OXFORD INSTITUTE FOR FOR ENERGY STUDIES Natural Gas Research Programme A new narrative for gas Dr Thierry Bros Senior Research Fellow Argus Paris 25 September 2018
EU sentiment changed vis-à-vis gas Gas demand growing since 2014 Gas infrastructure is the batteries of the new energy system Complete electrification will not work Gas is not just a bridge fuel for renewables, but it has its own future in Europe EU hasn t stopped already all public funding for new interconnections Source: Florence School of Regulation 2
We need a new narrative for gas If the 2006-2014 efficiency boost can t be repeated, coal & oil will have to leave EU energy mix much faster Europe could profit from becoming the worldwide energy storage provider Change Directive 2009/119/EC designed at a time when oil was more relevant than today, the energy transition hadn t really started, and energy markets were not fully functional This Directive is neither fuel- nor technology-neutral Additional data: Foreign dependency LNG tightness Spare capacity 3
2006-2014 efficiency boost 1995 2006 2014 Source: BP Statistical Review, RichesFlores Research, Macrobond, thierrybros.com If this efficiency boost can t be repeated, coal & oil will have to leave EU energy mix much faster 4
Mt CO2/ Mtoe OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme CO 2 linked more to total demand than mix CO 2 vs Primary energy CO 2 per unit of energy used 150 100 50 0 (50) (100) (150) (200) (250) (300) (350) 2000 2002 2004 2006 2008 2010 2012 2014 2016 EU-28 CO2 emissions YoY change (Mt CO2) EU-28 primary energy consumption YoY change (Mtoe) 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 EU UK FR DE IT DK Source: BP Statistical Review, thierrybros.com 5
Customers are always better off Suppliers have to select low cost projects to be profitable More buyers & sellers Increases global liquidity LNG supply growth Competition Diversification Optionality Security of Supply Even if more expensive than pipe, a low cost LNG project can thrive 32% of trade and growing Impacts also storage 6
EU LNG use is already changing What matters is not the net but the gross load regas factor Source: Cedigaz 7
bcm bcm 1,000 900 800 700 600 500 400 300 200 100 Europe should use its storage 0 North America Production EU-28 Russia China Demand differently 25% 23% 21% 19% 17% 15% 13% 11% 9% 7% 5% Storage Storage/Demand (%) 800 700 600 500 400 300 200 100 Source: thierrybros.com, BP Statistical Review June 2018, Cedigaz (end 2016 data) 0 US Production EU-27 & Ukraine Russia Demand 35% 33% 31% 29% 27% 25% 23% 21% 19% 17% 15% Storage Storage/Demand (%) 8
EU & Ukraine gas storage Ukraine that could be used 8% EU unused 20% Ukraine used 9% Ukraine unused 6% EU used 57% Source: GIE, thierrybros.com 9
90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Brexit s impact on foreign dependency Foreign dependency pre and post-brexit EU-28 UK EU-27 2014 2015 2016 2017 Can this impact perceived SoS? Source: BP Statistical Review June 2018, thierrybros.com (Norway is foreign for all) 10
bcm 60 50 40 30 20 10 0 Gazprom exports and Europe dependency Gazprom's exports (bcm) Gazprom dependency (%) EU-28 dependency (%) EU-27 dependency (%) 100% 80% 60% 40% 20% 0% Source: Gazprom Export, BP Statistical Review, thierrybros.com 11
bcm Fictional 2021 scenario Nord Stream 2 full (55 bcm) & 50 bcm transit via Ukraine 90 80 70 60 50 40 30 20 10 0 Average: 41% 100% Gazprom's exports with NS2 (bcm) Gazprom dependency (%) EU-27 dependency (%) 80% 60% 40% 20% 0% Source: Gazprom Export, BP Statistical Review, thierrybros.com No demand growth - Gazprom pipe replaces Groningen cut (-12 bcm), Algerian pipe exports drop (-6 bcm) and displaces other pipe and LNG (-10 bcm) 12
$/Mbtu OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme Month-Ahead Gas Prices 12 10 8 6 4 2 0 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18 LNG tightness (AGC FOB - HH) Anea TTF HH LNG FID All contracts roll on 16th - month 1 (1-15) month 2 (16-31) Source: Argus Media, thierrybros.com 13
Major projects to come on-line Russia 18% Australia 23% (until 2021, on a FID basis) Others 7% Others 15% Israel 4% Azerbaijan 5% Iran 6% Australia 9% LNG capacity US 52% Russia 25% US 21% Iran 10% Egypt 15% Oman 5% Israel 6% Azerbaijan 9% Others 16% Russia 30% LNG only for North America & Australia No upstream project in Trinidad and Tobago & Peru (LNG producers) Pipe gas capacity Egypt 24% Source: thierrybros.com 14
bcm % of annual demand 200 180 160 140 120 100 80 60 40 20 0 Gas spare production capacity 2016 2017 2021e (assumimg 2015/2016 trend) Spare capacity (bcm) Spare capacity in % of world consumption 2021e (assuming 2016/2017 trend) Source: thierrybros.com Assuming transit via Ukraine unaffected, Groningen cap at 12 bcm/y & no major unconventional gas production in China 15 5% 4% 3% 2% 1% 0%
Short Med. Long After Boom & Bust Increase producer s rent 2008, 2011-2014, 2018 Very good Demand destruction 2007-2014 Impact on export volumes? New suppliers entering the market New competitors from 2016 Lower prices & higher demand 2015-2017 Delayed FID 16
Thank you thierry.bros@oxfordenergy.org Twitter: @thierry_bros 17