russian gas market perspective
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Russian Gas Market Perspective
Alexey GROMOVPh.D, Deputy General Director
Institute for Energy Strategy
14th December 2011
1. Importance of Russian GAS for Russia and for Europe
2. Current situation in Russian Gas Industry
3. Regulation context
4. Russian gas market perspective
Source: IES
Energy sector Gas Industry
GDP
Export revenues
Budget revenues
GAS industry is not dominate in Russian Economy
Russian revenue from fossil fuel exports exceeded$255 billion in 2010 (from which only $46 billion is GAS)
…but Russian Economy strongly depends on GAS
Domestic primary energy consumption
Fuel Mix in the Electric Power Sector
Since 1990 till 2010 the gas share in domestic energy consumption has grown with 43 to 54%
Since 1990 till 2010 the gas share in fuel mix in the Electric Power Sector has grown with 55 to 69%
Source: IES
Europe depends on Russian GAS…
…but the level of dependence is declined
Source: IES
… however some European countries can’t do without Russian GAS
More than 50%
Source: IES
The share of Russian gas in national domestic gas consumption, 2010
Russian GAS also strongly depends on European gas market
The Structure of Russian Gas deliveries, 2010 The Scheme of the Unified Gas Supply System (UGSS)
• EU-27 provides almost 70% of Russian gas export deliveries in bcm• EU-27 provides more than 85% of Russian gas export revenues in $• The current Russian system of Gas pipelines (UGSS) is oriented to the Europe
1. Importance of Russian GAS for Russia and for Europe
2. Current situation in Russian Gas Industry
3. Regulation context
4. Russian gas market perspective
Structure of Russian Gas Industry: Gazprom and others…
Gas production
Gas processing
Gas transport
Gas distribution
Gas export
Gazprom (78%)Independent gas producers (70 companies – 9%)Oil companies (9%)PSA-operators (4%)Regional gas companies (less than 1%)
Sibur (95% owned by NOVATEK) – more than 50%Gazprom (25%)Oil companies (25%)
Gazprom (100%)
Gazprom Export (100%)
Gazprom (75%)Independent regional companies
Resource base : high level of concentration
The Structure of Russian gas reserves (ABC1) by companies
Distribution of balance reserves of free gas (ABC1+C2,) by territories and offshores, tcm
• Russia provide more than 23% (1st place) of proven world gas reserves (48,2 tcm)• 69% of Russian gas reserves owned by Gazprom• 60% of Russian balance (registered) reserves being located in Yamal-Nenets Autonomous Region
Natural gas production: crisis is overcome
Gas production in Russia, 2000-2010 in bcm and in % to the previous year
During the crisis 2008-2009 Russian gas production has fallen to 15% (on 81 bcm)
Independent gas producers attack Gazprom
Leading companies in the independent sector
Since 2000 the share of IGP companies has grown from 10% to 22% in 2010
Gas transport system needs renovation…
bcm\year700
600500
400
300
200100
02005 2010 2015 2020 20302025
TFC at reconstruction and new building
TFC without reconstructionTFC without reconstruction
Capacity Capacity decrease up decrease up to to 230 230 bcm bcm
Age structure of the UGSS*, 2010 The dynamics of technically feasible capacity (TFC) of UGSS, 2005-2030
Source: IES
• The average operating life of major pipelines has reached 25 years• TFС of UGSS has fallen to 7-8% compared to design specifications• Only current TFS renovation need more than $ 2 billion per year
* UGSS – Unified Gas Supply System
Domestic gas consumption slowly growing
• Since 2000 domestic gas consumption has growth to 17%• Average annual growth rate is not exceed 2,1%• Gazprom provides 75% of domestic gas deliveries
Source: CDU TEK, Gazprom
Domestic gas consumption structure is stable
Domestic gas consumption structure, 2000-2010
Contribution of main consumer groups in gas consumption growth, 2000-2010
• Electric power sector is the largest gas consumer in Russia (36%)
Russian gas export is stable too…
Russian natural gas export , bcm (2000-2010)
Europe is the main export destination for Russian GAS
Export of Russian gas to Europe by country, 2010
Export of Russian gas to the CIS by country, 2010
• Germany, Turkey, Italy, France and Poland accounted for 60% of Russian gas export to Europe• Ukraine and Belarus are dominated in the CIS region
Russian LNG: first steps to the East
1994 Start PSA Project Sakhalin-22007 Entering Gazprom in the project2009 LNG plant starts in operation2010 LNG export exceeds 10 mt
Chronology of the realization of Sakhalin-2 Project
Sakhalin -2 Project
• 6,6% LNG share in Russian gas export • 6,6% Share of Asia-Pacific in export• Fast growth of LNG export covers the export decrease to the Europe
1. Importance of Russian GAS for Russia and for Europe
2. Current situation in Russian Gas Industry
3. Regulation context
4. Russian gas market perspective
GAS export regulation: one export channel
Federal law about ONE EXPORT CHANNEL (on 20th July 2006) grants the exclusive right for gas exports to the organization that owns the UGSS or its subsidiary, i.e. Gazprom (Gazprom Export)LAW excludes the concurrence between Russian companies in the international gas market
The unified rate of the custom duties is 30% (except the gas deliveries to the countries of Custom Union – Belarus, Kazakhstan)The average level of taxes in the gas industry essentially is less than in the oil industry
Transit regulation (transit rate through territory of Ukraine is $ 2,89 per 1000 cm per 100 km in 2011)The total volume of transit payment for Ukraine exceed $ 3,6 bln
The average cost price of Russian GAS (1000 cm) to the German border, 2011
Gas extraction
Gas transport
Taxes and customduties
$15 $30 $24
Transit payment
$33 $102
Average cost price
Long term contracts and export prices
Dynamics of average export prices of Russian natural gas, 2000-2010 ($ per 1000 cm)
Prices at the NGC spot trading site (Germany) and the prices of Gazprom’s long term contracts at the German border, 2009-2011
• The base of Russian gas export are long term contracts (for 20-25 years) “take or pay”• The price of Gazprom’s long term contracts is linked to the world oil price with a delay of 6 months• Long term contracts are predicted and reliable, but aren't flexible
Domestic gas market is still regulated…
• The federal law of the Russian Federation «About natural monopolies» from August, 17th, 1995 №147-ФЗ;
• The federal law of the Russian Federation «About gas supply in the Russian Federation» from March, 31st, 1999 №69-ФЗ;
• The governmental order of the Russian Federation (with changes and additions) «About measures on streamlining of state regulation of the prices (tariffs)» from March, 7th, 1995 №239;
• The governmental order of the Russian Federation «About state regulation of the prices for gas and tariffs for services in its transportation for territories of the Russian Federation» from December, 29th, 2000 №1021;
•The governmental order of the Russian Federation «About an order of an establishment of special extra charges to tariffs for transportation of gas for financing of programs of gasification» from May, 3rd, 2001 №335;
•The governmental order of the Russian Federation «About carrying out of experiment on realisation of gas on an electronic trading platform» from September, 2nd, 2006 №534;
•The governmental order of the Russian Federation «About perfection of state regulation of the prices for gas» from May, 28th, 2007 №333;
•The governmental order of the Russian Federation «About perfection of state regulation of the prices for gas» from December, 31st, 2010 №1205.
Domestic gas market legislation
Domestic gas market
Regulated Sector70%
Unregulated Sector30%
Domestic gas market: regulated sector
Average wholesale gas prices for Russian consumers, 2000-2011 (roubles per 1000 cm)
• Gas prices are set by the Federal Tariff Service (FTS)• Prices are differentiated by price zone and consumers categories (industry and households)• Average prices for the industry are above than for the households
Domestic gas market: unregulated sector
Unregulated sector
Free contractual (negotiated) prices
Electronic trading floor(2007-2008)
• Independent gas producers (IGP) and oil companies• Prices are linked to the Gazprom’s prices• Contractual prices is a commercial secret
• Gazprom, IGP and oil companies• Total sales volume of gas is 13,25 bcm• Number of sellers is 14• Number of buyers is 59• Number of contracts is 3120• Average contract price for 38% above the average regulated price
Experiment with electronic trading floor will be continued in 2012-2014
1. Importance of Russian GAS for Russia and for Europe
2. Current situation in Russian Gas Industry
3. Regulation context
4. Russian gas market perspective
Program of long-term development
of the fuel and energy complex of
the Russian Far East
Eastern Gas
Program
General scheme of development of the gas industry for the year 2030 (GS-2030)
Conception of the state program for exploration and
exploitation of the continental shelf of the Russian
Federation
Energy strategy up to period 2030 (ES-2030)
Investment programs of oil&gas companies
System of strategic documents to developthe Russian gas industry
Federal Level
Industrial Level
Regional Level
Businesslevel
• ES-2030 is an ideology of development• GS-2030 is an industry roadmap of development• Investment programs are the concrete realization of development
Russian gas production up to 2030
Potential gas production is sufficient to meet any demand
Gas production up to 2030 (according to ES-2030 and GS-2030)
ES-2030 (min)ES-2030 (max)GS-2030 (min)GS-2030 (max) Source: ES-2030, GS-2030
bcm
new
ar
eas
Changes of Russian gas production map
New areas (Yamal, Eastern Siberia and Far East) will provide more than 40% of Russian gas production up to 2030
8
Targets of gas export: shift to the East
30
Nord Stream-2 (end 2012)
South Stream (projected)• Preservation of the occupied share in the European gas market (more than 30% in EU-27)
• Increase of gas export revenues (275 bln USD in 2010)
• Security of Russian gas deliveries to Europe, including transit questions
• Maintenance of status quo in Caspian Region
• Using of Russian gas infrastructure to export Caspian gas to EU-27
Western gas policy in ES-2030: key projects & goals
Eastern gas policy in ES-2030: key projects & goals
LNG Projects in Sakhalin
Natural gas Export to China
• Share of Eastern Siberia and the Far East in gas production – 14-15%
• LNG share in gas export – 14-15%
• Share of the countries of the Asia-Pacific Region in the structure of gas export – 20%
Export expectations vs. reality
368
349
234
203
300
150
175
200
225
250
275
300
325
350
375
400
2008 (факт) 2009 (факт) 2010 2015 2020 2030
bcm
Forecast 2030 max Forecast 2030 min Our expectationes
Risk of decrease in export on 15-20%
15-20%
Russian Gas Export forecast up to period 2030 Factors of decrease in export expectations
Europe: Competition growth
US: refuse of future Russian LNG (the boom of shale gas production)
Asia-Pacific: competition growth (Central Asia)
Domestic gas market: shift to net-back prices
Tariff regulation in 2011-2015 will change as follows: – Transfer to long term tariffs– Synchronisation of investment programs of the natural monopolies– Regulation of reliability and quality of services offered– Information disclosure by natural monopolies (their activities)– An increase in energy efficiency of electricity, gas, heat and water consumption– Increasing the effectiveness and transparency of the regulatory bodies activities
for gas industry
- a transfer to equal profitability prices for domestic and external consumers (net-back prices)- abolishment of cross-subsidising in the wholesale and retail gas markets- a transfer to equal profitability gas prices has a smooth transitional character, to avoid price shocks for domestic consumers
Conclusions
Thank you for your attention
www.energystrategy.ru
Alexey GROMOVDeputy General Director
Institute of Energy Strategy, Moscow
The Energy of the Future in our Hands
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