Global gas trends and their implications for
Czech market
Pavel Dočekal
Head of Regulatory Affairs
RWE Transgas, a.s.
RWE Transgas 7/31/2017
PAGE 1
Introduction: Golden age of natural gas…
According to a recent report* by the International Energy Agency (IEA), we have entered
the golden age of natural gas.
Gas demand will grow nearly
twice as fast as total energy
demand.
Non-OECD countries will
account for 80% of demand
growth. China alone will make
up nearly 30% of global growth.
Gas will overtake coal before
2030 and will meet 25% of
global energy demand by 2035.
Total electricity demand will
increase 70% by 2035,
underpinned by a near doubling
of gas-fired generation.
In addition to reduced growth of nuclear energy, lower gas prices, increased deployment of natural gas
vehicles, and China’s energy policy targets, the increasing role of natural gas will be facilitated by:
1.
Widespread development of unconventional gas
2.
Development of Liquefied Natural Gas (LNG)
*World Energy Outlook 2011, Are we entering a golden age of gas?, IEA 2011
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PAGE 2
Role of unconventional gas set to grow
Conventional gas will continue to make up most global production until 2035, but its share
of total gas production will decrease. Unconventional gas production will meet more than
40% of the increase in demand and is projected to reach 1,2 tcm in 2035, out of which shale
gas will constitute the biggest share.
Gas production, IEA's Gas Scenario
6
5
1.2
4
3
0.4
2
1
Unconventional gas shares in 2035,
IEA's Gas Scenario
0.4, 29%
0.6, 46%
3.9
2.8
0.3, 25%
0
Gas production in 2008 (tcm) Expected gas production in
2035 (tcm)
Conventional gas
Unconventioanl gas
Unconventional gas production is
currently concentrated in the US
and Canada.
Shale gas
Tight gas
CBM
Unconventional gas is also
expected to reach
a significant scale in China,
Russia, India and Australia.
RWE Transgas, a.s.
PAGE 3
Shale gas boom: Prospects around the world
The development of shale gas has transformed the North American energy landscape and
its supporters believe unconventional gas has the ability to revolutionize the European
market, which is also home to vast resources.
2,1
CANADA
1,8
EU
NA
11
POLAND
Shale gas
currently
provides 23%
of America’s
natural gas,
up from 4% in
2005.
USA
48
RUSSIA
14
0,2
Significant
production is
not expected
in Europe
before 2020.
5,3
7,7
CHINA
24
3,0
36
NA
14
ARGENTINA
0,4
SOUTH AFRICA
AUSTRALIA
3,1
11
22
Conventional gas
reserves (tcm)
Source: Energy Information Agency, April 2011
Technically recoverable shalegas resources
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PAGE 4
LNG development shows no signs of slowing
The LNG industry is in the midst of rapid expansion, which is boosting significantly the share of
LNG in global gas trade. Last year alone, total LNG trade grew 25%, to nearly 300 bcm.
World gas trade (2005-2010)
1500
1000
500
0
2005 2006 2007 2008 2009 2010
Pipeline
 Total liquefaction capacity is estimated at 370 bcm.
 Since early 2009, 100 bcm per year of liquefaction capacity has
come on-line, of which more than 60 bcm is located in Qatar; this
country now accounts for more than a quarter of world
liquefaction capacity.
LNG
Global gas market fragmentation
 European LNG import capacity has more than doubled since
2000 (19 LNG terminals); the costs of building an import terminal
have plunged.
$9
$5
$13
 Qatar, Iran and Russia are adding new liquefaction plants; other
countries, with Australia leading the way, are also busily
constructing export terminals.
 China, India, and several countries in the Middle East and Latin
America are set to become increasingly reliant on LNG imports.
International trade in natural gas is expected to play an increasingly important role in global energy
supply, contributing to further globalization of the global gas markets.
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PAGE 5
Glut of global gas-supply capacity: a game changer?
In 2009, a glut of global gas-supply capacity emerged in response to a combination of factors,
leading to a bearish gas market.
Boom in
unconventional gas
production in the US
Wave of new global
LNG liquefaction
capacity
Economic crisis
(depressed gas
demand)
Bearish gas
market
 The glut reduced in 2010 in response to a sharp rebound in gas demand, primarily as a result of
exceptionally cold weather across the Northern Hemisphere and robust economic recovery in Asia.
 Excess supply capacity remains (albeit reduced) and some of the factors that have driven gas
demand growth in 2010 may not necessarily recur in future years.
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PAGE 6
Gas prices
Spot market prices, depressed due to the gas oversupply, have put pressure on incumbent gas
suppliers and producers alike.
 Incumbent suppliers have found themselves
locked in long-term supply contracts with takeor-pay obligations.
Price development
(Y+1 Product Euro/MWh)
 Depressed spot market prices have presented
an opportunity for alternative suppliers.
GE
TTF
 Pressure on incumbent suppliers to reconsider
their product offer has intensified.
 Traditional producers have found themselves under pressure to reflect recent price trends in their
long-term contracts.
 Depressed spot market prices and the supply over-capacity constitute a potential threat to
the producers’ future revenue flow and stability.
The market developments have re-opened the discussion whether in liberalized markets long-term
supply contracts, with oil-indexed prices, can maintain their existing role.
RWE Transgas, a.s.
PAGE 7
Role of long-term supply contracts
Although blamed for fragmenting the international gas market, long-term supply contracts play,
together with well-developed gas infrastructure, an important role in ensuring security of supply.
 Today, Czech Republic secures most of its gas from 2 main sources
with the help of long-term supply contracts concluded between RWE
Transgas, Russian and Norwegian suppliers.
 For customers, long-term supply contracts reduce the risk that
sudden demand spikes and price fluctuations in the spot markets will
compromise their economic activity.
 Long-term supply contracts allow the producers to optimize their
production and plan investments, effectively contributing to long-term
market stability.
With gas being increasingly used in power generation, the role of oilindexation has partially lost its justification. Long-term supply
contracts, however, will continue to play an important role next to
the spot markets.
RWE Transgas, a.s.
PAGE 8
Gas infrastructure development
In addition to the actual gas supplies, modern and reliable gas infrastructure is key for ensuring
energy security, as well as further integration of the regional gas markets.
 The EU defines diversified portfolio of physical gas sources
and routes and a fully interconnected and bi-directional gas
network as one of the key priorities to be met by 2020.
 The Southern Corridor should become the fourth biggest
supply diversification route after the Northern Corridor from
Norway, the Eastern corridor from Russia, the Mediterranean
Corridor from Africa and besides LNG.
 The Czech Republic currently boasts one of the best
developed gas networks in Europe and one of highest
storage capacities.
1
5
4
2
3
 Further expansion of storage capacity and the enhancement
of interconnection with the neighboring markets has been
planned:
(1)
Gazelle pipeline
(4)
(2)
Czech Rep. – Poland
interconnection
Domestic west-east
reverse-flow capacity
(5)
Additional gas storage
capacity
(3)
Czech Rep. – Austria
interconnection
RWE underground storages
New interconnections/projects
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PAGE 9
Conclusion
Natural gas, due to its abundance, affordability and relative environmental friendliness,
constitutes a vital part of Europe’s energy future. Its role must therefore be properly reflected
in the domestic energy mix.
 Natural gas has an absolute advantage when compared to coal:
– Gas power stations emit 50% less CO2 than modern coal plants, and 60-70% less CO2 than
old ones
– Gas power stations are more energy efficient (55-60% vs. 34-42%)
– Gas has much lower capital costs per MW installed (50% of coal)
 Gas can also quickly compensate for delay in renewables or nuclear.
– In the post-Fukushima world, where nuclear provides less electricity than had been expected,
gas is favorite to make up the shortfall.
 The domestic energy mix should, to a large extent, reflect the state and possibilities of the existing
energy infrastructure; states should make sure that the energy targets are realistic and do not pose
an undue financial burden for the economy and consumers.
RWE Transgas, a.s.
PAGE 10
Back-up: LNG Terminal in Poland
New LNG terminal located in the Polish city of Świnoujście constitutes a major energy project
in the region.
 Construction of the facility, designed to off-take and re-gasify liquefied
gas, began in March 2011; it is hoped that the Polish terminal will be
ready to begin functioning in July 2014.
 According to the plans, the annual handling capacity of the terminal
will vary from 2,5 to 7,5 bcm of gas.
 The cost of the project is estimated at EUR 926 mln; the EU will
cover a significant part of the cost (45%).
 State owned company Polske LNG has cited the project as
an opportunity to diversify the directions of natural gas supply, which
for Poland shall mean an improvement of the country’s energy
security.
 Besides aiding Poland to diversify its supplies of gas, the project will
also do so for the Czech Republic, Hungary and Slovakia.
RWE Transgas, a.s.
PAGE 11