Future evolution of the liberalised European gas market: Simulation results with a dynamic model

Strategic behaviour by gas producers is likely to affect future gas prices and investments in the European Union (EU). To analyse this issue, a computational game theoretic model is presented that is based on a recursive-dynamic formulation. This model addresses interactions among demand, supply, pipeline and liquefied natural gas (LNG) transport, storage and investments in the natural gas market over the period 2005–2030. Three market scenarios are formulated to study the impact of producer market power. In addition, tradeoffs among investments in pipelines, LNG liquefaction and regasification facilities, and storage are explored. The model runs indicate that LNG can effectively compete with pipelines in the near future. Further, significant decreases in Cournot prices between 2005 and 2010 indicate that near-term investments in EU gas transport capacity are likely to diminish market power by making markets more accessible.     

Future European gas supply in the resource triangle of the Former Soviet Union,the Middle East and Northern Africa

A steady increase of natural gas demand can be observed in Europe over the last decades. Due to the European obligation to reduce greenhouse gas emissions in the framework of the Kyoto Protocol, the trend toward natural gas is expected to continue in the future. The increased consumption is faced by comparably low indigenous gas resources within Europe, so that the dependency of Europe on gas imports from abroad will rise in the future. In addition to the existing supply sources Russia and Algeria, gas resources from the Middle East and the Caspian and the Central Asian regions may be supply options to cover Europe's gas demand in the future. Against this background, possible natural gas supply options as well as the transport infrastructure to and within Europe are discussed regarding their technical capacity and their costs. With the help of a cost-minimization model of the European gas supply system, the gas flows and the infrastructure capacity development up to the year 2030 are analyzed. In a sensitivity analysis, the impacts of demand variations on the choice of supply sources are studied.     

Identification of congestion and valuation of transport infrastructures in the European natural gas market

Rising import dependency, increasing market liberalization and cross-border trade and security of supply fears facilitate investments in natural gas supply infrastructures in Europe. In order to ensure an efficient allocation of capital resources, it is important to identify congestion in the existing system and investment requirements based on economic principles. This paper first outlines an analytical framework for the identification of bottlenecks and the evaluation of transport capacities and the cost of congestion based on nodal prices. Secondly, an infrastructure model of the European gas market with high temporal and spatial granularity which exhibits the characteristics of the theoretical model is introduced. Parameterizing the model with the existing infrastructure and applying a demand and supply scenario for the year 2015, congestion mark-ups between countries in Europe are estimated. This approach indicates potential bottlenecks which might arise within the next five years and quantifies their economic costs. With only some temporary congestion, physical market integration is found to be high in Western Europe. In Eastern Europe, severe bottlenecks are identified and discussed. Implications for efficient investment decisions arising from the findings are examined in the context of the theoretical considerations.     

Hydrogen supply chain scenarios for the decarbonisation of a German multi-modal energy system

Analysing hydrogen supply chains is of utmost importance to adequately understand future energy systems with a high degree of sector coupling. Here, a multi-modal energy system model is set up as linear programme incorporating electricity, natural gas as well as hydrogen transportation options for Germany in 2050. Further, different hydrogen import routes and optimised inland electrolysis are included. In a sensitivity analysis, hydrogen demands are varied to cover uncertainties and to provide scenarios for future requirements of a hydrogen supply and transportation infrastructure. 80% of the overall hydrogen demand of 150 TWh/a emerge in Northern Germany due to optimised electrolyser locations and imports, which subsequently need to be transported southwards. Therefore, a central hydrogen pipeline connection from Schleswig-Holstein to the region of Darmstadt evolves already for moderate demands and appears to be a no-regret investment. Furthermore, a natural gas pipeline reassignment potential of 46% is identified.     

Shaking Dutch grounds won’t shatter the European gas market

The Netherlands have been a pivotal supplier in Western European natural gas markets in the last decades. Recent analyses show that the Netherlands would play an important role in replacing Russian supplies in Germany and France in case of a Russian export disruption. Lately, however, the Netherlands have suffered from a series of earthquakes that are related to the natural gas production in the major Groningen field. By consequence, natural gas production rates – that are politically mandated in the Netherlands – have been substantially reduced, by almost 45% in 2015 compared to 2013-levels. We implement this reduced production path for the next decades in the Global Gas Model and analyse the geopolitical impacts. We find that the diversification of European natural gas imports allows spreading the replacement of Dutch natural gas over many alternative sources, with diverse pipeline and LNG supplies. There will be hardly any price or demand reduction effect. Even if Russia fails to supply Europe, the additional impact of the lower Dutch production is moderate. Hence, the European consumers need not to worry about the declining Dutch natural gas production and their security of supplies.     

All quiet on the eastern front? Disruption scenarios of Russian natural gas supply to Europe

The 2014 Russian–Ukrainian crisis reignited European concerns about natural gas supply security recalling the experiences of 2006 and 2009. However, the European supply situation, regulation and infrastructure have changed, with better diversified import sources, EU member states being better connected and a common regulation on the security of supply has been introduced. Nevertheless, European dependency on natural gas remained high. This paper investigates different Russian natural gas export disruptions scenarios and analyses short- and long-term reactions in Europe. We use the Global Gas Model (GGM), a large-scale mixed complementarity representation of the natural gas sector with a high level of technical granularity with respect to storage and transportation infrastructure. While we find that most of the EU member states are not severely affected by Russian disruptions, some East European countries are very vulnerable. Prioritizing the removal of infrastructure bottlenecks is critical for securing a sufficient natural gas supply to all EU member states.     

The prospects for liquefied natural gas development in the US

The objective of our paper is to analyze the prospects for LNG development in the US. In particular, we discuss LNG investment projects with respect to natural gas supply and demand, existing transmission infrastructure, and competing pipeline projects. At the same time potential competition between natural gas and coal in power generation is taken into account. We conclude that in the mid-term, LNG will assume an essential role in meeting US demand because of stagnating and declining domestic production in North America accompanied by an expected increase in demand for natural gas. Additional net imports will be required in the western US (mainly southern California), the Southeast, and in the Northeast—three areas of the nation that lack adequate supply. When accounting for the current status of existing natural gas infrastructure and forthcoming investments, we conclude that there should be little concern about sufficient investment incentives and supply security in the US competitive natural gas market.     

Vulnerability to terrorist attacks in European electricity decarbonisation scenarios: Comparing renewable electricity imports to gas imports

The decarbonised future European electricity system must remain secure: reliable electricity supply is a prerequisite for the functioning of modern society. Scenarios like Desertec, which partially rely on solar power imports from the Middle East and North Africa, may be attractive for decarbonisation, but raise concerns about terrorists interrupting supply by attacking the long, unprotected transmission lines in the Sahara. In this paper, I develop new methods and assess the European vulnerability to terrorist attacks in the Desertec scenario. I compare this to the vulnerability of today's system and a decarbonisation scenario in which Europe relies on gas imports for electricity generation. I show that the vulnerability of both gas and electricity imports is low, but electricity imports are more vulnerable than gas imports, due to their technical characteristics. Gas outages (and, potentially, resulting blackouts) are the very unlikely consequence even of very high-number attacks against the gas import system, whereas short blackouts are the potential consequence of a few attacks against the import electricity lines. As the impacts of all except extreme attacks are limited, terrorists cannot attack energy infrastructure and cause spectacular, fear-creating outages. Both gas and electricity import infrastructure are thus unattractive and unlikely terrorist targets.     

Scenarios for Russia's natural gas exports to 2050

Russia is an important energy supplier as it holds the world's largest natural gas reserves and it is the world's largest exporter of natural gas. Despite a recent reduction in Russia's exports to Europe, it plans to build new pipelines. We explore the long-term (up to 2050) scenarios of Russian natural gas exports to Europe and Asia using the MIT Emissions Prediction and Policy Analysis (EPPA) model, a computable general equilibrium model of the world economy. We found that over the next 20–40 years natural gas can still play a substantial role in Russian exports and there are substantial reserves to support a development of the gas-oriented energy system both in Russia and in its current and potential gas importers. Based on the considered scenarios, Russia does not need any new pipeline capacity to the EU unless it wants to diversify its export routes to supply the EU without any gas transit via Ukraine and Belarus. Asian markets are attractive to Russian gas and substantial volumes may be exported there. Relatively cheap shale gas in China may sufficiently alter the prospects of Russian gas, especially in Asian markets. In the Reference scenario, exports of natural gas grow from Russia's current 7 Tcf to 11–12 Tcf in 2030 and 13–14 Tcf in 2050. Alternative scenarios provide a wider range of projections, with a share of Russian gas exports shipped to Asian markets rising to more than 30% by 2030 and almost 50% in 2050. Europe's reliance on LNG imports increases, while it still maintains sizable imports from Russia.     

Strategic Eurasian natural gas market model for energy security and policy analysis: Formulation and application to South Stream

The mathematical formulation of a strategic Eurasian natural gas market model is presented. The model represents horizontal oligopolistic relationships among producers, bilateral market power between producer (Russia) and transit (Ukraine) countries, detailed transport constraints, and operation decisions over a 20 year time horizon. To demonstrate the model's capabilities, a financial and market analysis of the proposed South Stream gas pipeline from Russia via the Black Sea to South Europe is summarized. Insights obtained include the following. First, expectations of high demand growth in Europe and/or transit risks do not justify the construction of the South Stream pipeline because under all demand and Ukraine transit interruption scenarios, the net benefits to the South Stream participants are negative (the NPV ranges from − $1.9 billion (bn) to − $7.4 bn). Second, Ukraine's perception of high transit market power vis-à-vis Russia may trigger the construction of the otherwise unprofitable South Stream project. Thus, under Ukraine's high transit market power scenario, the NPV of South Stream ranges between $2.4 bn and $24.5 bn. Third, we find that the South Stream investment increases the efficiency of the European gas market under the following conditions: (i) when gas demand in Europe grows 2% per year up to 2030, (ii) when Ukraine poses high transit market power, or (iii) under a combination of severe transit risks through Ukraine and low demand scenarios in Europe. It should be noted that the value of South Stream to both its project sponsors and the market as a whole is much higher when Ukraine exercises transit market power than under the high demand scenario. Therefore, whether Ukraine is likely to wield market power is crucial to the success of the South Stream project because that is the only scenario in which the project yields both a positive expected NPV to its sponsors and the highest value to the market as a whole.     

Indicators of security of natural gas supply in Asia

Natural gas has become an increasingly valuable resource and a global commodity. The demand for it has significantly increased. Japan, Korea and Taiwan heavily rely on liquefied natural gas (LNG) imports for their gas supplies from Malaysia, Brunei, Indonesia, Australia and the Middle East. On the other hand, countries like Thailand and Singapore import gas via trans-border pipelines. Gas supply interruptions, volatile gas prices, transportation and distribution bottlenecks, and a growing reliance on imports over longer distances have renewed interest on gas security in Asia. This paper examines the relative vulnerability to natural gas supply disruptions of seven gas-importing countries in Asia for year 2008. Based on four indicators of security of gas supply, a composite gas supply security index is estimated as an overall indication of gas vulnerability for our sample countries. The results demonstrate that there are differences in the values of the overall indicator of gas vulnerability among countries and the assessment is useful in developing an effective strategy of natural gas supply security in countries in the Asian region.     

Opening address: The world gas situation

Worldwide demand and supply of natural gas may rise substantially between the years 1982 and 2000, but the rate of increase will decelerate after 1990. The rapid growth of potential demand in the first decade is expected to take place in the developing countries in particular. During this period, gas production potential will rise most rapidly in Eastern Europe (including the U.S.S.R.) and in the Third World countries of Latin America, Africa, the Middle East, and Asia. In the year which has passed since the Venice Conference, forecasts of future natural gas demand in Western Europe have been reduced from 300–350 × 10⁹ m³ (in the year 2000) to 270 × 10⁹ m³. This change has greatly diminished the expected need for gas imports into Western Europe. It has also had a positive effect on the reserve position, relative to anticipated demand, of the Netherlands, which now will consider making more gas available for Western European markets.     

Feasibility of hydrogen corridors between the EU and its neighbouring countries

The debate-taking place at present about a future European energy system focuses on hydrogen as a potential future energy carrier. Hydrogen corridors offer, among other things, the possibilities of coping with the energy resource limitations for hydrogen production in the EU25 and improving energy supply security. This study deals with the assessment of economically optimal hydrogen corridors between the EU25 and neighbouring countries using consistent hydrogen scenarios, cost and potential calculations, the identification of barriers and policy recommendations.The analysis shows that specific hydrogen corridors (e.g. Norway, Iceland) could play a role for supplying renewable hydrogen in or shortly after the introduction phase of hydrogen as an energy carrier in the EU. Subsequently, with an increasing demand for hydrogen in the EU25, other large-scale hydrogen corridors based on renewables constitute a very promising option from both the economic perspective as well as from the perspective of realizing a sustainable hydrogen supply. However, competing utilisation possibilities for renewable resources and the potentially increasing demand for hydrogen within the neighbouring countries themselves may limit this option. Hydrogen corridors based on fossil or nuclear feedstock are not promising because it is usually more beneficial to transport the feedstock or electricity itself instead of hydrogen.     

LNG development across Europe: Infrastructural and regulatory analysis

In this paper, a cross-section infrastructural and regulatory analysis of the European LNG sector is presented. The LNG chain is maintained as being a good tool to enlarge the number of natural gas exporters to Europe, adding in this way to competition and to the achievement of the targets of the liberalisation process, which is a decrease in price for final customers and security of supply. The main reason for this is to be identified in the minor specificity of the regasification-plant-related investment compared with pipeline transportation. As a matter of fact, as the infrastructural analysis will show, the construction of new LNG receiving terminals is likely to bring about an increase in the number of importers fostering competition among them and shrinking their margins among the value chain. In this context, regulation is meant to play a key role in promoting investments without hindering competition. Nevertheless it is questionable whether LNG will be able to introduce competition beyond the European border (that is among producers) according to the forecasted supply and demand balance that is leading to a seller's market in the upstream sector. In this case, a huger part of the rent would go to the exporters leaving minor scope for competition down the European border.     

European energy security: The future of Norwegian natural gas production

The European Union (EU) is expected to meet its future growing demand for natural gas by increased imports. In 2006, Norway had a 21% share of EU gas imports. The Norwegian government has communicated that Norwegian gas production will increase by 25–40% from today's level of about 99 billion cubic meters (bcm)/year. This article shows that only a 20–25% growth of Norwegian gas production is possible due to production from currently existing recoverable reserves and contingent resources. A high and a low production forecast for Norwegian gas production is presented. Norwegian gas production exported by pipeline peaks between 2015 and 2016, with minimum peak production in 2015 at 118 bcm/year and maximum peak production at 127 bcm/year in 2016. By 2030 the pipeline export levels are 94–78 bcm. Total Norwegian gas production peaks between 2015 and 2020, with peak production at 124–135 bcm/year. By 2030 the production is 96–115 bcm/year. The results show that there is a limited potential for increased gas exports from Norway to the EU and that Norwegian gas production is declining by 2030 in all scenarios. Annual Norwegian pipeline gas exports to the EU, by 2030, may even be 20 bcm lower than today's level.     

Energy projections — Oil,natural gas and coal in the USSR and Eastern Europe

There have been many projections of energy supply and demand for the USSR and Eastern Europe, but little agreement on future trends. In this article George Hoffman assembles a variety of published forecasts of Soviet and Eastern European energy production, consumption, imports and exports. This allows comparison of the available data sources and illustrates the range of estimates for gas, coal, oil and nuclear power. The author also outlines the Soviet and Eastern European energy resource base and provides an extensive bibliography.     

The development of natural gas supply costs to Europe,the United States and Japan in a globalizing gas market—Model-based analysis until 2030

Quickly declining natural gas reserves in some parts of the world, increasing demand in today's major gas consuming regions, the emergence of new demand centres and the globalization of natural gas markets caused by the rising importance of liquefied natural gas (LNG) are changing global gas supply structures and will continue to do so over the next decades. Applying a global gas market model, we produce a forecast for global gas supply to 2030 and determine the supplier-specific long-run average costs of gas supplied to three major consuming regions. Results for the three regions are compared and analysed with a focus on costs, supply diversification and the different roles of LNG. We find that while European and Japanese external gas supply will be less diversified in international comparison, gas can be supplied at relatively low costs due to the regions’ favourable locations in geographic proximity to large gas producers. The US market's supply structure on the other hand will significantly change from its current situation. The growing dependency on LNG imports from around the world will lead to significantly higher supply costs but will also increase diversification as gas will originate from an increasing number of LNG exporting countries.     

Demand for seasonal gas storage in northwest Europe until 2030: Simulation results with a dynamic model

The fact that depletion of indigenous gas production increases gas import dependency is widely known and accepted. However, there is considerable less attention for the implications of indigenous resource depletion for the provision of seasonal flexibility. The traditionally largest source of seasonal flexibility in Europe is indigenous gas production, mainly based in the Netherlands and the United Kingdom. With the depletion of indigenous sources the market increasingly needs to rely on other sources for seasonal flexibility, such as gas storage facilities. We investigate the future need for gas storage as a source for seasonal flexibility provision using a dynamic gas market model (GASTALE) in which different potential sources for seasonal flexibility – gas production, imports via pipeline, LNG imports and storage facilities – compete with each other in a market-based environment. The inclusion of seasonal flexibility properties in a gas market model allows a more complex analysis of seasonal flexibility issues than previously documented in literature. This is demonstrated in an analysis of the future demand for gas storage in northwestern Europe until 2030. Our results indicate that there is substantial need for additional gas storage facilities and thus supports current project proposals for new investment in gas storage facilities.     

The political economy of trans-Pakistan gas pipeline project: assessing the political and economic risks for India

There is a growing realisation among Indian policy makers to consider the import of natural gas to address India's growing energy demand. Among many policy options to import natural gas, Indo-Iran overland pipeline option is considered to be effective and economical in addressing India's long-term energy demands. Such a pipeline would have to traverse Pakistani territory thereby necessitating a role for Pakistan in the pipeline project. Though security guarantees have been offered, India refuses to entertain the role of Pakistan in the project for a fear of its energy supply being disrupted in case of a military conflict with Pakistan. This paper argues that gas pipeline project is not only aimed at addressing India's energy concerns but also to further its strategic objectives. This paper contends that India, Iran and Pakistan do not have shared objective to make the overland project a political and commercial reality. India's stakes in the overland pipeline project are high as India's economic interests in the pipeline project are not in congruence with the politico-economic and strategic objectives of Iran and Pakistan.