Title: European Energy Security and Russia: are we focussing on the right issues
1European Energy Security and Russia are we
focussing on the right issues?
- Professor Jonathan Stern
- Director of Gas Research
- Oxford Institute for Energy Studies
- Society for International Development
- Amsterdam, April 28, 2008
2OIES Natural Gas Research Programme
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2
Oxford Institute for Energy Studies is an
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3Recently Published Research
- Natural Gas Demand in Europe the importance of
power generation, Anouk Honore - The New Security Environment for European Gas,
Jonathan Stern - The 2007 Russia-Belarus Gas Agreement,
Katja Yafimava and Jonathan Stern - US Natural Gas Prices scenarios to 2015,
Michelle Foss - Gas-OPEC a distraction from important issues of
Russian gas supply to Europe, Jonathan Stern - The Potential Contribution of Natural Gas to
Sustainable Development in South Eastern Europe,
Aleksandar Kovacevic - Is there a rationale for the continuing link to
oil product prices in Continental European gas
contracts? Jonathan Stern - Ukraines Gas Sector, Simon Pirani
- The Dolphin Gas Project, Justin Dargin
Free downloads from www.oxfordenergy.org
3
4EUROPEAN ENERGY POLICY - AGENDA
- Energy policy issues and problems agreeing
priorities - Europe, Russia and energy
- Gas in Europe a case study of the issues
/problems - Conclusions
5European Energy Security what is the current
focus?
- Europes dependence on imported oil and gas
supplies will increase substantially over the
next 10-20 years - Much of the oil and gas which Europe will have to
import will need to come from the Middle East
(oil) and Russia (gas) - This gives rise to two concerns
- over-dependence leading to the potential for
commercial/political blackmail - political instability/conflict within or between
these countries leading to supply disruption
These issues periodically debated over the past
40 years, especially in relation to Russia
6Urgent European (and Global) Oil and Gas Issues
in the late 2000s
- Oil (and gas) prices at gt100/bbl and going
higher?? - Most major oil and gas producers unable or
unwilling to increase their production and export
capacity - Most OECD leaders complaining about
- Lack of investment in new capacity by
producers/exporters - Chinese and Indian attempts to attract oil and
gas towards their rapidly growing economies
Can Europe obtain adequate oil and gas supplies
in the 2010s and at what price?
7European Energy Security frequently discussed
problems
- Is the problem that Europe will become more and
more dependent on countries which we do not like
and do not trust for our energy supplies? - Or is the problem that Europe will not be able to
obtain oil and gas supplies that it will need, or
will not be able to pay very high prices for
them? - Or is the problem that the carbon which will be
emitted in the burning of these fuels will create
an unsustainable global climatic trends
Europe needs to prioritise problems and solutions
8Europe, Russia and Energy a long running story
with the emphasis on gas
9OECD European Oil Product Imports from FSU
Countries 1990-2006
Source IEA
18 of imports and 8 of demand in 2006
10OECD European Crude Oil Imports from FSU
Countries 1990-2006
Source IEA
35 of imports and 32 of demand in 2006
11OECD European Steam Coal Imports from Russia
1990-2006 (thousand tons)
18 of demand in 2006
Source IEA
12Russian Gas Exports to Europe 1990-2006
Source Gazprom
27 of Europe 34 demand in 2006
13Gazproms Exports to Europe
- Long term contracts extended 20-30 years with
most European buyers well before expiry dates
legally binding agreements under international
arbitration with liquidated damages - Gazprom Marketing and Trading establishes major
presence in north west Europe trading (not just
Russian) gas and other products - Nord Stream and South Stream pipelines are
progressing
Gazproms response to unreliable transit through
Ukraine and Belarus is diversification of
pipeline routes
14Existing pipelines taking Russian gas to Europe
15Nord Stream Gas Pipelines
Can Baltic opposition halt or only delay
development?
16Blue Stream/South Stream Gas Pipelines
Bulgaria-Serbia-Italy route is established
17If all of these pipelines are built then, by
2015, Russian gas will be able to move to Europe
via
- a northern route Nord Stream
- a central route Ukraine/Belarus
- a southern route Blue Stream/South Stream
Gazprom be able to arbitrage between the
routes, the power of individual transit countries
will be much reduced security will be improved
but still needs an international transit regime
18Can Russia compete in Atlantic Basin LNG? Not
easily, quickly or very profitably
19Chinas Gas Pipelines and LNG Terminals
No Russian pipeline gas before the late 2010s
20Will Russia Have Sufficient Supplies for Europe?
- Russian gas supplies will be tight from
2010-2015 or until new large scale Yamal
Peninsula gas becomes available - Main impact will be on the Russian and possibly
on the CIS export market - European markets will be less affected because
of legally binding long term contracts with
severe financial penalties for non-delivery BUT.. - Short term gas supplies may disappear
This is likely to mean no new long term contracts
for Europe Russian gas supplies will be limited
to 180-200 Bcm/year
21European Gas a case study
22Europes Future Gas Supplies a problematic
landscape?
- Plentiful reserves exist but.
- what matters are the intentions and capabilities
of suppliers - European
- Existing pipeline and LNG suppliers
- Possible new suppliers
Future gas security is about motivations of,
and relationships with, Europes suppliers
23Projected Decline in European Gas Production
2005-17 (Bcm)
24Availability of African Gas Supplies
- ALGERIA major exporter, no major growth beyond
currently contracted volumes - EGYPT sold out minor growth potential
- LIBYA major LNG growth potential but could take
10 years - NIGERIA NLNG Trains 1-6 achieved
- NLNG 7/8 Brass River OK LNG delayed
- domestic (power) demand will take priority over
additional exports - EQUATORIAL GUINEA minor growth potential
- ANGOLA some growth potential
25Middle East/Caspian/Central Asian Pipeline Gas
Availability
- Iran highly unreliable gas exporter, major
domestic demand requirementspolitical
instabilityconflicts with the international
community create major problems any significant
gas pipeline exports will be to Pakistan (India?) - Azerbaijan around 15 Bcm of Shah Deniz gas from
2015(?) - Turkmenistan reserves uncertain, offshore
prospects considerable but not before late 2010s? - Kazakhstan dependent on availability of Kashagan
gas, and probably not until late 2010s
26Gas Pipelines From the Caspian Region
27Nabucco a Caspian Pipeline to Europe
Source OMV
A key part of the 4th Corridor to Europe
28Problems for the 4th Corridor events of December
2007- April 2008
- December 29th 2007 Turkmenistan cut off gas
exports to Iran (supplies not yet recommenced)
and as a result. - Iran cut off gas to Turkey (citing cold weather)
and as a result - Turkey cut gas supplies to Greece and as a
result - Gazprom supplied more gas to Turkey and Greece to
make up for the shortfall
Diversity does not always security
29Geopolitics of Central Asian gas is not (yet) a
European game
- China has already started developing Turkmen gas
reserves under a PSA - China already has agreements to import (at least)
30 Bcm/year from a combination of 3 Central Asian
countries (but mostly Turkmenistan) - China is willing to spend staggering sums of
money developing gas fields and pipelines without
any risk guarantees
The great gas game in Central Asia is between
Russia and China Europe (and the US) are
possible future players
30European LNG Terminals
New regas capacity increasingly competes with
North America and Asia for LNG
31Emerging Policies of Producers/Exporters
- Increased exports are no longer urgent and may
not be possible due to - increasing domestic demand
- higher export prices which means reduced need for
revenues - LNG exports will be preferable to dedicated
pipeline gas to Europe because of - Greater arbitrage possibilities in higher value
markets - Less political exposure to US/Europe
These issues are much more important than the
(real or imagined) threat of a Gas-OPEC
32The key question facing European gas markets is
from where will substantial additional gas
post-2015 and especially post-2020 be available?
- At present the answer looks like not from Russia
or many other current major suppliers - CONCLUSION Europe faces longer term gas supply
uncertainty
33THIS IS NOT A DISASTER BUT IT RAISES IMPORTANT
QUESTIONS FOR THE FUTURE OF POWER GENERATION AND
CARBON EMISSIONS
- WITHOUT SUBSTANTIAL INCREMENTAL GAS SUPPLIES,
MOST COUNTRIES WILL NEED TO RETAIN/DEVELOP COAL
WITH DISASTROUS CONSEQUENCES FOR CARBON TARGETS
THE BEST HOPE FOR CARBON REDUCTION BEFORE 2020 IS
A RENEWABLES/GAS COMBINATION
34CONCLUSIONS European Energy Security
- ISSUES RECEIVING A LOT OF FOCUS
- Can Europe trust the Russians (and other
exporters)? - Should Europe limit future Russian gas supplies?
- ISSUES NEEDING MORE FOCUS
- From where will Europe get substantial additional
gas post-2015? - How should Europe develop successful
relationships with Russia and other suppliers - What will be the consequences for European energy
and carbon balances if we dont find answers to
these questions?