roadmap and energiekonzepte towards an integrated market

Roadmap and Energiekonzepte – Towards an Integrated

Market or a Return to National Energy Policies (a view on gas -

a view from Russia)

Dr. Andrey A.Konoplyanik,

Director on Energy Markets Regulations, Project Leader, Foundation “Institute for Energy & Finance”;

Professor, Russian State Oil & Gas University n.a.Gubkin, Chair “International Oil & Gas Business”

<[email protected]>, <www.konoplyanik.ru>

6th Energy Forum, Sopot, Poland, November 28-30, 2011

Post-2009: New Gas World & New Challenges

• Since 2009 we are living in the new gas world:

more uncertain, more risky, more challenging

• New challenges are:

– Demand-side (economic crisis + decarbonisation)

– Supply-side (multiple competitive supplies =>

oversupply?)

– Institutional (Third EU Energy Package)

– Political (perceptions)

A.Konoplyanik, 6th Energy Forum,

Sopot, Poland, 28-30.11.2011

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New challenges: demand-side

• Decarbonisation as EU energy policy definite

trend:

– 20/20/20 targets

– Roadmap to 2050 (CO2 emission down by 80% ?)

• Energy forecasts more uncertain:

– influenced by low-demand “in-crisis” perceptions

– downgrade effect, but

– RES opens new market area for gas (Fukushima

effect for base-load electricity generation in EU)

– Deficiencies of EU-sponsored PRIMES model A.Konoplyanik, 6th Energy Forum,

Sopot, Poland, 28-30.11.2011

3

EU future gas demand forecasts: corridor of uncertainties has been increasing, general trend has been slowing down, bottom line became negative…

350

400

450

500

550

600

650

2015 2020 2025 2030

Max 2007 (Eurogas-BL)

Min 2007 (PRIMES-BL)

Max 2010 (Eurogas-Env)

Min 2010 (PRIMES-Ref)

Difference

between max &

min forecasts

made in 2007

Difference

between max &

min forecasts

made in 2010

Source: calculated by Vitaly Protasov on the basis of the database of the study: Russia-EU Energy

Dialogue. Thematic Group on Energy Strategies, Forecasts and Scenarios. Energy Economics Subgroup.

“Energy Forecasts and Scenarios, 2009-2010 Research, Final Report”, 2011 (study available at www.fief.ru)

A.Konoplyanik, 6th Energy Forum, Sopot, Poland, 28-30.11.2011

http://www.fief.ru/

Future EU gas demand to be lower than guaranteed deliveries?


Sopot, Poland, 28-30.11.2011

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390

410

430

450

470

490

510

530

550

2015 2020 2025 2030

Guaranteed deliveries

Demand-Eurogas-BL-2010

Demand-Eurogas-Env-2010

Demand-PRIMES-BL-2009

Demand-PRIMES-Ref-2010

Guaranteed deliveries =

internal production,

Norway, LTGEC plus their

possible prolongations

Source: calculated by Vitaly Protasov on the basis of the database of the study: Russia-EU Energy Dialogue.

Thematic Group on Energy Strategies, Forecasts and Scenarios. Energy Economics Subgroup. “Energy Forecasts

and Scenarios, 2009-2010 Research, Final Report”, 2011 (study available at www.fief.ru)

What messages energy forecasts sponsored by

the Commission (PRIMES model) send to gas business? Is it practical to forecast

future demand volumes below already

contracted volumes?

Financial Times on PRIMES model

• The credibility of a European energy review

has been cast into doubt by experts who point

out that long-term plans to cut carbon

emissions are based on an economic model

owned by a single Greek university that cannot

be independently scrutinised. … The European

Commission has used it for many years to help

guide the bloc’s energy policies but industry

critics complain its assumptions are impossible

to question because the model is privately

owned”. (“Financial Times”, 14.11.2011)


Sopot, Poland, 28-30.11.2011

6

New challenges: supply-side

• Multiplicity of supplies increasing (Konrad Szimanski:

“democratization of energy”), diversification (suppliers +

routes) = multiple choice:

– Pipeline gas

• Historical pipelines

• Pipelines destined for EU developed before crisis

– LNG

• LNG flows destined for EU developed before crisis

• LNG flows destined for USA developed before crisis & redirected

to EU in crisis

• New future LNG

– Shale gas

• Domestic (potential)

• US shale gas – potential export to EU as LNG


Sopot, Poland, 28-30.11.2011

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New challenges: institutional

• Third EU Energy Package:

– From chain of consecutive LTCs to few “entry-exit”

regional zones with virtual liquid hubs

• LTC to be adapted, their competitive niche to narrow, but

• Direct access to end-users for exporters? (potential)

– Anglo-Saxon model in gas to be developed in Continental

Europe acc. to Third Energy Package?

• Contractual structures & pricing: short-termism to dominate?

• Paper gas market: risk of price bubbles like in global oil in 2008?

– Development of principally new architecture of wholesale

EU gas market (J.Novotny: gas = “designed market”):

• “Learning by doing”

• Transition period to new gas market structure?


Sopot, Poland, 28-30.11.2011

8

Small end-users:

• Households

•Commercial

users

Retail traders

Large end-users:

• Power plants

• Energy intensive

industry plants

Wholesale traders

(Importers):

• VIC

• Trading companies

Supply (Retailers)

Supply (Wholesale

traders)

Export Supplies (Gazprom = Producer & Sole

Exporter)

LTC LTC LTGEC

EU-15 border EU-27 border

CIS Russia

Producer companies:

-Gazprom

-VIOC

-Non-integrated

companies

Production (Gazprom & other

producers)

Russia-EU gas value chain: three-step LTC structure since

1968 till nowadays

“New” EU-25/27

“Old” EU-15

1968 – 2004

COMECON (till 1990)

U S S R

(till 1992)

2004/07 => (2014?)


Future organization of internal EU gas market according to Third EU Energy Package: radical change of wholesale

EU gas market architecture

Hub AHub B

Hub CHub D

Hub AHub B

Hub CHub D Supplies to the

EU from non-EU

(not directly

covered by 3rd

EU Energy

Package)

Pipelines-

interconnectors

between EU

zones (covered

by 3rd EU Energy

Package)

Source: 17th Madrid Forum (Jan 2010), Energy Regulators EU MS

10


New challenges: political

• Russia-Ukraine gas crises Jan.2006/Jan. 2009 =>

• EU:

– 22 days (3+19) over-weighted 40 years => new SOS

component in EU energy policy

– EU Decarbonisation => why demethanisation of EU energy

(gas = “transition fuel”) if gas is most ecologically safe

fossil fuel? => (K.Simonov: “methanophobia”) = to deviate

from gas or to deviate from Russian gas? =>

– Southern corridor without Russian gas &/or Russian routes

• Russia:

– Re-evaluation of risks => new pipelines bypassing Ukraine

– Withdrawal from ECT provisional application => lost

interest in multilateral solutions?


Sopot, Poland, 28-30.11.2011

11

EU energy challenges = challenges for “broader energy Europe”

• “Roadmap and Energiekonzepte – Towards an

Integrated Market or a Return to National Energy

Policies” => within EU or within broader area?

• Too many risks & uncertainties to address them

individually within any segment of the cross-border

gas value chains destined for the EU =>

• “Roadmap and Energiekonzepte” => to develop

jointly within “broader energy Europe”!

• At what platform? Which international organisation?

What “common denominator”?


Sopot, Poland, 28-30.11.2011

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EU Directives vs broader energy Europe


13

EU SEE, UA,

Moldova Russia &

other CIS

First EU Directives = ECT

Second EU Directives = Energy Comm. Treaty

Third EU Directives

Level of

libera

lization

Thank you for your attention !

<www.konoplyanik.ru> <[email protected]>

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