Gas Insecurity: A Figment of the Imagination?
Peter Davies. Chief Economist, BPEPRG. Cambridge. 19 May, 2006
© BP 2006 2
Gas Security
• What is it?
• Does the UK have it?
• What is going to change?
• What can we do about it?
© BP 2006 3
Energy Security
Available
Reliable
Price
Markets
Fair
Resources
Affordable
Sustainable
Clean Climate Footprint
Consumers Producers
© BP 2006 4
Gas Security
Gas security is the availability of reliable supplies at a reasonable price – in a sustainable manner
© BP 2006 5
Reliability
Gas DayUpdate
Timestamp Description24-Mar-2006 23/03/2006 13:10 NONE23-Mar-2006 22/03/2006 13:17 NONE22-Mar-2006 21/03/2006 13:08 NONE21-Mar-2006 20/03/2006 13:15 NONE20-Mar-2006 19/03/2006 13:18 NONE19-Mar-2006 18/03/2006 13:22 NONE18-Mar-2006 17/03/2006 14:10 NONE17-Mar-2006 16/03/2006 13:20 NONE16-Mar-2006 15/03/2006 13:45 NONE15-Mar-2006 14/03/2006 13:15 NONE14-Mar-2006 13/03/2006 13:14 NONE13-Mar-2006 13/03/2006 00:08 ALERT13-Mar-2006 12/03/2006 13:32 NONE12-Mar-2006 11/03/2006 13:15 NONE11-Mar-2006 10/03/2006 13:14 NONE10-Mar-2006 09/03/2006 13:17 NONE09-Mar-2006 08/03/2006 14:09 NONE08-Mar-2006 07/03/2006 14:02 NONE07-Mar-2006 06/03/2006 16:06 NONE06-Mar-2006 05/03/2006 13:12 NONE05-Mar-2006 04/03/2006 13:20 NONE
National Grid Gas Balancing Alert History
Source: National Grid
© BP 2006 6
Reasonable Prices?
020406080
100120140160180200
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
p/th
erm
NBP Platts 24hr/Day Ahead
© BP 2006 7
Reasonable Prices?
0
5
10
15
2025
30
35
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
US$
/mm
btu
NBPHH
UK NBP vs. US Henry Hub
© BP 2006 8
Sustainability
• Clean
• Low CO2
• No significant production or transportation externalities
© BP 2006 9
Future Gas Security
• What does the market think?
© BP 2006 10
Natural Gas: Henry Hub vs NBP
0
2
4
6
8
10
12
14
16
18
20
22
24
26
Jan-
04
Apr
-04
Jul-0
4
Oct
-04
Jan-
05
Apr
-05
Jul-0
5
Oct
-05
Jan-
06
Apr
-06
NBP
Henry Hub
Actual
$/mmbtu
Jun-
06
Jul-0
6
Aug-
06
Sep
-06
Oct
-06
Nov
-06
Dec
-06
Jan-
07
Feb-
07
Mar
-07
Futures
© BP 2006 11
Future Gas Security
• What does the market think?
• What is changing?
© BP 2006 12
UK Gas Supply and Demand
-20
0
20
40
60
80
100
120
1970 1976 1982 1988 1994 2000
ProductionConsumptionNet Exports
Source: BP Statistical Review of World Energy 2005
Consumption
Production
Net Exports
Bcm/y
© BP 2006 13
New Pipeline Import Capacity
Interconnector Expansions Balgzand-Bacton (BBL)
Ormen Lange
© BP 2006 14
LNG Import Terminals
Isle of Grain LNG Terminal in Kent Dragon & South Hook LNG Terminals Milford Haven
© BP 2006 15
0
100
200
300
400
500
600
2005 2007 2009 2011 2013 2015 2017 2019
RussiaNorwayPeruBoliviaVenezuelaTrinidadAngolaGuineaNigeriaAlgeriaLibyaEgyptYemenUAEOmanIranQatarMalaysiaIndonesiaBruneiAustraliaUS
Global LNG Growth
LNG volumes (mtpa) existing, in development, probable and speculative
Expected total LNG
© BP 2006 16
Future Gas Security
• What does the market think?
• What is changing?
• What could happen?
© BP 2006 17
Continental European Gas Liberalisation
Albania
Andorra
Austria
Belgium
Bosnia and Hercegovina Bulgaria
Croatia
Cyprus
Czech Republic
Denmark
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Luxembourg
Macedonia
Malta
Netherlands
Norway
Poland
Portugal
Romania
Slovak Republic
Slovania
Spain
Sweden
Switzerland
UnitedKingdom
Yugoslavia
© BP 2006 18
Catastrophic Risks
Russia
Ukraine
RussiaRussia
Ukraine
RussiaRussia
Accident
Terrorism
Interruption
Nature
© BP 2006 19
UK Natural Gas Storage
0500
1,0001,5002,0002,5003,0003,5004,0004,500
May-05
Jun-05Ju
l-05
Aug-05Sep-05Oct-
05Nov
-05Dec
-05Ja
n-06Feb-06Mar-0
6Apr-0
6
Rough Medium Range Storage Short Range Storage
Mcm
© BP 2006 20
Policy Options
• Fuel choice interventionism – nuclear, renewables
• EU policy
• Storage:
− Mandatory storage
− Capacity market
• Long term contracts
© BP 2006 21
Conclusions
• The UK has had gas security
• Imports will rise but import capacity will rise even more
• International gas market developments to support UK security even though the depth of EU liberalisation remains uncertain
• UK gas security should be maintained – but catastrophic interruptions pose a risk, as they do to all energy markets
• Gas storage can provide some insurance, at a cost. Debate over strategic storage is valid.
© BP 2006 22
UK net exports and gas in storage
-4,000-3,000-2,000-1,000
01,0002,0003,0004,0005,000
1Q00
3Q00
1Q01
3Q01
1Q02
3Q02
1Q03
3Q03
1Q04
3Q04
1Q05
3Q05
Net exports (MCM)Gas in Storage
Mcm
© BP 2006 23
UK Interconnector Flows
-40
-20
0
20
40
60
Oct-01
Feb-02
Jun-02
Oct-02
Feb-03
Jun-03
Oct-03
Feb-04
Jun-04
Oct-04
Feb-05
Jun-05
Oct-05
Feb-06
Monthly maximum export capacity
Monthly maximum import capacity (expanded in December 2005)
Million cubic meters/d
© BP 2006 24
0
4
8
12
16
20
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
McM/d
Isle of Grain send-out
© BP 2006 25
Total UK gas in storage
0500
1,0001,5002,0002,5003,0003,5004,0004,500
Janu
aryFebru
aryMarc
hApri
lMayJu
ne July
August
Septembe
rOcto
ber
Novembe
rDec
ember
2000200120022003200420052006
Mcm
© BP 2006 26
UK future gas prices 2006
30
40
50
60
70
80
90
100
Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Fan Feb
2 Jan 1 Feb 1 Mar 3 Apr 1 May April
May
March
February
January
p/therm
© BP 2006 27
UK gas import capacity expansion
Project CapacityAs % 2005
consumptionDate status
Isle of Grain phase II Increase from 12 to 38Mcm/d 9.1%
6.6%
9.4%
5.8%
10.1%
24.4%
4.9%
61%
2008Planning
permission granted
Interconnector import capacity (phase II)
Increase to 66Mcm/d
Dec. 2006 Under construction
Bacton – Balgzandinterconnector
27Mcm/d Dec.2006 Under construction
Milford Haven – South Hook 29Mcm/d 2007 Under construction
Milford Haven – Dragon LNG 16.5Mcm/d 4Q2007 Under construction
Langeled – Ormen Lange gas Up to 70Mcm/d 2007/08 Under construction
Statfjord late life gas project –via FLAGS pipeline
14Mcm/d 2007/08 Under construction
Total 202.5Mcm/d
Source: DTI, PIRA, Norsk Hydro and Statoil.
© BP 2006 28
UK planned gas storage capacity expansion
Project Capacity Date status
Humbly Grove 280Mcm Nov. 2005 complete
Byley storage facility 170Mcm 2008 Planning permission approved
Aldbrough storage 420Mcm 2007 Under construction
Welton storage facility 435Mcm 2007/08 Planning application submitted
Total 1,305 Mcm
Source: DTI, Star energy.