 8 6 4 2-2 -4-6 Solar & other Heat Electricity Biomass Biofuel Gas Oil products Coal -8 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 44