It runs a comprehensive program of energy cooperation between twenty-six* of the OECD's thirty member countries. This study Security of gas supply in open markets: LNG and power at a turning point is the follow-up to The IEA Natural Gas Security Study published in 1995. Annexes included in a CD-Rom present the views of the main stakeholders (governments, regulators, industry, customers and other organisations).
This book is published under my leadership as Executive Director of the International Energy Agency. Outcome of a workshop with gas regulators on security of gas supply in liberalized markets, Paris, 27 June 2003.
Outcome of the Workshop with gas regulators on Security of gas supply in liberalised markets, Paris, 27 June 2003
Views of gas operators on security of gas supply
Views of large gas customers/associations of gas customers on security of gas supply
Views of other international and regional organisations/associations on security of gas supply
SECURITY OF GAS SUPPLY IN OPEN MARKETS: MAJOR ISSUES
However, dealing with the day-to-day running of the market is not the role of governments. It also raises the question of the consequences of uneven reforms in countries along the gas chain. North America: Open gas markets introduced in the 1980s were able to mobilize timely private investment to expand infrastructure and develop reserves.
These markets led to the development of liquid hubs and gas exchanges and to a more efficient use of the gas infrastructure. The opening of the UK gas market resulted in the establishment of the National Balancing Point (NBP), a floating (fictitious) marketplace where gas is traded on a daily basis.
RECOMMENDATIONS
Removing barriers to cross-border gas trade: confirm an international framework for long-term contracts and for upstream/downstream integration throughout the gas chain. Willingness to suspend exploration and production restrictions where possible to compensate for serious supply disruptions and readiness of a contingency plan to deal with the effects of serious supply disruptions. Promotion of back-up power generation capacity based on fuels other than imported gas (e.g. coal, nuclear power, heavy fuel oil) to bridge the long-term interruption of a major source of gas supply (e.g. by freezing old coal, power plants to fuel or allowing, if necessary, exemptions from greenhouse gas restrictions).
Ensure sufficient staff in national governments and international organizations to be able to handle the policy discussion on gas, independent of regulatory agencies;. Using the IEA as the coordinator and facilitator for IEA governments to exchange views and best practices on security of gas supply.
EXECUTIVE SUMMARY
Impact on the security of the gas supply due to the increasing use of gas for energy generation. The increased use of gas for energy generation has major implications for both the long-term external security of supply and the short-term reliability of the electricity and gas systems, because gas, when it enters the electricity sector, is the last fuel of choice. order, just ahead of oil products in peak factories. The increased use of gas in energy generation does not currently lead to problems with security of supply.
As import volumes increase, this monitoring should include the implications of new large import projects for security of gas supply. This study sought to incorporate the views of key stakeholders by organizing conferences and seminars on topics related to various aspects of gas supply security.
PART A
GLOBAL/GENERIC DEVELOPMENTS
OBJECTIVE AND SCOPE
The aim of this study is to look at the security of gas supply in open markets (which are close to OECD countries) and especially to assess the role of markets in ensuring a reliable and safe gas supply. It provides the IEA Secretariat's analysis of the latest developments in the security of gas supply in the three OECD regions in the context of open markets and in view of new trends in supply and demand. It provides policy recommendations on gas supply security for IEA policymakers and presents the regional and global challenges that governments and market players will face over the next thirty years.
IEA Workshop with Gas Regulators on Security of Gas Supply in Liberalized Markets, Paris, 27 June 2003. The IEA will continue to address security of gas supply by bringing together IEA governments and other stakeholders to share views and best practices on security of gas supply in open markets.
A CHANGED ROLE FOR
GOVERNMENTS AND CONTRACTS IN OPEN GAS MARKETS
Security of gas supply for the combined electricity/gas system due to the interconnection between gas and electricity (obligations for gas-fired electricity generators, if any, should be linked to the electricity security framework); and. Adequate security of gas supply for the overall economy in light of the potential damage to the economy of insufficient gas supplies (since natural gas consumption provides an economic advantage compared to the consumption of alternative fuels). It is the only indicator (although by no means a correct prediction) of the expected spot price of the commodity in the future.
About 15% of beach gas5 is sold directly on the wholesale spot market. An exit fee must be paid for taking gas from NBP. NBP supports a triple role in managing the gas business process in accordance with Transco's Network Code:6.
Futures prices are indicators of the price level in the future (though by no means the exact level). In the gas industry, they have been used successfully for many years to manage the long-term nature and high specificity of investments in all parts of the gas chain from exploration and production to the end customer. Alternatively, two consecutive parts of the chain can be integrated into one company or linked together with long-term contracts.
The transportation infrastructure was based on long-term sales contract revenue, with the gas price set at a level that would make it competitive in the buyers' market. A new feature was included in some of the UK's long-term export contracts for delivery to the mainland via the Interconnection. Experience in open markets shows that long-term contracts do not disappear with market liberalization, but will continue to be a fundamental part of the gas supply mix.
In the UK, about 85% of onshore gas is supplied under long-term contracts, as is about half of wholesale gas in the US. If the price is not tied to the use of the gas for electricity production, this will undermine the overall market.
THE NEW PATTERN OF GAS SUPPLY/DEMAND IN OECD
IMPACT OF THE POWER SECTOR
Opening the electricity and gas markets to competition and withdrawing restrictions on the use of gas for energy supply have given gas the opportunity to capture increasing shares of the energy market. It also addresses the issue of the link between gas security and electricity security, as well as the risks that gas prices will rise above those of gas oil in the short term. So far, the share of gas in the electricity mix is below 30% in most OECD countries and averages 18% (Table 3.2).
Although the outlook for gas consumption in the power sector is very promising, there are major uncertainties about the projected growth rate: .. i) Concerns about the development of gas prices;. In North America, current high gas prices may challenge the growth of gas in the power sector and may revive coal and nuclear power options. In all cases, on balance, the gas will be used predominantly in the power sector.
The indexation of oil products, which is justified for the other segments of gas consumption, may be inappropriate in the case of power plants. The increasing use of gas in the energy sector raises the question of the competitiveness of natural gas compared to other energy alternatives and whatnot. The increasing share of gas in the electricity mix leads to concerns about the consequences of the simultaneous occurrence of peak demand in both raw materials.
With the increased use of gas for electricity generation and the opening of the electricity grid to competition, the demand for gas for electricity generation becomes more price elastic in the short term, because the competitive electricity market offers short-term incentives to purchase gas or not. according to its price. The development of even more efficient gas turbines in the 1980s and 1990s made possible a spectacular growth in demand for gas in the energy sector. LNG storage is the largest single cost item in the regasification terminal (from 40 to more than 50% of total direct costs, depending on location).
THE ROLE OF LNG IN SECURITY OF GAS SUPPLY
Tractebel is also a partner in the Trinidad Atlantic LNG project and is developing a regasification terminal in the Bahamas (Bahamas LNG at Freeport). It is also involved in the Italian regasification terminal in Brindisi and is developing a new terminal project in the US (Keyspan LNG, Providence, RI). The Spanish company Repsolhas also developed an LNG strategy based on synergies in the Atlantic basin.
Statoil, which is developing the LNG Snøhvit project with customers on both sides of the Atlantic, has purchased a third long-term entry capacity at the Cove Point terminal in the US. Most of the LNG will go to the North American market and to importing countries in the region. Tanks with a storage capacity of around 200,000 cm³ – the largest achievable at the moment – currently have the optimal dimensions.
Cost reduction in the LNG chain (Middle East to Far East LNG project) ($/million Btu). While long-term contracts will remain dominant for the foreseeable future, spot sales (meaning short-term agreements or the sale of a cargo) are expected to take an increasing share. In 2003, the situation was reversed as prices in the US were more attractive than in Europe.
However, the recent increase in the LNG fleet (26 LNG tankers delivered in the last two years) has removed this bottleneck. A more flexible approach to and a wider range of prices is emerging in the LNG industry. However, since gas in electricity generation – the major consumer of gas in Japan – no longer competes with crude oil, Japanese buyers need more flexibility in volume and pricing.
We are witnessing changes in the traditional seller/buyer relationship and the replacement of the classic LNG model with a more sophisticated flexible commercial approach. Changes in the underlying economics of the LNG chain and the restructuring of the gas and electricity markets are affecting risk-reward arrangements.
