The Natural gas Market in the Mediterranean area

Claudia Checchi

1st National Conference on Liquefied Natural gas for Transport Italy and the Mediterranean area

Rome , April 11st 2013

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A fast changing world energy market

Crude Oil Prices FOB ($/bbl)

Fonte : Platt’s

Oil ($/bbl) vs coal ($/mt) prices

Fonte : Platt’s

World gas price references (€/MWh)

The shale gas revolution has modified the world energy market dynamics: Oil prices and spread WTI/Brent Delinking of coal prices from oil prices Polarization of gas prices

World and European gas demand evolution

Natural Gas Demand (Bcm)

Souce: BP and Eurogas

Preliminary data show -2.2% for

2012 for EU demand

• EU demand almost steady in the last decade

• World demand rapidly increasing

European gas demand: recent trends

Natural Gas Demand (2012/2011)

Souce: WGI and Eurogas

• Few exceptions to negative trend• Explanation:

o Weak economic fundamentalso Strong reduction in uses for

power transformationo Renewable competition thanks

to incentiveso Coal competition thanks to low

CO2 prices (2020 targets almost reached)

• Reduction mitigated byo Lower then average temperatures

(cold in February 2012)o Post-Fukushima nuclear-prudent

policies (Germany and France)

Demand raising in South-mediterranean region

• The growth is driven mainly by the power sector

Natural Gas Demand (Bcm)

Souce: BP

Proved reserves increasing

• Stable reserves in the North Africa regions due to lack of investments

• Increasing reserves in major producers

• Decreasing reserves in Europe

Proved reserves at 2011 (Tcm)

Souce: BP

Natural Gas production in the Mediterranean area

• Production rapidly decreasing in Europe• Incrasing in middle eas and south Africa• Stable in North Africa (political tensions, European demand

reduction)

Natural Gas Production (Bcm)

Souce: BP

The natural gas “game changer”

Problems for development• Legal concern: extraction based on

concessions and not on land ownership

• Environmental concerning (use of water)

• Technology gap• Higher costs

Shale gas Map (Tcm)

Souce: Geology.com

Technically Recoverable Shale Gas Resources by Country in Euro-Mediterranean area (Tcm)

• High reserve in Libya and Algeria• Europe as well should have resources• Investments still at very early stage

Souce: ENTSO-G

Skikda New terminalArzew New

terminal

West med• 8 regasification terminal (73 Bcm)• 3 liquefaction terminals (28 Bcm)

Souce: ENTSO-G

Est med• 4 regasification terminal (21 Bcm)• 2 liquefaction terminals (17 Bcm) + 1

(4 Bcm) stopped

Mediterranean Area: existing LNG ragas terminal

Souce: REF-E, GIIGNL

Mediterranean Area: LNG terminals existing

Country TerminalStorage Capacity

(liquid cm)

Send-Out Capacity (Bmc/y)

Start-up OwnershipMain Source of

Import TPA

Adriatic LNG 250 000 8 2009ExxonMobil 45%, Qatar

Petroleum 45%, Edison 10% Qatar YES

GNL Italia 100 000 3,4 1971 Snam RG 100% Algeria YES (20%)

Fos-Cavaou 330 000 8.3 2010 FosMax LNG (Elengy, Total)Algeria, Egypt, Nigeria, Norw ay, Qatar, Yemen YES

Fos-sur-Mer 150 000 5.5 1972 Elengy Algeria, Egypt, YES

Montoir-de-Bratgne 360 000 10 1980 Elengy Algeria, Nigeria YES

Greece Revithoussa 130 000 5 2000 DESFAAlgeria, Egypt, T&T,

Qatar YES

Barcelona 840 000 17.1 2004 Enagas Algeria, Nigeria, Qatar YES

Cartagena 587 000 11.8 1989 EnagasAlgeria, Nigeria, Qatar,

Peru, T&T, YES

Sagunto 600 000 8.8 2006

ENI (21%), Gas Natural Fenosa (21%), Osaka Gas (20%), RREEF Alternative Investments (30%),

Oman Oil (8%)

Algeria, Egypt, Nigeria, Peru, Qatar YES

Aliaga/Izmir 280 000 6 2006 Egegaz Argeria, Egypt, Nigeroa, Qatar

NO

Mermara Ereglisi 255 000 6.2 1994 Botas Nigeria NO

Israel Hadera ? 4 2013 Natural Gas LinesSTS transfer from

Cyprus, reloded Cargos (from BP)

NO

Italy

France

Spain

Turkey

Offshore / Floating

• Prevalence of on-shore terminal

• No new terminals (exception for Israel)

• LNG storage strategic for spot trading

LNG European market

Souce: REF-E, GIIGNL

• LNG market contraction• Higher than demand reduction• Due mainly to high LNG prices and

Asian demand• 20% of world LNG market• 14% of European gas market• Qatar main exporter• Intra-European LNG market: 26%• Growing reloading: commercial

innovation or inefficient way to overcome destination restrictions and price constraints?

LNG main projects

Souce: BP

• Livorno OLT is under construction

• No FID for other terminals

• No additional on-shore capacity expected in the next future

LNG terminal main projectsTerminal Area Capacity

(Bmc/y)Start-up Authorization Ownership

OLT Offshore

LNG Toscana Offshore Livorno 3,75 2013

Final authorization in 2006, 100% TPA

exemption for 20 years obtained in 2009

E.On Ruhrgas 46.79%, Iren 46.79%, OLT Energy

Toscana 3.73%, Golar LNG 2.69%

API Nòva Energia Offshore Falconara 4

Final authorization in 2012 API 100%

Nuove Energie

Porto Empedocle 8

Conferenza dei Servizi authorization in 2011, 100% TPA exemption for 25 years obtained

and sent to the EC

Enel 90%, Alfa Acciai 9.5%, Comune Porto Empedocle

0.5%

LNG Medgas Terminal Gioia Tauro 12 - 16 2 017

Final authorization in 2012

Fingas (Sorgenia, Iride) 69,77%, Medgas Italia

30,23%

Fos Faster Marseille 2 019 Technical studies Fos faster, Marseille fos,

GRTGaz

Offshore / Floating

Mediterranean LNG liquefaction terminals: existing contracts

Souce: REF-E, GIIGNL

• Long term contract, usually with TOP obligation, still the paradigm

LNG pricing

• Long term contracts• usually 15/20 years

• TOP obligation• Minimum quantity to be shipped, oblige the buyer to secure

the demand (usually with vertical integration in the retail market)

• Oil linked formulas• Usually linked to crude oil or basket of oil product• Developed in the absence of gas-to-gas competition and

gas price reference• Gas price quotation are increasing and spot natural gas

prices are delinking from oil indexed prices• Oil linked still dominant in the Mediterranean and Asian LNG

market • Renegotiations in the European market reduce the price

and/or the TOP obligation but generally do not review the formula

Final remarks on gas market evolution

Europe • Both internal production and demand are decreasing• Imports will probably increase anyway • Many infrastructure projects (both pipelines and LNG

regasification plants) but investors are reluctant:o Too many uncertainties in market evolution and world equilibriumo Most linked to future LNG prices and shale gas production

Souce: BP

North Africa• Currently very short market• Increasing demand but lack of investments due to political

uncertainties• Israel stated to import LNG and Egypt is planning to do• LNG export stopped in Libya, almost stopped in Egypt, reduced

in Algeria• But high reserves (both conventional and unconventional)

Final remarks on LNG market evolution

Mediterranean area • LNG has interesting features concerning

o Security of Supply: it allows diversification of sources, that is important in a higher-dependency scenario

o Flexibility: higher flexibility to substitute intermittent/non predictable renewable electricity (and heat) soaring production

• BUT…o The LNG market is thigh:

lower than expected investment in liquefaction and shipping capacity (due to shale gas revolution and excess of regas capacity in US)

Higher demand due to Japanese nuclear shutdownso It will remain short in the next future: lower investments due to uncertainties in

the scenario Will US export LNG? Will Europe became a shale gas producer? Will Asian demand continue to grow?

o LNG trade still lack of flexibility Which reference price for new contracts? Is the slowdown in spot trading temporary?

Demand from transport the new «Game changer»?

Claudia Checchiclaudia.checchi@ref-e.comwww.ref-e.com

Grazie per l’attenzione!

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