A Turning Point for European Gas Markets

François-Régis Mouton, Chairman, GasNaturally IFRI

19 May 2015

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GasNaturally: A Unified Voice for Natural Gas

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Perception Challenges for Gas in Europe

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« GAS IS EXPENSIVE »

« WE CANNOT RELY ON

RUSSIAN IMPORTS »

« GAS IS JUST ANOTHER

FOSSIL FUEL »

Competitiveness

Security of supply Sustainability

A quick look at Security of Gas Supply

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EU + Norway

Third countries

The EU’s Main Gas Supplies

55% of the Gas consumed in Europe is produced in… Europe!

207 BCM EU LNG import capacity – only 23% used in 2014 !

Biogas production is rising every year:

3,4 BCM in 2005, 6,7 BCM in 2009, 16 BCM in 2020.

Source: GIE, Eurogas, European Biogas Association 2014

Energy Security should not be confused with Energy independence New sources of indigenous production should be favoured Energy independence alone may not lead to Energy Security 5

Global Gas Reserves

6 Europe is within economic reach of 70% of global gas reserves

Convergence of Asian and European gas prices

7 Source: Platts

Gas price snapshot February 4 (Month ahead, $/MMBtu)

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7

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9

10

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Jan-15 Feb-15 Mar-15 Apr-15 May-15

$/MMbtu

NBP LT LNG Asia (14% Brent) Spot LNG Asia (JKM)8

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10

15

20

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15

$/MMbtu

NBP LT LNG Asia (14% Brent) Spot LNG Asia (JKM)

Convergence of Asian and European gas prices

Source: Total Gas&Power Market Analysis, May 2015

Gas and Renewables: That’s How We Achieve Energy Security

Renewables :

- Intermittency challenge : Need access to flexibility / balancing capacity

Natural Gas:

- The cleanest dispatchable source of energy (can meet demand at any time)

- The most flexible back-up to RES - Can store excess electricity

produced by RES (Power-to-Gas)

‘Gas+RES’ partnership : the perfect backbone for the Energy Union We had the ambition, now we have the solution

Sustainable Efficient Affordable Reliable

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EU’s Agenda on Supply Security

Security of Gas Supply Regulation

– Stress test results were positive: gas system is resilient

Projects of Common Interest list

– Key interconnectors

Diversification of sources

– Southern Gas Corridor, Mediterranean cooperation

LNG Strategy

– We have over 200bcm of LNG import capacity

– Only 40 bcm are used, but even 20% of these are re-exported !

Completion of the Internal Energy Market for more liquidity on the market

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However: Gas Demand is at Risk

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Power Generation in 2014

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In 2014, we built 3.3 GW of new Coal power plants and only 2.3 of new Gas ones!

Source: EWEA 2014 European Statistics

EU 28 Gas Consumption in decline

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Last 4 years, a new “coal + renewables” paradox in Europe

© 2015 IHS

Total Consumption

(EU-28)

- 13, 67 % (- 68,7 bcm)

Power Sector Consumption

(EU-28)

- 34, 35 %

(- 60,4 bcm)

2008-2013

• The power sector has been a key driver of the decline in total EU-28 gas consumption since 2008. • IHS estimates that coal burn at power plants in the EU-28 only decreased by 5.48% from 2008-2013.

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2013 Emissions power sector EU**

*Source: EUROSTAT

** Estimation on the base of Eurostat data

Power generation mix at 2013 (TWh)*

~3,261

~80% 14%

16%

4%

Total thermo 1,498 TWh

(46%)

13%

27%

26%

-44%

27%

60% of total thermo

A

B

B

Zero emissions

sources (54%)

2013

Nuclear

Power Sector: Europe Goes Black and Green

Coal accounts for 26% of the power production but 80% of the total power sector emissions ! By switching all coal power plants to gas CCGTs, CO₂ emissions would decrease by 400 million tons in the EU

Natural gas 400 gCO₂/kWh

Coal 900 gCO₂/kWh

Lignite 1200-1600 gCO₂/kWh

Heating Sector: Is Replacing Gas a Good Idea?

45% of EU heating appliances use gas*

41% of natural gas is used for heating**

The EC’s solution?

The European Commission encourages Member States to “Accelerate [the] fuel switch in the heating sector to renewable heating technologies” in order to “displace significant amounts of imported fuels”***.

“1% increase in energy savings cuts gas imports by 2.6%****”

What about the additional costs? What about energy efficiency?

Sources: *:EU Roadmap 2050, 2010 scenario **:Eurostat ***:Communication of the Commission on Energy Security, 2014 ****:Communication on the Energy Union Package, 2015

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In 2014, under current policies, Gas is 3 times cheaper than electricity per kWh !

Further electrification of the heating sector will increase peak demand and infrastructure investments

Speaking about prices, between 2008-2012:

– EU Gas prices rose by +14% – EU Electricity prices rose by +25% – In Germany, they rose respectively by 5,7% and… 39%!

Electrification of heating: best option for consumers?

Source: Eurostat

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Opportunities on the Policy Agenda

Heating & Cooling Strategy

Decarbonisation of Transport

ETS Reform

Power Market Design reform

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Need to recognize the real value of Gas

It’s not just about price, or CO₂, or dependency It’s about the sum of everything

Where Gas can make a difference

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A Choice Between Two Paths

Spending much less on infrastructure, using and building on existing one

No high-voltage line facing public acceptance issues

Giving consumers access to a cheaper and cleaner energy system

Using a real commodity: Gas can easily be bought, stored and dispatched…

… which partners best with intermittent Renewables

while solving the electricity storage problem

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Phasing out gas from heating and power generation

Spending hundreds of billions on electricity infrastructure

Passing on these costs to the consumers whose heating bills will explode

Relying on an intermittent supply of energy…

… and more polluting coal !

OR

GasNaturally’s vision for 2030

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A Turning Point for European Gas Markets

François-Régis Mouton, Chairman, GasNaturally IFRI

19 May 2015

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