Committee on Industry, External Trade, Research and Energy Public Hearing on Security of Energy Supply European Parliament 29 April 2003 By Jean-Marie Devos Secretary General, Eurogas
Table of Content Introduction } A necessary dialogue } Importance of the issue } Eurogas a short overview } Some key facts about Security of Supply } The enlargement of the EU and the future context Part I - External conditions for ensuring Security of Supply } Diversity of sources } The next context for non EU supplies } Importance of politically stable and legally clear relations with major non EU production areas (Russia, Mediterranean countries, Norway, Part II - Internal conditions for ensuring Security of Supply } A positive investment climate and entrepreneurial flexibility must be ensured. } A well functioning market } Security of Supply issues should be the main responsibility of industry } Is there a need for a new legal instrument? } No centralistic economy Conclusions Executive summary 2
Introduction A necessary dialogue Importance of the issue natural gas is a major contributor to sustainable development and to security of energy supply in the enlarged single market; Natural gas industry has excellent records in ensuring secure and adapted supplies to markets. 3
Eurogas, membership and mission 16 Member countries of Eurogas 3 Associate members of Eurogas (Hungary, Slovakia and Turkey) 4
What is Eurogas, short overview Non profit international association; Established in 1990; Represents natural gas industry in Europe; Members are, for each country, the national gas industry federation and/or other organization representing a national gas supply industry interest; Membership open to European Union countries, to accession countries and other European countries (e.g. Switzerland). 5
The objectives of Eurogas To promote the scientific, economic, legal and technical development of the natural gas industry in Europe; To take a position on matters concerning the common interest of the European natural gas industry; To exchange information and views on natural gas industry issues of general interest; To promote sustainable development in its three dimensions. 6
Some key facts about Security of Supply } Natural Gas consumption trends (1991-2002) } Natural gas demand outlook by sector (2001-2020) } World reserves / Production ratios 7
400 350 300 250 200 150 100 50 0 Natural gas consumption in Europe 1991-2001 8 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 [ MTOE] CEEC EU15 17% 83%
Natural gas demand outlook by sector (EU 15) [MTOE] 500 400 300 200 100 0 2001 2005 2010 2015 2020 Other NGV CHP/Cogen./ Distr.Heat. Power Generation Industry Residential & Commercial 9
World Reserves / Production Ratios years World Reserves / Production Ratios, Gas vs Oil 70 60 50 40 30 20 NATURAL GAS OIL 10 0 1975 1985 1990 2000 SOURCE: BP 10
World Reserves Proved and probable gas reserves would enable natural gas use at present consumption rates for 170-200 years; At the end of 2002, proved gas reserves totalled more than 155.000 billion cubic meters. } Middle East + Asia : 64.480 } Russia : 47.000 } Far East : 12.270 } Africa : 11.180 } North America : 7.550 } Europe : 4.860 } South America : 7.160 11
What will be the new context? At the EU Level : Ongoing process of EU enlargement to Central and Eastern European countries having energy markets at different stages of development will have significant impact on internal market. Simultaneously opening of EU gas and electricity markets into one single market raises major challenges/opportunities for industry and consumers Number of market players extending over EU, including newcomers to the gas business will increase Strong expectations expressed by customers for lower prices and better services based on assumption that liberalisation will decrease prices to end users Industry to respond pro-actively versus authorities and stakeholders. Economic, technical, environmental excellence to be pursued. 12
Part I External conditions for ensuring Security of Supply Diversity of sources The next context for non EU supplies Importance of politically stable and legally clear relations with major non EU production areas (Russia, Mediterranean countries, Norway, 13
Sources of Natural Gas Supplies, 2001 (European Union) INDIGENOUS PRODUCTION 55% NET IMPORTS 45% NET IMPORTS BY SOURCE: NORWAY: 29.6% RUSSIA: 42.0% ALGERIA: 27.8% OTHERS: 0.6% 14
Supply capacities for Western Europe 2010-2020 (billion m³/year) Norway 100-120 EU Production 145 CIS 185-220 15-40 Centra Asia 5-10 15-20 Nigeria 85-115 Algeria 16-35 Libya 12-25 Egypt 25-60 Middle East Source : IEA 15
What will be the new context? At the Level of non EU suppliers : Gas exports represent significant currency resource for the State and/or national economy; Their share in EU supply in both absolute and relative terms will strongly increase in the future. Gas reserves are located mainly outside Europe; Large new investments are needed to develop new significant resources areas; Gas exporting States want to improve their economic standards, to develop private investment, and to set the background for a market economy; New grassroot projects are difficult to launch: political, legal and/or financial hurdles delay or even kill the majority of them. 16
External conditions for ensuring Security of Supply Experience reflects excellent records in security of supply to EU markets but some conditions are required; Importance of politically stable and legally clear relations with major non EU production areas (Russia, Mediterranean Countries, Norway, ); Authorities to support a business friendly climate; Long term contracts and spot markets have both a role to ensure stability and flexibility in security of supply; Direct link with investment and sustainable security of supply. 17
Part II Internal conditions for ensuring Security of Supply A positive investment climate and entrepreneurial flexibility must be ensured. A well functioning market Security of Supply issues should be the main responsibility of industry (number of instruments are applied by industry (e.g. supply flexibility, interruptible supplies for large consumers with switching capacity, storage and network management, etc.) Is there a need for a new legal instrument? No centralistic economy 18
Is there a need for a new legal instrument? Eurogas doe not see the need for a new formal legal instrument on security of supply A new instrument would lead to additional undue regulatory burden and mechanisms; A new instrument would affect the competitiveness of European Industry; No cost/benefit of the new proposal analysis has been made; The new single market directive provides a sufficient framework and contains several provisions on security of supply; A new instrument would contradict the good process and the declared intention of the Commission to reduce the overall regulatory burden affecting EU industry. 19
No big brother economy Industry is especially concerned by the risk of market and contracts interferences; Storage / stocks use by public authorities for economic reasons would contradict market functioning. 20
Conclusion The Natural Gas Industry is confident of meeting the challenges of growing gas demand in the enlarged single market provided some key conditions are fulfilled. Positive investment climate and sufficient entrepreneurial flexibility must be ensured. The adoption of the new EU Directive concerning common rules for the internal market will establish a new legal framework, which will be very demanding for economic actors, whilst offering new opportunities in a stable legal environment. However having considered the proposal of the European Commission on security of supply, industry is concerned that this new legislative instrument may bring additional undue regulatory burden and mechanisms therefore affecting the competitiveness of the European Industry. A continued and structured dialogue between Member States, the European Institutions and Industry on these issues should provide a sound basis for achieving our common strategic objective. 21
Gas Security of Supply Industry has proven track record in providing Security of Supply to the market; Gas Security of Supply accepted by all to be of high standard; Gas is the fuel of choice in competition with other fuels; Gas is needed to meet Kyoto targets. 22
Gas Security of Supply Security of supply has to be a shared responsibility among different market participants; Roles need to be well understood; Properly functioning markets will send the right price signals to all market participants enhancing Security of Supply; Commitment of gas production, supply and transport companies must remain based on their fundamental economic interest in competing with other fuels; Spot markets enhance allocation of gas; Long Term Contracts provide stable supplies. 23
Gas Security of Supply Eurogas agrees that Security of Supply is vital and functioning markets can deliver Security of Supply; Eurogas does not accept that on top of 98/30/EC revision, additional internal market legislation is necessary; The dynamics of the market and the positive effects on Security of Supply are underestimated. 24