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Changing Oil Realities - Possible Medium Term
Impacts on the EU Gas And Energy Developments
Yaroslav Minullin
Holger Rogner
Manfred Strubegger
Alaa Alkhatib
Vienna, E-Control, 27 January 2015
1
What has happened since the last meeting
• Geopolitics
• Russia vs. the “IMF World”
• Currency flux (Swiss frank, USD/EUR, Ruble)
• Infrastructure
• SouthStream out
• TAP TANAP fixed
• Alternatives discussed
• Oil
• Oil price dropped down more than 50%
• Some shale oil producers are below breakeven
• Investments in non-conventional and offshore dropping
2
• Remember the slide from September 2014 presentation?
• WE ARE HAPPY GAC IS BACK!
GACs contribution and value
8
Preceding the High/Low Road
• Drastic deterioration of geopolitical relations: EU-Russiua
• From 4-regional EU-28 model to 8-regional model
• Motivation: ranging by access to gas infrastructure, renewables
potential and green policy compliance
• Threats to logistics of Russian gas delivery
• Ukrainian PM announcement of “closing the transit for Russian gas”
• Continued blockade of the South Stream
• Careless policy and political messages, leading to additional
escalation
GAC is needed now more than ever in its history
3
Oil: capacity vs. price analysis
OPEC Spare Capacity, its Proportion of World Oil Demand & Brent Price (real 2015 terms, reverse axis)
Source: Wood Mackenzie, 2015
4
Oil: new price curves to introduce to the study
Brent price required to retain current net debt levels in the near-term (2015 – 2016)
INPEX, Santos and Repsol are in a capital-intensive phase of
investment; execution success should drive strong cash flow growth
in the second half of the decade. Tullow’s options are further cuts in
exploration spend and project deferrals; but asset sales are still key
Source: Wood Mackenzie, 2015
5
Given all that, we chose these oil and gas scenarios
0
20
40
60
80
100
120
140
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Crude Oil Prices by scenario [$/boe]
40 $/b 50 $/b 50 to 85 $/b 80 $/b REF 2014 Cheap Gas REF15
0
2
4
6
8
10
12
14
16
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Average Gas Prices [EUR/GJ]
REF 60$/b Oil 40 Oil 50 Oil 50to85 Oil 80 REF 2014 Cheap Gas Expensive Gas
Gas prices are modeled with
a linear regression
coefficient, by country of
origin with a lag of 1 year
relative to oil prices
Oil price fixed at 40, 50, 60
and 80 $/bbl for 3 years.
Afterwards approaches the
earlier forecasts
6
Shaping scenario filed: dimensions and stress-points
CO2 Scenario 1
CO2 Scenario
CO2 Scenario 3
0
1
2
3
4
5
Extreme lowOil Scenario 1
Oil Scenario 2Extreme high
Essential Output: Gas TPES, Imports, Bill, …
7
We were seeking answers to the following questions
• How would the EU energy system react to Short term, foreseeable
shocks in oil price (3 years downtime, slow recovery)
• How would the current EU model (2015 research state) react in
extreme high and extreme low gas prices? If results are valid, what
vectors do these extreme scenarios indicate for the EU and
exporters (including Russia)
• What would it mean for natural gas in terms of :
• Indigenous EU production
• Use in power generation
• Final use
• Exporters revenue and infrastructure incentives
• What additional impacts on the EU energy system would the CO2
reduction policies (targets and taxes) deliver?
• Finally, is this crisis bearable for the EU and the gas exporting
countries?
8
• Planned and protocolled by GAC
changes to the Integrated Modeling
Environment
• Supply modeling
• Demand modeling
• Regional structure
• Introduction of the scenario field
• First glance at the results: high
aggregation figures
9
European Regions
North
NW
iB
CW
South
CEEast
SE
10
Gas Import Routes
11
Indigenous Gas Connections
12
Targe
ts
CO2
tax
Oil Price
trajectory
REF-15 YES NO 60 $/b
REF-14 YES NO
80 $/b
(old)
OIL 40 YES NO 40 $/b
OIL 50 YES NO 50 $/b
OIL 80 YES NO 80 $/b
TAX 20 NO YES 60 $/b
TAX 30 NO YES 60 $/b
TAX 40 NO YES 60 $/b
REF TAX
20 YES YES 60 $/b
REF TAX
30 YES YES 60 $/b
REF TAX
40 YES YES 60 $/b
OIL40
TAX30 NO YES 40 $/b
OIL50
TAX30 NO YES 50 $/b
OIL80
TAX30 NO YES 80 $/b
No
Targets NO NO 60 $/b
Cheap
Gas YES NO 61 $/b
Expensiv
e Gas YES NO 62 $/b
0
20
40
60
80
100
120
140
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
40 $/b 50 $/b 50 to 85 $/b
80 $/b REF 2014 Cheap Gas
REF15
Prices and Restrictions
13
The Scenarios
oil price [Euro/boe]
cheap 40 50 60 80 expens
CO
2 t
ax
target
cheapG
as oil40 oil50 REF oil80
expenGa
s
20
NoCO2limit2
0
30
NoCO2limit3
0
40
NoCO2limit4
0
nolim
Oil40Noli
m
Oil50Noli
m
Oil80Noli
m
Additional scenarios: Africa
FreeScen
NoCrisis
14
Total Gas Imports to the EU
2015 to 2025 [bcm]
0
1000
2000
3000
4000
5000
6000
7000
cheap40
5060
80expens
target
20
30
40
nolim
15
Gas Imports from Russia
2015 to 2025 [bcm]
0
500
1000
1500
2000
2500
3000
cheap40
5060
80expens
target
20
30
40
nolim
16
Value of Gas from Russia
2015 to 2025 [bill EURO]
0
100
200
300
400
500
600
700
cheap40
5060
80expens
target
20
30
40
nolim
17
In Numbers for 2015 to 2025
Total Gas Imports
[bcm]oil price [Euro/boe]
cheap 40 50 60 80 expens
CO
2 ta
x
target 6518 5396 5365 5348 5285 4012
20 5283
30 5387
40 5444
nolim 5386 5384 5317
Gas Imports from
Russia [bcm]oil price [Euro/boe]
cheap 40 50 60 80 expens
CO
2 ta
x
target 2642 2084 2074 2069 2039 896
20 2034
30 2075
40 2095
nolim 2063 2064 2041
Value of Gas from
Russia [billEuro]oil price [Euro/boe]
cheap 40 50 60 80 expens
CO
2 ta
x
target 307 519 544 573 633 422
20 563
30 572
40 577
nolim 510 538 633
18
Gas Use [bcm/year]
(cheap and expensive gas scenarios)
0
50
100
150
200
250
300
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Power Generation
Industry & Others
Service
HH
Transport
19
• Oil market fundamentals and
surrounding factors leading to the
current crisis
• Detail results overview on the
aggregated EU level
• Stress-testing: extreme scenarios for
model
20
The international oil market - wither price of oil
• Lesson 1: • “The probability of occurrence of predicted energy trends is inversely
proportional to the intensity of the underlying consent.” (Henry Linden)
• Lesson 2: • No running out in sight - Peak oil debunked. Note: Oil use will peak
eventually but nor for reasons of scarcity
• Lesson 3: • Economically recoverable reserves = f(market price, technology, demand,
politics)
21
The international oil market - wither price of oil
• Lesson 4: • Prices = f(demand, spare production capacity, investment, geopolitics
(energy security), expectation [speculation])
• Lesson 5:
• Prices ≠ costs – short run versus long-run marginal cost
22
Oil market today
• Stagnating demand at best due to overall sluggish economic
development
• Shale oil increased US oil output by 80% or 4 mmb/d versus
2008 (remember North Sea & Mexico in the early 1980s)
• Correction of the perverse situation that the lowest cost
producers are the swing supplier
• Accelerating decline in rig counts for shale oil development &
a general cut-back in capital outlays
• Some oil producing countries can weather the storm – others
encounter severe financial and budget shortages
• Volatile financial markets & exchange rates
• Uncertainty with respect to future environmental regulation
23
Oil market rebound – Critical issues
• Change in Saudi leadership
• Turmoil in Nigeria
• Libya promising development halted
• Iran and Iraq
• Offshore developments around the world
• Short-run prices likely to stay low until new investments
required
• Estimated transfer of $1.5 - $2 trillion from oil exporting
countries to oil importing countries (D. Yergin) – Stimulating
economic growth and oil demand?
24
Crude oil prices, $/boe
0
20
40
60
80
100
120
140
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
40 $/b 50 $/b 50 to 85 $/b 80 $/b REF 2014 Cheap Gas REF15
25
Average gas import prices, €/GJ
0
2
4
6
8
10
12
14
16
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
REF 60$/b Oil 40 Oil 50 Oil 50to85 Oil 80 REF 2014 Cheap Gas Expensive Gas
26
Primary energy production: Ref15
0
100
200
300
400
500
600
700
800
900
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Mto
e
Solar other
Wind
Biomass
Hydro
Nuclear
Gas
Oil
Coal
27
Primary energy supply: REF15
0
500
1000
1500
2000
2500
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Mto
e
Solar other
Wind
Biomass
Hydro
Nuclear
Gas
Oil
Coal
28
Gas imports: Ref15
0
50
100
150
200
250
300
350
400
450
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
BC
M
LNG USA
LNG Rest World
LNG Africa
LNG ME
LNG Norway
Gas TAP
Gas Afr
Gas Nor
Gas Rus
29
Gas trade Russia to EU: REF15
0
20
40
60
80
100
120
140
160
180
200
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
BC
M
Bel to North
Bel to East
Ukr to SE
Ukr to East
Rus to CE
Rus to North
30
Gas use by sector: Ref15
0
100
200
300
400
500
600
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
BC
M
Transport
Households
Services
Industry & Others
Electricity
31
Electricity generation by fuel: Ref15
0
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
TW
h
Solar
Wind
Biomass
Hydro
Nuclear
Gas
Oil
Coal
32
Domestic primary energy production: CheapGas versus REF15
-50
-45
-40
-35
-30
-25
-20
-15
-10
-5
0
5
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Mto
e
Solar other
Wind
Biomass
Hydro
Nuclear
Gas
Oil
Coal
33
Difference in gas imports:
CheapGas versus REF15
-20
0
20
40
60
80
100
120
140
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
BC
M
LNG USA
LNG Rest World
LNG Africa
LNG ME
LNG Norway
Gas TAP
Gas Afr
Gas Nor
Gas Rus
34
Gas trade Russia to EU:
CheapGas vs REF15
-40
-30
-20
-10
0
10
20
30
40
50
60
70
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
BC
M
Bel to North
Bel to East
Ukr to SE
Ukr to East
Rus to CE
Rus to North
35
Difference in gas use by sector: CheapGas versus Ref15
-10
0
10
20
30
40
50
60
70
80
90
100
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
BC
M
Transport
Households
Services
Industry & Others
Electricity
36
Difference in electricity generation: CheapGas vs REF15
-300
-200
-100
0
100
200
300
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
TW
h
Solar
Wind
Biomass
Hydro
Nuclear
Gas
Oil
Coal
37
Difference in final energy:
CheapGas versus Ref15
-20
-15
-10
-5
0
5
10
15
20
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Mto
e
Solar & other
Heat
Electricity
Biomass
Biofuel
Gas
Oil products
Coal
38
Domestic primary energy production: ExpensiveGas versus
REF15
-10
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Mto
e
Solar other
Wind
Biomass
Hydro
Nuclear
Gas
Oil
Coal
39
Difference in gas imports: ExpensiveGas versus REF15
-300
-250
-200
-150
-100
-50
0
50
100
150
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
BC
M
LNG USA
LNG Rest World
LNG Africa
LNG ME
LNG Norway
Gas TAP
Gas Afr
Gas Nor
Gas Rus
40
Gas trade Russia to EU - ExpensiveGas
0
20
40
60
80
100
120
140
160
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
BC
M
Bel to North
Bel to East
Ukr to SE
Ukr to East
Rus to CE
Rus to North
41
Gas trade Russia to EU
ExpensiveGas vs REF15
-200
-180
-160
-140
-120
-100
-80
-60
-40
-20
0
20
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
BC
M
Bel to North
Bel to East
Ukr to SE
Ukr to East
Rus to CE
Rus to North
42
Difference in gas use by sector:
ExpensiveGas vs Ref15
-120
-100
-80
-60
-40
-20
0
20
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
BC
M
Transport
Households
Services
Industry & Others
Electricity
43
Difference in electricity generation: ExpensiveGas vs REF15
-250
-200
-150
-100
-50
0
50
100
150
200
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
TW
h
Solar
Wind
Biomass
Hydro
Nuclear
Gas
Oil
Coal
44
Difference in final energy: ExpensiveGas vs Ref15
-80
-60
-40
-20
0
20
40
60
80
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Mto
e
Solar & other
Heat
Electricity
Biomass
Biofuel
Gas
Oil products
Coal