changing oil realities - possible medium term impacts on ... · average gas prices [eur/gj] ref...

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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



TAX 20 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]


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]


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]


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

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