Global Natural Gas Market and Russian Gas Supply International Conference on Energy Security 14 March, 2006 David G. Victor November, 2004 Palo Alto, California Nadejda M. Victor Program on Energy & Sustainable Development Stanford University http://pesd.stanford.edu/
Global Gas Supply, Demand and Trade: History and Future Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 2
Gas Resources and Potential Demand White: where the lights are on, satellite imagery Blue Red : Gas resources, with increasing size (USGS) Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 3
Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 4
The Shift to Gas: World Primary Energy Supply to 2030 IEA-WEO, 2004 BCM (gas equivalent) 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1971 2002 2010 2020 2030 Commercial Renewables Nuclear Natural Gas Oil Coal Traditional Biomass Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 5
Kazakhstan Iraq Venezuela Turkmenistan Indonesia Global Gas Proved Reserves in 2004 179.53 TCM Algeria Nigeria USA Russia 48 TCM, 26.7% United Arab Emirates Saudi Arabia 6.75 TCM, 3.8% Qatar 25.78 TCM, 14.4% Iran 27.5 TCM, 15.3% Source: BP 2005 Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 6
Top World Gas Reserves Countries: Gas Production versus Gas Reserves and Production Ratio, 1980-2004 1000 USA Russia Gas Production (BCM) 100 10 Indonesia Turkmenistan Algeria Saudi Arabia UAE Qatar r Venezuela Kazakhstan Iran Nigeria 1 1 10 100 1000 10000 Gas Reserves/Gas Production Source: BP 2005 Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 7
Security of Russian Gas Supply 1. Supply and Demand in Russia Production faltering Russia s inefficiencies 2. Financial and investment performance 3. Prospects for Private Investment 4. Is Russian Gas Supply Secure? Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 8
Russia: Natural Gas Production, Export and Consumption, Historical Data and Russian Energy Strategy Projections (2010-2020) 700 600 Production Bcm 500 400 Consumption 300 200 Export 100 1985 1990 1995 2000 2005 2010 2015 2020 2025 Source: BP 2005, Энергетическая стратегия России на период до 2020 года Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 9
Production Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 10
Russian Natural Gas Production from Major Gas Fields: Historical and Projections 700 600 Total Production Deficit 500 BCM 400 Medvezh'ye Yamburgskoye Zapalyarnoe 300 200 100 Urengoyskoye 0 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 Source: IEA 2002, Stern, J.P. 2005 Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 11
Transmission (pipelines) Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 12
100,000 90,000 350,000 300,000 Russia: Gas Pipeline Mileage USA 250,000 80,000 70,000 Miles 200,000 150,000 100,000 Russia Miles 60,000 50,000 50,000 0 1940 1950 1960 1970 1980 1990 2000 40,000 30,000 20,000 10,000 The pipeline system is depreciated: 14% of trunk pipelines are less than 10 years, 38% are aged between 11 and 20 years, and 30% are aged between 21 and 33 years. 0 1940 1950 1960 1970 1980 1990 2000 Note: Russian gas pipeline throughput capacity rose: 1.2% in 2005; 1.9% is forecast in 2006, 1.2% in 2007 and 0.8% in 2008. Source: OPS On-Line Library, U.S. Census Bureau 2005 Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 13
Efficiency and Consumption Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 14
Gas Consumption Intensity of GDP versus Gas Consumption per capita, 10 1965-2002 Gas Consumption/GDP (cubic meters/'95us$) 1 0.1 0.01 Ukraine Belarus UK Germany Norway Japan Russia USA 0.001 0.01 0.1 1 10 Gas Consumption per capita (thousand cubic meters) Source: BP 2005, World Bank 2004 Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 15
Gazprom 101: Performance and Investment Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 16
Gazprom Performance 2004-2005 2004 (9M) 2005 (9M) % Europe Sales, 10e6 $US 10,942 15,141 38% Sales, bcm 113 116 2% Average price, $US/10e3 cm 132 181 37% FSU Sales, 10e6 $US 1,677 2,983 78% Sales, bcm 48 59 24% Average price, $US/10e3 cm 46 62 35% Russia Sales, 10e6 $US 5,956 7,553 27% Sales, bcm 209 211 1% Average price, $US/10e3 cm 29 36 24% Other Revenues Gas condensate & refineries 3,015 4,092 36% Transportation services 737 640-13% Other sales 1,318 1,620 23% Total Sales Revenues 23,645 32,028 35% OPEX -17,188-20,850 21% Net Profit 4,878 8,305 70% * Doesn't include the loan to take over Sibneft Net Debt -17,800-18,500* 4% Source: FINAM 2006 Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 17
The Gazprom s Investments Needs in 2006-2008 2008 (without M&A) Refurbishing Depreciated Pipelines ~ $2 bln. annually Paying for previous loans ~ $3 bln. annually The Irkutsk Oblast gasification ~ $1 bln. Baltic Pipeline ~ $5 bln. Kovykta Filed Development ~ $18 bln. Shtockman Filed Development ~ $20 bln. Yamal Filed Development ~ $50 bln. Gazprom s 2005 net profit ~ $11 bln. (annual basis) Gazprom's 2005 net debt (without the loan for Sibneft) ~ $19 bln. Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 18
Can Private Investors Fill the Gap? Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 19
Foreign Direct Investments versus Cumulative Gross Capital Formation, 1990-2000 50,000 45,000 40,000 China FDI inflows (millions of dollars) 35,000 30,000 25,000 20,000 15,000 Hong Kong Argentina Mexico Brazil 10,000 5,000 India Russia 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 Cumulative gross capital formation (10e6 1995 US$) Source: World Bank 2004, IMF 2004 Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 20
The Legal and Political Institutions 1. Production Sharing Agreements Only 30% or less of the explored resource deposits can be developed on PSA terms Use of domestic employees (a minimum of 80 percent of all staff) Use of domestically manufactured equipment (70 percent) 1,700 separate approvals are needed to launch a PSA 2. New Mineral Resources Law (draft) Federal ownership of all mineral and hydrocarbon resources Classification certain minerals as strategic raw materials Recall a license of any company even for defaults of minor significance The annual deposit cost evaluation and audits Moving from license-based mineral use to civil-law contracts Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 21
Gas Sector Reforms and Liberalization? 1. Price Reform Gas prices and electricity prices ratio in Russia is about 1/33 Industrial prices are around 20% of European import prices Energy Strategy: $40-41 per 1000 cm by 2006 and $59-64 by 2010 Regulated versus unregulated prices 2. Liberalization Rights of access for third parties An economically justifiable transmission tariffs Liberalization of export Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 22
Is Russian Gas Supply Secure? Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 23
45 40 35 30 25 20 15 10 5 0 European Gas Imports: Russia & Algeria % Algerian gas % Russian gas Bulgaria Czech Republic Finland France Germany Hungary Italy Poland Romania Slovakia Spain Turkey Others All Europe Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 24 % of Total Primary Energy Consumed Austria Source: BP 2005