6th German-Norwegian Energy Conference OUTLOOK FOR NATURAL GAS IN EUROPE Dr. Berit Tennbakk, Partner,
RETROSPECT FALLING AND CONVERGING GAS PRICES HISTORICAL DEVELOPMENT MAIN DRIVERS Financial crisis Fukushima Oil price crash Europe: Falling demand Coal outcompetes gas in the power market Decreasing industrial demand Asia: High price region recent fall in prices Strong economic growth Phase-out of nuclear in Japan Strong link to oil price Lately: Slower economic growth and falling demand, nuclear coming online in Japan Shale gas revolution US: Dramatic changes Increased supply from Shale gas Expected imports not needed Will start LNG exports early 2016 Source: World Bank 2
RETROSPECT TREND: FALLING EUROPEAN GAS DEMAND GAS CONSUMPTION 2004 AND 2014 CONSUMPTION PER SECTOR Source: BP Statistical Review of World Energy 2015 3
IEA: STABLE FUTURE GAS DEMAND IN ORDER TO ACHIEVE THE 2 DEGREE TARGET IEA BRIDGE SCENARIO ENERGY CONSUMPTION IN EUROPE Based on plans from each country developed for Paris 2015 The Bridge scenario adds the following measures in order to achieve the 2 degrees target: Increased energy efficiency in buildings, industry and transports Increased renewable investments Measures against coal, ban on new coal power plants Phase-out of fossil subsidies Measures against methane emissions from oil and gas Source: IEA (2015) 4
NEW INDUSTRIAL DEMAND OUTSIDE EUROPE? «CHEAP ENERGY IS THE NEW CHEAP LABOUR» Industrial gas consumption in Europe has not recovered after the financial crisis Industrial production is shifting to less gas (energy) intensive sectors Particularly in the UK and Italy European Commission Energy Trends to 2050 predicts future energy efficiency improvements Source: Financial Times 5
NEW INDUSTRIAL DEMAND OUTSIDE EUROPE? «CHEAP ENERGY IS THE NEW CHEAP LABOUR» There are no energyintensive investments taking place in Europe now Why would you locate a new investment in a place with both high labour costs and high energy costs, many of which are self-inflicted? Dieter Helm, professor of energy policy at the University of Oxford Source: Financial Times 6
EU: FLAT DEVELOPMENT IN RESIDENTIAL GAS TRENDS HOUSEHOLD ENERGY DEMAND IN EU REF SCENARIO Increased share of electricity Energy efficiency measures increases use of heat pumps Efficiency gains yield reduced energy intensity 16% reduction in household heating 25% reduction in commercial heating EU Commission: Oil heating replaced by gas heating Falling oil prices may reduce this effect 2013 2030 kwh/m 2 kwh/gdp Sources: EC (2013), EU Energy, Transport and GHG Emissions Trends to 2050, reference scenario 2013; IEA (2015): World Energy Outlook Special Report Energy and Climate Change. 7
GAS SET TO RE-ENTER THE POWER MARKET MERIT ORDER CURVE GERMANY Source: THEMA projections 8
GAS SET TO RE-ENTER THE POWER MARKET MERIT ORDER CURVE GERMANY Source: THEMA projections 9
EU ETS KEY FOR GAS TO POWER BACKGROUND HIGHER CO2 PRICE BENEFITS GAS ETS reforms (MSR, annual cap reductions) may drive up carbon prices 700 600 GENERATION GERMANY 2030 GENERATION NETHERLANDS TWh Bio CHP 160 TWh 140 Bio CHP Large-scale fuel switching from coal to gas at around 30 EUR/tonne Gas completely outcompetes coal when the carbon price reaches around 50-60 EUR/tonne 500 400 300 200 100 0 0 10 20 30 40 50 60 70 Carbon price [EUR/tonne] Hydro Solar Wind Gas Oil_shale Coal Lignite Nuclear 120 100 80 60 40 20 0 0 10 20 30 40 50 60 70 Carbon price [EUR/tonne] Hydro Solar Wind Gas Oil_shale Coal Lignite Nuclear Source: Model results TheMA power market model (Carbon market module) 10
HIGHER CARBON PRICES INCREASE GAS UTILIZATION MERIT ORDER CURVE GERMANY 2030 Source: THEMA projections 11
HIGHER CARBON PRICES INCREASE GAS UTILIZATION MERIT ORDER CURVE GERMANY 2030 Source: THEMA projections 12
GAS AND RENEWABLES A BEAUTIFUL RELATIONSHIP? Source: THEMA projections 13
GAS AND RENEWABLES A BEAUTIFUL RELATIONSHIP? Source: THEMA projections 14
MAIN MESSAGES Gas continues to play a significant role in Europe s energy mix through the energy transition Renewable build-out mainly replace coal generation capacity But the volume of gas to power depends heavily on carbon prices Industrial gas consumption hinges on global gas prices and CO2 costs Residential gas consumption is set to remain flat due to efficiency gains 15