Small Scale LNG in the Baltics Rodrigo Pinto Scholtbach Gas Market Analyst Gas, Coal and Power division, International Energy Agency
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
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.
The International Convention for the Prevention of Pollution from Ships (MARPOL) 1973 USD /Mbtu Today oil & gas prices compared with the '70 20 18 16 14 12 10 8 6 4 2 0 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
USD/bbl 160 Historical Crude Oil Prices 1970-2014 140 120 Fear of supply storage Arab Spring 100 Iraq- Iran war Economic Recession 80 60 Iranian revolution Early 80 s recession Gulf war Iraq war 40 20 Arab oil embargo 0 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Stable gas prices in Europe and strong decline in the US
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 0 60 80 100 120 140 Cost per Barrel (USD 2010/ Barrel) Natural gas Much lower cost per gigajoule based on current US dollar price per barrel
USD/GJ of fuel Even at a price of USD 60/bbl 100 80 60 40 20 Gasoline 0 USD60/bbl Current USD60/bbl Mature
USD/GJ of fuel More competitive at a price of USD 150/bbl 100 80 60 40 Gasoline 20 0 USD150/bbl Current USD150/bbl Mature
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
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
The main supply trends: an unpleasant message Shale gas revolution Increasing imports dependency Europe Increasing role Russia
In all scenario s natural gas production will grow bcm Global Natural Gas Production by IEA- scenario (bcm) 6 000 5 000 4 000 3 000 2 000 Historical New Policy Scenario Current Scenario 450 Scenario 1 000 0 The future for natural gas is bright
Increasing supplies of gas Domestic gas production by region, 2010-18 (bcm) 2010 2012 2014 2016 2018 2018/12 Annual Growth Rate (%) Europe 300 277 271 264 253-1.5 Americas 816 885 895 942 994 2.0 Asia Oceania 60 66 81 115 159 15.7 Africa 209 206 230 243 252 3.4 Asia 326 315 323 351 367 2.6 China 95 109 126 148 173 7.9 FSU/Non-OECD Europe 842 865 884 927 954 1.7 Latin America 163 173 179 188 200 2.3 Middle East 462 537 558 578 607 2.0 Total 3 274 3 433 3 547 3 756 3 959 2.4 But not in Europe
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
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
Africa s demand to gain 41 bcm in 2018 Africa s gas demand remains largely dominated by Algeria and Egypt, both facing supply constraints
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
Russia is able to supply more gas, but. Bcm 1200 1000 800 600 400 200 Russia s historical and forecasted supply-demand balance Export Bcm 300 250 200 150 100 50 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 0 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
bcm Natural gas demand growth in selected regions 2010-2035 800 700 600 0.5% 2.1% 0.6% 0.7% 6.6% Demand growth 2020-2035 Demand growth 2010-2020 500 400 300 200 100 4.2% 0.7% % 2010 compound average annual growth rate 2010-2035 0 United States Middle East European Union Russia China India Japan Explosive use of natural gas in Asia, especially in China
Europe will need more gas imports, despite stable demand and weak position gas in energy mix Bcm 300 European import dependency (Europe includes Norway) 250 200 150 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 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.
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
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%.
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.
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) 20 20 15 15 $/MbTu 10 $/Mbtu 10 5 5 0 2015 2020 2025 2030 2035 0 2015 2020 2025 2030 2035 United States Japan Imports Europe Imports United States Japan imports Europe imports S/MbTu 16 14 12 10 8 6 4 2 0 Gas Prices in the 450 Scenario (2 C) 2015 2020 2025 2030 2035 United States Europe Imports Japan
From tightness to a comfortable LNG market bcm 140 120 100 80 60 40 20 Till 2015-2016 period of tightness From 2016 on, more LNG plants online (Australian plants) 0 2013 2014 2015 2016 2017 2018 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
The United States will start exporting LNG by 2016 60 BCM 50 40 To Japan Cameron Cove Point Contract signed Russia 30 Freeport Algeria 20 10 0 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
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
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
LNG is coming to Europe but is not staying here Spain re-export volumes from 2007-2013 (bcm) Source : GIIGNL (LNG Industry 2012) Source: IEA 2014 55 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
A difficult market and the dominant position of Asia Europe Asia
The distribution of LNG within the Baltic Sea region The initiatives LNG to increase diversification New distribution of LNG via re-exports
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).
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 2005 2010 2015 2020 2025 2030 2035 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)
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
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 2013. Reloading onto vessels and transport them to Sweden, where they are broken into smaller parcels to power ferries, trucks and industrial customers
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?
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