Michelle Michot Foss: North American Natural Gas Scenarios and United States Prices to 2015

The current and prospective driving forces for US natural gas prices will be important not just for North America but also for the gas industries of Europe and Asia. Questions which need to be addressed are: the likelihood that the US will be persistently short on natural gas supplies, resulting in long term prices remaining high (at least $6/MMBtu)? Whether reasonable scenarios exist such that natural gas prices would fall to a range of $3-$3.50/MMBtu for a prolonged period and whether any significant retrenchment in prices be short-lived, with prices returning to $6/MMBtu or above. Whether increased LNG imports will be the main driver for US natural gas price scenarios or whether other factors, such as permanent demand destruction and higher than anticipated levels of North American supply, exert meaningful influence.

Identifying the trends for natural gas and oil price relationships with respect to fuel competition and switching. To address these questions, this paper will look at US natural gas price scenarios for the period up to 2015.

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Nadine Haase: Regulatory performance in the European gas markets: Diverging convergence – a quantitative analysis

During the last eight years, the European gas markets went through profound transformation and a comprehensive reform. In 1998, the European gas market resembled a patchwork of national markets with heterogeneous regulatory regimes. On the one hand, the Gas market reform attempted to integrate and harmonize gas markets and on the other hand, different national characteristics asked for country-specific solutions. As a consequence, the reform brought about a divergent convergence of regulatory regimes which build the framework for gas market organization in European Union (EU15). In this study, the degree of convergence, patterns and paths of regulatory performance will be explored.

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Patrick Heather: The Evolution of Gas Trading in the UK

In this study, the author will look not just at the development of the liberalised UK natural gas market but will do so from a trader's viewpoint.

This will give a different perspective from the more usual 'histories' and recall how the 'traders' club' evolved from its quiet beginnings in the mid-90's, through the influx of foreign investment and subsequent increase in the number of counterparties, to the post-Enron shake out. Following the more recent changing environment and security of supply questions, what does the future hold for UK gas trading? Will it continue to lead in the quest for a more liberalised transparent and liquid European gas market place?

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Anouk Honoré: European Gas Demand, supply and pricing: cycles, seasons and the impact of LNG price arbitrage

Natural gas is expected to be the fastest growing fuel consumed in Western Europe in the coming decades. Much of the growth in demand will come from the increasing use of gas in power generation. Europe holds less than 4% of the world’s natural gas reserves and the region is expected to become increasingly dependent on gas imports. With the increasing distances from gas sources to gas markets, LNG could become a more important source of imports for some European countries. Indeed, Europe is expected to be a significant growth market for LNG over the coming decade. The main interest of this work will be to question the importance of LNG in Europe in the near future, taking into account the arbitrage opportunities with the North American market.

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Anouk Honoré: Gas and Power in Southern Europe: Iberian Peninsula and Italy

The Spanish energy sector has undergone many changes in the recent years. The first part of the paper will look at the demand for natural gas in the Spanish market. One of the most challenging issues is that Spain's demand for energy has grown rapidly and that this growth shows no sign of abating. Spain's indigenous energy resources are limited and unlikely to increase significantly, with the exception of some form of renewable energy production, in particular wind. The growth in the use of natural gas in power generation led to increased security of supply concerns compared to hydroelectricity, but also to reduced environmental impacts compared to coal generation. Spain is the fastest growing gas market in Europe, and the energy industry has coped relatively well in satisfying the rapidly increasing demand for natural gas so far.

The second part will look at the energy supply to Spain. The weak cross-border gas and electricity interconnections and low electricity trade compared to total demand lead to a situation not dissimilar to that of an island. Spain is the only market in Europe where LNG is a price taker, and it is a particular interest to have a look at this topic to understand the risks and opportunities a growing dependence on LNG could have in the country.

The third part of the study will consider possible scenarios for the Spanish market for the next decade. After considering demand and supply balances, we will look at the liberalisation process of its markets (ahead of EU directives?), at the probable entrance of new players into the energy market competing with the incumbents and on the consequences of these developments for the Spanish market and for the different players in this market.

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Paul Hunt: Entry/Exit Transmission Pricing With Notional Hubs: can it deliver a pan-European wholesale market in gas?

For almost 20 years since the Single European Act of 1987 the European Commission, in co-operation with the Council and Parliament, has being pursuing a programme to complete the internal market and electricity and gas.  Much of the initial motivation sprang from concerns about the international competitiveness of European industries, but it has expanded to embrace a desire to provide competition and choice for all consumers and, more recently, to address concerns about security of supply in the context of a growing dependence on external suppliers of gas.

This process is operating at the legislative, institutional and organisational level.  However, beneath and, to an extent, running parallel to this process, a separate process dealing with the pricing of gas transmission services is being rolled out throughout the EU.  This is Entry-Exit pricing of gas transmission with notional hubs.

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Aleksandar Kovacevic: The Potential Contribution of Natural Gas to Sustainable Development in South Eastern Europe

Historical and current energy patterns in South Eastern Europe (SEE) are not, and for many years have not been, sustainable in terms of economic and social development. This is an important region that could facilitate infrastructure development required for the diversification of natural gas supply for OECD and EU countries. A scenario will be examined in which natural gas infrastructure and power generation capacity are gradually developed along with: distributed generation, natural gas as a facilitating component in the use of indigenous fuels, the application of more appropriate technologies, increased energy efficiency, productivity improvements, and better governance in the energy sector.

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Simon Pirani: The Ukrainian Gas Industry: domestic and international perspectives

The Ukraine has one of the largest gas markets in Eurasia and is the critical transit country for Russian gas exports to Europe. During 2006, the importance of Ukraine for European gas markets was underlined by problems in the country's relationship with Russia which raised significant security concerns throughout Europe. This study looks at Ukraine's domestic gas market, its natural gas network infrastructure and its supply options: domestic and imported gas from both Russia and Central Asia – in the context of general economic and political development in the country. It also examines Ukraine's role as a transit country and the changing commercial relationships with Russia.

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Simon Pirani: Russian and CIS Gas Markets and Their Impact On Europe

Forthcoming from Oxford University Press in early 2009

Many concerned with the natural gas industry think of the former Soviet Union in the first place as a producer and exporter. Reserves in Russia and central Asia are among the world’s largest. Russia’s exports to Europe, and the disputes over getting them there, are vital themes. But the former Soviet Union is also a major consumer of gas: aggregate consumption in the Confederation of Independent States (CIS) – the area on which this book focuses – is greater than that of the European Union. Cross-border trade between CIS states runs at about 100 bcm/year, i.e. more than half the volume of the CIS’s net exports. The purpose of this book is to describe the changes in natural gas production, transportation, trade and consumption in the CIS, concentrating on the period since 2000, and to discuss likely directions of development up to 2015.

A book dealing with gas markets not only in Russia but in the CIS as a whole could not be more timely. The 2006 Russia-Ukraine and 2007 Russia-Belarus “gas wars” highlighted the importance of those countries for EU gas supplies. The death of the Turkmen president in December 2006, and the resulting changes in government, was a reminder of the potential fragility of Central Asian gas contracts with Russia and other potential customers. The development of gas production and gas markets in Caspian and Caucasus countries will be of substantial importance to any “fourth corridor” through which additional gas supplies might flow to Europe – but opening up such a corridor is fraught with difficulties, which were sharply underlined by the Russia-Georgia military conflict of  August 2008. 

Contents

Introduction. Political and economic factors in the Russian and CIS gas trade. By Simon Pirani

1. Natural gas in transition: systemic reform issues. By Tatiana Mitrova

2. The Russian gas balance to 2015: difficult years ahead. By Jonathan Stern

3. Ukraine: a gas dependent state. By Simon Pirani

4. Belarus: the domestic gas market and relations with Russia. By Katja Yafimava

5. Moldova’s gas sector. By Chloe Bruce and Katja Yafimava 

6. Azerbaijan: from gas importer to gas exporter. By Julian Bowden

7. Armenia’s gas markets. By Armen Yeghiazaryan

8. Georgia’s gas sector. By Micheil Tokmazishvili 

9. Turkmenistan: an exporter in transition.

10. Kazakhstan’s gas sector. By Shamil Yenikeyeff

11. Uzbekistan: a domestically oriented producer. By Stanislav Zhukov

12. Russia, the CIS and Europe: gas trade and transit. By Tatiana Mitrova, Simon Pirani and Jonathan Stern 

Conclusions. By Simon Pirani

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Julian Bowden works for BP in a natural gas business development role, focusing on the Caspian region. His previous experience with BP was mostly in downstream oil, and European and Russian downstream oil markets in particular. His publications include journal articles on the history of the Russo-British oil trade 

Chloe Bruce is completing a doctoral dissertation on the politics of the CIS natural gas trade at the University of Vienna. She previously worked as a journalist for Gas Matters, the international industry newsletter, and as an editor for the Economist Intelligence Unit. Her publications include articles on Moldovan and Belarussian gas markets in scholarly journals

Tatiana Mitrova is the head of the Center for International Energy Markets Studies at the Energy Research Institute of the Russian Academy of Sciences. She has been studying Russian, CIS and European energy market development for the last 13 years. In 2006 she worked as an expert in the Energy Security Group of the Steering Committee for the Russian Federation’s G8 presidency

Simon Pirani is a Senior Research Fellow at the Oxford Institute of Energy Studies. He writes about energy, politics and the economy of the former Soviet Union as a journalist, and is author of a monograph on Soviet history, The Russian Revolution in Retreat (2008)

Jonathan Stern is Director of Gas Research at the Oxford Institute for Energy Studies, Honorary Professor at the Centre for Energy, Petroleum & Mineral Law & Policy, University of Dundee, Visiting Professor at Imperial College’s Centre for Environmental Policy and an Associate Fellow of Chatham House. He is author of many books on natural gas issues, most recently Natural Gas in Asia, 2nd Edition (2008)

Micheil Tokmazishvili serves on the Council of the National Bank and the Economic Council of the President of Georgia. From 1997 to 2005 he headed the Department of Macroeconomics at the Budget Office of the Georgian parliament, and is the author of books and articles on public finance, macroeconomics and international economics

Katja Yafimava is a Junior Research Fellow at the Oxford Institute for Energy Studies and is completing a doctoral dissertation on CIS-Europe gas issues. She is author of Post-Soviet Russian-Belarussian Relationships: the Role of Gas Transit Pipelines (2007)

Armen Yeghiazaryan is Associate Professor at Yerevan State University. He has participated in drafting poverty reduction programmes and public expenditure programmes for Armenia, and served as deputy chairman of the State Commission for Economic Reforms and Privatisation and as head of the Department of Economic Reforms in the prime minister’s office. He is the author of books and articles on economics

Shamil Midkhatovich Yenikeyeff is a Research Fellow at the Oxford Institute for Energy Studies and a Senior Associate Member at the Russian and Eurasian Studies Centre, St Antony’s College, University of Oxford. He studied law and in the 1990s worked as an adviser in the Russian parliament. He is author of The Battle for Russian Oil: Corporations, Regions and the State (2008)

Stanislav Zhukov is a Senior Research Fellow at the Institute of World Economy and International Relations of the Russian Academy of Sciences. He specialises in the economics of transition and economic growth in post-Soviet states. He is author of books and articles on central Asia, and recently contributor to Kazakhstan’s Oil – the Chance for Development (2006) and External Liberalisation in Asia, Post-Socialist Europe, and Brazil (ed. Lance Taylor, 2006)

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Turkmenistan's Gas Production and Export: the next 10 years

The death of President Niyazov - the long time president - in late 2006 may pressage major changes in Turkmenistan, the most important gas producer in Central Asia. This paper examines a little known country and gas industry and looks at the prospects for exports to different markets over the next decade.

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Jonathan Stern: Is there a rationale for the continuing link to oil product prices in Continental European long term contracts?

Continental European long term gas contract prices continue to be linked largely to those of oil products. The rationale for this linkage was strong in the 1970s and 80s but is much weaker in the 2000s. This paper examines the reasons for the persistence of oil product price linkage.

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Jonathan Stern: Natural Gas Security: an evidence-based approach

This study will look at natural gas security events (principally but not exclusively) in Europe to see if patterns emerge from an analysis of these events.  

Introduction: the case for evidence based research
Different dimensions of European gas security:
Evidence-Based Research
Conclusions:

• conventional wisdom and theoretical approaches versus evidence-based research
• what does this analysis tell us about the likelihood of future security events?

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Jonathan Stern: Is There A Rationale For The Continuing Link To Oil Product Prices In Continental European Long Term Gas Contracts? 2nd Edition

This will be a new and updated edition of the NG19 paper published in April 2007. The reason for the new edition is that having experienced first much higher, and then much lower, levels of oil prices since the first edition of the paper was published, the case for gas price linkage is much less easy to defend and much more controversial.

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Shamil Yenikeyeff: Kazakhstan's gas: export markets and export routes.

The geographic proximity of Kazakhstan to Russia, China, Central Asia and the Caspian region makes this oil and gas producing country an important player in relation to energy exports from the CIS.

The way Kazakhstan chooses to develop its gas resources and relevant export infrastructure is to make a serious impact on gas exports from other energy producing countries of the former Soviet Union as well as on the existing European and Chinese plans of diversification of natural gas supply.

The aim of this study is to examine various scenarios of how Kazakhstan could deliver its gas to potential export markets.

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Influence of Gas Storage on Gas Price Volatility
Markus Wachter

Introduction: the US, UK and European gas markets

Gas Storage types and economics (overview)

Comparing different Gas markets and their availability and access to storage

Analysis of day ahead (+within day) prices and their volatility in each market

Analysis of gas futures prices and their volatility in each market

Special focus on periods where storage was not available.

Results/Conclusions

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The Independent Gas Sector in Russia
James Henderson

1. The history of gas production in Russia
2. The main non-Gazprom gas producers, their development, relationship with Gazprom and the Russian State and their current situation
3. The current trading environment for non-Gazprom suppliers
4. The economics of independent gas supply
5. Potential role of the independent gas sector
6. The strategies of the independent gas producers
7. Conclusion – the outlook for independent gas supply in Russia

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Is There Any Need For Long Term Planning In The British Gas Market?
John Elkins

Liberalisation has inevitably diffused responsibility for marketing, planning and operating distribution and transmission systems. It has also diffused knowledge, data and forecasts. The most precise data about customer behaviour now resides with National Grid (NG), which does not deal directly with most customers, except to record their usage. Modelling of past gas flows and short term forecasting of most customer demands is carried out by NG as the agent for distribution grid operators and marketers. It also produces forecasts of demand and supply based on aggregates of marketer/shipper intentions so that it can propose, and agree with Ofgem, changes in transmission system capacity. Development of storage and importation capacity is the responsibility of whoever wants to plan it.

Because gas is an essential commodity, it can be argued that there is still a need for central oversight, which can only logically be supplied by National Grid/Ofgem, but this goes against the principle of market-determined outcomes to which all governments and regulators have devoted their efforts over past 20 years. Is it time to recognise that without some degree of long term planning, roughly half of the UK’s energy supplies will be exposed to very significant risks with potentially highly undesirable results?

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New LNG Projects: what do IOCs have to offer?
David Ledesma

The traditional model whereby International Oil Companies (IOCs) act as partners with National Oil Companies (NOCs) in the development of (oil and) gas projects is under pressure. The combination of fewer large reserves available to be developed (the traditional domain of the IOC) together with the wish of NOCs, which own the gas reserves, to have a greater involvement in the development of LNG projects (or to develop projects themselves), means that the traditional role of IOC’s is being questioned and the NOC/IOC relationship changing.  This paper will focus on these changes.

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German Gas Liberalisation: a post-2005 assessment
Heiko Lohmann

A study by this author on German gas liberalisation, published in 2006, described the development – or non-development - of the German gas market from 2000 until the beginning of 2006. For different reasons the results of formal gas market liberalisation did not lead to significant changes of the market structure. That study described the beginnings of change in the market and argued that this could lead to future changes in market structure, albeit expected to take place rather slowly. Since 2006 and particular in 2007 changes were much faster than the study anticipated. Although official German institutions like the regulator or the Bundeskartellamt still judge competition to be not very effective – usually based on 2006 data – this study will argue that institutional conditions and market behaviour have changed significantly compared to the period 2000-2005. These changes and drivers will be the focus of this new study.

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LNG Trade-flows in the Atlantic Basin, Trends and Discontinuities

My current project, was prompted by the rising importance of LNG in the global gas arena and more particularly the impact that ‘flexible’ LNG might have in linking gas prices across regions with markedly different price formation structures.  At present (January 2009) I have virtually completed my analytical base and am ready to address the major trends and uncertainties which are about to be created by a rapid growth in new LNG supply combined with recession-driven slackening demand.

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