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[edit] World

  • Increasing cost and complexity of upstream projects (from $4bn to $40bn in 20 years)
  • Increasing costs supported by high oil price
  • Global economic crisis leads to a significant demand decrease
  • Conventional LTC prices no longer reflect market prices
  • No longer a seller's market
  • Project development glut - explosion in costs also due to limited contractor market
  • Also increasing project development time

[edit] US

  • Explosion in shale gas in the United States
  • US unconventional gas production reduces need for further imports
  • Increased liquidity of spot gas markets

[edit] Middle East

  • New LNG capacity in Qatar

[edit] EU

  • LNG diverted to Europe targeting NW European hubs (NBP, ZEE, TTF, NCG)
  • Gas glut forced spot price divergence from LTC prices, which were historically based on substitute fuel prices (oil, coal).
  • European gas demand growth forecast at a slower rate
  • End-user consumption forecast to decline post-2020
  • The majority of demand growth comes from the power generation sector
  • Europe will require additional volumes of gas at competitive prices in the near future
  • Consensus suggests that any global gas surplus ends soon
  • Europe's indigenous production continues declining
  • Gas supplies needed in second half of decade:

- limited availability from N. Africa (Algeria, Egypt and Libya) - limited contribution from Caspian / Middle East before 2020 - no contribution likely from unconventional gas until beyond 2020

  • New global scale LNG (Nigeria, Venezuela, etc) are uncertain (geopolitics, skills/resource constraints, or project cost/complexity)
  • Europe will compete in a global market for new gas supplies:-
  • Atlantic basin-oriented LNG supplies (e.g. Qatar)
  • additional Russian supplies

[edit] EU Policy

  • Implementation of Third Package is now underway – but the devil is in the detail
  • Forced bundling of all capacity products cross-borders is unnecessary - shippers should be allowed to trade gas where they wish
  • Risk that shippers who have existing firm capacity rights (which they have paid for) will lose those firm capacity rights as new network rules (e.g. entry - exit models) are introduced
  • Proposals to limit re-nominations undermines the inherent flexibility of gas to respond to short term changes in demand (compared to electricity)
  • Work on an EU Gas Target Model can be useful
  • But a 'copy and paste' from electricity models is too simplistic
  • Gas and electricity markets have inherently different characteristics (e.g. line-pack in gas vs. no flexibility in electricity)
  • For Europe’s traded gas markets to continue to develop and grow Europe must remain attractive to suppliers and customers alike
  • market intervention and substantial subsidies are distorting the market for gas and power
  • market uncertainty for capacity allocation and reliability is expensive – undermines cost competitive solutions and destroys value
  • can Europe remain competitive and continue to subsidise renewables and nuclear power ?
  • Trading markets cannot bear increasing financial regulation and cost growth the need for action is not proven efficiency and competition will be reduced
  • Europe’s competitiveness in global markets is under-pinned by well working, efficient energy markets. Will nascent hubs thrive or disappear ?

[edit] EU Gas vs Renewables

  • Europe's ambitious plans for renewables and nuclear
  • Renewables viable only with substantial public subsidy
  • Added costs to link to network
  • Intermittency and system balancing costs
  • Nuclear is equally un-competitive, with delays, overspend and liabilities stretching centuries
  • Gas is clean, secure and affordable:
  • Half the carbon emissions of coal
  • Efficient proven and reliable technologies
  • Ample gas import capacity from pipeline and LNG, growing storage capacity
  • Saves £ 700bn versus Nuclear by 2050 in UK alone (UK Energy Networks Association)


[edit] Buyer's market

  • Buyers build up supply portfolios geared towards hub price levels (not LTC)
  • Buyers use tenders or request offers from multiple suppliers
  • Buyers set the main conditions of contracts
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