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- 1 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
Supply of LNG on the European Market Modeling Analyses and Related Research
Franziska Holz (DIW Berlin)Joint work with Ruud Egging and Steve Gabriel (University of Maryland)
and Christian von Hirschhausen, Anne Neumann, Sophia Rüster (TU Dresden, EE²)
Jacobs University Conference“Energy in Changing Environments”
Bremen, December 13-15, 2007
- 2 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
Agenda
1. LNG to Europe
2. Model Results: LNG in an Oligopolistic Market Today and in 2011
3. Global Company Strategies
4. Conclusions
Sources: www.dnv.comwww.naturalgas.org
- 3 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
LNG to Europe – Theses
LNG is and will be an important part of the diversification and supply security efforts for European natural gas imports
LNG is a driving force of the “globalization” of natural gas markets
LNG will not be the dominant form of supply in Europe
LNG is contributing to the “flexibilization” of international natural gas markets
- 4 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
Background Information: The LNG Value Chain
production
liquefaction
transportation
regasification
distribution
- 5 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
European LNG Regasification Capacities (2005 vs. 2010)
Sines
Huelva Cartagena
Barcelona
RovigoPanigaglia
Brindisi
Zeebrugge
Milford Haven
El Ferrol Bilbao
Isle of Grain
Fos sur MerFos Cavaou
Montoir
Revithoussa
Marmara
bcm/a in 2005bcm/a in 2010
Sagunto
WilhelmshavenRotterdam Gdansk
Krk
Tesside
- 6 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
Russia36%
Norway20%
Netherlands11%
Others Pipe11%
Egypt2%
Trinidad1%
Middle East1%
Nigeria3%Lybia
0.2%Algeria
5%
Algeria8%
UK2%
Natural Gas Exports to Europe 2006
Source: BP Statistical Review 2007
2006:
Pipe: 87%
LNG: 13%
2004:
Pipe: 89%
LNG: 11%
- 7 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
EU Natural Gas Supply Costs (2005-2030)$/Mbtu (source: OME, 2001)
Source: OME, 2001 *Long-run marginal production and transport costs,excluding producer countries‘ royalties, in US-$/Mbtu
Gulf LNG
$ 2.79$ 2.30
$ 0.81
$ 3.10
$ 3.00
- 8 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
Nominal Liquefaction Capacities Worldwide 2005 vs. 2010
Latin America
West Africa
North Africa
Middle East
Norway
Russia
Asia Oceania
Australiamtpa in 2005
mtpa in 2010Sources: IEA (2003), IEA (2004), Cedigaz (2004)
North America
- 9 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
Agenda
1. LNG to Europe
2. Model Results: LNG in an Oligopolistic Market Today and in 2011
3. Global Company Strategies
4. Conclusions
Sources: www.dnv.comwww.naturalgas.org
- 10 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
The EGM (European Gas Model)
- Ruud Egging, Steven Gabriel, Franziska Holz, Jifang Zhuang: A Complementarity Model of the European Natural Gas Market, July 2007, Submitted to EJOR / DIW Discussion Paper # 732 / 2007
- Static complementarity model of the European natural gas (pipeline) market + global LNG trade for base year 2004
- Daily flows seasonal patterns over one year
- Detailed representation of the players in the natural gas value chain:- Producers- Transmitters oligopolistic players- Liquefiers- Regasifiers- Pipeline Operators- Storage operators- Marketers
- Equilibrium model (complementarity model), programmed in GAMS
- 11 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
EGM – Producers: Europe and Global LNG
Basic Map from: www.insectzoo.msstate.edu/Curriculum/Activities/WorldMap.html
NO, UK, NL, GE, IT, DK, …
NIG*
South East Asia*
Russia
T&T*
CaspianALG, EGP, LIB
ARB*
Australia*
* LNG exports ‘only’
- 12 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
EGM – Consumers: Europe and Global LNG Importers
Basic Map from: www.insectzoo.msstate.edu/Curriculum/Activities/WorldMap.html
EU27+NO, SWI, TRK
KOR*
CAN*
IND*
* LNG imports ‘only’
USA*
MEX*CHI*
JP*
TW*
- 13 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
Different Simulation Scenarios
SBC: Strategic Base Case
Exporters (Transmitters) can exert market power
Calibration to fit 2004 data: only partial market power by major exporters
UKR: Disrupted Ukrainian Pipelines in a global context
Analyzing the “domino effect” of a regional market disruption in Eastern Europe on the European and global markets
2011: A projection five years ahead
Five years ahead
Given anticipated LNG + pipe line capacity expansions, and EC projections for demand and production
Where will bottlenecks remain and how do prices change?
- 14 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
Basic Map from: www.insectzoo.msstate.edu/Curriculum/Activities/WorldMap.html
13.1
55.5
6.5 Japanimports:
75.1 bcm
SEA
ARB
NIG
T&T
ALG
EURUKR
RUS
JAP
AUS
KOR
USA
Atlantic Basin Pacific Basin
Strategic Base Case LNG Flows
Flows in BCM/year
ALG Pipe to EUR:95 bcm
ALG LNG to EUR:23.5 bcm
ALG LNG to USA:7.3 bcm
ARB toIND, TW, CHN,
KOR only
- 15 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
Disruption of Ukrainian Pipeline: Global Effects due to LNG(“domino effect”) and improved mitigation possibilities
Underlying Map from: www.insectzoo.msstate.edu/Curriculum/Activities/WorldMap.html
+0.1
Changes in LNG flows (BCM/year)
Japan imports: -3.8 bcm
+4.3-4.3
+3.9
-0.9
-1.9
ALG pipes more to EUR, less LNG to USA
T&T
EUR
ALG
NIG
JAP
KOR
SEA
AUS
UKRRUS
ARB
USA
Atlantic Basin Pacific Basin
ARB is a swing supplier
between the Atlantic and the
Pacific Basin
-3.9
+0.9
- 16 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
LNG Input Data 2004 and 2011
Underlying Map from: www.insectzoo.msstate.edu/Curriculum/Activities/WorldMap.html
N-Afr:56 (+9)
Total liquefaction capacity in BCM/yr
(+increment)
ARB:121 (+77)
AUS:49 (+35)
W-Africa46(+32)
NO: 6 (+0)*
RUS: 13 (+6.5)
SE Asia: 90 (+13)
T&T:29 (+14)
World: 408.6(+185.2) *: already included in base run
USA: 104 (+84)
CAN: 10.2 (+0*)
Total regasificationcapacity in BCM/yr
(+increment)
World:479.1 (+226.8)
EU: 193 (+113)
IND: 6 (+3)* TW
24 (+14)
CHI: 15 (+11)*
KOR35 (+0)
JP: 90(+0)
MEX: 17.6 (+17.6)
- 17 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
LNG Imports 2011Global market but with regional basins induced by transport costs
Basic Map from: www.insectzoo.msstate.edu/Curriculum/Activities/WorldMap.html
N-AMR: 136 (+105)
ASIA: 161 (+35)
EU: 91 (+54)
Flows in BCM/year
North America draws more LNG than Europe in the Atlantic competition for LNG
ARB becomes a swing supplier
- 18 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
Agenda
1. LNG to Europe
2. Model Results: LNG in an Oligopolistic Market Today and in 2011
3. Global Company Strategies
4. Conclusions
Sources: www.dnv.comwww.naturalgas.org
- 19 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
Global Players worldwide – Focus on the Atlantic Basin
Source map: http://www.janinelim.com/1040window/image/world.gif
BP
Shell
ExxonMobil
BG
Chevron
Sonatrach
GdF
Tractebel
Repsol/YPF
Union Fenosa
ENI
Imp.
Imp.
Exp.
Exp.
Exp.
Exp.
Exp.
Exp.
Exp. Imp.
- 20 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
Company Strategies in the LNG Market - Globalization and More Flexibility
- Transaction costs (lack of liquid spot markets, high costs of asset-specificinvestment costs, etc) along the LNG value-added chain give incentives to vertically integrate (Rüster and Neumann, 2006; Nissen, 2007)
- Company-to-company relations instead of country-to-country relations, players are multinational
- Some long-term contracts today are without destination clause
Flexible destinations within the buyer‘s playing field
- Example: LTC between Trinidad and Tobago to Enagas/Repsol (Victor et al., 2006) „spot“ deliveries to Spain in cold winter 2005/2006 etc.
- 21 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
Agenda
1. LNG to Europe
2. Model Results: LNG in an Oligopolistic Market Today and in 2011
3. Global Company Strategies
4. Conclusions
Sources: www.dnv.comwww.naturalgas.org
- 22 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
Conclusions
The next decades will bring an even more pronounced diversification of natural gas supplies to Europe with LNG playing an important role (> 10% of imports) and helping to ensure security of natural gas supplies.
LNG has been a significant part of the South European natural gas supply for years and is now expanding to Northern and Central Europe
Competition for LNG in the Atlantic Basin: North America may well take over part of the supplies
… and potentially lead to higher prices.
… but pipeline gas could fill the gap if LNG goes elsewhere, just as LNG can help fill the gap if pipeline supply fails.
LNG is one factor of the globalization of natural gas markets:
… global corporate strategies, with more and more flexiblecomponents.
- 23 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
References
Ruud Egging, Steven Gabriel, Franziska Holz, and Jifang Zhuang (2007): A Complementarity Model of the European Natural Gas Market, July 2007, DIW Discussion Paper # 732 / 2007
David Nissen (2007): The Industrial Organization of Energy Systems: A Transactional Approach. Presentation at the IAEE Europe Conference Florence.
Sophia Ruester and Anne Neumann (2006): Corporate Strategies along the LNG Value Added Chain - An Empirical Analysis of the Determinants of Vertical Integration. TU Dresden WP-GG 17.
David Victor, Mark Hayes and Amy Jaffe, ed. (2006): Geopolitics of Natural Gas: From 1970 to 2040. Cambridge University Press.
- 24 - Jacobs University „Energy in Changing Environments“Supply of LNG on European Markets
Thank you very much for your attention!
Franziska Holz (DIW Berlin)[email protected]