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8/12/2019 3Edmar-congresso-boliviano2011
1/23
Energy Economics Group
NATURAL GAS PRICING: DRIVERS AND TRENDSEdmar de AlmeidaEnergy Economics Group
Federal University of Rio de Janeiro
Santa Cruz de la Sierra, Bolivia
24-25 August 2011
IV Congreso Boliviano de Gas yEnergia
8/12/2019 3Edmar-congresso-boliviano2011
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Energy Economics Group
ENERGY ECONOMICS GROUPWHO WE ARE
A research group dedicated toprofessional and academicresearch and training inEnergy Economics
Currently the group is formed
by 6 professors and about 20researchers
We are part of the Institute ofEconomics of the FederalUniversity of Rio de Janeiro
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Energy Economics Group
OUTLINE OF THE PRESENTATION Introduction
What were the expectations for NG pricingfive years ago?
Recent evolution of the natural gas pricing
Can Europe replace the US as the gas-to-gas
pricing reference?
NG pricing in the Southern Cone Consequences of the current uncertainties
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Energy Economics Group
INTRODUCTION Natural gas pricing has traditionally been very much
influenced by oil pricing due to:
Upstream activities are very much linked to the oil industryCompetition with oil products for the end market
Globalization of natural gas marketfreedom from
oil industryLNG: the globalization vector
Gas-to-gas competition independent pricing mechanisms
Gas price reference for international trade
Is natural gas globalization possible without the US?
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Energy Economics Group
WHAT WERE THE EXPECTATIONS FOR NGPRICING 5 YEARS AGO
Prof. Dr. Christian von Hirschhausen (Flame 2005)Globalization of natural gas markets is likely to lead to price
convergence, future European gas prices may be set at theHenry Hub
The first Interconnector has lead to full convergencebetween the prices at NBP and Zeebrugge
Henry Hub would be a growing reference for the LNGinternational trade:
American LNG imports would export the Henry Hubreference
Several international contracts outside the US used HH as aprice reference
Lots of contracts were signed assuming a convergencebetween HH and NBP
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Energy Economics Group
NATURAL GAS PRICE IN THE INTERNATIONALMARKET (US /MMBtu)
0
5
10
15
20
25
jan/02
abr/0
2jul
/02
out/0
2jan
/03
abr/0
3jul
/03
out/0
3jan
/04
abr/0
4jul
/04
out/0
4jan
/05
abr/0
5jul
/05
out/0
5jan
/06
abr/0
6jul
/06
out/0
6jan
/07
abr/0
7jul
/07
out/0
7jan
/08
abr/0
8jul
/08
out/0
8jan
/09
abr/0
9jul
/09
US
$/MmBtu
Henry-Hub WTI
Source: Ministry of Mines and Energy - Brazil
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Energy Economics Group
NATURAL GAS PRICE IN THE INTERNATIONALMARKET (US /MMBtu)
Source: Ministry of Mines and Energy Brazil and Petrobras
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Energy Economics Group
EVOLUTION OF HH AND NBP PRICES
Fonte: Bloomberg Abril/2011
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Grupo de Economia da Energia
EIA DOE NATURAL GAS PRICEFORECAST
Source: EIA - DOE
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Energy Economics Group
CAN EUROPE REPLACE THE US AS THE GAS-TO-GAS PRICING REFERENCE? /1
Differently from the US, Europe will need increasingLNG imports
Natural Gas Liberalization is complete in UK and isunder way in Continental EuropeSeveral hubs and trading centers are developing in the
continent. But still on their infancy.
NBP trades more gas than all continental hubs combined
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Grupo de Economia da Energia
MAIN EUROPEAN NATURAL GAS HUBS
Source: Stern 2011
NBP (1996): National Balancing
Point
ZEE (2000): Zeebrugge Hub TTF (2003): Title Transfer
Facility
NCG (2009): NetConnect
Germany
GPL (2009): GaspoolBalancing Services Hub
PSV (Italy-2003): Punto di
Scambio Virtuale
PEGs (2004): PointsdEchange de Gaz
CEGH (2005): Central
European Gas Hub
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Grupo de Economia da Energia
EVOLUTION OF TRADED VOLUMES AT CONTINENTALEUROPEAN GAS HUBS (2003-2009
Source: IEA WEO 2010
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Energy Economics Group
CAN EUROPE REPLACE THE US AS THE GAS-TO-GAS PRICING REFERENCE? /1
What are the challenges to furtherdevelopment of gas-to-gas competition in
Continental Europe?Large dependence on gas imports
Asymmetric natural gas liberalization process
Markets still very concentrated on nationalchampions (Edf, GDF-Suez, Eni, Enel, Eon, Rwe,Endesa Iberdrola, Vattenfall)
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Energy Economics Group
NATURAL GAS SUPPLY TO EUROPE Large
dependence on 3
suppliers:Russia, Algeria
and Norway
Predominance of
oil-linkedcontracts
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Energy Economics Group
CAN EUROPE REPLACE THE US AS THE GAS-TO-GAS PRICING REFERENCE? /2
The Gas Exporting Countries Forum (GECF) supports
oil indexing pricing
Fear of manipulationFear of the higher volatility of NBP and other hub prices
The European Association for Natural Gas Industry
(EUROGAS) states that most of their members arewilling to maintain oil-linked long-term contracts
They want to preserve the relationship with Russia, Algeriaand Norway
Negotiations are concentrated on the Price Review Clause
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Energy Economics Group
CAN EUROPE REPLACE THE US AS THE GAS-TO-GAS PRICING REFERENCE? /3
In the long term, European gas hub prices tend to
converge to the oil price
Flexibility on the oil-linked contracts allows for arbitragebetween NBP and the oil price
Infrastructure improvements are allowing bidirectional gasflows (east-west and west-east)
Gas-to-gas competition does not always mean cheapgas:
Lower hub prices reflects the situation of an oversuppliedmarket in Europe
As the spare capacity reduces in the LNG industry, hubprices can be higher than oil-linked gas.
8/12/2019 3Edmar-congresso-boliviano2011
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Energy Economics Group
Source: IUK Website
BACTON ZEEBRUGGE INTERCONNECTOR FLOWSOCTOBER 2009 OCTOBER 2010
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Energy Economics Group
GERMAN OIL-LINKED CONTRACT ANDBORDER PRICES AND NBP PRICES(EURO/MWH)
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Energy Economics Group
DAY AHEAD PRICES FOR NBP, NCG, TTF ANDZEEBRUGGE, JAN 2010-JAN 2011 (Euro/MWh)
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Grupo de Economia da Energia
NG PRICING IN THE SOUTHERN CONE The failed transition from Oil linked contracts
to Henry Hub
Petrobras contract to new thermal Power plants inBrazil
Henry hub is now the price reference to calculatethe variable costs for the thermal power plants in
BrazilPeruvian long therm LNG contract to Mexico
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Grupo de Economia da Energia
EVOLUTION OF NATURAL GAS PRICES: HENRY HUB ANDBRAZIL
Source: Own elaboration based on MME data
0
2
4
6
8
10
12
14
16
Jan-02
May-0
2
Sep-02
Jan-03
May-0
3
Sep-03
Jan-04
May-0
4
Sep-04
Jan-05
May-0
5
Sep-05
Jan-06
May-0
6
Sep-06
Jan-07
May-0
7
Sep-07
Jan-08
May-0
8
Sep-08
Jan-09
May-0
9
Sep-09
Jan-10
May-1
0
Sep-10
Jan-11
US
$/MmBtu
Preo Gs Boliviano Preo Gs Domstico PPT Henry-Hub
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Energy Economics Group
CONCLUDING REMARKS The uncertainty on NG prices is expected to persist
Independence of natural gas market from oil prices
still far in the horizon
The increasing uncertainty on the GN prices can
affect the pace of investment in the gas industry
Companies and governments have to learn to survive
with this uncertain environment
Hedging assumes a very strategic role
Negotiation should focus on how to share the price risk along
the gas chain
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Energy Economics Group
Edmar@ie.ufrj.br
www.gee.ie.ufrj.br
Thank you!
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