Advokatfirmaet Selmer DA How to improve the position of gas in the European energy market? Bengt Lie...

Advokatfirmaet Selmer DA

How to improve the position of gas in the European energy market? Bengt Lie Hansen, Selmer Law Firm

The 10th Russian Petroleum & Gas Congress, 26-27 June 2012, Moscow

1

The role of gas in the energy market

• Natural gas accounts for more than 20% of global energy consumption

World consumption

• Oil remains the world’s leading fuel, accounting for 33,1%, but this is the lowest share on record

• Coal increases its market share back to the levels of 1969 (30,3%)

(million tonnes oil equivalent)

2

Developments in the global energy market in 2011

Source: BP Statistical Review of World Energy June 2012

Gas is a preferable energy and is winning market shares

3Source: *IEA – The Golden Age of Gas Scenario 2011, **IEA, LEA estimates

Benefits

• Cleanest of the fossil fuels

• Play a key role in helping to meet environmental targets

• Competitive cost of supply

World energy demand by fuel*

Coal40%

Oil5%

Gas21%

Nuclear13%

Hydro17%

Solar/Wind2%

Other2%

20,100 TWh

20,100 TWh

(million tonnes oil equivalent)Global power generation fuel

split in 2009**

• Vast gas resources close to EU

• EU needs to acknowledge the possibilities gas provides

Gas supply to Europe today and in the future

4Source: *Total according to Cedigaz, **Energy Outlook 2030, BP 2012

EU gas map 2010*Trade flows (billion cubic meters)

Sources of gas supply, Europe**(Bcf/d)

Arctic – a key to Europe’s future gas supply

5Source: Norwegian Ministry of Petroleum and Energy

Need to develop efficient fields and transportation routes in the Arctic

6

Arctic challenges

• Arctic climate• Ice• Cold / dark

• Sensitive ecosystem

• Lack of infrastructure

• Remote

• HSE

• Arctic cost level (ref. Shtokman)

New gas projects for future supply of gas to Europe from Russia and Norway

7

• Arctic pipe (Barents pipe)

• Infrastructure in Russian waters

• Best practise in field development and transportation

• Barents Sea

• Shtokman / Yamal

• Kara Sea

New gas transportation conceptsNew areas

New sources for gas production and exports

8

New agreements secure gas production

• Rosneft / ENI, agreements in Barents Sea

• Rosneft / Exxon, agreement in Kara Sea

• Rosneft / Statoil, agreement in Barents Sea

• New Norwegian acreage as a result of treaty Norway / Russia

• 22nd round Norway in 2012

Russia and Norway are producers and large exporters of gas to Europe

9

Mutual dependence

Cooperation through technology sharing

Secure confidence in gas supply to Europe

• Explore for more gas and develop the fields to operate more efficiently and under safe conditions

• Arctic cost levels are a challenge to viability• Sub-sea solutions and multi-phase transportation of hydrocarbons vital for reducing costs to make

Arctic production profitable

• Common goal to maximize the net back value of gas for producers

• Two major producers secure confidence in gas supply to Europe

• International partnership agreement envisage cooperation through technology sharing and employee training

Maximize net back value

The position of long term gas sales contracts in Europe

10

Source: BBC

Long term gas sales contracts

• Instrumental in developing large gas fields

• Risk / reward relationship balance

• Take or pay

• Price indexed to oil

• New emerging spot market for natural gas in Europe

Challenges

• Spot market “undermines” the long term contracts and creates volatility in gas prices• Buyers with long term contracts have difficulties in

today’s market

• Need to create a platform for reasonable value creation for all parties in the gas value chain

• Gas is not subsidized such as coal and renewables, and can compete favourably without market distortion

Summary

11

• Gas has a good future in Europe, despite • Shale gas uncertainty• Need clear signals from the EU to secure

the heavy investments necessary

• Arctic gas is a new source of supply to Europe

• Gas is a preferred fuel in the market, but important to secure• Cost effective gas supplies• Confidence in gas• Security of supply from several sources• Flexibility• Environment• Avoid interruptions• Back-up solutions and cooperation

between producers and buyers *Shtokman gas and condensate field pre-development scheme

Source: *Gazprom about Shtokman

“Let’s explore the Arctic together!”

12

Thank you for your attention!OsloAdvokatfirmaet Selmer DAP.O.Box 1324 Vika N-0112 Oslo, NorwayVisiting address: Tjuvholmen allé 1N-0252 Oslo, NorwayTel: +47 23 11 65 00, fax: +47 23 11 65 01

TrondheimAdvokatfirmaet Selmer DAP.O.Box 869N-7409 Trondheim, NorwayVisiting address: Kjøpmannsgata 52N-7010 Trondheim, NorwayTel: +47 73 87 90 60, fax: +47 73 87 90 61

www.selmer.no

13