Europe´S Energy Future: Natural Gas Supply Between Geopolitics and the Markets
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Europe´s Energy Future: Natural Gas Supply between Geopolitics and the Markets Work package I The future role of natural gas - Trends and projections for demand and supply in 2030 About IEP Since 1959, the Institut für Europäische Politik (IEP) has been active in the field of European integration as a non-profit organisation. It is one of Germany’s leading research institutes on foreign and European policy. The IEP works at the interface of academia, politics, administration, and civic education. In doing so, the IEP’s task include scientific analyses of problems surrounding European politics and integration, as well as promotion of the practical application of its research findings. www.iep-berlin.de Editorial Team Supervison: Prof. Dr. Mathias Jopp, Director, Institut für Europäische Politik Author: Manuel Mohr, he has worked as Research Associate at Institut für Europäische Politik. Scientific Support: Dr. Katrin Böttger, Deputy Director, Institut für Europäische Politik Severin Fischer, Research Associate, Institut für Europäische Politik Assistance: Carla Maria Sasse Layout: Matthias Jäger, Institut für Europäische Politik Generously supported by Statoil, Otto Wolff-Stiftung, The Royal Norwegian Ministry of Foreign Affairs. Europe´s Energy Future Energy Europe´s 2 Table of Contents Executive Summary 6 1 Introduction 7 2 The role of natural gas in the EU - status quo 8 3 Natural gas demand forecasts 13 3.1 Data composition and methodology 13 3.2 Factors influencing natural gas demand and main scenario assumptions 16 3.3 EU primary energy and gas demand scenarios to 2030 25 4 Natural gas supply forecasts 32 4.1 EU natural gas production and import requirements 32 4.2 The global distribution of resources and proven reserves 36 4.3 Production and export capacity forecasts for selected countries and regions 39 4.3.1 Russia, Norway and the Arctic 39 4.3.2 The Caspian Basin and Central Asia 44 4.3.3 The Middle East 49 4.3.4 North Africa and Nigeria 53 5 Conclusion 62 Europe´s Energy Future Energy Europe´s 3 List of Figures Figure 1: EU Gross Inland Consumption (2008) 8 Figure 2: Use of natural gas in the EU by sector (2007) 9 Figure 3: EU natural gas imports (2008) 10 Figure 4: PRIMES modular structure 14 Figure 5: World Energy Model structure 15 Figure 6: EU primary energy demand 27 Figure 7: OECD Europe primary energy demand 28 Figure 8: EU primary natural gas demand 29 Figure 9: OECD Europe natural gas demand 31 Figure 10: EU natural gas production 32 Figure 11: EU net natural gas imports 34 Figure 12: Proven natural gas reserves of current and potential future EU suppliers 37 Figure 13: Russia - natural gas production 41 Figure 14: Norway - natural gas production 43 Figure 15: Azerbaijan - natural gas production 46 Figure 16: Turkmenistan - natural gas production 48 Figure 17: Qatar - natural gas production 51 Figure 18: Iran - natural gas production 53 Figure 19: Algeria - natural gas production 55 Figure 20: Egypt - natural gas production 56 Figure 21: Libya - natural gas production 58 Figure 22: Nigeria - natural gas production 60 Table 1: Fossil fuel price assumption in various scenarios 20 Table 2: Factors influencing natural gas demand by sector 25 Table 3: Overview of basic scenario assumptions 26 Table 5: Global proved reserves and recoverable resources of natural gas 36 Europe´s Energy Future Energy Europe´s 4 List of Abbreviations AGP Arab Gas Pipeline AIOC Azerbaijan International Operating Company Bcm Billion cubic metres BP British Petroleum CARA Circum-Arctic Resource Appraisal CCGT Combined-Cycle Gas Turbine CCS Carbon Capture and Storage CERA Cambridge Energy Research Associates CHP Combined Heat and Power CIS Commonwealth of Independent States CO2 Carbon dioxide DG ENER Directorate-General for Energy EGAS Egyptian Natural Gas Holding Company EIA United States Energy Information Administration EU European Union EU ETS European Union Emissions Trading System EUROGAS European Union of the Natural Gas Industry GDP Gross Domestic Product GEM General Equilibrium Model GHG Greenhouse Gas GTL Gas-to-liquids GWOB Generate World Oil Balance IEA International Energy Agency IEO International Energy Outlook IMF International Monetary Fund INGM International Natural Gas Model LNG Liquefied Natural Gas Mtoe Million tonnes of oil equivalent NGVs Natural Gas Vehicles NNPC Nigerian National Petroleum Corporation OECD Organisation for Economic Co-operation and Development p.a. per annum RES Renewable Energy Sources SOCAR State Oil Company of Azerbaijan Republic Tcm Trillion cubic metres UAE United Arab Emirates UK United Kingdom UN United Nations US United States USGS United States Geological Survey WEM World Energy Model WEO World Energy Outlook WEPS+ World Energy Projections Plus Future Energy Europe´s 5 Executive Summary The European Union (EU) is the world’s second largest natural gas consumer market, with a natural gas demand of more than 550 bcm in 2009. Due to the fact that domestic gas production is relatively small, roughly 60 percent of the EU’s annual gas consumption must be satisfied by external suppliers. What is more, this import dependence is set to increase over the next few decades, as Europe’s own gas resources are depleting. The aim of this report is to draw a comprehensive picture of future developments in the EU natural gas market. It seeks to establish whether natural gas will play a significant role in the EU over the next two decades and, if so, from where the EU may obtain the required volumes. More specifically, the study asks: First, how will the EU’s demand for natural gas develop? Second, to what extent will domestic demand be covered by domestic production and how much gas will the EU need to import? And finally, which regions and individual countries will be in a position to supply the EU with the required amounts of natural gas? These questions are examined on the basis of natural gas demand and supply scenarios compiled by the International Energy Agency (IEA), the United States Energy Information Administration (EIA), the European Commission’s Directorate-General for Energy (DG ENER), the European Union of the Natural Gas Industry (Eurogas), and the consultancy firm Mott MacDonald. While the chapter following the introduction deals with the current role of natural gas in the EU, the two main chapters of the report shed light on the future development of EU natural gas demand and supply. The demand side analysis identifies five factors to be the main determinants of natural gas demand: EU GDP growth, fuel price developments, energy and climate policies, and technology. Of the scenarios considered in this report, the ones assuming high economic growth, limited deployment of low-carbon technologies and slack climate policies forecast EU gas demand to grow consistently over the next two decades. By contrast, the scenarios featuring ambitious RES policies, a recovery of nuclear energy and high CO2 and oil prices predict gas demand to decline substantially. Based on the scenario forecasts, this report estimates the EU’s natural gas demand to range between 470 and 650 bcm in 2030. The first question to be addressed in the supply side chapter, then, concerns the extent to which the EU will be able to cover such levels of consumption with domestically produced gas. The scenarios suggest that domestic production will stand at 70 to 100 bcm in 2030, thereby covering less than 20% of the EU’s projected gas consumption. Accordingly, the EU’s import requirements are likely to reach a level of 370 to 580 bcm by the end of the projection period. Against this background, the chapter examines selected regions and countries outside the EU with regard to their potential to supply the EU with the required amounts of gas. The report finds that Russia, Norway, Algeria, Azerbaijan, Turkmenistan, Qatar, and to a lesser extent Nigeria, are likely to serve as the EU’s main suppliers throughout the projection period. The production and export forecasts for these countries suggest that, when combined, they will be able to cover most of the EU’s projected additional import requirements. Europe´s Energy Future Energy Europe´s 6 1 Introduction The EU, with a domestic natural gas demand of more than 550 bcm in 2009, is the world’s second largest natural gas consumer market. As domestic production in the EU does not suffice to cover such high levels of demand, approximately 60 percent of the gas consumed each year has to be imported. Over the next few decades, the EU is expected to become even more dependent on external suppliers, as Europe’s own gas resources - located mainly in the North Sea region - are depleting. The aim of this report is to draw a comprehensive picture of future developments in the EU natural gas market. In the first part, the study therefore compares estimates of future EU natural gas demand; in the second part it turns to analyzing the gas supply potential of the EU and third countries. The central questions addressed in this study are: How will the EU’s demand for natural gas develop? To what extent will domestic demand be covered by domestic production? Meaning, what are the EU’s future import-requirements? And finally, which regions and individual countries will be in a position to supply the EU with sufficient amounts of natural gas? These questions are answered on the basis of a variety of statistical data-sets compiled by the International Energy Agency (IEA), the United States Energy Information Administration (EIA), and the European Commission’s Directorate General for Energy and Transport (DG TREN). Additionally, the report uses data-sets provided by the European Union of the Natural Gas Industry (Eurogas) and the consultancy firm Mott MacDonald, which comprise different scenarios forecasting future levels of natural gas demand and supply.