memberof the board, italianauthority for electricityand
TRANSCRIPT
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Gas and the energy marketsA European regulator’s perspective
Valeria Termini
Member of the Board, Italian Authority for Electricity and Gas, AEEG
Member of the Board, ACER
Nomura - London, November 13, 2012
Challenges & new opportunities
1. New fundamentals in the gas market : volumes & prices
2. Dilemmas for Europe: policy & regulation
3. A changing scenario for energy companies: new risks, losses and windfall profits in the gas industrial chain, possibly affecting investments.
4. Italy: the “National Energy Strategy” (SEN) and new rules by AEEG
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1. The new fundamentals
� Relevant increase in international gas flows
� On the demand side: new roles for gas.
� On the supply side:
• will shale gas spread all over the world?
• will US export gas?
• possible effects for Europe?
� Prices
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The increase in gas flowsNatural gas net export flows
Source: IEA, Natural gas information 2012
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-200
-100
0
100
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1971 1973 1990 2000 2007 2008 2009 2010 2011
Bill
ion
so
fcu
bic
met
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America (non USA)
USAAsia
Europa
Russia/Central Asia
AfricaMiddle East
Natural gas net export flowsSource: IEA, Natural gas information 2012
-300
-200
-100
0
100
200
1971 1973 1990 2000 2007 2008 2009 2010 2011
Bill
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bic
met
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America (non USA)
USAAsia
Europa
Russia/Central Asia
AfricaMiddle East
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Gas trade flows
Source: BP5
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Gas demand
� Traditionally, gas demand has a cyclical path & follows GDP
� Today, many converging reasons for a new role of gas:
a. environmental policy (twinning of RES & gas)
b. nuclear exit strategy in power production (Jp, D)
c. diversification policy in Europe (sources & producers)
d. change of relative prices (oil-gas decoupling)
� Europe has a strong dependency on foreign gas
=>geo-political changes are expected
The growing role of gas and RES
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0%
5%
10%
15%
20%
25%
1990
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1992
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93
1994
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1996
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97
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20
07
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20
09
2010
Share of Natural gas and Renewable energies in gross electricity generation, EU27.
Source: Eurostat Supply, transformation, consumption of energy database
Natural gas
Renewables
The growing role of gas and RES in Italy
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0%
10%
20%
30%
40%
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1990
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1992
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07
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20
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2010
20
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Share of Natural gas and Renewable energies in gross electricity generation- Italy
Sources: Eurostat, Terna, GSE
Natural gas
Renewables
Gas supply
Uncertain developments from a technological break:
1. Will shale gas production spread all over the word ? (Evidence of shale gas reserves China, Africa, Mediterranean area)
2. Will US export gas ?
3. The inevitable impact
� LNG is transforming the gas industry & the
markets worlwide9
Shale gas potentialEIA estimates of 48 basins in 32 countries
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Gas supply focus: will US export gas ?
� Contrasting interests for the expected impact on domestic prices
• Oil producers,
• industrial energy users -chemicals, petrochemicals, etc-,
• companies of the gas chain,
• financial pressures (macro & micro),
• geo-political experts, etc. ….
All have different positions and goals
US gas export/2
� However, signals & evidence converge:
• LNG import projects are reshaped to export –eg in North Colombia,Kitimat; in the Gulf of Mexico Cheniere Energy inc. reshapes its project for export; BP,Conoco & Exxon Mobile have a joint projet for export; on the East coast, Sabine Pass & Cove Point build projects to export in Europe-.
• The Panama Channel will be enlarged to allow bigger gas tankers to transport gas to the West Coast and Asia by 2014.
� Asia and (in part) Europe are building import LNG facilities
� This will take some time: in a couple of years US will export gas to balance domestic market
LNG is transforming the global gas market
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LNG net export by areasource: Global LNG
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-50
0
50
100
150
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
bil
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America (non US) US Asia Europe Middle East Africa Australia
Where does LNG come from?
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Share of World LNG Export Source: Global LNG
Malaysia
Indonesia
Nigeria
Australia
Eq.Guinea
Egypt
Peru
Libya
Algeria
Brunei
Yemen
UAE
Qatar
Oman
Russia
Norway
Trinidad
US
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Where does LNG go?
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Share of World LNG Import Source: Global LNG
Others (< 2%)
Taiwan
Belgium
Italy
India
Korea
Japan
France
Spain
UK
China
US
Prices:
� a. oil/gas decoupling: causes and effects
� b. One market, one price: will a global gas market eventually emerge?
(regional markets still prevailing; LNG infrastructures are crucial)
� c. changes in the gas chain: short term profits / long term funding needs (eg. price of tankers,…)
� d. the contracts
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Changes in relative prices: oil-gas decoupling
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Natu
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MB
tu)
Oil
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Oil and Gas prices Sources: Platts, EIA
Brent USA (Henry Hub)
Regional gas prices
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($/M
MB
tu)
Gas prices Sources: Platts, EIA, World Gas Intelligence
USA (Henry Hub) GNL Asia Eu Hubs Avg
LNG transportation costsSource: IEA Medium Term Gas Market Report 2012
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The contracts
� In this scenario, long term take or pay contracts become unsustainable relative to spot gas prices….
� Shippers (& producers) may lose money and role
• Renegotiations, arbitrations � producers (eg Gazprom’s losses)
• Asymmetric pricing in Eu regulated markets � shippers losses,
sellers extraprofits/losses, change of rules (eg in Italy: new CCI spot indexed)
• Cfr companies Ebitda
� Spot contracts reinforce the need for financial tools to address risk.
� What future role for long term contracts ?
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2.Challenges for Europe: policy & regulation
The new fundamentals face EU policy & impose new rules:
a. A new market design ? (the emergence of hubs + new rules)
b. Huge investment needs (infrastructures, PCI, etc)
c. New ways of addressing security of supply: flexibility and cooperation among Member States ? Diversifying sources and external producers ?
d. The transition – some controversial issues: policy, regulators and firms
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Dilemmas for Europe: spot (cheaper gas)/ long term
(guarantees to investors) ?
1. Are we really going towards a spot gas market?
2. Which risks ? (physical and financial)
• Will the spot market have enough gas ?
• Price volatility? Security of supply ?
• What role for shippers and gas companies?
• Which protection from oligopolistic extra-Eu producers ?
� How to balance 2 opposite needs: A. opening the gas mkt
to spot, cheaper supply / B. providing long term stable guarantees to investors to fund infrastructures
The growth of spot markets
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Pipe_oil_idx LNG_oil_idx Pipe_spot LNG_spot Total_oil_idx Total_spot
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Gas supply by type of contract, EU+Switzerland+Turkey Source: Carnegie Endowment for International Peace (2011)
2008
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The emergence of gas hubsSource: IEA, Medium term gas market report 2012
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The need for gas infrastructures
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EU policy: a single energy market by 2014
� The European Council set in february 2011 the target for a complete EU energy market by 2014.
� The third energy package is a set of directives and regulations with the same goal. For the gas market:
- Aims at a competitive, secure and environmentally sustainablemarket in natural gas.
- Introduces common rules for the transmission, distribution, supply and storage of natural gas.
- Introduces the obligation to unbundle transmission systems and transmission system operators.
- The third package introduces ACER, the EU Agency for the Cooperation of Energy Regulators, that has a strong role in the definition of framework guidelines and network codes.
EU regulation: ACER rules for the Gas Sector
• Capacity Allocation Mechanisms for the European Gas Transmission (ACER Aug/11 – NC presented by ENTSOG on 6/03/2012)
• The most innovative provision: bundled capacity services
– the corresponding exit and entry capacity available atboth sides of every point connecting adjacent entry-exitsystems shall be integrated in such a way that thetransport of gas from one system to an adjacent system isprovided on the basis of a single allocation procedure anda single nomination
• Pilot projects already started at regional level to allocate bundled products (sometimes through regional platforms).
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Gas framework guidelineson capacity allocation
The goal is moving from borders to hubs, removing gasfrontiers and the need to buy separate entry and exit rightsevery time gas is traded between countries. With thissystem, entry and exit rights are “bundled” and sold with
gas.
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Italy - AEEG regulation favouring transition towards a EU gas market
• New market based balancing market: providing a transparent price reference for the daily value of natural gas in the system
• Establishing a regulatory framework able to favour new investments: the TSO foresees 7 billion€ investments in the next 3 years
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An example of the impact of regulation: convergence of spot prices
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Natural gas spot prices: Italy and the EU Source: Platts
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gen
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$/M
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PSV EU Average
3. Changing risks
a. Risks and profits –short term profits, long term vision:
b. New role for financial markets? How to facilitate the transition and make the most of it (long /short term, spot/forward, TSO, insurance, new functions, new tools)
c. The REMIT and the MIFID reform
d. New AEEG rules (gradually strengthening the role of spot contracts + financial tools)
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4. Italy - The New National Energy Strategy (SEN)
Goals & results expected by 2020:
1. Wholesale prices alignment with EU levels
2. Reduction of energy imports costs by €14 billion/year (from current €62 billion) and of external dependency from 84% to 67%, thanks to the alignment of wholesale prices, energyefficiency, increased renewables supply and increaseddomestic production
3. €180 billion investments in the green economy (renewables+ energy efficiency) and in traditional sectors (electricity and gas networks, re-gasification plants, storage, hydrocarbondevelopment). These will be private investments, partlysupported by incentives, expected to generate positive economic returns for the country
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Italy: the SEN – Expected results/2
� Greenhouse gas emissions should fall by about 19%, exceeding the European targets for Italy, set at 18% below the 2005 emission levels.
� Renewable sources should account for 20% of gross finalconsumption of energy by 2020 (10% in 2010, 2020 target for Italy coming from RES directive 17%). Fossilfuels use should fall from 86% to 76%. Furthermore, renewables should become the primary source in the electricity sector, equivalent to gas, accounting for 36-38% of consumption (23% in 2010).
� Primary consumption should fall by about 24% by 2020 (reference scenario estimated 4% below 2010 levels); thisexceeds the European objectives of -20%, mainly thanks
to energy efficiency measures.33
Gas projects - Italy
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Electricity projects - Italy
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Some final remarks
�Technological breaks introduce fundamental changes in
energy markets, also affecting geopolitical equilibria; together with changing regulation this implies
� a shifting paradigm in the gas sector.
� The gas industry must evolve � survival of the fittest?
� Potential benefits for growth
Appendix
Natural Gas demand - EU
Natural gas domestic consumption - European union
Source: IEA, World Energy Outlook
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2015
2020
2025
2030
2035
Bm
c
Actual data EU (WEO 2011) EU (WEO 2012)39
Natural Gas Demand - Italy
Gas demand - Italy. Sources: AEEG, MISE, SNAM
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Actual data SNAM forecast MISE forecast (SEN)
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EU regulation: synthesis of ACER activities in 2011…
� Framework Guidelines on Capacity Allocation and CongestionManagement for Electricity (07/2011)
� Final version of Framework Guidelines On Electricity Grid Connections(07/2011)
� Framework Guidelines on Electricity System Operation (12/2011)
� Framework Guidelines on Capacity Allocation Mechanisms for the European Gas Transmission Network (08/2011)
� Framework Guidelines on Gas Balancing in Transmission Systems (10/2011)
� ACER opinion on the European Ten Year Network Development Plan 2011-2020 published by ENTSOG
4141
…and in 2012
� Adopted decisions:
• Framework Guidelines on Electricity Balancing (09/2012)
• FG on Interoperability and Data Exchange Rules for European Gas Transmission Networks (07/2012)
� Main consultations:
• Draft Framework Guidelines on rules regarding harmonised transmission tariff structures for gas
• on Forward Risk Hedging Products and Harmonisation of LT CA Rules
• on ACER Guidance Note on Consultation
• on Transparency in Gas Markets
• on records of transactions under REMIT
• on REMIT Registration Format
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