Implications of U.S. Shale Gas and Russian Pipelines on European Gas Imports
Steven A. GabrielUniversity of Maryland
Co‐authors: Seksun Moryadee , Hakob AvetisyanUniversity of Maryland
Oslo, Norway28 August 2013
Prepared for the Links Project Final Meeting
Organization of Talk
2
• Overview of WGM• A Study of Pipelines, Part of LinkS Project (Funded by the Research Council of Norway)
• No Nord Stream pipeline (Base Case)• Nord Stream pipeline only• South Stream and Southern Corridor pipelines• Nord Stream, South Stream, Southern Corridor pipelines combined with U.S. exports and shale gas in China
• Results
C3
T3
K1,2,3
C1Producer
T1Trader
K1,2,3
SectorsM1
Marketer
L1
LNG Node
S3S1
Storage R3
RegasNode
Country 1 Country 3
Transit countries
Representation of Gas Market in WGM 2012
T1 T1
M3
T1
PipelineT1
Producer Problem (Example of Market Players’ Optimization Problems)
Revenue Cost
Production Capacity
Reserve Limitation
• Producers maximize their profit• WGM distinguishes three type of producers for North America (Conventional, Shale, Unconventional)• Cost function (Golombek Cost function) differs for each producer
INDUSTRIAL
City GATE STATION
COMMERCIAL
RESIDENTIAL
DISTRIBUTION SySTEM
UNDERGROUND STORAGE
TRANSMISSION SySTEM
Cleaner
Compressor Station
GAS PROCESSING PLANT
GAS PRODUCTION
Gas Well
Associated Gas and Oil Well
Impurities Gaseous Products
LiquidProducts
ELECTRIC POWER LNG VESSEL
World Gas Model (WGM)
• Production/Consumption Nodes: 41 (Groupsof countries, countries, regions)
• Covers over 95% of worldwide consumption • 10 periods: 2005‐2050, calibration year 2010• Typical decision variables
– Operating levels (e.g., production, storage injection)
– Investment levels (e.g., pipeline, liquefaction capacity)
• Other– Market power aspects (traders )– LNG contracts database– Seasonality of demand: low and high demand– Environmental policy consideration: Carbon
costs for supply chains• Computational aspects
– Large‐scale complementarity problem (optimization conditions for all players + market‐clearing conditions)
– ~66,000 vars. Solves in ~95 mins (2GB, 1.2 GHz)7
Study Overview and Objectives
Overview of current situation and new infrastructure– Europe's dependence on Russian natural gas– Russian future strategies – Nord Stream pipeline– South Stream pipeline– Southern Corridor project– U.S. liquefied natural gas exports
Main questions, gauge impact of likely new production and transportation infrastructures in northern and southern Europe, specifically:
– The flows from Russia to Europe given new pipeline capacity– The utilization factor (capacity) Nord Stream, South Stream, and
Southern Corridor pipelines– The investment decisions to increase capacities after 2020 8
Europe's Dependence on Russian Natural Gas
Source: BP Statistical Review 2012
• About a quarter of European gas supplies comes from Russia, nearly all of it passes through Ukraine
• 13 countries depend on Russian gas more than 50% of their consumption
18.12.55
2.89 5.33 6.8840.54
9.28 2.62 5.66 4.91 23.527.3 30.7
3.3
15.4 8.6 2.563.95 0.3
0%10%20%30%40%50%60%70%80%90%100%
Natural Gas Imports from Russia* (BCM) and Percentage of Total Consumption in 2011
% import from Russia
9
3.6
*Number on the bar
Current Russian Situation
• The EU aims to help diversify gas‐supply routes in order to reduce the dependence on Russia of some of its member states*1
• Increase in mineral extraction taxes cost $2.2 billion more in 2011 for Gazprom*2
• LNG increases flexibility of suppliers for Europe (e.g., Qatar and Australia)
• Recent cold weather forced Russia to keep natural gas for domestic consumption
*1http://www.ecfr.eu/scorecard/2012/russia/21*2http://www.euractiv.com/energy/russias‐natural‐gas‐dilemma‐analysis‐512092
Russian Future Strategies for Natural Gas Trade
10
Russian Future Strategies
• Russia is diversifying export gas markets, focus on Asia to offset potential decline in supply to Europe*
• Russia is expanding LNG export capacity and will export more LNG to Asian markets
• Russia needs to maintain long‐term contracts• Russia is increasing flows between Russia and Europe
bypassing Ukraine
Russian Future Strategies for Natural Gas Trade
11
*http://www.prnewswire.com/news‐releases/russia‐diversifies‐gas‐export‐markets‐‐‐increasing‐focus‐on‐asia‐to‐offset‐potential‐decline‐in‐supply‐to‐europe‐168408306.html
European Natural Gas Pipeline‐Competing Projects
Source: The economist
• Four pipeline projects compete against each other (TANAP‐TAP‐TIGI‐Nabucco) to bring gas from Central Asia to Europe
• Nabucco shareholders now believe that only a smaller version of the pipeline is realistic
• Russia aims to build second Baltic sea pipeline to increase supply to Europe as well as to bypass Ukraine
12
U.S. LNG Export Status As of August, 2013
Total of all applications Approved Pending
FTA application30.62 Bcf/d
( 316.51 Bcm/y )29.93 Bcf/d
(309.38 Bcm/y)0.69 Bcf/d
( 7.13 Bcm/y)
Non‐FTA application
29.21 Bcf/d (301.93 Bcm/y)
5.6 Bcf/d ( 57.88 Bcm/y)
23.61 Bcf/d (244.0 Bcm/y)
Source: U.S. Department of Energy
FTA with the U.S. requires national treatment for trade in natural gas, including Australia, Bahrain, Canada, Chile, Colombia, Dominican Republic, El Salvador, Guatemala, Honduras, Jordan, Mexico, Morocco, Nicaragua, Oman, Peru, Republic of Korea and Singapore
http://energy.gov/sites/prod/files/2013/08/f2/Summary_of_Export_Applications.pdf
Sabine Pass Liquefaction contracts
Freeport LNG Expansion contractsCurrently, DOE approved three non FTA Export Applications:
• Sabine Pass Liquefaction (2.2 Bcf/d)• Freeport LNG Expansion (1.4 Bcf/d)• Lake Charles LLC (2 Bcf/d)
http://www.ogj.com/articles/2013/08/doe‐approves‐lake‐charles‐llc‐s‐lng‐exports‐to‐non‐fta‐countries.html
http://www.freeportlng.com/Liquefaction_Project.asp
http://phx.corporate‐ir.net/phoenix.zhtml?c=101667&p=irol‐presentations
U.S Exports Case (DOE Case): What If the U.S. Exports LNG 99 BCM/y to Asia and Europe?
16
West coast terminal
Gulf coast terminal
East coast terminal
2,900*
2,800*
5,100*
3,800*
5,600*
8,600*
24 BCM/y
24 BCM/y
27 BCM/y
24 BCM/y
*Distance in nautical miles
SOURCE: EIA 2011
UK
Spain
India
South Korea
Cases and Descriptions (as part of Links Study funded by Research Council of Norway)
Cases Abbreviation Descriptions
Base BaseBase Case without Nord Stream, South Stream nor Southern Corridor pipelines
Nordstream Nord Only Nord Stream pipeline available
All pipelines available All
Nord Stream, South Stream, and Southern Corridor pipelines available
Russian pipelines vs.U.S. LNG export Low_Shale_DOE_Export_All
Low Chinese shale gas production along with exports from U.S. plus all
Russian pipelines18
Base Case
NordOnly
All
Low_Shale_DOE_All
Nord Stream Case and Model Assumptions
Nord Stream Pipeline
• Nord Stream is built in 2010• Capacity reaches 151 mcm/d or 55
BCM/y in 2015 • Pipeline connects N_RUW (Russia west
node) and N_GER (Germany)• 20% of initial capacity is considered for
pipeline expansion (investment decision) every five years if necessary
• Only Russian trader can access this pipeline
19
Source:http://www.energia.gr/article_en.asp?art_id=26120
South Stream and Southern Corridor Case and Model Assumptions
South Stream Pipeline
• Build South Stream in 2010 ( 15.75 BCM/y)• Connect N_RUW (Russian West) and N_ROM
(Romanian node)• Potentially start operating in 2015 with 15.75
BCM/y• Potentially add more capacity, (47.25 BCM/y) in
2015• Potentially operate at full capacity (63 BCM/y)
starting 2020• Consider maximum pipeline expansion (20 % of
initial capacity) if necessary
N_RUW
N_ROM
201515.75BCM/Y
202063.0 BCM/Y
20
Southern Corridor
• Build two new Pipelines: – 1. Trans‐Anatolian gas pipeline project (TANAP* ) connects
N_TRK (Turkish Node) and N_KZK (Kazakhstan ‐Azerbaijan aggregated in this node) with capacity 16 BCM/y in 2015
– 2. Nabucco West connects N_TRK (Turkish Node) and N_ROM (Romania ‐Bulgaria and Greece aggregated in this node) with capacity 10 BCM/y in 2015
• Potentially start operating at full capacity in 2020• Consider maximum pipeline expansion 20% of initial
capacity (3.2 BCM and 2.0 BCM every five years respectively)
South Stream and Southern Corridor Case and Model Assumptions (cont’d)
Source:http://www.neurope.eu/article/Turkish‐president‐ratifies‐tanap‐agreement
N_TRK N_KZKN_ROM
Southern Corridor Project
TANAP16 BCM/Y16 BCM/Y10 BCM/Y10 BCM/Y
Nabucco West
21
U.S. Gas Exports vs. Russian Pipelines
All pipelines combined with U.S. Exports
• Nord Stream, South Stream, and Southern Corridor Pipelines available
• U.S. LNG exports already approved and under contract + pending DOE approval to Asia and Europe(March,2012)
• 24 BCM/y to India• 24 BCM/y to South Korea• 27 BCM/y to UK• 24 BCM/y to Spain
• Low level of Chinese shale gas production• Shipping Cost = $8/KCM/1,000 nautical miles
22
Base 21 BCM
DOE 99 BCM
Observed Model Outcomes for Russian Flows
23
Only Nord Stream Available Flows at the maximum capacity of Nord Stream
All Pipelines Available Decreasing flow from Russia to Europe via Nord Stream
U.S. dominates in LNG markets
Russia loses in LNG market, so it increases flows in all
pipelines
Regional Prices
2,77
8,03
9,78
10,61
5,15
11,75
3,80
8,60 8,67
2,71
7,77
9,7210,19
5,10
11,44
3,74
9,23 8,98
0
2
4
6
8
10
12
14
16
18
AFRICA ASPACIF CHINA EUROPE FRSVTUN JAPAN MIDEAST NRTH_AM STH_AM
Prices for 2030 in $/MMBTU
Base
Nordonly
All
Low_Shale_Low_Export_allpipe
24
‐ North America increases significantly under export case ‐ European prices drop about 30‐50 cents/MMBTU
European Prices
11,07 11,0410,72 10,65
12,2011,59
10,0610,36
8,99
10,4410,76 10,73 10,58 10,49
12,05
11,09
9,169,45
8,56
9,85
0
2
4
6
8
10
12
14
16
18
N_FRA N_GER N_ITA N_NED N_NOR N_POL N_ROM N_SPA N_TRK N_UKD
European Prices for 2030 in $/MMBTU
Base
Nordonly
All
Low_Shale_Low_Export_allpipe
• European prices drop under pipeline cases• Romanian price decreases about 1$/MMBTU due to two new pipelines under all pipeline case
• Spanish and UK prices are cheaper because of US exports
25
Impact of Increased U.S. LNG Exports: UK
26
Total LNG transported to UK (BCM/Y) in 2030 ( BCM/y)Base NordOnly All Low_Shale_DOE_Export_allpipe
T_ALG 12.63 13.23 13.21 8.74T_NIG 7.11 7.80 7.76 3.13T_RUS 6.12 1.32 1.58 0.00T_USA 7.50 7.50 7.50 26.12Total 33.35 29.85 30.05 37.99
Natural Gas Transported by Pipeline to UK in 2030 (BCM/y)
Base Nordonly All Low_Shale_Low_Export_allpipeT_NED 9.39 9.38 9.46 6.89T_NOR 28.3 27.64 27.76 25.47T_RUS 3.32 8.11 8.27 7.24Total 41.01 45.13 45.49 39.6
Base All Nordonly Low_Shale_Low_Export_allpipeUK consumption 90.39 91.42 91.25 93.48Domestic production 16.74 16.74 16.74 16.72Total imported by pipeline 41.01 45.49 45.13 39.6Total imported by LNG 33.35 29.85 30.05 37.99Total Supply 91.10 92.08 91.92 94.31
• U.S. gas exports (26 BCM) replace existing LNG under US export case
• Under U.S. gas exports UK imports less by pipelines compared to other cases
Dynamic Change in Markets
27
RUW Flows by Pipeline in 2045 BCM/y
RUW Flows by LNG in 2045 BCM/y
Note:Production capacity for N_RUW is set to 1700 MCM/d from 2035‐2050
U.S. LNG reduces Russian LNG in Europe
Russia loses European market share in LNG market
Therefore, Russia increases flows~1BCM by pipelines under Export case
Base: U.S. export7.49 BCM to UK4.60 BCM to SpainExport Case:26.11 BCM to UK22 .89 BCM to Spain
Base Nordonly All Low_Shale_DOE_Export_allpipeR_CAE 0 0 0 1.88R_FRA 3.03 0 0 0R_NED 3.21 0 0 0R_SPA 4.91 5.29 5.31 2.81R_UKD 8.98 2.85 2.58 0.36Total 20.14 8.14 7.89 5.07
Base Nordonly All Low_Shale_DOE_Export_allpipe
N_GER 0 111.77 109.17 109.53
N_KZK 12.22 12.22 12.22 12.22
N_POL 67.21 28.62 26.48 26.42
N_ROM 0 0 24.26 24.41
N_RUE 0 0 0 0
N_TRK 31 30.2 28.88 28.59
N_UKR 138.87 102.29 82.39 83
Total Pipeline Export 249.31 285.12 283.41 284.2
Base CaseEuropean Flows in 2030 (BCM/y)Wholesale Nodal Prices
N_RUW
N_GER
N_UKR
N_POL
N_ROM
N_TRK
N_KZK
N_FRA
N_NOR
N_UKD
N_SPA
16857
88.46
62.6
21.87
16.3
N_ITA
31.14
3.32
2.8
20.88
42.3
7.8
28.2
6.1
4.44
0
24.4
$11.04
$11.07
$10.72
$12.20
$11.59
$10.06
$8.99
$10.44
$10.36$3.47
$9.16
$3.30
28Sabine Pass level
4.65
7.49
$7.05*
• The prices shown here are trader selling prices (wholesale price)• At Norway, price (producer trader) is $4.50 /MMBTU
*This price does not include transportation cost
Base CaseSample Summarized Structure of Norwegian Natural Gas Market
29
20.88
42.3
7.8
28.2
N_GER$11.04
N_FRA$11.07
T_NORN_POL
$11.59
N_UKD$10.44
N_NOR
P_NOR
$12.20
$5.53*
• Decision to sell to domestic market or export made by the trader• Trader decides to export to other nodes when it is profitable• Existing traders at consuming node can insert market power and compete with other traders
*Producer selling price
Base Case
30
4.65 BCM
N_GER$10.36
T_USA
N_UKD$10.44
N_US7
P_US7
$7.05
$7.05*
*Producer selling price
7.49 BCM
• It is assumed that U.S. market is in perfect competition in WGM• U.S. exports to Europe from Gulf coast under contracts
Sample Summarized Structure of the U.S Natural Gas Export Market
European Flows in 2030 (BCM/y)Wholesale Nodal Prices
N_RUW
N_GER
N_UKR
N_POL
N_ROM
N_TRK
N_KZK
N_FRA
N_NOR
N_UKD
N_SPA
116
32
16.9
13.53
21.75
22.25
N_ITA
33.29
8.1
2.8
21.0242.3
7.6
27.6
6.1
84.79
NordOnly
4.6
0
24.4
$10.82
$10.87
$10.69
$12.14
$11.4
$10.03
$8.99
$10.27
$10.33$3.52
$9.15
$3.28
• Less Russian flows through N_UKR and N_POL (less than 30% of Base Case)• Prices in $/MMBTU, prices mostly decrease compared to the Base Case
(Turkey stays the same, Kazakhstan slightly increases)• U.S. gas stays only in UK or Spain (no flow out of UK and Spain)
31Sabine Pass level
4.65
7.49
$7.12*
*This price does not include transportation cost
European Flows in 2030 (BCM/y)Wholesale Nodal Prices
N_RUWN_RUW
N_GERN_GER
N_UKRN_UKR
N_POLN_POL
N_ROMN_ROM
N_TRKN_TRK
N_KZKN_KZK
N_FRAN_FRA
N_NORN_NOR
N_UKDN_UKD
N_SPAN_SPA
93.3
29.7
16.4
13.01
0
22.56
N_ITA
33.93
7.96
8.2
2.803
21.04
42
7
27.77
17.10
84.7
24.2
All
3.43
4
23.8
$10.81
$10.86
$10.65
$12.10
$11.16
$9.21
$8.62
$10.24
$10.33
$3.55
$9.16
$3.27
32
• Europe get more supply from central Asia• Flow between N_UKR to N_ROM equal to 0• N_ROM exports 4 BCM to N_POL • 5 additional BCM flow from N_FRA to N_UKDSabine Pass level
4.65
7.49
$7.23* *This price does not include transportation cost
European Flows in 2030 (BCM/y)Wholesale Nodal Prices
N_RUWN_RUW
N_GERN_GER
N_UKRN_UKR
N_POLN_POL
N_ROMN_ROM
N_TRKN_TRK
N_KZKN_KZK
N_FRAN_FRA
N_NORN_NOR
N_UKDN_UKD
N_SPAN_SPA
92.9
29.7
15.4
12.08
0
21.36
N_ITA
35.13
7.89
7.2
2.803
21.25
42.3
6.9
25.4
17.9
84.7
24.43.49
4
23.7
Low_Shale_DOE_All
$10.72
$10.75
$10.58
$12.05
$11.08
$9.15
$8.56
$9.85
$9.45$3.48
$9.09
$3.21
33
• Less supply from N_NOR and N_FRA sends to N_UKD due to U.S. LNG
DOE Level
$8.85 *This price does not include transportation cost
Conclusions and Findings:
• Nord Stream and South Stream pipelines reduce the flows through Poland and Ukraine (30% for NordStream case and 45% of All pipelines case)
• Nord Stream pipeline capacity is favorable and expanded almost all time periods for all cases, therefore the total capacity reaches more than 100 BCM/y in 2050
• South Stream pipeline capacity is not expanded as much due to Southern Corridor project and flow capacity
• Average European gas price drops 25 cents/MMBTU for NordStreamOnly Case and 40 cents/MMBTU for all pipelines case relative to Base Case
• U.S. gas exports do not significantly affect to Russia’s flows but reduce natural gas prices in importing countries (UK and Spain)
34
Conclusions and Findings:
• Southern Corridor project is preferable for pipeline operator more than South Stream due to lower investment cost (onshore vs. offshore)
• N_GER is considered to be a main hub which distributes gas to Europe when Nord Stream is available
35
Interesting Game Theory Counterflow Effect: Test Results from WGM
37
Counterflow under Allpipe Case
Assumptions: • Market power causes counterflows among nodes • We focus on only cycle of flows among N_GER‐N_ROM‐N_POL
• Market power level of existing traders at Poland is considered in this test
Three tests on WGM• Base Case, we use for reference• Test 1, market power is set to be zero for all existing traders
• Test 2, market power is set to be 0.5 for all traders• Test 3, market power is set to be 0.75 for all traders
Level of market power
Trader Base Test Test 1 Test 2 Test 3T_ALG 0.75 0 0.5 0.75T_NIG 0.75 0 0.5 0.75T_AUS 0.75 0 0.5 0.75T_RUS 0.75 0 0.5 0.75T_KZK 0.5 0 0.5 0.75T_NED 0.5 0 0.5 0.75T_NOR 0.75 0 0.5 0.75T_QAT 0.75 0 0.5 0.75T_YAM 0.75 0 0.5 0.75T_TRI 0.75 0 0.5 0.75
38
Counterflow Effect: Test Results from WGM
Counterflow Test 1 (market power for existing traders in Poland=0)
N_POL]
N_GER
N_ROM
14.2
3.09
0
$10.97
$5.91
$9.31
N_POL]
N_GER
N_ROM
20.28
3.63
2.21
$10.90
$10.75
$9.32
N_POL]
N_GER
N_ROM
22.5
3.63
5.73
$10.93
$12.2
$9.36
Counterflow Test 2 (market power for existing traders in Poland = 0.5)
Counterflow Test 3 (market power for existing traders in Poland = 0.75)
Trader Problem
Revenue
Transport Cost
Storage Cost
Natural Gas Cost
Contractual obligations
Storage Cycle Con
Loss
Trader• Buys gas from producer• Exerts market power• Controls usage of storage• Responsible for regulated and congestion fee
Storage Operator Problem
Revenue
Expansion cost
Injection Capacity
Extraction Capacity
Working Gas Capacity
Maximum ExpansionStorage Operator• Provides an economic mechanism to efficiently allocate storage capacity to traders• Maximizes the discounted profit resulting from selling injection capacity and extraction capacity to traders
Transmission System Operator Problem
Revenue Expansion Cost
Arc Capacity
Maximum Expansion
Transmission System Operator (TSO)• Provides an economic mechanism to efficiently allocate transport capacity to traders• Maximizes the discounted profit resulting from arc capacity to traders minus investment cost from expansion• Congestion fees “Tau” come from market clearing condition between TSO and traders
Net Imports and Exports
‐278,2
‐26,29
198,73
429,91
‐393,52
124,37
‐179,11
‐36,6
11,01
‐271,5
‐22,02
201,38
447,87
‐383,23
126,64
‐168,01
‐86,75
2,4
‐600
‐400
‐200
0
200
400
600
AFRICA ASPACIF CHINA EUROPE FRSVTUN JAPAN MIDEAST NRTH_AM STH_AM
Net Imports(+) and Exports(+) in 2030 BCM/y
Base
Nordonly
All
Low_Shale_Low_Export_allpipe
42
‐ North America displaces other natural gas exporters under export case ‐ European imports more gas for all cases compared to Base Case
Country Nodes for Europe In WGM
43
Node Country RegionGER Austria EuropeGER Czech Republic EuropeGER Denmark EuropeGER Germany EuropeGER Switzerland EuropePOL Baltic Region EuropePOL Finland EuropePOL Poland EuropePOL Sweden EuropePOL Slovak Republic Europe
FRABelgium and Luxembourg Europe
FRA France EuropeROM Bulgaria EuropeROM Greece EuropeROM Hungary EuropeROM Romania EuropeUKD Iceland EuropeUKD United Kingdom EuropeITA Italy EuropeITA Slovenia EuropeSPA Spain EuropeSPA Portugal EuropeNED Netherlands EuropeNOR Norway EuropeTRK Turkey Europe
PolandPolandNorwayNorway
TurkeyTurkey
FranceFrance
SpainSpain
UKUK
Germany
Germany
RomaniaRomania
ItalyItaly
NetherlandsNetherlands
WGM has 10 country nodes aggregated in Europe
Map source:http://www.yourchildlearns.com/online‐atlas/europe‐map.htm
44
Country Node for FRSVTUN In WGM
Node Country RegionKZK Armenia FRSVTUNKZK Azerbaijan FRSVTUNKZK Georgia FRSVTUNKZK Kazakhstan FRSVTUNKZK Turkmenistan FRSVTUNKZK Uzbekistan FRSVTUNUKR Belarus FRSVTUNUKR Ukraine FRSVTUNRUE Russia East FRSVTUNRUL Russia Sakhalin FRSVTUNRUW Russia West FRSVTUN
UkraineUkraine Russia WestRussia West
KazakhstanKazakhstan
Source:http://www.uga.edu/gm/602/FeatProtecting.html
Russia SakhalinRussia Sakhalin
South Stream Flows
15,79
21,16
23,0524,26 24,26 23,73 24,26 24,26
15,79
21,24
23,2224,42 24,42 23,90 24,42 24,42
0
5
10
15
20
25
30
2015 2020 2025 2030 2035 2040 2045 2050
Flows between N_RUWN_ROM BCM/y
All
Low_Shale_Low_Export_allpipe
45Flows through pipeline increase in small amount when the U.S. exports more gas to Europe
Nord Stream Utilization Factors in Term of Percentage
46
Nordonly All Low_Shale_Low_Export_allpipe
Year Capacity* Flows* %Utilization Capacity* Flows* %Utilization Capacity* Flows* %Utilization
2015 55.25 53.26 96.40% 55.25 53.26 96.40% 55.25 53.26 96.40%
2020 66.20 63.77 96.33% 66.20 63.77 96.33% 66.20 63.77 96.33%2025 77.15 74.28 96.28% 77.15 74.28 96.28% 77.15 74.28 96.28%
2030 88.10 84.80 96.25% 88.10 84.80 96.25% 88.10 84.80 96.25%
2035 99.05 95.31 96.22% 99.05 95.31 96.22% 99.05 95.31 96.22%
2040 110.00 105.82 96.20% 110.00 105.82 96.20% 110.00 105.82 96.20%
2045 116.21 111.78 96.19% 113.49 109.18 96.19% 113.86 109.53 96.19%
2050 116.07 111.78 96.30% 113.36 109.18 96.31% 113.73 109.53 96.30%
*BCM/y
European Net Imports and Exports
71,39
113,88
101,07
‐8,16
‐119,51
44,6934,99
43,62
74,25 73,6972,16
115,62
101,72
‐7,81
‐115,84
45,6237,05
45,69
76,84 76,82
‐150
‐100
‐50
0
50
100
150
N_FRA N_GER N_ITA N_NED N_NOR N_POL N_ROM N_SPA N_TRK N_UKD
European Imports(+) and Exports(‐) in 2030 BCM/y
Base
Nordonly
All
Low_Shale_Low_Export_allpipe
• New pipelines bring more supply from Russia to Europe but they affect other producers
• For those countries new pipelines go through, imports increase
47
Production
411,03
300,14
173,97227,31
1105,46
2,98
714,55760,5
278,21
405,28
299,27
173,96223,53
1103,75
2,98
707,48
779,79
278,43
0
200
400
600
800
1000
1200
1400
AFRICA ASPACIF CHINA EUROPE FRSVTUN JAPAN MIDEAST NRTH_AM STH_AM
Production in 2030 (BCM/y)
Base
Nordonly
All
Low_Shale_Low_Export_allpipe
‐ North America production increases about 20 BCM/Y‐Middle East production decreases under export case
49
Consumption
132,83
273,85
372,7
656,59
701,39
127,3
535,45
723,47
289,22
133,78
277,25
375,34
670,6712
129,56
539,48
692,58
280,84
0
100
200
300
400
500
600
700
800
AFRICA ASPACIF CHINA EUROPE FRSVTUN JAPAN MIDEAST NRTH_AM STH_AM
Consumption in 2030 BCM/Y
Base
Nordonly
All
Low_Shale_Low_Export_allpipe
50
‐ North America consumption decreases 70 BCM/y under export case ‐ European consumption increases about 3‐5 BCM
Pipeline Capacity Expansion
0 2 4 6 8 10 12
All
Low_Shale_Low_Export_allpipe
7,39
7,78
1,50
1,43
2,17
2,76
TANAP Capacity in BCM/y
2020
2025
2030
51• Total capacity expansion of this pipeline (decision variable in the
model ) is about 10 BCM/y compared to actual capacity (16 BCM/y)
Southern Corridor Flows
6,18 6,18 6,18 6,18 6,18 6,18 6,18 6,186,37
13,92
15,31
17,98 17,98 17,98 17,98 17,98
0
2
4
6
8
10
12
14
16
18
20
2015 2020 2025 2030 2035 2040 2045 2050
Flows between N_KZKN_TRK BCM/y
Base
Nordonly
All
Low_Shale_Low_Export_allpipe
52• Flows reach maximum capacity after 2030• This implies that more natural gas flows from central Asia to Europe
Pipeline Capacity Expansion
0 2 4 6 8 10 12
All
Low_Shale_Low_Export_allpipe
5,3436
5,21585
1,971
1,971
0,97455
1,13515
1,971
1,971
N_TRK and N_ROM Pipeline Capacity Expansion BCM/y
2020
2025
2030
2035
2040
2045
53
•This pipeline competes with South Stream•It is expanded for almost all time period due to cheaper costs (onshore pipeline)
Southern Corridor Flows
5,01
6,90
7,998,27
8,55
10,44 10,66
0
2
4
6
8
10
12
2020 2025 2030 2035 2040 2045 2050
Flows between N_TRK and T_ROM in BCM/y
Base
Nordonly
All
Low_Shale_Low_Export_allpipe
54
• This pipeline competes with South Stream by sending gas to N_ROM• U.S. exports do not affect the flows to N_ROM because there is no connection
from N_UKD and N_SPA to N_ROM
Pipeline Capacity Expansion
0 5 10 15 20 25
All
Low_Shale_Low_Export_allpipe
15,75
15,75
5,48
5,56
1,93
2,01
1,23
1,22
0,08
0,18
South Stream Capacity in BCM/y
2015
2020
2025
2030
2035
55
South Stream is not expanded as much due to the following reasons:1. this pipeline competes with southern corridor project 2. In our model there is only one pipeline flow out from N_ROM and small capacity 3. South Stream has higher investment cost (offshore pipeline) compared to Southern Corridor project
South Stream Utilization Factors in Term of Percentage
56
All Low_Shale_Low_Export_allpipe
Year Capacity* Flows* %Utilization Capacity* Flows* %Utilization
2015 16.15 15.79 97.78% 16.15 15.79 97.78%
2020 21.63 21.16 97.84% 21.71 21.24 97.83%
2025 23.56 23.05 97.85% 23.73 23.22 97.85%
2030 24.79 24.26 97.87% 24.95 24.42 97.86%
2035 24.87 24.26 97.54% 25.13 24.42 97.18%
2040 24.83 23.73 95.56% 25.09 23.90 95.27%
2045 24.83 24.26 97.69% 25.09 24.42 97.34%
2050 24.83 24.26 97.69% 25.09 24.42 97.34%
*BCM/y
57
Nordonly All Low_Shale_Low_Export_allpipe
Year Capacity* Flows* %Utilization Capacity* Flows* %Utilization Capacity* Flows* %Utilization2015 6.5758 6.18 93.91% 6.57 6.37 97.00% 6.57 6.37 97.00%2020 6.5758 6.18 93.91% 13.96 13.54 97.01% 14.35 13.92 96.99%2025 6.5758 6.18 93.91% 15.46 15.00 97.02% 15.78 15.31 96.99%2030 6.5758 6.18 93.91% 17.63 17.10 97.01% 18.54 17.98 97.00%2035 6.5758 6.18 93.91% 17.63 17.10 97.01% 18.54 17.98 97.00%2040 6.5758 6.18 93.91% 17.63 17.10 97.01% 18.54 17.98 97.00%2045 6.5758 6.18 93.91% 17.63 17.10 97.01% 18.54 17.98 97.00%
2050 6.5758 6.18 93.91% 17.63 17.10 97.01% 18.54 17.98 97.00%
Southern Corridor Utilization Factors in Term of Percentage
*BCM/y
Southern Corridor Utilization Factors in Term of Percentage (N_TRK‐N_ROM)
58
All Low_Shale_Low_Export_allpipe
Year Capacity* Flows* %Utilization Capacity* Flows* %Utilization
2020 5.34 5.14 96.10% 5.22 5.01 96.08%
2025 7.31 7.03 96.05% 7.19 6.90 96.03%
2030 8.29 7.96 96.08% 8.32 7.99 96.00%
2035 8.60 8.26 96.09% 8.61 8.27 96.01%
2040 8.92 8.57 96.07% 8.90 8.55 96.02%
2045 10.90 10.46 96.04% 10.87 10.44 96.00%
2050 11.07 10.63 96.04% 11.10 10.66 96.02%
*BCM/y
European Production
59
Production in Norway declines due to new pipelines and US exports
14,898,94
49,47
120,48
2,98
12,25
1,48
16,7414,898,94
49,4
116,83
2,98
12,22
1,47
16,72
0
20
40
60
80
100
120
140
N_GER N_ITA N_NED N_NOR N_POL N_ROM N_TRK N_UKD
European Production in 2030 BCM/y
Base
Nordonly
All
Low_Shale_Low_Export_allpipe
European Consumption
71,42
128,58
109,89
41,29
0,98
47,61 47,1443,61
75,68
90,39
72,18
130,27
110,52
41,56
0,98
48,5249,14
45,7
78,25
93,48
0
20
40
60
80
100
120
140
160
N_FRA N_GER N_ITA N_NED N_NOR N_POL N_ROM N_SPA N_TRK N_UKD
European Consumption in 2030 BCM/y
Base
Nordonly
All
Low_Shale_Low_Export_allpipe
Most European countries increase their consumption (cases left to right)
60
Production Cost Function
61
Producers
Production cost parameters Maximum production mcm/d 2030 Producer prices ($/MMBTU)
2030 Wholesale prices
($/MMBTU)lin mmQ mmG 2010 2015 2020
Norway 35 50 80 278 343 403 5.53 12.20
Germany 50 60 80 69 57 48 10.89 11.04
UK 50 60 80 182 87 69 10.13 10.44
Poland 50 60 80 9 9 8 11.18 11.59
• At Norway, price (producer trader) is $5.53 /MMBTU
Production Cost Parameters, Maximum Production (MCM/d), and Prices ($/MMBTU)
62
Findings:
• In the perfect competition case (market power =0), flow from N_ROM to N_POL reduces to 0 and no counterflow• In the imperfect competition case (test 2 and 3), the flow from Romania to Poland increases corresponding to level of market power• The greater the level of market power the trader has, the greater the flow
Counterflow Effect: Test Results from WGM
Case Flow from Romania to Poland (BCM/y)Base test 4Test 1 0Test 2 2.21Test 3 5.37
Nord Stream Pipeline
Technical Information• 1,224 km long• 2 pipeline string (27.5 BCM each)
• 55 BCM/y full capacity• Pipeline connects Vyborg,
Russia and Lubmin, Germany through the Baltic Sea
• Gas source: the Yuzhno‐Russkoye field
Month /Year Description April, 2010 Project started June, 2011 Line 1 completed (27.5 BCM/Y) November, 2011 Started transporting gas for line 1 May, 2011 Started construction line 2 (27.5 BCM/Y) April, 2012 Line 2 completed, total capacity is (55BCM/Y) October, 2012 Implement full capacity of pipeline (55 BCM/Y)
Project TimelineSource: http://www.gazprom.com/f/posts/34/784591/nord‐stream_1_eng.jpg
Vyborg
Lubmin
63
South Stream Pipeline
Technical Information• 900 km long• 4 parallel pipelines (15.75 BCM/each)• 63 BCM/y –full capacity• Pipeline connects Anapa, Russia and Varna, Bulgaria through the Black Sea
Project Timeline
Source: http://www.naturalgaseurope.com/the‐south‐stream‐offshore‐pipeline
Year Descriptions2015 Start of Commercial Operation2016 15.57 BCM2017 31.50 BCM2018 47.25 BCM2019 63.00 BCM
Anapa
Varna
64
Southern Corridor Project
Technical Information
• This project will bring 16 BCM/y of natural gas from Shah Deniz 2 in Azerbaijan to Turkey
• 10 BCM/y will pass through Europe from Turkey to Bulgaria or Romania, and Turkey will retain 6 additional BCM/y
• Southern Corridor is expected to operate in 2018
• The Southern Gas Corridor is an initiative of the European Commission for gas supply from Caspian and Middle East to Europe
• Trans‐Anatolian gas pipeline project (TANAP) and Nabucco West were announced to bring gas to Europe on June 28,2012
Source:http://www.naturalgaseurope.com/bp‐socar‐duo‐coup‐de‐grace‐to‐nabucco
65
Project Timeline Implemented in WGM
2010 Nord stream capacity = 0Start building pipeline =55 BCM/y
2015Nord stream capacity available = 55 BCM/y
2015‐2050 Investment decisions considered, additional capacity 11BCM/y every five years
2010 Nord stream capacity = 0Start building pipeline =55 BCM/y
2015Nord stream capacity available = 55 BCM/y
2015‐2050 Investment decisions considered, additional capacity 11BCM/y every five years
2010South stream capacity = 0Start building pipeline =15.75 BCM/y)
2015South stream capacity available = 15.75BCM/yAdditional 47.25 BCM is started
2020South Stream =63 BCM/y
2020‐2050Consider 11 BCM/y for maximum expansion every five years
2010Southern Corridor capacity = 0
2015Start building 2 pipelines
Line1 N_KZK‐N_TRK = 16 BCM/yLine2 N_TRK‐N_ROM =6 BCM/y
2020Line1 N_KZK‐N_TRK = 16 BCM/yLine2 N_TRK‐N_ROM =10BCM/y
2020‐2050Consider investment decisions, max pipeline expansion 20% of initial capacity for each line every 5 years
Nord Stream Pipeline Case Legend:
South Stream and Southern Corridor Pipelines Case
Start Project Available Capacity Investment decisions
68
WGM Preliminary Resultshttp://www.smi‐online.co.uk/energy/uk/supply‐chain‐management‐in‐oil‐gas
Source:http://logisticszone.blogspot.com/2010_08_01_archive.html
Pipeline Capacity Expansion
0 20 40 60 80 100 120
Nordonly
All
Low_Shale_Low_Export_allpipe
55,12
55,12
55,12
10,95
10,95
10,95
10,95
10,95
10,95
10,95
10,95
10,95
10,95
10,95
10,95
10,95
10,95
10,95
6,21
3,49
3,87
Nord Stream Capacity in BCM/y
2015
2020
2025
2030
2035
2040
2045
70
• Nord Stream is expanded at maximum capacity expansion from 2020 to 2040• N_GER is treated as new hub of gas for Russia
Nord Stream Capacity Flows
53,26
63,77
74,28
84,80
95,31
105,82
111,78 111,78
53,26
63,77
74,28
84,80
95,31
105,82109,53 109,53
0
20
40
60
80
100
120
2015 2020 2025 2030 2035 2040 2045 2050
Flows between N_RUW N_GER in BCM/y
Nordonly
All
Low_Shale_Low_Export_allpipe
71
• Flows through Nord Stream drops after 2040 under All case due to Southern Corridor project + South stream pipeline, and production level reach maximum production
Selected Russian Flows in 2030 (BCM/Y)
0
167 116 93.392.9NordStream
SouthStream
24.2 24.4
84.784.7
84.7
325729.729.7
0
N_GER
N_ROM
N_UKR
N_POL
N_RUW
72
• New pipelines provide flexibility to Russian delivery gas to Europe
• Russian production level does not significantly increase but flow patterns change greatly
Selected Russian Flows in 2050 (BCM/Y)
0
132 102 82 83.7Nord Stream
South Stream
24.222.4
109112
109.5
28702625.8
0
N_GER
N_ROM
N_UKR
N_POL
N_RUW
73
• The impact of new pipelines is becoming more pronounced in terms of flow bypassing Ukraine and Poland
U.S. LNG Export Status As of April, 2013
Total of all applications Approved Pending
FTA application29.9 Bcf/d
(309.3 Bcm/y )26.1 Bcf/d
(269.7 Bcm/y)3.7 Bcf/d
(38.2 Bcm/y)
Non‐FTA application
28.5 Bcf/d (294.5 Bcm/y)
2.2 Bcf/d (23.44 Bcm/y)
26.2 Bcf/d (270.8 Bcm/y)
Source: U.S. Department of Energyhttp://www.fossil.energy.gov/programs/gasregulation/reports/summary_lng_applications.pdf
FTA with the U.S. requires national treatment for trade in natural gas, including Australia, Bahrain, Canada, Chile, Colombia, Dominican Republic, El Salvador, Guatemala, Honduras, Jordan, Mexico, Morocco, Nicaragua, Oman, Peru, Republic of Korea and Singapore