economic consulting associates limited 41 lonsdale road london nw6 6ra uk tel +44 (0)20 7604 4545 /...

ECONOMIC CONSULTING ASSOCIATES LIMITED 41 Lonsdale Road London NW6 6RA UKtel +44 (0)20 7604 4545 / fax +44 (0)20 7604 4547 www.eca-uk.com

1 (C) 2002. Economic Consulting Associates Ltd

SEE Regional Gasification Study(funded by the World Bank)

Ray TomkinsStephen Wilson

2nd Workgroup on SE Europe Gas InfrastructureSerbia, 3 October 2005


Aims of the project

Assess the economics of increased SEE gasification:

based on Russian gas based on pipelines linking Turkey with Western Europe

increased LNG imports

Outline reform steps that would support increased gasification in SEE


Project team

Econ

om

ic

Con

su

ltin

g

Associa

tes (

EC

A)

- econ

om

ics a

nd

p

olicy

Pen

sp

en

-

gas

infr

astu

ctu

re,

en

gin

eeri

ng

Various country experts economics and technical

Ray Tomkins project director

William Derbyshire institutional issues

Paul Lewington prices and forecasts

Stephen Wilson pipeline economics

Bob Grabham Russian prices

Ian Thomson Caspian prices, LNG prices

Derrick Blaikley Western European markets

Malcolm Groom legal issues

David Mortimer commercial issues

John Hegarty transmission Investment

Paul Trundle distribution Investment

Dave Adams distribution cost estimates

Malcolm Barber transmission analysis


Overview of tasks - 2 phases

1 Price-demand projections and opportunities for Tx and Dx investments

2 Economics of SEE gas’n with Russian supply

3 Transmission pipeline costs for SEE supply

4 Economics of SEE supply 6 Turkish border prices 8 Economics of gasification by source

5 Economics of SEE gas’n based on LNG 7 SEE gas’n and Western European

markets 9 Institutional framework

Phase I

Phase II


Economics forwards or backwards

Delivered price

Border price

Transmission and transit

Distribution cost

Demand

+

+

=

Netback price

Distribution cost

Transmission

Border price + transit

<

NetbackOil$


Key issues likely to be faced by the study Supply scenarios

Distribution - which cities?

Demand - netback analysis

Gas, oil price scenarios

Policy issues

1

2

3

4

5


Supply scenarios

Economics of SEE gas supply options ...

… and relation to proposed new pipeline routes to Western Europe

Source: EU INOGATE Projects of Pan-European Interest, Proposed Priority Axes for Natural Gas Pipelines, Dec 2003.


Which cities for distribution investment case studies

How to select the 20 cities?

Suggested criteria: existence of anchor loads size (population) density location, relative to Tx pipeline price of fuels that gas would displace

availability of reliable and comprehensive data

representative of the region


Initial list of candidatecase study cities Need to select 20 cities

At least one from each country No more than (say) 3 from each

country Each country should propose their

case study cities, with justifications based on the criteria


Netback analysis

Incumbent fuel Natural gas

Depot price Netback to trunk line

+ delivery cost + taxes

= Factory gate price

= burner tip price = burner tip price

Netback to city gate

Netback to factory gate

Market price Import price

For each incumbent fuel in each market segment, calculate the quantities and netback price


Example netback

0

200

400

600

800

0 1 000 2 000 3 000 4 000

Gas Demand (mmcm/y)

Wholesale Gas Price ($/mcm)

+Residential

+Commercial

+Industrial

+Fertiliser

Generation


Gas price scenarios

What will Russian, Caspian and Turkish border prices be?

Will Gazprom price differentiation between countries continue?

Will Caspian gas undercut Russian gas?

How will prices transition from current to new structures?

Propose to consider price scenarios for 2010, 2015, 2020, 2025 … this will be related to the oil price outlook

Consider issues of swing, seasonality, storage, price convergence


Oil price outlook

0

10

20

30

40

50

60

70

80

1995 2000 2004 2009

Crude oil ($/bbl)

NYMEX 2.3.2005

NYMEX 26.9.2005

daily WTI spot

annual mean


Institutional and policy issues

Level and structure of final customer gas prices

Financing industry structures and regulation

transmission pipeline ownership transit arrangements

Moving towards compliance with EU Gas Directive 2003/55/EC


Methodology

Task 2: Economics of Russian supply

a) Price outlook

b) Incremental Tx costs

c) compared with SEE price-demand

Task 3: Pipeline costs(i) Nabucco:

TUR-BUL-ROM-HUN-AUT

(ii) TUR-GRE/BUL-MKD-KSV-SRB-...-

AUT

(iii) TUR-GRE-ITA

(iv) TUR-GRE-MKD-ALB-ITA

Task 5: Economics of LNG supply

a) Landed LNG price

b) terminal-to-network Tx costs

c) Delivered LNG price

Task 6: Turkish border prices

a) Turkish gas contracts

b) Turkish gas market

6c) Tx bottlenecks

d) Turkish border price & SEE price-demand curve

Task 7: w. European gas markets

a) incremental demand in w.

Europe

b) w. European border prices &

SEE prices

c) marginal impact of SEE gasification

Task 8: Economic overview by source

a) Benefits based on Caspian gas

b) Expected benefits based on Russian gas

c) Least cost comparison

Task 9: Institutional framework

a) Elaborate a detailed institutional framework

b) Benchmark each country against it

c) Regional framework - broad principles

Task 1: price-demand & investment

e) investment opportunities

a) demand projections

Select cities

Dx costs

c) WtP netback

Dx investment opportunities

d) Price-demand curves

b) fuel prices

Task 4: Economics of SEE supply

a) Pipeline finanicing and commercial

requirements

b) Netback to w. Turkish border prices


Schedule and timeline

0 months 1 2 3 4 5 6

7 8 9 10

Oct Nov Dec Jan Feb Mar Apr May Jun

PHASE I

1 2 4 8 10Month

Price & Dx data

willing-ness to

pay

Screen & select cities, Dx investment opps

Russia Tx investment

Tx investments routes i to iv

Turkey Tx investment

gas demand

price-demand curves

financ-ing

netback to w. Turkey border

Russian & Caspian benefits

Russia gas price

outlook

Russia supply v SEE dmd

Turkish price v

SEE dmd

Turkey gas

market

Comparefor least

cost

Interim report

Draft final report

economic consulting associates limited 41 lonsdale road london nw6 6ra uk tel +44 (0)20 7604 4545 /...

Documents

netback price slide

price convergence slide

gas price scenarios

oil price outlook slide

ec slide

methodology slide

example netback slide

russian gas