3Edmar-congresso-boliviano2011

8/12/2019 3Edmar-congresso-boliviano2011

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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


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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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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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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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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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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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NATURAL GAS PRICE IN THE INTERNATIONALMARKET (US /MMBtu)

Source: Ministry of Mines and Energy Brazil and Petrobras


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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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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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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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EVOLUTION OF TRADED VOLUMES AT CONTINENTALEUROPEAN GAS HUBS (2003-2009

Source: IEA WEO 2010


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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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NATURAL GAS SUPPLY TO EUROPE Large

dependence on 3

suppliers:Russia, Algeria

and Norway

Predominance of

oil-linkedcontracts


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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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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.


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Source: IUK Website

BACTON ZEEBRUGGE INTERCONNECTOR FLOWSOCTOBER 2009 OCTOBER 2010


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GERMAN OIL-LINKED CONTRACT ANDBORDER PRICES AND NBP PRICES(EURO/MWH)


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DAY AHEAD PRICES FOR NBP, NCG, TTF ANDZEEBRUGGE, JAN 2010-JAN 2011 (Euro/MWh)


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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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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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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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[email protected]

www.gee.ie.ufrj.br

Thank you!

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