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Global and Regional Fuels Markets: Global and Regional Fuels Markets: Implications for European Union Foreign Implications for European Union Foreign
PolicyPolicy
Discussion Presentation*Discussion Presentation*Brendan Devlin, DG ENER, European CommissionBrendan Devlin, DG ENER, European Commission
* Indicating that this presentation is not the official position of the Commission, and is produced to assist discussion only.
Legal Disclaimer: This presentation uses information & slides from presentations made by other organisations/companies; where copyright
is claimed, the presentation acknowledges the source and claims fair use.
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In any scenario, we need more gas from outside of the EU……….
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While dependence on imported oil & gas rises in many countries,
Net oil & gas import dependency in selected countries
0%
20%
40%
60%
80%
100%
20% 40% 60% 80% 100%Oil imports
Gas Imports
United States
ChinaIndia
European Union
Japan20102035
20%Gas Exports
the United States swims against the tide Data Source: Gould, IEA 05/03/2013
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Europe 35 supply and demand balance [Gm3, 2005-2030] Comments
0
100
200
300
400
500
600
700
39195
2030202820262024202220202018201620142012201020082006
LNG importsDomestic production
Assump. Pipe imports (Others)
Pipe imports (Others)Assump. Pipe imports (RU)Pipe imports (RU)
Demand
. Total’s assumptions on contracts renewals for pipe imports are not sufficient to fill the European supply/demand gap . It is more than ever necessary to have Europe helping new pipe gas projects to secure supply for the European market …. . Europe will increase its dependency on LNG and will have to compete with other regions
[Gm3] Today
Source: Total S.A. Estimates, 5/3/2012More LNG, more pipes……
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Credibility of EU Climate Diplomacy
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At times in 2012, the EU gas import price was 5 times higher than the US price;this stemmed from the unconventional gas revolution & oil indexation in Europe
0
2
4
6
8
10
12
14
16
2007 2008 2009 2010 2011 2012
Dolla
rs p
er M
Btu
(201
2)
0
1
2
3
4
5
6
7
8
Mill
ion
tonn
es US steam coal exports to EU(right axis)
US gas price(Henry Hub)
Europe gas price(German import)
Data Source: Gould, IEA 05/03/2013
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Slide RES support – CO2 emissions
350
300
250
200
150
100
50
00 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000
2009
2010 +69%
+6%CO2
+172%
+5%
+15%
+2%
+30%
+3%
-11%
-18%CO2
CO2
CO2
CO2
CO2 emissions - Electricity and heat production - mln tons
RES elec.support
expenses-mln €
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Diplomats; who should you be talking to?
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Major global gas trade flows, 2010
Rising supplies of unconventional gas & LNG help to diversify trade flows, putting pressure on conventional gas suppliers & oil-linked pricing mechanisms
Major global gas trade flows, 2035
Data Source: Gould, IEA 05/03/2013
Focus on the old suppliers?
Or look to the new?
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.Market shifts East.Consumers become more identical in their outlook?.China integrates in value chain?.Do other consumers need to 'act' to keep market liquid?»Talk to new suppliers»Alliances with consumers?»New approaches to international
market governance?
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Pricing matters!
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Internal Market CommunicationBenefits of the internal gas market are materializing
Spot traded volumes up 27% Share oil-indexed contracts down 9%
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Russia/Norway
. Impacts:» New sources of gas» New pricing methods
• Reduction of income to traditional suppliers• Long-term; do they feature in the energy market at all?. First mover?
» Norway – Hub based pricing, no review contracts more than 50% in 2015 (Statoil 21/02/2013) – moving to value and expansion of market share – 2012 largest supplier to EU. According to reports, Gazprom to stick on oil index, review
contracts at least for another 3 years (Tatiana Mitrovo 10/12/2012)» Gazprom determined to maintain profits with shrinking market
share – more friction?
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Lower prices in competitive and open markets
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A bigger role for gas in
foreign policy?
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IRAN.Isolated by sanctions.No transit to Europe.No connection allowed.Weakness in purchase
prohibition
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EU Interventions in Geo-Strategy of Gas.Iran.Trans-Caspian.Southern Gas Corridor Policy.Energy Community Treaty.What's new?» Japan & Korea?» Brazil and East Africa?» Mechanisms for international liquidity?
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Additional SlidesAdditional Slides
21Source: Lloyds Seaborne crude oil trade map - 2009
OIL
22Source: EuracoalSeaborne Coal trade map - 2009
COAL
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Major gas trade movements
BP Statistical Review of World Energy 2012 © BP 2012
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Security - Impact of Jan 2009 gas crisisSEE particularly affected!
> 75 %
50 - 75 %
25 – 50 %
< 25%
0%
Ukraine
% of gas supply missing
Source: Gas Coordination Group, DG TREN
ESPT
NO
IT
SE
FR
FI
Russia
EI
PLGE
UK
CZ
BU
RO
Belarus
Turkey
LT
LV
EE
Ukraine
DK
GR
SIHU
SKAT
FYROM
SB
NLBE
BS
AL
LU
MN
HR
SW
Black Sea
25
Transmission at present
Source: ECA, SEE Regional Gasification Study, WB & KfW
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SEE Region particularly close to Caspian gas -privileged position
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The multiples options for the opening of the Southern Corridor should be prioritized using ranked objectives
• Open a reliable and significant route for gas from the Caspian Region
Bringing Azeri, Turkmen and/or Iraqi gas direct to the EU
• Improve Security of Supply in countries most hit by the crisis
Diversifying the countries put most at risk in the 2006 and 2009 supply cut-offs
• Greater reduction of transit riskCreating new dedicated physical infrastructure to import gas to the EU
• Increase wholesale competitionBringing new gas volumes to (new) gas hubs, fostering liquidity and competition in the wholesale markets
> 75 % 50 - 75 %25 – 50 %
< 25%
0%
% of missing gas supplyfrom 6 to 20 January 2009
Objectives (ranked by importance)
Source: European Commission
Ideal case – Large volumes of Caspian gas at EU’s door Working Title – ‘Southern Corridor Pipeline’Azerbaijan is privileged under this system
Proposal consistent with creation of Poseidon at early stage
Proposal consistent with (Nabucco) interconnector to Baumgarten
Proposal consistent with creation of TAP, SEEP & gasification of South East Europe
Proposal consistent with eventual construction of Trans-Caspian
Proposal not consistent with third party access in Turkey; i.e. no automatic right for Russia and Iraq to access system, but ‘grandfather rights’under Energy Charter
Internal Market works as normal
Large volumes of Caspian gas at EU’s door
Routing
Cost estimate
• New 56’’ pipeline from Baku to BG/TK border (potentially run initially below nominal capacity - e.g. 10bcm/y - )
• Azeri portion now agreed – Georgian section to be agreed
• Gas would be transported in Europe through the national gas grid and interconnections (supported by EEPR)
• Total of ~10.5-12.5 € bln for three segments:- Erzurum (TK) to BG/TK border : 7-8 € bln - ‘Nachbaku’ section: 2.5-3 € bln - TCP: 1-1.5 € bln
Strengths
Weaknesses
• Achieves all the objectives while relying on gas interconnections in Europe
• Consistent with Azeri views of gas market development• Big gas pipeline in Turkey able to serve all intra-EU Southern
Corridor options• Consistent with TCP mandate• Compliant with expectations of TKM and AZ• Serves South-Eastern European countries• Could use strong legal framework of Nabucco IGA• From TKM to EU – one single system
• Rely on the development of national grids in the Union and the liberalization of transit pipelines in Bulgaria and Romania
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FYROM
Existing projects for the opening of the Southern Gas Corridor
Nabucco ITGI Trans-Adriatic Pipeline (TAP)
South East Europe Pipeline
Upgrade of the BOTAS network (10bcm/a)
South-Caucasus Pipeline (SCP)
Trans-Caspian Pipeline (TCP)
Trans-Anatolian Pipeline (10bcm/a)
New infrastructure Existing infrastructure (upgrade)
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FYROM
Connection to Baumgarten
ITGI Trans-Adriatic Pipeline (TAP)
South East Europe Pipeline
Anatolian section of Nabucco
South-Caucasus Pipeline (SCP)
Trans-Caspian Pipeline (TCP)
Intra-EU projects selected on a commercial basis, improving security of
supply in the EUScalable and rationalized infrastructure developed outside the European Union
New infrastructure Existing infrastructure (upgrade)
The Southern Gas Corridor should be opened with rationalized and scalable infrastructures using existing rights in Turkey and commercial intra-EU projects fostering security of supply in the European Union
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