Global and Regional Fuels Markets: Implications for European … · 2017-12-08 · ITGI Trans-Adriatic Pipeline (TAP) South East Europe Pipeline Anatolian section of Nabucco South-Caucasus

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Global and Regional Fuels Markets: Global and Regional Fuels Markets: Implications for European Union Foreign Implications for European Union Foreign

PolicyPolicy

Discussion Presentation*Discussion Presentation*Brendan Devlin, DG ENER, European CommissionBrendan 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.

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In any scenario, we need more gas from outside of the EU……….

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While dependence on imported oil & gas rises in many countries,

Net oil & gas import dependency in selected countries

0%

20%

40%

60%

80%

100%

20% 40% 60% 80% 100%Oil imports

Gas Imports

United States

ChinaIndia

European Union

Japan20102035

20%Gas Exports

the United States swims against the tide Data Source: Gould, IEA 05/03/2013

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Europe 35 supply and demand balance [Gm3, 2005-2030] Comments

0

100

200

300

400

500

600

700

39195

2030202820262024202220202018201620142012201020082006

LNG importsDomestic production

Assump. Pipe imports (Others)

Pipe imports (Others)Assump. Pipe imports (RU)Pipe imports (RU)

Demand

. 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

[Gm3] Today

Source: Total S.A. Estimates, 5/3/2012More LNG, more pipes……

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Credibility of EU Climate Diplomacy

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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

0

2

4

6

8

10

12

14

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2007 2008 2009 2010 2011 2012

Dolla

rs p

er M

Btu

(201

2)

0

1

2

3

4

5

6

7

8

Mill

ion

tonn

es US steam coal exports to EU(right axis)

US gas price(Henry Hub)

Europe gas price(German import)

Data Source: Gould, IEA 05/03/2013

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Slide RES support – CO2 emissions

350

300

250

200

150

100

50

00 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000

2009

2010 +69%

+6%CO2

+172%

+5%

+15%

+2%

+30%

+3%

-11%

-18%CO2

CO2

CO2

CO2

CO2 emissions - Electricity and heat production - mln tons

RES elec.support

expenses-mln €

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Diplomats; who should you be talking to?

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Major global gas trade flows, 2010

Rising supplies of unconventional gas & LNG help to diversify trade flows, putting pressure on conventional gas suppliers & oil-linked pricing mechanisms

Major global gas trade flows, 2035

Data Source: Gould, IEA 05/03/2013

Focus on the old suppliers?

Or look to the new?

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.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?

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Pricing matters!

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Internal Market CommunicationBenefits of the internal gas market are materializing

Spot traded volumes up 27% Share oil-indexed contracts down 9%

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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?

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Lower prices in competitive and open markets

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A bigger role for gas in

foreign policy?

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IRAN.Isolated by sanctions.No transit to Europe.No connection allowed.Weakness in purchase

prohibition

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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?

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Additional SlidesAdditional Slides

21Source: Lloyds Seaborne crude oil trade map - 2009

OIL

22Source: EuracoalSeaborne Coal trade map - 2009

COAL

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Major gas trade movements

BP Statistical Review of World Energy 2012 © BP 2012

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Security - Impact of Jan 2009 gas crisisSEE particularly affected!

> 75 %

50 - 75 %

25 – 50 %

< 25%

0%

Ukraine

% of gas supply missing

Source: Gas Coordination Group, DG TREN

ESPT

NO

IT

SE

FR

FI

Russia

EI

PLGE

UK

CZ

BU

RO

Belarus

Turkey

LT

LV

EE

Ukraine

DK

GR

SIHU

SKAT

FYROM

SB

NLBE

BS

AL

LU

MN

HR

SW

Black Sea

25

Transmission at present

Source: ECA, SEE Regional Gasification Study, WB & KfW

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SEE Region particularly close to Caspian gas -privileged position

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The multiples options for the opening of the Southern Corridor should be prioritized using ranked objectives

• 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 riskCreating new dedicated physical infrastructure to import gas to the EU

• Increase wholesale competitionBringing new gas volumes to (new) gas hubs, fostering liquidity and competition in the wholesale markets

> 75 % 50 - 75 %25 – 50 %

< 25%

0%

% of missing gas supplyfrom 6 to 20 January 2009

Objectives (ranked by importance)

Source: European Commission

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 creation of Poseidon at early stage

Proposal consistent with (Nabucco) interconnector to Baumgarten

Proposal consistent with creation of TAP, SEEP & gasification of South East Europe

Proposal consistent with eventual construction of Trans-Caspian

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

Internal Market works as normal

Large volumes of Caspian gas at EU’s door

Routing

Cost estimate

• 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)

• 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

Strengths

Weaknesses

• 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

• Rely on the development of national grids in the Union and the liberalization of transit pipelines in Bulgaria and Romania

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FYROM

Existing projects for the opening of the Southern Gas Corridor

Nabucco ITGI Trans-Adriatic Pipeline (TAP)

South East Europe Pipeline

Upgrade of the BOTAS network (10bcm/a)

South-Caucasus Pipeline (SCP)

Trans-Caspian Pipeline (TCP)

Trans-Anatolian Pipeline (10bcm/a)

New infrastructure Existing infrastructure (upgrade)

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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 EUScalable and rationalized infrastructure developed outside the European Union

New infrastructure Existing infrastructure (upgrade)

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