Storage Development and Security of Gas Supply: U.S. Perspective. GIE Annual Conference, Groningen, May 7, 2009

Transcription

1 Storage Development and Security of Gas Supply: U.S. Perspective GIE Annual Conference, Groningen, May 7, 2009

2 Role of Storage & Value Perception Strategic and Operational Role ROLE Pipeline Balancing Strategic Gas Reserve Reduce Price Risk VALUE SOURCES Operational Load Following Reliability & Security Least WACOG Monetization of Spreads: Price Arbitrage (Hedged) Speculation (Open) Intrinsic Extrinsic Hub Services Commercial Role Market conditions will dictate the role of storage -2-

3 Evolving Role for Gas Storage in U.S. Extracting value from price volatility is a relatively new concept Price Regulation Gas Bubble Low Volatility Consumption (Tcf) Unresponsive Supply High Volatility Storage Capacity (Tcf) 5.00 Unbundling (Order 636) US Natural Gas Consumption Working Storage Capacity -3-

4 Strong Market Interest for Salt Storage. Increasing storage rates are evidence of changing role of storage High Case + 15 to 20% ($/Mcf/Month) Forecast Low Case - 20 to 25% USGC Salt Cavern Rates -4-

5 Natural Gas Market Characteristics: EU vs. U.S. % Gas Power Demand EU (27) U.S Market Size 22% 29% % Domestic Supply % LNG Supply % Pipeline Imports Source of Imports 39% 12% 48% Many Access to Resources 86% 2% 12% 2 Transit Countries Many NONE LNG Regas Capacity %Storage Working Gas Capacity Storage Deliverability (Bcm/d) % Storage to Demand % Note: All Data is calculated in Bcm unless otherwise noted. Supply Security % -5-

6 Market Differences Warrant Different Roles for Storage Liquidity NBP mature developing emerging TTF GUD ZEE World LNG PEG Nord PEG Sud NCG PSV CEGH PEG SO CDG # Gas Hubs 3 # Pricing Points Liquidity Avg. Volumes Traded (000 MMBtu/d)/Point Total 2008 Volumes Traded (000 MMBtu/d) 4 LOW Market Liquidity Sufficient liquidity a pre-requisite for extracting full value from price volatility HIGH LOW 350 LOW 308,345-6-

7 Price Volatility Drives Commercial Value of Storage Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 $/MMBtu NBP GBP HH Brent -7-

8 Market Differences Warrant Different Roles for Storage Transparency and Price Discovery $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $- May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 $/MMBtu -8-

9 Market Differences Warrant Different Roles for Storage Transparency and Price Discovery Where are the forward curves to give commercial value of storage? UK BL NL GR FR AT PO CZ SK Oil index prices not seasonal therefore valuation of storage services will be based on cost plus basis -9-

10 Market Differences Warrant Different Roles for Storage Harmonized Regulatory Framework Multi TSO Integration is essential for spurring commercial role for storage This is the area of concentrated gas demand, and the area where gas from all directions competes with each other. North Sea Netherlands Russia Map Source: EFET Atlantic LNG Caspian Algeria Libya Egypt Iraq/Iran Completion of the single European market will also strengthen gas supply security -10-

11 Market Differences Warrant Different Roles for Storage Harmonized Regulatory Framework 50% 45% 40% 35% 30% 25% 20% USA = 16% 15% 10% 5% 0% Austria Slovakia Hungary France Czech Republic Demnark Germany Italy Romania Europe Avg Netherlands Bulgaria Poland Spain UK Belgium Portugal Estonia Finland % Storage Capacity of Demand Completion of the single European market will also strengthen gas supply security -11-

12 Market Differences Warrant Different Roles for Storage Political Security of Supply Unlike EU, USA not heavily reliant on imports with no political tensions with its import counter parties. -12-

13 Impact of Financial Meltdown on Storage Development Strict Financial Scrutiny on Projects Higher Requirements for Contracted Capacity Credit Crunch in Market Storage Market Cool-down Financial market turmoil taking its toll on under-capitalized projects Most commercially viable project will attract scare capital High barriers of entry ensuring healthy returns for investors Developers Offer Significant Discounts on Offer Rates to Seek Anchor Tenants Reduction in Revenue Projections Lower Interest in the M&A market Projects Face Financial Challenges -13-

14 Recent Credit Crunch: Removing Chaff From The Wheat Highly Speculative 3.7 Bcm 1Q2008 Early Credit Crunch Probable 8.4 Bcm Highly Speculative 6.6 Bcm 4Q2008 Post-Crisis Probable 6.4 Bcm + 80% - 24% Speculative 3.2 Bcm Speculative 2.3 Bcm - 30% Total Capacity Under Development: 15.4 Bcm 217 Bcma Deliverability 155 Bcma -14-

15 Amol Wayangankar Executive Director Pace