the power of russian gas · europe & “a new industrial revolution” kyoto lisbon moscow 20%...

Clingendael International Energy Programme www.clingendael.nl/ciep

The Power of Russian Gas

Jacques de JongJacobs Energy Conference

13-15 december 2007 Bremen


Content:• EU’s need for Russian gas• Russian gas potentials• Infrastructure issues• The role of Gazprom (or the

Kremlin?)• EU reactions


Gas imports 2030


EU gas supplier diversifcation; what next?


EU-27 S/D balance 2015 bcm/a

2006 2010 2015Demand 532,0 580,0 629,0Supplies

UKNL

Other EUNorway

Algeria/pipeLybia/pipe

LNGCall on Russia

83,4 68,0 40,077,7 70,0 60,056,1 58,0 48,085,5 105,1 120,036,0 45,0 52,07,7 8,0 8,0

52,0 100-130 50-130

130 99-126 171-251

Source; CIEP


EU’s gas encirclement Gazprom

SonatrachCaspian,

Iran, Gazprom ?

LNGWorld market


LNG: regas versus liquefaction1000 bcm

versus 600 bcm

Source: IEA Natural gas Market review 2007


Increasing importance of LNG imports… but for Europe export pipelines also very important

0

20

40

60

80

100BCFDBCFD

North AmericaNorth America EuropeEurope Asia PacificAsia Pacific

Local ProductionLocal Production

Long PipelinesLong Pipelines

2000

2000

2030

2030

LNGLNG

Source: ExxonMobilOutlook 2005


New Infrastructure towards the EU-27(bcm/a)

Pipelines, existing (2006), under

construction/planned (2015)• Russia

– EU-2006: 176– 2015: -FRG +55, Bulgaria +30

• Norway– EU-2006: 128– 2015: UK +11, TBD:<20, Swe/DK:+8

• Algeria– EU-2006: 40 – 2015: Spain +13, Italy +13

• Lybia– EU-2006: 9

• Iran/Caspian– 2015: Bulgaria 23

LNG regas capacity Likely/possible

Belgium 6,5 9,1 9,1 France 15,6 23,9 26,4-59,4

UK 9,0 44,0 49,7-54,7NL 0,0 1,0 17,0-27,0

Italy 3,5 16,5 23,5-47,5Spain 50,5 57,3 64,3

Portugal 5,5 5,5-8,5 5,5-8,5Greece 2,6 2,6 2,6Ireland 0,0 0,0 2,5Croatia 0,0 0,0 10,0Germany 0,0 5,0 10,0

2007 2010 2015

Total 93,2; 159,8-167,8; 198-299,5 Total (2006) 344 – (2015) + 92-173

Conclusion:• LNG-regas sufficient to meet

expected demand • E-W pipelines insufficient to meet

high calls on Russia

Source; CIEP


Major Russian gas basins


Russian Gas Production

WEO 2006

WEO 2007:production

700 bcm, 2015820 bcm, 2030

Dom. Use416, 2015470, 2030


Main Directions of Russian Gas Supply, bcm

0

100

200

300

400

500

600

700

800

900

1000

1995 2000 2005 2010 2015 2020 2025 2030

bcm

Russia Europe CIS North-East Asia Atlantic LNG

Source: ERI RAS (Moscow)

Growing role of domestic market

0

100

200

300

400

500

600

700

800

900

1000

1990 1995 2000 2005 2010 2015 2020 2025 2030

bcm

Import

Far East

Eastern Siberia

Other EuropeanregionsShtokman

Southern region

Tomsk region

Yamal

BolshehetskayaVpadinaOb and Taz Bay

Nadym Pur Taz

Growing role of import


Russian gas supply outlook


Source: WEFA

Impact of market Impact of market liberalisationliberalisation

Uncertain gas demandUncertain gas demand

Increase of Increase of competitioncompetition

EU policy on gas EU policy on gas supply sources supply sources diversificationdiversification

Key question for Russia Key question for Russia –– security of demandsecurity of demand


Russian gas to the EU


Gas pipeline supply infrastructure to EU

Nordstream project

Nabucco project South stream ?


South Stream: viable?

Map source: ENI & Gazprom

• Cost of construction? (Involvement of Gazprom and ENI suggests that the costs would be excessive…)

• Where’s the gas?


Russian Govt. Proposed FE Oil & Gas Pipelines


Russian Oil & Gas pipelines toEurope

Running the E-W gas grid


Who runs Gazprom?

Gazprom-building

White House(Russian Parliament)

Rosneft-building

Gazprom-building: no exit


Who runs the Kremlin?


Yamal-Europe

Nord StreamBrotherhood

upstream

downstream

midstream

Blue StreamSouth Stream

Gazprom Export Strategy in the Value Chain


Gazprom & production


How much money is required to develop new gas production areas?

Gazprom’s estimates of Yamal Peninsula gas field development costs(billion USD in current US dollars)

Source: Gazprom’s “Complex program of Yamal Peninsula gas fields industrial development”, 2002; Vladimir Milov

1,0

5,5

7,2

17,6

48,1

85,4

0 50 100

A lloca ted for Bov a n en ko a n dKh a r a sa v ey in 2 007

A u x ilia r y in fr a str u ctu r e

Obska y a a n d Ta zov ska y aba y s a n d Ka r a sea g a s fields

Bov a n en ko a n d Kh a r a sa v eyg a s fields

Ya m a l-m a in la n d g a str a n spor ta t ion sy stem

Tota l in v estm en ts r equ ir ed


Will Gazprom invest enough in new gas field development to address the supply challenge?

Structure of Structure of Gazprom’sGazprom’s investment program for 2007 (billion USD)investment program for 2007 (billion USD)

Source: Gazprom’s board of directors decisions of January, May, August 2007; Vladimir Milov

5,3

4,5

6,4 10,6

1,0

1,1

1,8

0 5 10 15 20

Other purposes

Yamal Peninsula gas fields

Shtokman and Prirazlomnoye

Upstream - current region ofproduction

Main gas transport projects

Financial investments (acquisitionsof companies)

A ppr ov ed in Ja n u a r y 2 007

Recen t a m en dm en ts


Midstream – Gazprom & gas-pipes

Political motives: more Russian leverage – transitcountries (Ukraine, Belarus, Poland, Slovakia)

Political motives: Transitcountry leverage diminishes via uncoupling non-gas packages

Economic motives: Caspian & Iranian competitors: keep them out of the EU-market

Pipeline equity: create added values

Source: Keohane en Nye Jr. 1977; CIEP- analysis


Midstream – create st/mt overcapacity in pipelines

Totaal Nord Stream South Stream Yamal-Europe Oekraïne-transit

Max.

200

261

55

18

30

18

140

Gazprom capacity and volume to Europe until 2015 (bcm/a)

60• Planned additional

pipelinecapacity toEurope

• Growth exportvolumes limited according estimates

• Expected 2015 overcapacity of 60 bcm

Source: Gazprom; RPI; Global Insight;CIEP analysise

Pipeline capaciyMax. gasvolume Gazprom

to Europe

Overcapacity


ST-contractsLT-contracts

94,6%

5,4%

99,1%

0,9%

Gazprom sales on ST & LT EU markets, 2003

Gazprom sales on ST & LT EU markets, 2006

•Substantial growth gasvolumes in spot-markets

•LT-contracts remain basis for security of demand & supply

Source: Gazprom, Gazprom Marketing & Trading; CIEP analysis

Midstream: Gazprom interest in st-markets


Indirect Gazprom selling to strategic partners on wholesale markets

Direct Gazprom selling via:

• strategic European joint ventures (such as Wingas)

• full control in greenfield investments (Gazprom Marketing & Trading) or acquisition(Pennine Natural Gas, NGSS)

Source:H.W. de Jong 1989; CIEP analysis

Downstream & export strategy


Gazprom exportstrategy‘bet on more horses’

midstream

downstream

– Create overcapacity to have options to switch gas flows

– These options add value to Gazprom investments and diminish transit-copuntry leverages.

– Monopolise Eurasian gascorridors

– Use options from global gasmarket-developments– Create additional options for growth – Prepare for further globalising and liberalsing

gasmarkets, in Europe and elsewhere

Gazprom strategy follows economic theory; fully in line with past corprate strategies oil industry:

how to grow in mature marketsSource:H.W. de Jong 1989;

CIEP analysis


Mr Barosso,Do you seethe road toan (external)EU energyPolicy?


EU Energy package 2007An Energy policy for

Europe & “a new industrial revolution”

Kyoto LisbonMoscow

20% • less CO-2

• more energy efficiency

• RES-share

in 2020

Welfare gainsOutstanding issues:

No full complianceAccess & unbundling

L.t. contractsinfrastructures

Internal solidarity:-- diversify away from hc’s-- more interconnectionsExternal energy policy:

-- one voice-- dialogue & cooperation


One voice in International Energy Policy

• What vision, what strategy….• Who’s voice:

– Kyoto leaderships?– Mandelson/Piebalgs + 27 watchdogs– Troika– Eurogroup-model– Solana– The new EU president?

• Stability or presidency-priority settings


How to face the RussianPosition, …..


All eastern gasvia Gazprom?...

Scope for bilateral deals ?

Gas upstream competition & downstream deals

Gazprom-Sonatrach Cooperation ? Doha, april 2007: gas

cartel to come ?

Southstream, Northstream

Shtokman


The ring strategy

shtokman

North Stream

South Stream

The two sides of the Ring:

The Russian leverage?

The European catchers?


Conclusions

• Politics & energy, the two sides of the same coin…..

• Gazprom strategies: industrial logics• EU policy developing &

developing…..


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the power of russian gas · europe & “a new industrial revolution” kyoto lisbon moscow 20%...

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