Russia s Changing Role in the Global Gas Market Dr. Tatiana Mitrova Head of Oil and Gas Department Energy Research Institute of the Russian Academy of Sciences Daegu June 18, 2013
1 1 CHANGING GLOBAL GAS MARKET: DEMAND 2 CHANGING GLOBAL GAS MARKET: SUPPLY 3 SO WHAT IS THE RUSSIA`S RESPONSE?
Global gas market development: less demand and more supply The balance of gas supply and demand in 2040 Source: Global and Russian Energy Outlook up to 2040. ERI RAS-AC. 2013. 2
No market niche in North America any more Gas balance in North America Source: Global and Russian Energy Outlook up to 2040. ERI RAS-AC. 2013. 3
Market niche in Europe: strong competition in the future Gas balance in Europe Source: Global and Russian Energy Outlook up to 2040. ERI RAS-AC. 2013. 4
Situation on the European gas market does not favor Russian exports Growing supplies of LNG Diversification of pipeline supply sources Supply Demand Lower than contracted volumes Recovers very slowly In the power sector gas is strongly competing with coal Spot volumes are increasing very fast (30-40% p.a.) Majority of the European stakeholders support transition to the spot pricing Pricing Regulation Unbundling Gas Target Model requires all gas to be supplied at the virtual hubs 5 5
Growing market in Asia, but Gas balance in North-East Asia Source: Global and Russian Energy Outlook up to 2040. ERI RAS-AC. 2013. 6
By 2020 there is no market niche in China, by 2030 the niche might reach 66 bcm bcm 600 Chinese gas contracts and gas balance Uncontracted niche 500 400 42 115 Central Asia contracts Other LNG contracts 300 Australia LNG contracts 200 Qatar LNG contracts 100 Indigenous production 0 2010 2015 2020 2025 2030 Demand -100 Source: ERI RAS 8
OECD Asia is already contracting the North American LNG bcm Japan and South Korea contracts and gas balance 200 180 160 34 50 140 79 120 116 100 80 60 40 20 0 2010 2015 2020 2025 2030 Source: ERI RAS Uncontracted market niche Others USA and Canada Russia Qatar Other Middle East Papua New Guenia Malasia Indoneisa Brunei Australia Indigenous production OECD Asia demand 7
9 1 CHANGING GLOBAL GAS MARKET: DEMAND 2 CHANGING GLOBAL GAS MARKET: SUPPLY 3 SO WHAT IS THE RUSSIA`S RESPONSE?
We don`t know the future US (and Canadian) LNG export volumes Mln. tonnes 140 Potential liquefaction capacities additions in the US and Canada 120 100 80 60 40 20 Goldboro Lelu Island BC LNG Douglas Prince Rupert Kitimat Astoria Cove Point Cameron Lake Charles Jordan Cove Corpus Cristi Freeport 0 2015 Source: ERI RAS 2016 2017 2018 2019 2020 Sabine Pass 10
US and Canada are already signing contracts for their LNG Mln. tonnes 60 50 40 30 Signed contracts for LNG supply from North America Contracts signed for LNG supplies to Europe: Centrica 1,75 mtpa (Sabine Pass) GDF Suez 4 mtpa (Cameron LNG Hackberry) Europe Европа Asia Азия Portfolio buyers (all markets) Портфельные покупатели (все рынки) 20 10 0 2015 2016 2017 2018 2019 2020 2021 2022 Contracts signed for LNG supply globally: BP 4,4 mtpa (Freeport) BG 5,5 mtpa (Sabine Pass) Gas Natural Fenoza 3,5 mtpa (Sabine Pass) Gas Natural Fenoza 1,6 mtpa (Kitimat) Shell 4,8 mtpa (Kitimat) Sources: company data 12
New projects will make Australia LNG producer #1 by 2018 Mln. tonnes 90 Potential liquefaction capacities additions in Australia 80 70 60 50 40 30 20 AP LNG Gladstone QCLNG Prelude Wheatstone Ichthys Gorgon Pluto 10 0 2005 2010 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: ERI RAS Darwin NW Shelf 12
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Global LNG supply is expected to boom during the next decade Mln. tonnes 600 Global liquefaction capacities (existing and planed) 500 400 Other East Africa 300 US 200 Canada 100 0 Australia Existing Source: ERI RAS 13
There is enough gas to expand gas production by 2 tcm by 2040 at the production costs below 4 $/MBtu Gas supply curve (cost of production) Source: Global and Russian Energy Outlook up to 2040. ERI RAS-AC. 2013. 14
Regional equilibrium gas prices are expected decline, moving down average regional prices Average weighted regional prices* of gas * Weighted average price between the prices of long-term contracts linked to alternative fuels, and spot prices. Source: Global and Russian Energy Outlook up to 2040. ERI RAS-AC. 2013. 15
1 CHANGING GLOBAL GAS MARKET: DEMAND 2 CHANGING GLOBAL GAS MARKET: SUPPLY 3 SO WHAT IS THE RUSSIAN`S RESPONSE? 16
Evolution of the Russian gas export strategy: what will be the Russian response? Traditional strategy 1990-2002 Miller`s team strategy 2002-2008 Anti-crises strategy 2009-2013??? 2013-2020 Volume maximization, Price damping Price maximization and volume growth Minimal price adjustments acceptable for the consumers (price maximization in the new conditions), stagnating volumes Most probably price maximization One target market Europe Only pipeline gas One target market Europe Only pipeline gas Attempts to diversify markets (Asia) Strong desire to develop LNG Russian role dominant regional supplier Russian role dominant regional supplier Russian role regional swing producer Russian role global swing producer 17 16
Devil is in the details: new additional gas to Europe - where will it come from? Norway? US and Canadian LNG will be primarily targeted at the Asian markets Nigeria? Algeria? Azerbaijan? For East Africa Asian markets also seem to be more attractive Iran? Qatar? Chinese shale gas? Australian gas is going to be most expensive It is almost completely contracted for the Asian buyers Japanese methane hydrates? 18
Both for the North American and for East African LNG Asia seems to be much more attractive market Cost comparison for the US LNG sales $/MBtu to Europe and Asia 16 $/MBtu 16 Cost comparison for the East African LNG sales to Europe and Asia 14 14 12 2,55 Margin 12 2,8 Margin 10 0,55 Regasification 10 Regasification 8 6 Transportation 8 6 Transportation 4 Liquifaction 4 Liquefaction 2 0 Europe -2 Source: ERI RAS Asia Henry Hub price 2 0-2 -0,7 Europe Asia Production 19
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Existing long-term contracts guarantee stable sales volumes for Russia until at least 2022 bcm Contract volumes and supply volumes of Russian gas to Europe 200 180 160 140 120 100 80 ACQ Fact MCQ 60 40 20 0 Sources: Cedigaz, Gazprom, ERI RAS. 20
Eastern Gas Program: from discussion to the real investments Sources: Gazprom 21
Russian LNG projects: challenges and increasing competition Source: ERI RAS 22
Conclusion: Russian response» Russia is for the first time facing demand constraints on its export markets» European policy and market situation create no incentives to invest in additional gas supplies to Europe» There are strong commercial reasons for Gazprom to protect the oil indexation at least during the next 3 years, and there is strong political will to protect oil linkage» Russia will have to market more expensive gas from the new projects, revenue maximization seems to be more attractive» Russian gas export policy response so far includes three pillars: Price reviews with minor adjustments (remaining oil indexation as a basis) Eastern development LNG» Discussion on gas exports liberalization might be only for special cases and only under very strict control of the State 23
Contacts Energy Research Institute of the Russian Academy of Sciences "Global and Russian Energy Outlook up to 2040" http://www.eriras.ru/files/global_and_russian_energy_outlook_up_to_2040.pdf Nagornaya st., 31, k.2, 117186, Moscow, Russian Federation phone: +7 985 368 39 75 fax: +7 499 135 88 70 web: www.eriras.ru e-mail: mitrovat@rambler.ru 24