Regional Gas Dynamics: Gazprom s Focus & The Southern Gas Corridor

Transcription

1 Regional Gas Dynamics: Gazprom s Focus & The Southern Gas Corridor John Roberts Energy Security Specialist, Methinks Ltd. Black Sea Offshore Conference Bucharest 20 Oct 2015

2 Gas - European Energy Security: Natural Gas Supplies to Europe, , bcm 2 Supplies by major gas exporters OAO Gazprom (long-term contracts) Algeria (incl. LNG) Libya (including LNG) Qatar Nigeria Total Supplies by major European producers Norway Netherlands UK Other Total Total Source: Gazprom May 2015

3 Gas: Russia s Dilemma 3 The principal problem: How to pay for megaprojects to both East and West. EAST: $55 bn for development of the 4,000-km Power of Siberia gasline and upstream costs of the Vostok project, notably the Chayanda gasfield in Yakutia (albeit, with a $25bn upfront Chinese loan). $18.5bn for the Altai Pipeline. WEST: $22.5bn for Russia s Southern Corridor. In 2014, $22.5 bn for a 63 bcm/y South Stream (four string offshore) and twin-pipe onshore line to Tarvisio and/or Baumgarten (est bn in 2013). In 2015, c. $10 bn for a 31 bcm/y Turkish Stream (two string offshore) and single pipe onshore line to Ipsala/Kipoi.

4 The Eastern Problem: Paying for the Russia-China Gas Accords 4 The Plan: A 4,000-km, two-string, 60 bcm/y system. Original twin goals: China and Nakhodka LNG. Power of Siberia: Yakutia-Vladivostok to open in Line construction cost: c.$8m - $9.5m per km. Total cost: $38 bn The 21 May 2014 Agreement: A $400 bn deal or much less? At what price, and when? First delivery: bcm in Putin: Upstream & infrastructure dev. cost: $55 bn. China to provide $25 bn up front. The 14 October Strategic Agreement The 2,600-km, 30 bcm/y Altai Pipeline. Cost: $18.5 bn. Gazprom needs $30 bn to pay for Power of Siberia pipeline and for field development in Yakutia and Irkutsk, notably Chayanda; plus $18.5 bn if it is also to develop the Altai line. Source for Map: The eastern partnership of gas. Gazprom and CNPC strike a deal on gas supplies to China; OSW Commentary by Szymon Kardaś, Warsaw, Poland. 6 June 2014.

5 The Western Problem: South Stream & Russia s Southern Corridor 5 The Southern Corridor: Estimated cost (2014): $22.5 bn kms; 10 compressor stations Target: Ready by Western Route: kms, including Kubanskaya CS and the Korenovskaya CS interconnector; compressor stations capacity, 574 MW. Eastern Route: 1,625.6 kms; compressor stations capacity, 942 MW. Map source: Gazprom 2011

6 GAS: Russia s Dilemma Gazprom is supposedly subject to a 10 per cent annual reduction in expenditures each year from (inc). That s a 41% cut over the fiveyear period. Dmitri Medvedev (November 2013): Use the National Prosperity Fund (set up in 2008 to to stabilise the Russian pension system) to pay for infrastructure projects. Fund assets then stood at some 2.85 trillion roubles ($88.5 billion). Collapse of the Rouble. Contraction of GDP. Estimated loss of up to $100 bn a year in government revenues. QUESTIONS: What future for Gas to China? What future for Turkish Stream?

7 Russia s Dilemma 3 7 December 2013: Gazprom response to capital spending restriction: shelved $3.5 bn on pipeline repairs. Alexei Kudrin (Moscow 22 Sept 2014): There will. be stagnation, like now. There could be recession. We will be balancing on the edge of recession all the time. Kudrin s expectation: One per cent negative growth for next three years. IMF, October 2014: 0.9 % GDP contraction in 2015; 0.4 % contraction in IMF, January 2015: 2.9 % GDP contraction in 2015; 0.1 % growth in 2016; 1.1% growth in Kudrin (op. cit): "Today the decline of Russian economic growth is not so much the result of sanctions as of the lack of reform of the economic system, at a time when the oil price is not rising but falling. We need another economic model."

8 Russia s Dilemma 4: IH Lower export revenues, increased capital outflow, and an interruption in international lending have caused a liquidity crisis in foreign exchange and a sharp decline in the RUB. Capital outflow was USD billion in 2014 and $52.5bn for the first six months of The Ministry of Finance, which suggests the crisis may now be past its peak, anticipates the 2015 outflow to be around $70bn - $80bn while the Central Bank, which spent $86.5 bn of its foreign currency reserves in 2014 whilst trying to slow the devaluation of the Rouble, anticipates around $90bn. Finance Minister Anton Siluanov estimated in November 2014 that the decline in oil prices had cost the Russian economy USD billion, whilst sanctions caused a loss of a further USD 40 billion. But the impact, however, is greater as the slowdown is structural: even with a stable oil price Russia no longer benefited from rising terms of trade which previously fuelled domestic demand. And if the focus is placed on financing, investment, and consumption, the outlook is darker. Russia is also witnessing a banking crisis catalysed by the interruption in international lending. The lack of financing has contributed to a significant reduction in both investment and consumer spending, the former falling 4.8% in April year on year, the latter falling 9.8%. Source: Louis Skyner, Clifford Chance, London, Presentation to Chatham House, July 2015.

9 Turkish Stream February 2015 Source: Gazprom 9

10 Turkish Stream & the SGC: The Legal & Political Overlap 10 Four Key Questions: 1. What happens to Turkish Stream gas after it lands in Turkey? Is there scope to utilise the Trans-Balkan Pipeline in order to fulfil some contracts with EU customers? 2. What constitutes meeting contractual obligations? Gazprom CEO Alexei Miller said on 15 January 2015 that Russia would cease to use pipelines across Ukraine for deliveries to EU customers by 2020; that these would be served by Turkey; and that it would be up to Gazprom s customers to collect their supplies at the Turkish-Greek border. Is this credible or legal? 3. Is there anything to prevent Gazprom from booking capacity in TAP to take advantage of its second phase expansion to c bcm/y? 4. What are the implications of Turkish Stream for the longer-term development of the Southern Gas Corridor?

11 Russian & Turkish Energy Relations: August Talks on Turkish Stream on hold pending 1 November elections Kommersant, 3 August 2015 "We have sent to Turkey two proposals on the intergovernmental agreement on the Turkish Stream pipeline. The first is on the construction of the first string, the second is on the construction of all four branches," the (Energy Ministry) representative said. RIA Novosti, 7 August 2015 Turkey sends draft IGA to Russian Government 23 August 2015 Kommersant, 23 August 2015

12 Russian & Turkish Energy Relations: October Gazprom has cut the projected capacity of the yet-to-be-built Turkish Stream natural gas exports pipeline to 32bcm of gas, the gas monopoly's CEO Alexey Miller told Interfax. This figure takes into account the throughput capacity of the Nord Stream pipeline, Miller said. RosBusiness Consulting 6 October 2015 We are Russia's number one natural gas consumer. Losing Turkey would be a serious loss for Russia. If necessary, Turkey can get its natural gas from many different places. Turkish President Recep Tayyip Erdogan, 8 October 2015 These are matters for Russia to think about. If the Russians don't build Akkuyu, another will come and build it. Turkish President Recep Tayyip Erdogan, 8 October 2015

13 The Key: Nordstream in September Shareholders agreement, 4 September 2015, Vladivostok, for The New European Pipeline AG. Majority Shareholder (51%): Gazprom. Royal Dutch Shell, Germany s E.ON, Austria s OMV, and Germany s BASF/Wintershall: 10 % each. France s ENGIE (formerly GDF Suez) 9 %. Estimated cost: $11 billion for a pair of 1,220 km-long pipelines to carry 55 bcm/y to Europe.

14 Nord Stream 14 Note: This is a map of the original Nord Stream pipelines laid from 2010 to Nord Stream 2 is expected to follow essentially the same route but possibly with an additional landfall in Germany to Greifswald.

15 Black Sea Boundaries in the Wake of Russia s Annexation of Crimea Officially recognised EEZs Source: Defence24.pl If the Annexation were to be recognised Source: Defence24.pl

16 Europe s Approach: The Southern Gas Corridor 16 Gas sales to EU buyers signed in 2013: Axpo, GDF Suez, Gas Natural, E.ON, Shell Hera, ENEL, Bulgargaz, DEPA Gas to Europe to start ~1 yr later than 1 st gas Gas sales volumes (bcma) Shah Deniz Field South Caucasus Pipeline Expansion (SCPX) Trans Anatolian Pipeline (TANAP) Trans Adriatic Pipeline (TAP) ACQ: Annual Contract Quantity Gas sales to BOTAS Stage 2 sales signed in 2011 (First Gas in 2018) Complementing current Stage 1 sales

17 SGC Costs 17 Initial costings: Total: $45 bn. (BP, various). SD2: $22.5bn SCP-X $5.4bn TANAP $10 bn, $11bn, $12.8bn, $13.9 bn, $16.bn? TAP c. $4bn - 5bn. Socar CEO Rovnag Abdullayev: $48bn total (8 Dec 2014) Implementation under way: c. $10bn of contracts issued (early 2015).

18 Southern Gas Corridor Source Fields 18 Field Country Estimated Reserves Output & Production Timing Shah Deniz Phases I and II Azerbaijan 1.2 tcm 25 bcm/y by Shah Deniz Phase III Azerbaijan c. 500 bcm? ACG Deep Level Azerbaijan bcm 5-10 bcm/y by 2023? Apsheron Azerbaijan 350 bcm Startup in bcm /y by 2023? Umid, Babek, Nakhchivan, Zafer-Meshel, Araz-Alov-Sharq, Asiman-Shafaq Azerbaijan 2.7 tcm Post-2023 Kurdistan Iraq? bcm/y near to medium-term Akkas Iraq 59.4 bcm (GOI) 5-10 bcm/y long-term Galkynysh Turkmenistan Up to 26.2 tcm (gas in place) bcm/y by Dauletabad Turkmenistan 1 tcm 30 bcm/y with E-W pipeline Offshore Block 1 Turkmenistan 180 bcm 10 bcm/y by Source: Methinks Ltd.

19 Bulgaria & Slovakia s Eustream: Nabucco West & Eastring 19 4 Mar 2015: Azerbaijan President Aliyev & Bulgarian PM Borisov discuss Nabucco West revival. Eustream: bcm/y bi-directional line. 570 kms; 750m. Utilise existing Ukrainian Soyuz loop to Romania.

20 Pipelines in Southeast Europe: Developed, under development, or proposed 20

21 The SEEP Concept 21 In 2010, BP proposed the South East European Pipeline (SEEP). This was predicated on the possibility of using 10 bcm of the gas to be produced by the second stage of Azerbaijan s giant Shah Deniz gas project to supply markets in the Balkans, potentially averting the need to construct an initial system all the way to Italy or Austria. Although commonly portrayed as if it were a detailed project, it was essentially a concept. At the time, (see subsequent slides) there was a case for saying that regional demand might well be able to use this gas. However, subsequently, it seems reasonable to revise Balkan demand estimates downwards because the region s two biggest consumers, Greece and Romania, may now require much less gas than previously expected. This is because Greece is suffering from recession and persistent financial crisis while a major gas discovery in the Black Sea off Romania in March 2012 has the potential to end Romania s need to import gas. The SEEP concept envisaged a melange of existing pipelines, upgraded pipelines, new interconnectors and some wholly new mainstream pipeline coming together to constitute a coherent system for supply to prospective customers in the Balkans. It might be worth talking a look at some of the SEEP ideas to see how relevant they are in 2015.

22 The SEEP Concept: 2011/12 - and 2020? Source: GDF Suez, Dec Nabucco west (RWE s route) South Stream Nabucco west (regular route to Baumgarten) SEEP SE Europe Pipeline 63bcm Shah Deniz II 10bcm SCP (South Caucasian Pipeline) (Absheron) TANAP (Trans Anatolian Pipeline) 16bcm 10bcm TAP 10bcm BOTAS network upgrade 6bcm for local consumption Existing East Mediterranean Pipeline 8-16bcm

23 South East Europe and Turkey: Additional Gas Needs Total: 10 bcm < 2 bcm 2 bcm < X < 5 bcm 5 bcm < X < 10 bcm bcm < X < 20 bcm bcm < X 1.2 No need Total: 26 bcm Total: 46 bcm Total: 62 bcm Source: GDF Dec 2012

24 Questions? 24 John Roberts Energy Security Specialist Methinks Ltd New Mill House Jedburgh TD8 6TH Scotland UK Tel: (home) (mobile)

25 Ukraine s EEZ and South Stream Black Sea Routes Source: East European Gas Analysis