Small Scale LNG in the Baltics. Rodrigo Pinto Scholtbach Gas Market Analyst Gas, Coal and Power division, International Energy Agency

Transcription

1 Small Scale LNG in the Baltics Rodrigo Pinto Scholtbach Gas Market Analyst Gas, Coal and Power division, International Energy Agency

2 The drivers: a perfect combination Eca regulation The golden age of gas Increasing production gas Gas the most competitive transport fuel Regulation Price formation Supply

3 Emission Control Areas (ECA s) set up by the International Maritime Organisation The Baltic Sea 2005, the North Sea and English channel 2006, North America and Hawaii 2012 Limitation of maximum sulphur content of fuel oils used on board in sensitive high-volume shipping zones. The need to control maritime emissions Data from maritime industry insiders showed that just 15 of the world's biggest ships may emit as much sulphur and nitrogen pollution as the world's car fleet.

4 The International Convention for the Prevention of Pollution from Ships (MARPOL) 1973 USD /Mbtu Today oil & gas prices compared with the ' Oil prices '70s US Henry Hub '70s Oil prices today US HH prices today Europe prices today Asia prices today Fuel costs represent an increasing share of vessel operating costs Use of LNG: 30 % costs savings based on case studies Scrubbers are a temporary solution for vessels

5 USD/bbl 160 Historical Crude Oil Prices Fear of supply storage Arab Spring 100 Iraq- Iran war Economic Recession Iranian revolution Early 80 s recession Gulf war Iraq war Arab oil embargo

6 Stable gas prices in Europe and strong decline in the US

7 Cost per GJ (USD 2010 /GJ LHV ) Natural gas one of the few competitive options with petroleum fuels Hydrogen from natural gas, centralised prod. 100 Electricity (biomass) Lignocellulosic ethanol 80 BTL 60 Electricity (natural gas) Gasoline 40 Corn ethanol 20 Sugar cane ethanol CTL Cost per Barrel (USD 2010/ Barrel) Natural gas Much lower cost per gigajoule based on current US dollar price per barrel

8 USD/GJ of fuel Even at a price of USD 60/bbl Gasoline 0 USD60/bbl Current USD60/bbl Mature

9 USD/GJ of fuel More competitive at a price of USD 150/bbl Gasoline 20 0 USD150/bbl Current USD150/bbl Mature

10 The use of natural gas and LNG in the transportation sector Railways Maritime sector Hundreds of Initiatives Public transport Inland shipping Public Authorities Gas producers Transport sector Engine industry Green NGO s

11 A really small niche market for the gas retailers! Only 1,5 % share in global gas consumption in 2012 Transport sector Gas use in other sectors 2,5 % in 2018 Transport sector Gas use in other sectors

12 The main supply trends: an unpleasant message Shale gas revolution Increasing imports dependency Europe Increasing role Russia

13 In all scenario s natural gas production will grow bcm Global Natural Gas Production by IEA- scenario (bcm) Historical New Policy Scenario Current Scenario 450 Scenario The future for natural gas is bright

14 Increasing supplies of gas Domestic gas production by region, (bcm) /12 Annual Growth Rate (%) Europe Americas Asia Oceania Africa Asia China FSU/Non-OECD Europe Latin America Middle East Total But not in Europe

15 The United States represents 21% of global gas production growth US production growth is largely supported by shale gas In 2012 shale gas 39% of total gas production (3% in 2002) Looking for new markets

16 Middle East s gas supply constraints Most ME Countries face gas shortages and have to import pipeline gas or LNG to meet rapidly growing demand Qatar is the only country able to meet its growing demand

17 Africa s demand to gain 41 bcm in 2018 Africa s gas demand remains largely dominated by Algeria and Egypt, both facing supply constraints

18 Algeria s production on a slow growing path Algeria s production has been declining since its peak in 2005 Despite many recent discoveries, the investments are not increasing

19 Russia is able to supply more gas, but. Bcm Russia s historical and forecasted supply-demand balance Export Bcm FSU export FSU total gas supply FSU domestic gas demand Russia can quickly and massively raise gas production in response to domestic and external demand Russia s priorities are shifting towards Asia and LNG

20 bcm Natural gas demand growth in selected regions % 2.1% 0.6% 0.7% 6.6% Demand growth Demand growth % 0.7% % 2010 compound average annual growth rate United States Middle East European Union Russia China India Japan Explosive use of natural gas in Asia, especially in China

21 Europe will need more gas imports, despite stable demand and weak position gas in energy mix Bcm 300 European import dependency (Europe includes Norway) Because of decline domestic production in the Netherlands and UK Europe wants to decrease dependency on Russian gas. One of the options is to attract more LNG.

22 Is LNG really to play a substantial role in Europe? Competition from Asia and Latin America Long term contracts New distribution of LNG via re-exports

23 LNG moves towards the Asian market LNG flows in 2012 (bcm) Asia s share in global LNG imports reached 70% China s LNG imports increased by 22% to 20 bcm, driven by economic growth and expansion of LNG import capacity LNG imports in Europe fell by 26%.

24 Price differentials determine the LNG flows Asian LNG prices +150% over last 3 years, driving by rising oil prices and a tight short-term LNG market Differentials determine also the use of natural gas as transport fuel.

25 In all IEA scenarios (WEO) price differentials are here to stay Gas Prices in the Current Policies Scenario (6 C) Gas Prices in the New Policies Scenario (4 C) $/MbTu 10 $/Mbtu United States Japan Imports Europe Imports United States Japan imports Europe imports S/MbTu Gas Prices in the 450 Scenario (2 C) United States Europe Imports Japan

26 From tightness to a comfortable LNG market bcm Till period of tightness From 2016 on, more LNG plants online (Australian plants) Portfolio LNG Mexico Singapore Malaysia India China Taiwan Korea Japan Capacity 80% of global new LNG volumes already contracted on longterm basis After 2016/2017 price is expected to remain around USD 13 to 15/Mbtu

27 The United States will start exporting LNG by BCM To Japan Cameron Cove Point Contract signed Russia 30 Freeport Algeria Sabine Projects with DOE approval or signed export contracts DOE Approved Yemen Egypt Oman LNG from other countries US could become the number 3 LNG exporter (after Qatar and Australia) US government: LNG exports improve the welfare of the US

28 Is Europe ever going to cook or navigate on North American shale gas? Centrica LNG Contract GDF Joint venture E.ON LNG Contract Some European companies have signed contracts for delivery of US gas Contracts without destination clauses Destination will be determined by the buyer who is willing to pay the highest price Asia

29 From December to February: the real game for suppliers Winter Winter Winter Dry season Spot cargo s $ 18 20/Mbtu Long term contract Take or Pay $ 10-12/MBtu Re-exporting $ 10-20/MBtu Besides the spot price levels, freights costs are one of the main determining factors

30 LNG is coming to Europe but is not staying here Spain re-export volumes from (bcm) Source : GIIGNL (LNG Industry 2012) Source: IEA cargoes were re-exported from European terminals After 2016/2017 some European could expect spot price levels around USD 10-13/Mbtu via re-exports from other European countries like Spain

31 A difficult market and the dominant position of Asia Europe Asia

32 The distribution of LNG within the Baltic Sea region The initiatives LNG to increase diversification New distribution of LNG via re-exports

33 Exploring the options Several LNG small scale bunkering infrastructure has been explored by the partners of LNG in Baltic Sea Ports project. EU funding (through the TEN-T programme) to study where terminals should be located, customer demands, how bunkering will proceed, etc. Additional single projects within the Baltic region with LNG initiatives (e.g. Swinoujście (Poland 5 bcm/per year), Klaipeda (Lithuania 4 bcm/per year).

34 The Baltics: a long term dependency? Long term gas contracts with Gazprom linked to the price of oil Lithuana Klaipeda 4 bcm Latvia Finland Estonia Using LNG to decrease dependency on Gazprom and as negotiating point with Russia New LNG terminal in Finland or Estonia with 40 % aid from the EU ( Project for Common Interest (PCI), it would have to benefit two or more EU member states)

35 The European Strategy (7 projects) LNG Rotterdam Gothenburg 34,272,000 EC funding LNG break bulk facility at the Port of Rotterdam and the smallscale satellite terminal in Gothenburg Port of Brofjorden, west coast of Sweden LNG bunkering infrastructure solution and pilot actions for ships operating on the Motorway of the Baltic Sea: LNG bunker supply infrastructure for the Port of Brofjorden, Lysekil, on the west coast of Sweden. LNG refuelling stations should be installed in all maritime ports of European Union by 2020 and all large inland ports of EU by 2025

36 Competition and new business model based on re-exporting The Gate terminal aims to become Europe's top ship-fuelling port. Gate received its first LNG shipment from Skangass' small-scale LNG plant in Norway's Risavika in Reloading onto vessels and transport them to Sweden, where they are broken into smaller parcels to power ferries, trucks and industrial customers

37 Russian LNG? Ust-Luga Gazprom plans to build a plant for LNG exports, also for bunkering purposes. The ports of Primorsk and Ust-Luga are under consideration. Will Gazprom be able to offer competitive LNG prices in comparison with LNG from other suppliers? Portfolio Strategy?

38 Increasing competition and a realistic approach New business models + Long term contracts Willingness to pay a higher price for LNG Fiscal Policy A slow but a growing niche market the need to pay more for LNG