Future of european gas market

National Energy Security FundNational Energy Security Fund

Future of European Gas Market

Konstantin Simonov Konstantin Simonov

WarsawWarsawSeptember, 22September, 22

2010 2010


UUncertaintyncertainty

• A lot of optimism now in Europe about liberalization of gas A lot of optimism now in Europe about liberalization of gas market and serious competition between gas producersmarket and serious competition between gas producers

• But two years ago situation and expectations were But two years ago situation and expectations were absolutely different absolutely different

• In reality we don’t now exactly what will be with European In reality we don’t now exactly what will be with European market in future market in future

Changes in European positionChanges in European position2008: 2008: Main question: What will be with the level of Main question: What will be with the level of

production in Russiaproduction in Russia?? Can Russia guarantee the discharge Can Russia guarantee the discharge of long term contacts? Russia must do it!!! of long term contacts? Russia must do it!!!

2010: 2010: Russia is not so important as gas supplier. We found Russia is not so important as gas supplier. We found an alternatives! We have no need in long term contracts, an alternatives! We have no need in long term contracts, spot market is our future! spot market is our future!

2015-??? 2015-???


LiberalizationLiberalization

Liberalization of European gas Liberalization of European gas market is excellent if you have market is excellent if you have

•Huge amount of money to build Huge amount of money to build new pipelines inside Europe new pipelines inside Europe

•Net surplus of gas Net surplus of gas


Optimism vs. PessimismOptimism vs. Pessimism

Optimists: Optimists: • Era of gas net surplus Era of gas net surplus • Competition for the consumer Competition for the consumer • Shale gas Shale gas • RenewablesRenewables

PessimistsPessimists• Production in Europe is going down very fast Production in Europe is going down very fast • It will be difficult to find extra amount of gasIt will be difficult to find extra amount of gas• Potential of shale gas and renewables ere Potential of shale gas and renewables ere

overestimateoverestimatedd


Gas Import of EuropeGas Import of Europe

Source: IEA – 2010!


Alternative SuppliersAlternative Suppliers

•Norway has not so many proved Norway has not so many proved reserves and it will be difficult to reserves and it will be difficult to avoid “oil scenario” in near future avoid “oil scenario” in near future

Norway Oil Production (Million tonnes)

0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

160,0

180,0

2000y 2001y 2002y 2003y 2004y 2005y 2006y 2007y 2008y 2009y

Source: BP



Gazprom vs. Statoil

0,0

10,0

20,0

30,0

40,0

50,0

60,0

4Q.2

007

1Q.2

008

2Q.2

008

3Q.2

008

4Q.2

008

1Q.2

009

2Q.2

009

3Q.2

009

4Q.2

009

1Q.2

010

Gazprom Export to Europe and Turkey

Statoil Export

Source: Vedomosti



• Qatar has proved reserves but there is no need to operate for a fall Qatar has proved reserves but there is no need to operate for a fall of marketof market

• The same tempo of increasing of production is questionablyThe same tempo of increasing of production is questionably• Qatar already announced decline of LNG production by Qatar already announced decline of LNG production by 66%. Ras 66%. Ras

Laffan Liquefied Natural Gas Laffan Liquefied Natural Gas and and Qatar Liquefied Gas Qatar Liquefied Gas closed 50% of closed 50% of there LNG facilities there LNG facilities

Qatar Gas Production (bcm)

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0

90,0

100,0

2000y 2001y 2002y 2003y 2004y 2005y 2006y 2007y 2008y 2009y

Source: BP


Third Package Third Package

• The future of The future of Europol GazEuropol Gaz • Poland is thinking that third package will Poland is thinking that third package will

change the situation. But in reality the main change the situation. But in reality the main question is still the same - is it possible to question is still the same - is it possible to find alternative gas? find alternative gas?

• Other producers can have an access to the Other producers can have an access to the pipeline – but first you must find them pipeline – but first you must find them

• For Russia the most For Russia the most sensitivesensitive question is question is tariffs on transportationtariffs on transportation

• Liberalization in the situation of gas deficit Liberalization in the situation of gas deficit can be dangerouscan be dangerous


Gas Balance of Poland Gas Balance of Poland (2009)(2009)

4,1

7,15

1,5

0,5

Domestic Production

Russia

Uzbekistan

Germany

Source: BP


RenewablesRenewables

• They can help to avoid serious increasing of oil They can help to avoid serious increasing of oil prices. But they are extremely expensive to be prices. But they are extremely expensive to be the real substitute of fossil fuelthe real substitute of fossil fuel

• Denmark case Denmark case

Source: BP

Denmark Gas Production

0,0

2,0

4,0

6,0

8,0

10,0

12,0

2000y 2001y 2002y 2003y 2004y 2005y 2006y 2007y 2008y 2009y


Shale GasShale Gas

•The main problem is not The main problem is not environment or technology. The environment or technology. The main problem is price main problem is price

•Europe is thinking that shale gas Europe is thinking that shale gas will result in cheap gas. But if will result in cheap gas. But if you want to begin the production you want to begin the production you must very high prices on gasyou must very high prices on gas


Shale GasShale Gas

Henry Hub One-month Gas Futures Prices, $/Mmbtu

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

1994 2.35 2.36 2.11 2.11 1.94 2.08 1.96 1.69 1.62 1.72 1.77 1.70

1995 1.43 1.44 1.53 1.66 1.71 1.63 1.49 1.56 1.67 1.79 1.96 2.46

1996 2.48 2.46 2.35 2.31 2.28 2.54 2.52 2.05 1.93 2.48 3.02 3.65

1997 3.07 2.07 1.90 2.01 2.25 2.16 2.13 2.46 2.87 3.24 3.09 2.41

1998 2.10 2.26 2.25 2.47 2.16 2.17 2.15 1.86 2.04 2.20 2.32 1.93

1999 1.83 1.76 1.80 2.15 2.27 2.35 2.31 2.80 2.64 2.88 2.55 2.42

2000 2.39 2.61 2.83 3.03 3.60 4.30 3.97 4.46 5.13 5.08 5.74 8.62

2001 7.83 5.68 5.19 5.19 4.24 3.78 3.17 2.94 2.21 2.62 2.79 2.69

2002 2.19 2.26 3.02 3.41 3.56 3.26 2.94 3.09 3.57 4.09 4.04 4.84

2003 5.38 6.66 5.79 5.36 5.93 5.93 5.03 4.98 4.67 4.99 4.83 6.47

2004 6.27 5.36 5.54 5.77 6.40 6.33 6.06 5.47 5.22 7.37 7.61 6.83

2005 6.19 6.20 7.05 7.15 6.49 7.21 7.58 9.43 12.11 13.45 11.70 13.43

2006 9.14 7.52 6.98 7.26 6.37 6.39 6.22 6.99 5.22 6.63 8.00 7.16

2007 6.78 7.55 7.22 7.63 7.82 7.50 6.40 6.14 6.19 7.22 7.78 7.18

2008 7.99 8.64 9.62 10.29 11.38 12.78 11.07 8.30 7.49 6.73 6.70 5.79

2009 5.07 4.38 4.00 3.56 3.93 3.94 3.55 3.31 3.46 4.78 4.63 5.34

2010 5.60 5.22 4.30 4.09

Source: EIA


What will be in Future?What will be in Future?

•In the situation of In the situation of uncertaintyuncertainty optimistic forecasts can optimistic forecasts can play a play a trick on trick on EUEU

•Polish case: a lot of Polish case: a lot of expectations (shale gas, LNG, expectations (shale gas, LNG, Norway etc) but no gas!!!Norway etc) but no gas!!!


Thank you! Thank you!

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Future of european gas market