NATURAL GAS SECURE ENERGY FOR THE FUTURE IEI EVENING LECTURE DENIS TWOMEY, COMMERCIAL OPERATIONS MANAGER, BORD GÁIS NETWORKS FEBUARY 21ST, 2006
CONTENTS GLOBASLISED GAS MARKET SECURITY OF SUPPLY Infrastructure Fuel Diversity THE IRISH SITUATION GAS PRICING Transportation Tariffs International Wholesale Gas Prices ENVIRONMENT SUMMARY
There are significant world reserves of gas, much in politically secure areas NATURAL GAS OIL 179,530 bcm in proven reserves at end 2004 equivalent to 67 years at current production levels 41% of reserves in Middle East & 36% in Europe & Eurasia 7.1 7.3 S. & Cent America North America 101 61 1,189 billion barrels in proven reserves at end 2004 equivalent to 41 years at current production levels 62% of reserves in Middle East & 12% in Europe & Eurasia 14.21 Asia Pacific 41 14.06 Africa 112 64.02 Europe & Eurasia 139 tcm 72.83 Middle East 734 bbl
Gas was a regional commodity. Now a global market is emerging
Over one-third of world gas reserves are in Europe and Eurasia Ireland uses c. 4.1 bcm per annum, which is less than 1% of the 466.9 bcm used in the EU 25. In 2004 European Countries, including Norway, supplied about 60% of the gas used in Europe. Imports came primarily from Russia and Algeria. Liquefied Natural Gas (LNG) represents about 14% of total EU 25 gas imports. The EU is already heavily interconnected with further pipeline and LNG infra-structure being built Proven Reserves 2004 in bcm Norway 2390 UK 590 NL 1490 Algeria 1490 4550 1850 Libya Egypt Nigeria 5000 Saudi Arabia 6750 Iran 27500 Qatar 25780 Russia Fed. & Eurasia 57130 UAE 6060 Pipelines/LNG-Terminals Sines existing under construction or planned Huelva El Ferrol Lissabon Belfast Dublin Montoir Bilbao Madrid Cordoba Milford Haven Isle of Grain London Zeebrügge Arzew Statfjord Cartagena Frigg Heimdal Sleipner Algier Ekofisk Lyon Barcelona Valencia Gullfaks Troll Kollsnes Oseberg Oslo Kårsto Stavanger Paris Tyra Essen Brüssel Bern Fos-sur-Mer Skikda W' haven Emden La Spezia Tunis Kopenhagen Berlin Wien Ljubljana Rovigo Stockholm Rom Prag Krk Helsinki St. Petersburg Warschau Bratislava Budapest Zagreb Brindisi Belgrad Sofia Athen Minsk Bukarest Istanbul
Current & Planned Transmission Infrastructure Bord Gáis Networks currently include 1,965km of on-shore Ireland, two sub-sea Interconnectors, Isle of Man spur and North-West pipeline from Belfast to Derry City completed in 2004. Mayo-Galway pipeline construction commenced in May 2005, 150km to be laid over two seasons for completion by autumn 2006, to facilitate delivering Corrib gas into grid. South-North pipeline of 155km from Gormanston in Co. Meath to Belfast is scheduled for construction during 2006 with completion by October 2006, linking gas grids North & South. PTL own SNIP, with BGE awarded contract to operate for 3 years Phoenix own and operate transmission infrastructure adjacent to their network
Current & Planned Distribution Infrastructure Bord Gáis Networks currently includes 8,915km of Distribution networks. Natural Gas is available in over 100 population centres in 17 counties in Ireland, with over 500,000 gas users Five new towns connected to Network and almost 40,000 new residential and 1,000 commercial gas users were added in 2004 New connections are subject to economic test, policy currently under review BGE was awarded the licence to supply gas to towns along the pipeline routes in NI, construction roll-out started in 2005 with first customers now connected Phoenix has over 2,650 km of gas pipelines in Greater Belfast area and serves over 93,000 gas customers
Current Commercial & Operational regimes The regimes in both jurisdictions have developed separately reflecting local market conditions. Significant recent developments include: Northern Ireland Introduction of Postalised Transmission Tariff in NI among three pipeline owners Required changes to contractual terms and licences, and new processes e.g. Common Fund Facilitated gas to Coolkeeragh & towns along routes Mutualisation of SNIP Required stronger regulatory underpinning of risk Facilitated lower tariffs lower capital returns, projected lower opex Market Developments Market open to 75,000 therms level in Greater Belfast area BGE bringing gas to ten new towns along routes of new pipelines Republic of Ireland Entry/Exit transportation regime More flexibility for shippers Facilitates sale of gas at IBP Unified Code of Operations for Transmission & Distribution Streamlined service to shippers, e.g. single code Market Developments Market open to non-household level, plans developed for full market opening due mid 2006
Gas demand is expected to grow, with power generation being a key component [CER Capacity Statement 2005] '000 Cubic Metres p.a. 7000 6000 5000 4000 3000 2000 1000 0 61% 23% 17% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Residential Industry & Commercial Power Generation IFI
The share of natural gas in Ireland at c. 25% of Primary Demand is in line with the EU average 50 45 40 Share of Natural Gas in Primary Energy Consumption (%) 2004 35 30 25 20 15 10 5 0 NL Hungary UK Italy Lativia Lithuania Slovakia Belgium Lithuania Ireland EU 25 average Austria Denmark Germany Czech Rep. Spain France Estonia Portugal Poland Finalnd Slovenia Switzerland Greece Sweden
Role of Gas in Irish Fuel Mix There has been commentary on over-dependence of gas in Ireland. Some facts. FINAL ENERGY DEMAND 2004 In 2004, Gas accounted for 11% of final energy demand, compared to an EU average of 24%. IRELAND EU-25 By the end of 2004, 60% of total gas was used for power generation, 24% by the commercial and industrial sector and 16% by the residential sector. Ireland s current and projected levels of gas usage do not appear excessive against EU comparators There s scope for further growth which will bring tariffs down. As gas Transporter, we encourage gas growth. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2% 7% 17% 19% 64% 44% 24% 11% 6% 6% Solid Fuels Natural Gas Oil Electricity Other Source: SEI, Eurogas
Security of Gas Supplies Security of Gas Supplies depends on: Infrastructure Capacity being adequate Diversity and Volumes of supply being available Confidence in long-term pricing We believe that measured against each of the above criteria, gas users in Ireland can be confident regarding security of gas supplies. So there shouldn t be any reticence about increasing utilisation of gas from a security of supply perspective. Infrastructure Capacity: CER produces annual Gas Capacity Statement Has concluded that there is sufficient capacity in the current transmission system to allow reasonable expectations of demand to be met in medium term and we concur. Capacity is available on a firm and reliable basis throughout the year. Diversity and Volumes of Supply: Ireland s gas supply infrastructure has a robust configuration. The construction of the South-North pipeline will also add to this robustness of the all-island system The development of the Corrib gas field will further enhance the security of gas supplies The source of longer-term supplies is becoming clearer, with investment in additional import capacity to the UK, enabling access to currently remote or stranded gas fields, and including LNG facilities giving diversity of sources and security of volumes.
ENHANCING SECURITY OF SUPPLY INFRASTRUCTURE ADEQUATE FOR CURRENT DEMAND DEVELOPMENT OF THE CORRIB FIELD COULD MAKE A BIG CONTRIBUTION TWINNING OF SINGLE SECTION OF PIPELINE IN SCOTLAND, TIMING DEPENDENT ON CORRIB PROJECT HOT SWITCHING FOR POWER GENERATION STATIONS INTERCONNECTOR SYSTEM CAN BE UPGRADED AT LOW MARGINAL COSTS TO DELIVER ADDITIONAL ENERGY CAPACITY DEVELOPING A BROADLY DEFINED SECURITY OF SUPPLY STANDARD THEREFORE THE INCREASING USE OF GAS IN POWER GENERATION, IN LINE WITH EU TRENDS, SHOULD NOT CAUSE UNDUE CONCERN
GAS PRICING
The final price of gas is made up of a transportation charge plus commodity 35 30 25 / MWh 20 15 10 5 0 14% 20% 22% 19% 13% 10% 00/01 2001/2 2002/3 2003/4 2004/5 2005/6 Transportation Gas Forward Gas
Households: Natural Gas prices July 2005* average usage 83.7 GJ/23,260 kwh/786 therms Eurostat (D3) Gas Heating Prices including taxes 22 20 18 16 PPS per GJ 14 12 10 8 EU Average 6 4 2 0 UK L'bourg Ireland Latvia Lithuania France Hungary Belgium Germany Austria Estonia Czech Spain Slovakia N'lands Poland Portugal Slovenia Sweden Denmark * Prices expressed in Purchasing Power Standards and including taxes * Ireland s prices include 25% increase in October 2005 price increases in other countries since July 2005 are not recorded here Source: Eurostat
Small Business: Natural Gas prices July 2005* average usage 418.6 GJ/0.1163 GWh/3.968 therms - no load factor 14 12 Eurostat I1 excluding VAT PPS per GJ 10 8 6 4 2 EU Average 0 L'bourg France Ireland UK Lithuania Latvia Belgium Estonia Spain Austria Prices expressed in Purchasing Power Standards and excluding VAT Source: Eurostat * Ireland s prices include 25% increase in October 2005 price increases in other countries since July 2005 are not recorded here Czech Germany Denmark Hungary Slovakia N'lands Sweden Poland Portugal
Medium Business: Natural Gas prices July 2005* average usage 4,186 GJ/1.163 GWh/39,679 therms - 200 days modulation 14 12 Eurostat I2 excluding tax PPS per GJ 10 8 6 4 2 EU Average 0 Spain Estonia Ireland France L'bourg Belgium UK Latvia Lithuania Prices expressed in Purchasing Power Standards and excluding VAT Source: Eurostat * Ireland s prices include 25% increase in October 2005 price increases in other countries since July 2005 are not recorded here Austria Denmark N'lands Slovakia Germany Czech Hungary Portugal Poland
The UK (NBP) increase in gas prices has been experienced on the Continent and even more so in the US
However, we expect various market forces will put downward pressure on prices in the medium term N B P New Pipeline Supplies New LNG Supplies Lower Oil Prices P r i c e 60p 40p 20p Increasing prices High Price Zone Medium Price Zone Oil Linkage UK Supply Squeeze US Gas Demand 2004 2007 2010
UK Gas Supply Sources The availability of gas supplies from the UK or markets further afield is important to the Irish gas market, as long-term gas supplies are most likely to be delivered to Ireland through our Interconnectors with the UK. This availability depends both on the level of gas reserves and the adequacy of gas transportation or storage infrastructure. Using c. 100 bcm of gas per annum, the UK is the largest gas market in the EU. By 2010, imports are expected to account for 40%-50% of UK demand. This projected demand for imports has led to numerous new import infrastructure projects being planned, currently totalling over 100 bcm per annum capacity. These projects remove any disconnect between UK & European markets. Ireland has strong interconnectivity with the UK and therefore Europe. UK: Planned New Gas Supply and LNG Projects Project Operator Route Norsk Ormen Lange (Norway) to Ormen Lange field Import Volume Expected Completion Hydro/Shell/Statoil Easington 20 2006/7 Statfjord field Shell/ExxonMobil Statfjord (NY) to St. Fergus 4 2006 Interconnector compression Interconnector-UK Zeebrugge (BL) to Bacton +20 2006 Bacton-Balgzand Gas Transport Line Isle of Grain (2 Services Balgzand (NL) to Bacton 16 2007 phases) NGT LNG Import facility 5-15 2005-08 Milford Haven Petroplus/BG LNG Import facility 6 2007 ExxonMobil/Qatar Milford Haven North European Pipeline Pet. LNG Import facility 20 2007 Russia via continental Gazprom/E.On Europe to Bacton 20-30 post- 2010 TOTAL 125 bcm
Positive outlook on UK Demand Supply Position over the next few years Forecast UK Demand
Wholesale Gas Prices Many LNG & Pipeline projects being developed LNG projected to account for one-third of supply capacity to western Europe by 2012 Middle East LNG can reach virtually all markets for c. US$4/mmbtu (22p/therm) Expectation that this will effectively be price limit for pipeline gas in longer-term New investment in pipes and LNG gives strong security of supply volumes and diversity of sources Short-term demand/supply squeeze in UK will ease over next few years 6 More Non-OPEC Production Oil Prices < $40/bbl Significant Caspian Supplies 5 UK Overcapacity Iberia NW Europe 4 $/MMBtu 3 High Oil Price UK - NBP Italy 2 1 UK Exports to Continent re-emerge 0 2003 2005 2007 2009 2011 2013 2015 Source: Cambridge Energy Research Associates. 50501-37
Finally, in environmental terms natural gas is the cleanest fossil fuel with low carbon emissions Natural gas is by far the cleanest fossil fuel and is a major contributing factor in the reduction of atmospheric emissions of pollutants such as: sulphur dioxide nitrogen oxides and smoke Carbon dioxide emissions from natural gas are up to 30% less than oil and 50% less than coal - for the same energy input CCGT units - 50% greater efficiency compared with 37% for coal Greenhouse gas emissions for Ireland are 29% above 1990 levels. 5.0 4.0 3.0 2.0 1.0 0.0 CO 2 Per TOE Peat Coal Oil - Heavy Oil - Light Natural Gas Greater utilisation of gas will contribute to meeting the Kyoto targets and also reduce the total cost of carbon permits
GOING FORWARD SECURITY OF SUPPLY EU has economic access to significant long term sources Ireland has adequate gas infrastructure Ireland s gas dependence in line with EU average Corrib can make a big contribution Complete twinning of pipeline in Scotland, timing to depend on Corrib Generators to retain back-up fuel stocks as per licences Joint approach to gas and electricity security and emergency planning PRICES Remaining high near term Prospects for reductions in the medium term due to developing pipeline and LNG infrastructure in the UK and wider EU Gas prices will be a key influence on Irish and European power prices for the foreseeable future ENVIRONMENT Greater gas utilisation contributes to energy efficiency and to the environment
Questions and Discussion