Gas Insecurity: A Figment of the Imagination? Peter Davies. Chief Economist, BP EPRG. Cambridge. 19 May, 2006
BP 2006 2 Gas Security What is it? Does the UK have it? What is going to change? What can we do about it?
Energy Security Consumers Resources Available Reliable Producers Markets Affordable Price Fair Sustainable Clean Climate Footprint BP 2006 3
BP 2006 4 Gas Security Gas security is the availability of reliable supplies at a reasonable price in a sustainable manner
Reliability National Grid Gas Balancing Alert History Source: National Grid Gas Day 24-Mar-2006 23-Mar-2006 22-Mar-2006 21-Mar-2006 20-Mar-2006 19-Mar-2006 18-Mar-2006 17-Mar-2006 16-Mar-2006 15-Mar-2006 14-Mar-2006 13-Mar-2006 13-Mar-2006 12-Mar-2006 11-Mar-2006 10-Mar-2006 09-Mar-2006 08-Mar-2006 07-Mar-2006 06-Mar-2006 05-Mar-2006 Update Timestamp Description 23/03/2006 13:10 NONE 22/03/2006 13:17 NONE 21/03/2006 13:08 NONE 20/03/2006 13:15 NONE 19/03/2006 13:18 NONE 18/03/2006 13:22 NONE 17/03/2006 14:10 NONE 16/03/2006 13:20 NONE 15/03/2006 13:45 NONE 14/03/2006 13:15 NONE 13/03/2006 13:14 NONE 13/03/2006 00:08 ALERT 12/03/2006 13:32 NONE 11/03/2006 13:15 NONE 10/03/2006 13:14 NONE 09/03/2006 13:17 NONE 08/03/2006 14:09 NONE 07/03/2006 14:02 NONE 06/03/2006 16:06 NONE 05/03/2006 13:12 NONE 04/03/2006 13:20 NONE BP 2006 5
Reasonable Prices? 200 180 160 140 120 100 80 60 40 20 0 BP 2006 6 2006 NBP Platts 24hr/Day Ahead p/therm 1997 1998 1999 2000 2001 2002 2003 2004 2005
Reasonable Prices? 35 30 25 20 15 10 5 0 BP 2006 7 2006 UK NBP vs. US Henry Hub NBP HH US$/mmbtu 1997 1998 1999 2000 2001 2002 2003 2004 2005
BP 2006 8 Sustainability Clean Low CO 2 No significant production or transportation externalities
BP 2006 9 Future Gas Security What does the market think?
Natural Gas: Henry Hub vs NBP $/mmbtu 26 Actual 24 22 20 18 16 14 12 Henry Hub 10 8 6 4 NBP 2 0 BP 2006 10 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Futures
BP 2006 11 Future Gas Security What does the market think? What is changing?
UK Gas Supply and Demand Bcm/y 120 100 80 Production Consumption Net Exports Consumption Production 60 40 20 0-20 1970 1976 1982 1988 1994 2000 Net Exports Source: BP Statistical Review of World Energy 2005 BP 2006 12
New Pipeline Import Capacity Interconnector Expansions Balgzand-Bacton (BBL) Ormen Lange BP 2006 13
LNG Import Terminals Dragon & South Hook LNG Terminals Milford Haven Isle of Grain LNG Terminal in Kent BP 2006 14
BP 2006 15 Global LNG Growth LNG volumes (mtpa) existing, in development, probable and speculative 600 500 400 300 200 100 0 Expected total LNG 2005 2007 2009 2011 2013 2015 2017 2019 Russia Norway Peru Bolivia Venezuela Trinidad Angola Guinea Nigeria Algeria Libya Egypt Yemen UAE Oman Iran Qatar Malaysia Indonesia Brunei Australia US
BP 2006 16 Future Gas Security What does the market think? What is changing? What could happen?
BP 2006 17 Continental European Gas Liberalisation Sweden Norway Finland Portugal Ireland Spain United Kingdom Andorra Denmark Netherlands Poland Belgium Germany Luxembourg Czech Republic Slovak Republic France Switzerland Austria Hungary Romania Slovania Croatia Yugoslavia Bosnia and Hercegovina Bulgaria Italy Macedonia Albania Greece Cyprus Malta
Catastrophic Risks RussiaRussia Ukraine Accident Nature Interruption Terrorism BP 2006 18
UK Natural Gas Storage Mcm 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Rough Medium Range Storage Short Range Storage May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 BP 2006 19
BP 2006 20 Policy Options Fuel choice interventionism nuclear, renewables EU policy Storage: Mandatory storage Capacity market Long term contracts
BP 2006 21 Conclusions The UK has had gas security Imports will rise but import capacity will rise even more International gas market developments to support UK security even though the depth of EU liberalisation remains uncertain UK gas security should be maintained but catastrophic interruptions pose a risk, as they do to all energy markets Gas storage can provide some insurance, at a cost. Debate over strategic storage is valid.
UK net exports and gas in storage Mcm 5,000 4,000 3,000 2,000 1,000 0-1,000-2,000-3,000-4,000 1Q00 3Q00 1Q01 3Q01 1Q02 Net exports (MCM) Gas in Storage 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 BP 2006 22
Feb-06 Oct-05 BP 2006 23 UK Interconnector Flows Million cubic meters/d 60 Monthly maximum export capacity 40 20 0 Jun-05 Feb-05 Oct-04 Jun-04 Feb-04 Oct-03 Jun-03 Feb-03 Oct-02 Jun-02 Feb-02 Oct-01-20 Monthly maximum import capacity (expanded in December 2005) -40
Isle of Grain send-out McM/d 20 16 12 8 4 0 Jul- 05 Aug- 05 Sep- 05 Oct- 05 Nov- 05 Dec- 05 Jan- 06 Feb- 06 Mar- 06 Apr- 06 BP 2006 24
Total UK gas in storage Mcm 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2000 2001 2002 2003 2004 2005 2006 BP 2006 25 January February March April May June July August September October November December
BP 2006 26 UK future gas prices 2006 p/therm 100 90 2 Jan 1 Feb 1 Mar 3 Apr 1 May April May 80 70 60 50 40 January February March 30 Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Fan Feb
UK gas import capacity expansion Project Capacity As % 2005 consumption Date status Isle of Grain phase II Interconnector import capacity (phase II) Bacton Balgzand interconnector Increase from 12 to 38Mcm/d Increase to 66Mcm/d 9.1% 6.6% 9.4% 2008 Dec. 2006 Milford Haven Dragon LNG 16.5Mcm/d 5.8% 4Q2007 Milford Haven South Hook 29Mcm/d 10.1% 2007 Langeled Ormen Lange gas Up to 70Mcm/d 24.4% 2007/08 Statfjord late life gas project via FLAGS pipeline 27Mcm/d Dec.2006 14Mcm/d 4.9% 2007/08 Planning permission granted Under construction Under construction Under construction Under construction Under construction Under construction Total 202.5Mcm/d 61% Source: DTI, PIRA, Norsk Hydro and Statoil. BP 2006 27
BP 2006 28 UK planned gas storage capacity expansion Project Capacity Date status Humbly Grove 280Mcm Nov. 2005 complete Aldbrough storage 420Mcm 2007 Under construction Byley storage facility 170Mcm 2008 Welton storage facility 435Mcm 2007/08 Planning permission approved Planning application submitted Total 1,305 Mcm Source: DTI, Star energy.