OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme 1 Natural gas for Ukraine, Russia and Europe: where next? Simon Pirani Senior Research Fellow Oxford Institute for Energy Studies International Security Forum, Lviv, 16 April 2010
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Natural gas for Ukraine, Russia and Europe:
where next?
Natural gas for Ukraine, Russia and Europe:
where next?
Simon PiraniSenior Research Fellow
Oxford Institute for Energy Studies
International Security Forum, Lviv, 16 April 2010
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MAIN POINTSMAIN POINTSMAIN POINTSMAIN POINTS
The impact of economic crisis on the European gas market
The effect of crisis, and recovery, on Russia and other CIS producers
Ukraine’s gas trade after the 2009 ‘gas war’
Prospects for international cooperation
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Observed gas demand, OECD Europe Observed gas demand, OECD Europe (bcm)(bcm)
It may return to pre-crisis levels only in 2013-14 It may return to pre-crisis levels only in 2013-14Observed gas demand, OECD Europe Observed gas demand, OECD Europe (bcm)(bcm)
It may return to pre-crisis levels only in 2013-14 It may return to pre-crisis levels only in 2013-14
505510515520525530535540545550555560
2004 2005 2006 2007 2008 2009
Source: IEA
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Changes in the European marketOil-linked prices may not be with us forever
Changes in the European marketOil-linked prices may not be with us forever
Source: Howard Rogers (OIES), Atlantic Basin LNG / Argus, Gas Matters4
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Natural gas imports to OECD Europefirst nine months of the year, Bcm
Natural gas imports to OECD Europefirst nine months of the year, Bcm
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Russia lost market share
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A very different outlook for A very different outlook for Russia and GazpromRussia and Gazprom
A very different outlook for A very different outlook for Russia and GazpromRussia and Gazprom
Worries about a ‘supply squeeze’ have gone. Now Worries about a ‘supply squeeze’ have gone. Now there are questions about long-term demand. there are questions about long-term demand. Gazprom’s big projects are being delayed ...Gazprom’s big projects are being delayed ...
Gazprom will face competition in Europe from LNG...Gazprom will face competition in Europe from LNG...
Russia’s dominance in central Asia has been Russia’s dominance in central Asia has been undermined by the Turkmenistan-China undermined by the Turkmenistan-China pipeline ...pipeline ...
In Russia, Gazprom is under pressure from the oil In Russia, Gazprom is under pressure from the oil companies and Novatek ...companies and Novatek ...
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Main sources of supply to Russia’s Main sources of supply to Russia’s gas balance, 2008-2009 (bcm)gas balance, 2008-2009 (bcm)
Main sources of supply to Russia’s Main sources of supply to Russia’s gas balance, 2008-2009 (bcm)gas balance, 2008-2009 (bcm)
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Turkmen gas exports, 2008-2011 (bcm)Turkmen gas exports, 2008-2011 (bcm)Turkmen gas exports, 2008-2011 (bcm)Turkmen gas exports, 2008-2011 (bcm)
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Ukraine after the January 2009 Ukraine after the January 2009 ‘gas war’‘gas war’
Ukraine after the January 2009 Ukraine after the January 2009 ‘gas war’‘gas war’
• Nord Stream will be built and Nord Stream will be built and Ukraine’s bargaining power will be Ukraine’s bargaining power will be reducedreduced
• Ukraine will pay European-linked Ukraine will pay European-linked prices for imports prices for imports
• Gas consumption must be cut – by Gas consumption must be cut – by energy-saving, not industrial slumpenergy-saving, not industrial slump
• Production could be increasedProduction could be increased
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Russian gas export capacity to Europe up to Russian gas export capacity to Europe up to 2015: transit via Ukraine could be reduced2015: transit via Ukraine could be reduced
Russian gas export capacity to Europe up to Russian gas export capacity to Europe up to 2015: transit via Ukraine could be reduced2015: transit via Ukraine could be reduced
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Ukraine’s demand collapse, 2009 Ukraine’s demand collapse, 2009 monthly consumption, as % of same month in 2008monthly consumption, as % of same month in 2008
Ukraine’s demand collapse, 2009 Ukraine’s demand collapse, 2009 monthly consumption, as % of same month in 2008monthly consumption, as % of same month in 2008
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Demand destruction concentrated in industry, but slowly recovering since the spring
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importsPrice Import bill
2009 (est) 28.51 Bcm$231.12 (average)
$6.59 billion
2010 (proj’n)** 32.5 Bcm$290-300 (average)
$9.42-9.75 billion
Ukraine’s 2009 gas imports problem Ukraine’s 2009 gas imports problem was converted into a cash problemwas converted into a cash problem
... the IMF counted $3bn Naftogaz operating deficit as part of Ukraine’s fiscal shortfall
* Source: energy ministry, Naftogaz. ** Assuming oil at $70/bbl
But what will happen in 2010?
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Europe, Ukraine and Russia: Europe, Ukraine and Russia: areas of possible cooperationareas of possible cooperationEurope, Ukraine and Russia: Europe, Ukraine and Russia: areas of possible cooperationareas of possible cooperation
TRANSIT AND STORAGE: How could a consortium work to the benefit of all? Could Ukraine become a storage provider?
REDUCING CONSUMPTION: In industry, it will depend on sourcing investment Municipal services reform is hard (in Russia too) What about price reform, and Naftogaz structure?
INCREASING GAS PRODUCTION IN UKRAINE: What type of investment environment?
The more transparency, the better
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