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Security of European Gas Supply What are the important issues for the future? Sylvie Cornot-Gandolphe Principal Gas Expert International Energy Agency GTE 2 nd Annual Conference, 23-24 September 2004. Outline. 1. European Gas Supply/Demand at a Turning Point - PowerPoint PPT Presentation
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SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY Security of European Gas Supply
What are the important issues for the future?
Sylvie Cornot-GandolphePrincipal Gas Expert
International Energy Agency
GTE 2nd Annual Conference,23-24 September 2004
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
Outline
1. European Gas Supply/Demand at a Turning Point Growing use of gas in the electricity mix Growing imports Imported gas-to-power
2. Major Security of Gas Supply Issues Growing import dependency/Access to resources Transit/facility concentration Substantial gas investment Investment drivers in open markets Market fragmentation
3. Conclusion
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
European gas supply and demand at a turning point
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
Gas Demand in OECD Europe
0100200300400500600700800
1971 2000 2010 2020 2030
mto
e
Other Industry Power
Source: World Energy Outlook 2002
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
OECD European Gas Balance
0
100
200
300
400
500
600
700
800
1990 2000 2010 2020 2030
Indigenous production Africa Transition economies Middle East Other
bcmbcm
Source: World Energy Outlook 2002
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
Imported Gas for PowerOECD Europe
0
100
200
300
400
500
600
700
800
Demand Supply Demand Supply
mtoe
OthersOthers
Industry
IndustryPower
Power
Production Production
Imports
Imports
2000 2030
Source: World Energy Outlook 2002
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
Drivers/Challenges for gas to power
Drivers for gas to powerEconomic growthBetter electric efficiency / environmental
performanceLow economies of scale / better fit to open
power markets
UncertaintiesGas/Electricity interface
More market response, but Risk of domino effect
Volatility of gas prices/high fuel costsContractual arrangements Taxation-CO2 price
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
Major Security of Supply Issues
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
Adequacy of Gas SupplyGlobal Gas Reserves by Regions (tcm)
World Total: 181 tcm as of 1 January 2003
56.4
71.5
7
13.8
16.9
7.5
7.5
World Total: 181 tcm as of 1 January 2003
56.4
71.5
7
13.8
16.9
7.5
7.5
Source: CedigazSource: Cedigaz
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
Access to Gas Resources
Revenue sharing: incentives for countries to develop their resources for export
Incentives for investment into export infrastructure
Financing and risk mitigationLong-term contracts - proven instruments
Adaptation to new competitive conditionsJVs/partnerships: integration along the gas
chain (physical and financial)Access to open liquid markets
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
Transit/Facility concentration
80% of Russian gas production from three fields (Urengoi, Yamburg and Medvezhye)
The Yamal-Nenets corridor transports 90% of Russian gas
Ukraine transits 80% of Russian gas exports to central and western Europe
Transmed (Algeria/Italy) transports 33% of Italian consumption
GME (Algeria/Spain) transports 30% of Spanish consumption
More than half of Norwegian production and exports from Troll and associated pipelines (Norway).
LNG: 11 regasification terminals in Europe
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
Substantial investment will be needed
0
2
4
6
8
10
12
14
16
18
2000 2001-2010 2011-2020 2021-2030
bil
lio
n d
oll
ars
per
yea
r
Exploration & development LNG regasification & liquefaction
Transmission & storage Distribution
Source: World Energy Investment Outlook 2003
Annual gas investment in OECD Europe
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
Price Signals in Open Markets
0
2
4
6
8
10
12$/
mil
lio
n B
TU
US Spot and Forward Prices – Henry Hub
Source: Energy IntelligenceSource: Energy Intelligence
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
Amber
Major pipeline and regas projects
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
Challenges for Investment in Open Gas Markets
Do not regulate when competition works US Hackberry decision: LNG terminals not subject to
TPA UK: LNG terminals/BBL exempted from TPA
When regulated, make sure the rate of return is competitive
Do not exclude long-term contracts auctions for capacity
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
Unbundling of Functions/Responsibilities
Multiple players, longer chains, more interfacesUnbundling between infrastructure and supply
Unbundling of responsibility Main responsibility vis-à-vis customers AND shareholders Responsibility for own customers, not the whole market Coordination of responsibility along the chain
Unbundling of investment decisions Transportation capacity to fit future supplies Investment incentives for a regulated private business Investment in insurance assets (for low-probability/high-
impact events)
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
Conclusion
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
Key messages
The European (and global) supply and demand balance is at a turning point
Markets play their role but cannot play it alone
Governments have an important role: To define clear security of supply policy objectives
(for both supplies and infrastructure) To define clear responsibility of the various
stakeholders To ensure consistency of the regulatory framework
with policy objectives Leave instruments to the market players
Mix of supply-side instruments, storage, demand-side response, spot and trading instruments
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
SECURITY OF GAS SUPPLY IN
OPEN MARKETS
LNG AND POWER AT A TURNING POINT
INTERNATIONAL ENERGY AGENCY
www.iea.org
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