Unconventional Hydrocarbons: Impacts on European and Global

Energy Markets

International Energy Security: What Value for Europe?

Disclaimer: This presentation is a working-level input on unconventional gas and not an official position of the European Commission. Should you wish to obtain a political statement or for media related purposes please contact the Commission's press service or the Commissioner's spokesperson.

Arne ERIKSSONDG JRC F.3 - Energy SecurityEuropean Commission

31/01/2013

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Presentation Overview

• Introduction

I. Shale Gas impact on EU gas markets

II. Shale Gas perspectives – Energy Systems Modelling

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Visible impact UnconventionalsFT.com (Nov. 6):• PGNiG and Gazprom agreed to a 15% price cut on natural

gas. Previous cuts announced for Eon, RWE, Eni, GdF……..

FT.com (Nov. 12):• The US will overtake Saudi Arabia and Russia to become the

world’s largest global oil producer by 2017, according to the IEA, in one of the clearest signs yet of how the shale revolution is redrawing the global energy landscape

• Why ?

4Source: US EIA

5Source: US EIA

0

5

10

15

20

25

30

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

History 2010 Projections

Shale gas

Non-associated onshore

Non-associated offshoreCoalbed methane

Tight gasAlaska

Associated with oil

23%

26%

9%

10%9%

49%

21%

7%

7%1%

7%9%

2%

21%0

5

10

15

20

25

30

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

History 2010 Projections

Shale gas

Non-associated onshore

Non-associated offshoreCoalbed methane

Tight gasAlaska

Associated with oil

23%

26%

9%

10%9%

49%

21%

7%

7%1%

7%9%

2%

21%

US natural gas production, 1990-2040 (tcf)

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DG ENER/JRC studyPublished September 2012

Why? Contentious subject with policy implications

Aims• Assessment of the evidence on the

impact on energy markets.

Contents• Review of regional and global estimates• Review of technologies• Land and market access• Impact on the European and the global

energy systems

Methodology• Evidence based policy and practice• Energy Modelling

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I. Shale gas impact on EU gas markets so far

• Factors• Growth in the LNG market• Structural changes to the LNG market• The liberalization of EU internal gas market

• Effects• Cheaper LNG and piped gas, but also…• Cheaper coal

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Source: US EIA

Forecast US gas imports

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Net US gas imports have fallen

0

20000

40000

60000

80000

100000

120000

140000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

mcm

Total Imports

Total Exports

Net Imports

Source: US EIA

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LNG: Swing Suppliers and Short-Term Contracts

• Global LNG Trade

Sources: BP, Jensen (2009)

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Increased EU-27 LNG Imports

Source: Eurostat

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Lower gas prices in Europe

Source: BP

Crude

US HH

14

Lower coal prices in Europe

Source: BP

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EU-US coal-gas cross correlation

Source: BP

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II. Looking ahead: modelling results

• Resource estimates• Production• Imports• Prices• Electricity mix

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Variability in resource estimates

0

10

20

30

40

50R

ecov

erab

le re

sour

ces

(Tcm

)

02468

101214161820

Rogner (1997)

Wood Mackenzie

(2009)

IHS CERA (2009)

ARI [20] (2009)

World Energy Council (2010)

ARI [22] (2011)

Medlock et al (2011)

Rec

over

able

reso

urce

s (T

cm)

US

Europe

Source:UKERC

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Resource estimates have increased with production

0

10

20

30

40

50

0

20

40

60

80

100

120

140

160

1982 1987 1993 1998 2004 2009

US

shal

e ga

s rec

over

able

re

sour

ces (

Tcm

)

Ann

ual U

S sh

ale

gas

prod

ucti

on (B

cm/y

ear)

US annual shale gas production (LHS axis)

Resources estimates (RHS axis)

Source:UKERC

Unconventional Gas Resources –Best estimate of TRR (Tcm)

Source:UKERC

• United States 20• China 21• Europe, west 12• Europe, east 4.3• Globally: 200 25 45 270

Multiple and substantial uncertainties:• Decline curve analysis - contested• Recovery factor (15-40%)• Methodology• Technological learning

Shale CBM Tight TOTAL

Unconventional Gas Resources –Best estimate of TRR (Tcm)

Source:UKERC

• United States 20• China 21• Europe, west 12• Europe, east 4.3• Globally: 200 25 45 270

To compare• Conventional TTR, Globally 425• Demand EU27 0.5• Demand Globally 3.2

Shale CBM Tight TOTAL

Source:World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, EIA 2011

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Oil resources

Global oil resources (in Gbl)Remaining resource* = 5000 Gbl [3000 – 6000]

Reserves / Prod : 50 years

R. resource* / Prod : 170 years [100 - 200]

* Remaining resource = Reserves + Undiscovered Resource

Volumes

Potentially large unconventional oil resources..

.. that may compensate the expected decline of conventional resources

Deep-water & Arctic appear limited globally (but will play a role locally)

Source: JRC, BGR, USGS, BP, Enerdata

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Oil Reserves - Conv Regional distribution (%)

Conventional oil reserves = 1100 Gbl

Conventional oil reserves are concentrated in Middle-East and CIS

Sources: IEA, BP, BGR

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Total oil Reserves (Conv + Unconv)

Total oil reserves (Conv+Unconv) = 1600 Gbl

Total declared oil reserves distribution is more balanced acrossMiddle-East, CIS and America

Sources: IEA, BP, BGR

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Modelling: Global gas productionConservative Optimistic

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Modelling: EU import dependence

Conservative

Optimistic

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Modelling: Structure of EU imports

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Modelling: Wholesale gas prices

>$9 billion

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Modelling: 2040 EU electricity mix

Conservative Optimistic

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Conclusions

• Shale gas has already had a significant impact on the EU energy market.

• For the EU, shale gas has been more about liquidity than independence.

• Because the EU consumes so much energy, small improvements to the market and energy mix can make a huge difference.

• Large Resource Base (large uncertainties) – Globally distributed

• Potential to halt the increase in EU import dependence• Potential growth of shale gas, at the expense of coal

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• Arne ERIKSSON• Energy Security Unit• European Commission | Joint Research Centre |• Phone: +31 224 565383 • Arne.ERIKSSON@ec.europa.eu