28
Gas and LNG Supply Contracts Forum Berlin, 21 June 2018 Dr. Wolfgang Peters, MBA Managing Director, The Gas Value Chain Company GmbH The Gas Value Chain Company GmbH
Gas and LNG Supply Contracts Forum
Berlin, 21 June 2018
Dr. Wolfgang Peters, MBA
Managing Director, The Gas Value Chain Company GmbH
The Gas Value Chain Company GmbH
European gas demand and import need projections◦ EC underestimates demand & overestimates indigenous
production
Myth of Russia ‘bullying’ EU with oil-indexation◦ Northwest-Europe: integrated transnational single price area’
◦ Some CEE countries: ‘… playing a double game’
Global gas market through ‘LNG revolution’◦ Security of supply global, no longer regional
LNG marginal (not permanent) source of supply◦ LNG sets maximum achievable price for pipeline gas
◦ Abundance of pipeline gas keeps prices low and LNG out
◦ Exclusive, permanent reliance means competing with Asia at
significantly higher prices
The Gas Value Chain Company GmbH
The Gas Value Chain Company GmbH
IEA WEO 2017: European demand ‘flat’ (~450 bcm/a in 2040)
Indigenous decline renders import requirement of ~390 bcm/a
Source: IEA WEO 2017
The Gas Value Chain Company GmbH
EC underestimates demand and overestimates indigenous supply
Deviation from ‘consultant’s consensus’!
Source: Engie
European gas demand and import need projections◦ EC underestimates demand & overestimates indigenous
production
Myth of Russia ‘bullying’ EU with oil-indexation◦ Northwest-Europe: integrated transnational single price area’
◦ Some CEE countries: ‘… playing a double game’
Global gas market through ‘LNG revolution’◦ Security of supply global, no longer regional
LNG marginal (not permanent) source of supply◦ LNG sets maximum achievable price for pipeline gas
◦ Abundance of pipeline gas keeps prices low and LNG out
◦ Exclusive, permanent reliance means competing with Asia at
significantly higher prices
The Gas Value Chain Company GmbH
The Gas Value Chain Company GmbH
Myth of Russia ‘bullying’ EU with oil-indexation
IGU: 92% GOG, only 8% OPE
Memo: Russian supply share >30%
Source: IGU Wholesale Gas Price Survey 2018 Edition
28 %
92 %
72 %
8 %
The Gas Value Chain Company GmbH
IGU on Russian supplies to Germany: 100% TTF correlation
ACER: “crucial how a country deals with price formation”
Source: IGU Wholesale Gas Price Survey 2018 Edition
The Gas Value Chain Company GmbH
Northwest-European hubs:
Integrated transnational market behaving like a ‘single price area’
Czech VOB part of it; Polish VPGS NOT (Heather/Petrovic)
Source: ewi Central European Gas Market Congestion Analysis
European gas demand and import need projections◦ EC underestimates demand & overestimates indigenous
production
Myth of Russia ‘bullying’ EU with oil-indexation◦ Northwest-Europe: integrated transnational single price area’
◦ Some CEE countries: ‘… playing a double game’
Global gas market through ‘LNG revolution’◦ Security of supply global, no longer regional
LNG marginal (not permanent) source of supply◦ LNG sets maximum achievable price for pipeline gas
◦ Abundance of pipeline gas keeps prices low and LNG out
◦ Exclusive, permanent reliance means competing with Asia at
significantly higher prices
The Gas Value Chain Company GmbH
The Gas Value Chain Company GmbH
IGU on CEE: GOG from ~0 % to 73 %, but…
some CEE countries playing a ‘double game’
Source: IGU Wholesale Gas Price Survey 2018 Edition
0 %
73 %
85 %
25 %
The Gas Value Chain Company GmbH
Letter of Formal Notice EC to Poland on 8 March 2018
ICIS Heren, EGM* 25.08: ‘To diversify gas supplies, CEE countries must allow efficient cross-border trade instead of maneuvering between the EU and Russia’.
“…certain CEE governments may make “….official statements toeing the EU party line…” but play “…a double game…” when it comes to embrace liberalization and free trade.
Katya Zapletnyuk, ICIS Heren
EC: “… unduly disturbing competition or hampering the
functioning of the internal market…”
*) European Gas Markets, bi-weekly by ICIS Heren
The Gas Value Chain Company GmbH
Poland: High degree of diversity with 5 sources of supply
sum of 4 sources (other than Russian) constitute:
117% of domestic consumption
258% of Russian min-take volumes
Source: ENTSOG Capacity Map 2017
European gas demand and import need projections◦ EC underestimates demand & overestimates indigenous
production
Myth of Russia ‘bullying’ EU with oil-indexation◦ Northwest-Europe: integrated transnational single price area’
◦ Some CEE countries: ‘… playing a double game’
Global gas market through ‘LNG revolution’◦ Security of supply global, no longer regional
LNG marginal (not permanent) source of supply◦ LNG sets maximum achievable price for pipeline gas
◦ Abundance of pipeline gas keeps prices low and LNG out
◦ Exclusive, permanent reliance means competing with Asia at
significantly higher prices
The Gas Value Chain Company GmbH
The Gas Value Chain Company GmbH
IEA WEO 2017: 90% of additional gas trade through LNG
(Second gas revolution)
Source: IEA WEO 2017
The Gas Value Chain Company GmbH
LNG increasingly ‘destination-flexible’, responding to price signals
Source: IEA Global Gas Security Review 2017
The Gas Value Chain Company GmbH
LNG response time significantly reduced
Source: IEA WEO 2017
European gas demand and import need projections◦ EC underestimates demand & overestimates indigenous
production
Myth of Russia ‘bullying’ EU with oil-indexation◦ Northwest-Europe: integrated transnational single price area’
◦ Some CEE countries: ‘… playing a double game’
Global gas market through ‘LNG revolution’◦ Security of supply global, no longer regional
LNG marginal (not permanent) source of supply◦ LNG sets maximum achievable price for pipeline gas
◦ Abundance of pipeline gas keeps prices low and LNG out
◦ Exclusive, permanent reliance means competing with Asia at
significantly higher prices
The Gas Value Chain Company GmbH
The Gas Value Chain Company GmbH
LNG revolution: security of supply no longer ‘regional’
Source: IEA Global Gas Security Review 2016
IEA: “As the role of gas … evolves, a narrow
approach to gas security focussing on gas as a
stand-alone fuel in an individual region is no
longer appropriate.”
The Gas Value Chain Company GmbH
Threat of political blackmail (‘Putin phobia’) vanished
Supplier competition pipeline gas & LNG beneficial for Europe
Ukrainian Crisis 2009: Andrej Budajew, “Putin’s recalcitrant bride”
European gas demand and import need projections◦ EC underestimates demand & overestimates indigenous
production
Myth of Russia ‘bullying’ EU with oil-indexation◦ Northwest-Europe: integrated transnational single price area’
◦ Some CEE countries: ‘… playing a double game’
Global gas market through ‘LNG revolution’◦ Security of supply global, no longer regional
LNG marginal (not permanent) source of supply◦ LNG sets maximum achievable price for pipeline gas
◦ Abundance of pipeline gas keeps prices low and LNG out
◦ Exclusive, permanent reliance means competing with Asia at
significantly higher prices
The Gas Value Chain Company GmbH
The Gas Value Chain Company GmbH
LNG marginal, not permanent source of supply
ewi Energy Research & Scenarios gGmbH analysis:
Abundant pipeline gas keeps prices low & LNG out
LNG ‘caps’ maximum achievable price for pipeline gas
Source: ewi Energy Research & Scenarios gGmbH
The Gas Value Chain Company GmbH
E.g. U.S. LNG to Europe:
HH/TTF (NBP) spread of >3.95 $/MMBtu required
Source: ICIS Heren, EGM 25.03
The Gas Value Chain Company GmbH
Competitive pipeline gas keeps LNG mostly out
HH/TTF (NBP) spread of >3.95 $/MMBtu required
Source: ICIS Heren, 25.10 of 31 May 2018
Price difference: 3.663 $/MMBtu
Spread required: ~3.95 $/MMBtu
European gas demand and import need projections◦ EC underestimates demand & overestimates indigenous
production
Myth of Russia ‘bullying’ EU with oil-indexation◦ Northwest-Europe: integrated transnational single price area’
◦ Some CEE countries: ‘… playing a double game’
Global gas market through ‘LNG revolution’◦ Security of supply global, no longer regional
LNG marginal (not permanent) source of supply◦ LNG sets maximum achievable price for pipeline gas
◦ Abundance of pipeline gas keeps prices low and LNG out
◦ Exclusive, permanent reliance means competing with Asia at
significantly higher prices
The Gas Value Chain Company GmbH
The Gas Value Chain Company GmbH
Keep e.g. Russian gas out & rely exclusively/permanently on LNG?
Competing with Asia at significantly higher prices
Source: ewi Energy Research & Scenarios gGmbH
The Gas Value Chain Company GmbH
China’s LNG ramp-up Q1’18 caused price surge
Required premium over TTF January 2018 av. 4.12 $/MMBtu
Source: ICIS Heren, EGM 25.03
The Gas Value Chain Company GmbH
TTF M+1 January 2018: 7.077 $/MMBtu
TTF price level required to compete with Asia: 11.197 $/MMBtu
I.e. TTF price level would have had to be >50% higher
Source: ICIS Heren, EGM 24.22
The Gas Value Chain Company GmbH
For further ‘bed-time reading’ on the subject:
‘Implications of a global gas market for traditional gas
economical paradigms’, by Wolfgang Peters, in February 2018
(http://gasvaluechain.com/cms/wp-content/uploads/2018/03/2018-02-20-Implications-Global-Gas-Market...-W.Peters_Gas-Value-Chain.pdf)
Also in: www.naturalgasworld.com
