Global and Regional Fuels Markets: Implications for European Union Foreign Policy Discussion Presentation* Brendan Devlin, DG ENER, European Commission * Indicating that this presentation is not the official position of the Commission, and is produced to assist discussion only. Legal Disclaimer: This presentation uses information & slides from presentations made by other organisations/companies; where copyright is claimed, the presentation acknowledges the source and claims fair use. 1
In any scenario, we need more gas from outside of the EU. 2
3
Net oil & gas import dependency in selected countries Gas Imports 100% 80% 60% European Union Japan 2010 2035 40% 20% 0% China United States India Gas Exports 20% 20% 40% 60% 80% 100% Oil imports While dependence on imported oil & gas rises in many countries, the United States swims against the tide Data Source: Gould, IEA 05/03/2013 4
Europe 35 supply and demand balance [Gm 3, 2005-2030] Comments 700 600 500 400 300 200 100 0 [Gm 3 ] 2006 2008 2010 Today 2012 2014 2016 2018 2020 39 2022 2024 2026 2028 195 2030. Total s assumptions on contracts renewals for pipe imports are not sufficient to fill the European supply/demand gap. It is more than ever necessary to have Europe helping new pipe gas projects to secure supply for the European market.. Europe will increase its dependency on LNG and will have to compete with other regions Demand Pipe imports (Others) LNG imports Assump. Pipe imports (RU) Assump. Pipe imports (Others) Pipe imports (RU) Source: Total S.A. Estimates, 5/3/2012 Domestic production More LNG, more pipes 5
Credibility of EU Climate Diplomacy 6
Dollars per MBtu (2012) 16 14 12 10 8 6 8 7 6 5 4 3 Million tonnes US steam coal exports to EU (right axis) US gas price (Henry Hub) Europe gas price (German import) 4 2 2 0 2007 2008 2009 2010 2011 2012 1 0 Data Source: Gould, IEA 05/03/2013 At times in 2012, the EU gas import price was 5 times higher than the US price; this stemmed from the unconventional gas revolution & oil indexation in Europe 7
Slide RES support CO2 emissions RES elec. support expensesmln 350 300 250 2009 2010 +69% CO 2 +6% 200 CO 2 +15% +2% 150 100 CO 2 +30% +3% 50 0-11% +172% CO 2-18% CO 2 +5% 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 CO2 emissions - Electricity and heat production - mln tons 8
Diplomats; who should you be talking to? 9
Focus on the old suppliers? Major global gas trade flows, 2010 2035 Or look to the new? Data Source: Gould, IEA 05/03/2013 Rising supplies of unconventional gas & LNG help to diversify trade flows, putting pressure on conventional gas suppliers & oil-linked pricing mechanisms 10
11
.Market shifts East.Consumers become more identical in their outlook?.china integrates in value chain?.do other consumers need to 'act' to keep market liquid?» Talk to new suppliers» Alliances with consumers?» New approaches to international market governance? 12
Pricing matters! 13
Internal Market Communication Benefits of the internal gas market are materializing Spot traded volumes up 27% Share oil-indexed contracts down 9% 14
Russia/Norway.Impacts:» New sources of gas» New pricing methods Reduction of income to traditional suppliers Long-term; do they feature in the energy market at all?.first mover?» Norway Hub based pricing, no review contracts more than 50% in 2015 (Statoil 21/02/2013) moving to value and expansion of market share 2012 largest supplier to EU.According to reports, Gazprom to stick on oil index, review contracts at least for another 3 years (Tatiana Mitrovo 10/12/2012)» Gazprom determined to maintain profits with shrinking market share more friction? 15
Lower prices in competitive and open markets 16
A bigger role for gas in foreign policy? 17
IRAN.Isolated by sanctions.no transit to Europe.No connection allowed.weakness in purchase prohibition 18
EU Interventions in Geo-Strategy of Gas.Iran.Trans-Caspian.Southern Gas Corridor Policy.Energy Community Treaty.What's new?» Japan & Korea?» Brazil and East Africa?» Mechanisms for international liquidity? 19
Additional Slides 20
OIL Source: Lloyds Seaborne crude oil trade map - 2009 21
COAL Source: Euracoal Seaborne Coal trade map - 2009 22
Major gas trade movements BP Statistical Review of World Energy 2012 23 BP 2012
Security - Impact of Jan 2009 gas crisis SEE particularly affected! % of gas supply missing NO FI > 75 % 50-75 % 25 50 % < 25% 0% Ukraine SE EE Russia EI LV DK UK LT NL Belarus PL BE GE LU CZ Ukraine FR SK SW AT HU SI HR RO PT IT BS SB Black Sea ES BU MN FYROM AL Turkey GR Source: Gas Coordination Group, DG TREN 24
Transmission at present Source: ECA, SEE Regional Gasification Study, WB & KfW 25
SEE Region particularly close to Caspian gas privileged position 27
The multiples options for the opening of the Southern Corridor should be prioritized using ranked objectives Objectives (ranked by importance) Open a reliable and significant route for gas from the Caspian Region Bringing Azeri, Turkmen and/or Iraqi gas direct to the EU Improve Security of Supply in countries most hit by the crisis Diversifying the countries put most at risk in the 2006 and 2009 supply cut-offs Greater reduction of transit risk Creating new dedicated physical infrastructure to import gas to the EU Increase wholesale competition Bringing new gas volumes to (new) gas hubs, fostering liquidity and competition in the wholesale markets % of missing gas supply from 6 to 20 January 2009 > 75 % 50-75 % 25 50 % < 25% 0% Source: European Commission 28
Ideal case Large volumes of Caspian gas at EU s door Working Title Southern Corridor Pipeline Azerbaijan is privileged under this system Proposal consistent with (Nabucco) interconnector to Baumgarten Proposal consistent with eventual construction of Trans- Caspian Proposal consistent with creation of TAP, SEEP & gasification of South East Europe Internal Market works as normal Proposal consistent with creation of Poseidon at early stage Proposal not consistent with third party access in Turkey; i.e. no automatic right for Russia and Iraq to access system, but grandfather rights under Energy Charter
Large volumes of Caspian gas at EU s door Routing New 56 pipeline from Baku to BG/TK border (potentially run initially below nominal capacity - e.g. 10bcm/y - ) Azeri portion now agreed Georgian section to be agreed Gas would be transported in Europe through the national gas grid and interconnections (supported by EEPR) Strengths Achieves all the objectives while relying on gas interconnections in Europe Consistent with Azeri views of gas market development Big gas pipeline in Turkey able to serve all intra-eu Southern Corridor options Consistent with TCP mandate Compliant with expectations of TKM and AZ Serves South-Eastern European countries Could use strong legal framework of Nabucco IGA From TKM to EU one single system Cost estimate Total of ~10.5-12.5 bln for three segments: - Erzurum (TK) to BG/TK border : 7-8 bln - Nachbaku section: 2.5-3 bln - TCP: 1-1.5 bln Weaknesses Rely on the development of national grids in the Union and the liberalization of transit pipelines in Bulgaria and Romania
Existing projects for the opening of the Southern Gas Corridor New infrastructure Existing infrastructure (upgrade) FYROM Nabucco ITGI Trans-Adriatic Pipeline (TAP) South East Europe Pipeline Trans-Anatolian Pipeline (10bcm/a) Upgrade of the BOTAS network (10bcm/a) South-Caucasus Pipeline (SCP) Trans-Caspian Pipeline (TCP) 31
The Southern Gas Corridor should be opened with rationalized and scalable infrastructures using existing rights in Turkey and commercial intra-eu projects fostering security of supply in the European Union New infrastructure Existing infrastructure (upgrade) FYROM Connection to Baumgarten ITGI Trans-Adriatic Pipeline (TAP) South East Europe Pipeline Anatolian section of Nabucco South-Caucasus Pipeline (SCP) Trans-Caspian Pipeline (TCP) Intra-EU projects selected on a commercial basis, improving security of supply in the EU Scalable and rationalized infrastructure developed outside the European Union 32