DELIVERING ENERGY SECURITY TO EUROPE AND BEYOND Konstantin Simonov Athens May , 2009

Economic Crisis : Short Term Respite Economic Crisis will reduce the consumption of fossil fuel – but only in 2009-2010 Three main reasons of future “energy starvation” Population growth Reducing of investment to upstream in turning-point - when there is a special need in its increasing Toughening of environmental challenges

Economic Crisis will reduce the consumption of fossil fuel – but only in 2009-2010

Three main reasons of future “energy starvation”

Population growth

Reducing of investment to upstream in turning-point - when there is a special need in its increasing

Toughening of environmental challenges

W ho will L augh L ast ? 2008 – happy suppliers 2009 – happy consumers 2015 - ??? Gas export from Russia during January-April was decreased by 53,3%

2008 – happy suppliers

2009 – happy consumers

2015 - ???

Impacts of Crisis on Energy Production Reducing of investment to greenfields: they are profitable at $ 75 per barrel ( shelf or bituminous sand in Canada ) + d epletion of main world fields Alternative energy generation is in trouble (e.g. bankruptcy of some ethanol producers in Brazil) Possible radical change of the situation on oil and gas market: from market of consumers to market of suppliers. Growing consumption – declining production

Reducing of investment to greenfields: they are profitable at $ 75 per barrel ( shelf or bituminous sand in Canada ) + d epletion of main world fields

Alternative energy generation is in trouble

(e.g. bankruptcy of some ethanol producers in Brazil)

Possible radical change of the situation on oil and gas market: from market of consumers to market of suppliers. Growing consumption – declining production

Cheap Oil = Lack of Investment 2010? 2011? Demand for oil and gas will recurs. At the same time we will face the depletion of old fields while new ones are undeveloped

Two Energy Poles

Two Energy Poles

“ Crusade” for Recourses Europe, China and India: the worst situation The most dramatic situation is with gas. Gas vs. oil : better environmental internals, less serious producers Struggle for the same territories: Central Asia, Russia, Iran, Africa Europe: main threat is the decline of domestic production China and India: main threat is the increasing of domestic consumption

Europe, China and India: the worst situation

The most dramatic situation is with gas. Gas vs. oil : better environmental internals, less serious producers

Struggle for the same territories: Central Asia, Russia, Iran, Africa

Europe: main threat is the decline of domestic production

China and India: main threat is the increasing of domestic consumption

Central Asia as a Battle Field Gas pipeline from Turkmenistan to China ( Central Asian Gas Pipeline) : capacity was raised from 30 billion to 40 billion cubic metres. Operation at full capacity will be ensured by the end of 2013. 17 billion cubic metres Ashgabat guaranteed to China from the Malay field - today’s resource base of gas export to Europe through Russia

Gas Suppliers to Europe

“ Gas Starvation” Europe : 20-20-20 program is initially unrealizable . Gas production in Norway dropped by over 10 bcm . In 2015 Norway will reach plateau production. Northern Africa can increase supply by 30- 40 bcm by 2015 maximum . Iran – big political risks. Central Asia – competition with China

Europe : 20-20-20 program is initially unrealizable . Gas production in Norway dropped by over 10 bcm . In 2015 Norway will reach plateau production. Northern Africa can increase supply by 30- 40 bcm by 2015 maximum . Iran – big political risks. Central Asia – competition with China

Nabucco will not Save Europe Nabucco is just 30 bcm by 2 013 at best Europe suggests that reciprocal influence should be replaced with competition thinking that the latter is more important . But competition can only increase the price Competition is real on the oil market but not on the gas market . The situation with gas will be more complicated

Nabucco is just 30 bcm by 2 013 at best

Europe suggests that reciprocal influence should be replaced with competition thinking that the latter is more important . But competition can only increase the price

Competition is real on the oil market but not on the gas market . The situation with gas will be more complicated

Problems of the Liberalisation of the EU Gas Market The European Commission and the European Parliament are working on is exactly the liberalisation of the EU gas market ( Third Legislative Package) EC is thinking that the main task is liberalization of access to gas transport infrastructure If your commodity is competitive the liberalisation is not something to be afraid of In connection with the crisis, Europe has got a respite: gas consumption can fall by 7-10% this year. Strategically, however, the problem of gas supplies remains

The European Commission and the European Parliament are working on is exactly the liberalisation of the EU gas market ( Third Legislative Package)

EC is thinking that the main task is liberalization of access to gas transport infrastructure

If your commodity is competitive the liberalisation is not something to be afraid of

In connection with the crisis, Europe has got a respite: gas consumption can fall by 7-10% this year. Strategically, however, the problem of gas supplies remains

Responsibility of Suppliers Best guarantees from the suppliers – high level of production Diversification of markets as an answer to diversification of supply Russia between Europe and China

Best guarantees from the suppliers – high level of production

Diversification of markets as an answer to diversification of supply

Russia between Europe and China

Europe or China? Russia can export oil to China only by railroad now But Russia signed 20 year contract on supplies of 300 m tons of oil through a new oil pipeline 2008: decline in oil production by 0.57% decline in oil export by 6.5% Energy minister Sergey Shmatko believes an 8% decline in oil production is a possible scenario Diversification of markets = Gradual escaping form European market

Russia can export oil to China only by railroad now

But Russia signed 20 year contract on supplies of 300 m tons of oil through a new oil pipeline

2008: decline in oil production by 0.57% decline in oil export by 6.5%

Energy minister Sergey Shmatko believes an 8% decline in oil production is a possible scenario

Diversification of markets =

Gradual escaping form European market

Thank you! www.energystate.ru

Thank you!

www.energystate.ru