globalization of fuel markets

http://pesd.stanford.edu/

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Globalization of Fuel Globalization of Fuel MarketsMarkets

David G. Victor

Director

Program on Energy & Sustainable Development

Freeman Spogli Institute, Stanford University

Professor of Law

Stanford Law School

Adjunct Senior Fellow

Council on Foreign Relations

Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 2

PESD OverviewPESD Overview

• Initiated in 2001

• Funded mainly by EPRI and BP

• Six principal research topics1) Electricity Markets

2) Global Natural Gas Market

3) Energy Services in Low-Income Communities

4) National Oil Companies & The World Market

5) Climate Change Policy after Kyoto

6) Emerging Global Coal Market


Brent Crude Oil Prices: 1999 - 2008Brent Crude Oil Prices: 1999 - 2008

Data Source: Reuters. Prices shown are front month futures contract.

Program on Energy and Sustainable Development - http://pesd.stanford.edu/

Growth In World Oil DemandGrowth In World Oil Demand

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The World’s Oil Reserves by OwnerThe World’s Oil Reserves by Owner

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Middle East OPECMiddle East OPEC

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Source: P. Nolan, OPEC Annual Statistics Bulletin 2007, BP Statistical Review. Note: Oil Prices 1950-1983 Arabian Light posted at Ras Tanura, 1984-2007 Brent dated.


Projected U.S. Natural Gas Supply Sources (Lower 48)

Sources: EIA Natural Gas Gross Withdrawals and Production for history, EIA AEO (Annual Energy Outlook) 2008 for forecast. Note: AEO forecast is for Lower 48. Nat gas production history has been adjusted to exclude Alaska from total production. Because the EIA had not yet released 2007 Alaskan production data, 2007 Alaskan "dry production" assumed to be the same as 2006 given similarity in "marketed production" year on year. Imports from Mexico not included.

Domestic Production

Imports from CanadaLNG


Gas Resources and Potential Demand

White: where the lights are on, satellite imageryBlue Red : Gas resources, with increasing size (USGS)


““Spare” LNG Import CapacitySpare” LNG Import CapacityUS serves as LNG market of last resortUS serves as LNG market of last resort

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Sources: EIA Natural Gas Imports, EIA AEO 2008, Damien Gaul – EIA. Note: EIA AEO is the Energy Information Administration's Annual Energy Outlook. Large increase in 2008 due to splicing history and forecast.


Figure 9

MARKET NETBACKS TO QATAR FROM VARIOUS MARKETS - JANUARY 06 WHEN ATLANTIC BASIN MARKETS WERE TIGHT AND JANUARY O8

WHEN ASIAN MARKETS WERE STRONGEST

January 06 January 08$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

Qatar Netback $/MMBtu

U.S. GulfCoastU.K.Spain LNGJapan TotalLNGJapan SpotLNG [1]

Jensen Associates

Tight Atlantic Basin Markets Prempted Flexible LNG Trade During the 05/06 Winter

[1] There Were No Atlantic Basin Spot Cargoes Diverted to Japan During the Winter of 05/06

Now Severe Asian Shortages Have Made U.S. and U.K. Non-Competitive in Spot Trade

[1]


Crude, Gas, and Coal: MMBTU ComparisonCrude, Gas, and Coal: MMBTU Comparison

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Source: Reuters. All prices are front month futures contracts. Green is NYMEX coal, black is Richard’s Bay South Africa, orange is the Northwest Europe ARA contract. NYM is New York Mercantile Exchange (NYMEX). ICE is Intercontinental Exchange. HH is Henry Hub gas.


Changing Projections for the Total Energy Changing Projections for the Total Energy Mix in 2020Mix in 2020

Source: EIA IEO 2002, 2004, 2006.


Coal Siting in the US: Many ChallengesCoal Siting in the US: Many Challenges

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Source: Sierra Club


Growth in Global Hard Coal Trade Since Growth in Global Hard Coal Trade Since 19751975

Source: RWE Power, World Market for Hard Coal, 2005


International Coal PricingInternational Coal Pricing

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Sources: Reuters, McCloskey’s. Note: US coal prices adjusted from short tons to metric tons for comparison. BTU content of coal varies. API 2 and API 4 are McCloskey’s Index prices. NYMEX is front month futures contract. PRB contract is a NYMEX front month swap.


Growth in Coal Consumption to 2030 Will Be Growth in Coal Consumption to 2030 Will Be Dominated by China and IndiaDominated by China and India

Source: IEA WEO 2007


Fragmented Carbon MarketsFragmented Carbon Markets

Sources: Danny Cullenward, Point Carbon, Reuters, Nordpool. Note: EU ETS is European Union Emissions Trading Scheme. CDM is the Clean Development Mechanism. UK ETS is the United Kingdom Emissions Trading Scheme. NSW is New South Wales. CCX is Chicago Climate Exchange.


Carbon Parity Price in EuropeCarbon Parity Price in Europe(results highly sensitive to market particulars)(results highly sensitive to market particulars)

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Carbon Price Required to Make Gas and Coal Generation Equally Profitable

German Baseload CAL09 Futures Market

Source: Reuters. Note: Carbon intensity of gas generation assumed .411 mtCO2e / MWh, .91 mtCO2e / MWh for coal generation. CO2 prices are EUAs (Nordpool). Note: EU ETS is the European Union Emissions Trading Scheme. EUA is European Union Allowance. CAL09 is the 2009 calendar year futures contract.

Carbon Parity Price (CAL 09)

EU ETS (DEC 09 EUA)


Carbon Storage Project “Pipeline”Carbon Storage Project “Pipeline”Quantified projects onlyQuantified projects only

SpeculativeSpeculative

PossiblePossible

OperatingOperating

Data: PESD Carbon Storage Project Database


Thank YouThank You

globalization of fuel markets

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