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Domestic constraints: affecting Russian Natural Gas Export to Europe

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Government's strategy:gradual growth of domestic price on natural gas ... The increased domestic gas prices in Russia will increase export possibilities ... – PowerPoint PPT presentation

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Title: Domestic constraints: affecting Russian Natural Gas Export to Europe


1
Domestic constraints affecting Russian Natural
Gas Export to Europe
  • Marina Tsygankova
  • 29-30 September 2005
  • Stockholm School of Economics
  • in Saint-Petersburg

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5
Uncertainties
  • Big three fields- Medvezhe, Urengoy, Yamburg
    are under decline (the fields provide 63 of
    current Gazproms current production production
    and compensation is needed
  • Gas price reform development gradual price
    increase is projected
  • EU gas market liberalization leads towards
    shorter contracts, gas-to-gas competition

6
  • A numerical optimization model is used to study
    the effect on optimal allocation between domestic
    gas sale and export depending on different
    levels of the Russian domestic gas price toward
    2015
  • Different scenarios for future production
    capacities and future share of exports tied to
    long-term contracts

7
  • Gazprom
  • Government holds 50
  • Produces 86of Russian gas
  • Controls 64 of Russian gas reserves
  • Owns Russian gas transportation system
  • Independent
  • gas producers oil companies, gas companies
  • Produce 14 of Russian gas
  • Control 30 of Russian gas reserves

Regulated price
Long and short term contracts
Domestic consumers
Export

8
Model
  • Gazproms profit maximization problem
  • ?G PDQDPKQKPE (QE)QE CG(QDQEQK)
  • Subject to constraints
  • QD QE QK ? K
  • QD QI D(PD)
  • QI ? SI (PD,M),
  • where SI (PD,M) is the solution to the profit
    maximization problem of the independednt
    producers, that is
  • SI (PD,M)minM, arg CI(X)PD

9
Scenarios production capacity of Gazprom
  • In 2004 Gazproms produced 540 bcm
  • In 2002 Gazproms production targetto achieve
    and maintain annual natural gas production level
    at 530 bcm through 2010
  • big three fields Medvezhye, Urengoy and
    Yamburg account for 63 of Gazproms current
    production ( 340 bcm)
  • Conjectures about the big three fields
    production by 2015 give a range of 150-270 bcm
  • Yamal and Shtokman production in Barents Sea is
    likely to start after 2010 or even later
  • Satellite fields production has to increase to
    compensate decline.
  • We model three scenarios for Gazproms production
    capacity in 2015
  • 500 bcm, 540 bcm, 580 bcm

10
Scenarios independent producers production
capacity
  • In 2004 independent producers supplied 80 bcm to
    the domestic market
  • The Russian Energy Strategy 2020 (2003) By 2015
    independents can reach 120-135 bcm of own gas
    production
  • Landes,A., et.al (2004) independents have a
    potential to produce 180 bcm into the market
    already by 2010
  • We model three scenarios for independent
    producers production capacity 80 bcm, 120 bcm,
    160 bcm

11
Scenarios Long-term export contracts
  • In 2004 Russia exported to Europe 140 bcm to
    Europe
  • Russian Energy Strategy 2020 (2003) exports to
    Europe by 2015 will be 190 bcm
  • Gazproms current average duration of export
    contracts is 15-20 years
  • Fellers (2004), Pipeline and Gas Journal only
    one third of the gas traded in Europe will be
    sold at short-term contracts or spot markets in
    2015
  • We use 120 bcm as a base scenario for the volume
    of Russian gas export sold at long-term contracts
  • Quick and slow EU gas market liberalization
    scenarios
  • 50 bcm and 190 bcm

12
The domestic price reform
  • Governments strategygradual growth of domestic
    price on natural gas
  • Since 2000 domestic price raised annually by
    10-20 13/bcm in 2000 vs.27/bcm in 2004
  • Russias Energy Strategy 2020 (2003) domestic
    price to reach 64 by 2015
  • We run the model for price range 37-57

13
Russian gas export to Europe depending on
Gazproms production capacity
14
Russian gas export to Europe at different
long-term contract volumes
15
Total Gazprom production at different levels of
long-term contract volumes
16
Russian gas export to Europe at different levels
of independent producers supplies
17
Conclusion
  • The increased domestic gas prices in Russia will
    increase export possibilities
  • Under the current Gazproms production capacity
    or lower , domestic prices have to be raised if
    Russian export targets should be reached
  • domestic-market-comes-first principle will
    slow down export volumes when the production
    capacity is scare
  • Smaller shares of long-term contracts as a result
    of liberalization of the European gas market may
    create an upward pressure on gas prices due to
    Gazproms strategic actions in the export markets
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