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December 2015/ Vol. 8/ Issue 6 – COP21 Special Edition
SBLUE PEC FUEL IAL EDI TIO N
Gazprom Export Global Newsletter December 2015/ Vol. 8/ Issue 6
The Evolution of Climate Change: What’s at Stake? Page 6
Fuelling Ambitious Climate Goals through NGVs Page 9
Transparency & Reactivity: The Winning Duo of Gazprom Energy in France Page 11
Gazprom Features Prominently at Gastech 2015 in Singapore Page 12
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BLUE FUEL Gazprom Export Global Newsletter
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In this issue December 2015/ Vol. 8/ Issue 6 To Our Readers..........................................................................................................4 A World without Natural Gas? Look at the Price Tag!..............................................5 The Evolution of Climate Change: What’s at Stake?................................................ 6 Enhancing Quality of Life by Reducing Emissions – Natural Gas and Urban Air Quality.............................................................................7 Fuelling Ambitious Climate Goals through NGVs......................................................9 40th Anniversary of First Contract for Gas Supplies to France.............................. 10 Transparency & Reactivity: The Winning Duo of Gazprom Energy in France............. 11 Gazprom Features Prominently at Gastech 2015 in Singapore............................. 12 GM&TS Sign LNG Supply Agreement with Pavilion Gas....................................... 14 Germany’s Energy Transition under Review.......................................................... 14 Gazprom Germania Acquires Four Natural Gas Filling Stations.............................16 Fuel of the Future from Serbia................................................................................ 16 LNG in the Global and European Gas Market......................................................... 18 SKODA AUTO Bets on CNG Technology................................................................ 19 Experts Predict NGV Boom in Central Europe ..................................................... 21 Small-Scale LNG – An Appropriate Solution for Archipelagos............................. 22 Protecting the LNG Value Chain through Proactive Risk Management................. 26 Gazprom Germania Supports Russian Language Competition............................ 28
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To Our Readers Until 11 December 2015 the world’s attention will be on Paris as the United Nations conference on climate change is underway. The French Presidency of COP21 has sent a powerful message by moving ahead with climate discussions in spite of the horrifying terrorist attacks in Paris a few weeks ago. Industry, and especially natural gas players, craves a certain degree of predictability. Most of the business decisions we make will indeed have long term consequences over the coming decades. Negotiators at COP21 should agree on a clear direction to achieve a low-carbon future, which, in turn, will help industry make the right investments. Incidentally, long-term forecasting is also one of the purposes of the World Energy Outlook published annually by the International Energy Agency (IEA). What are the main findings from the latest edition unveiled in November 2015? Economic and energy consumption growth are decoupling, mainly due to increased energy efficiency measures. India will soon take over from China as the main driver of global energy demand. Energy trade relations are also changing. By 2040, Asia will be burning 75% of the world’s oil production and 60% of natural gas. Global energy sector investment is expected to exceed $68 trillion from 2015 to 2040 (i.e. 37% in oil and gas supply, 29% in power supply and 32% in end-use efficiency).
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When it comes to natural gas, in the next 25 years, according to the IEA, global demand growth is set to increase by 47% led by Asia and the Middle East. Overall, Russia is likely to maintain its position as the largest natural gas exporter. Specifically in Asia, demand growth is expected to increase to approximately 400 bcm, some of it met by Russian pipeline exports to China which could near 250 bcm/year in 2040. Meanwhile, for Europe the IEA forecasts a continued reliance on secure and affordable Russian energy gas imports. Power generation will be the largest user of natural gas, while the fastest growth rate in consumption will take place in the transportation sector through CNG and LNG. On gas pricing, the IEA points out that oil indexation is unlikely to disappear from international gas trade, but will rather co-exist alongside spot pricing. This is a direction Gazprom is moving in as well. More importantly, and as forecasted by the IEA, the central role in the global energy mix that natural gas can play in the decades to come is precisely what will help achieve a low-carbon society that the COP21 negotiations are focused on. This conviction has led us to dedicate this edition of Blue Fuel to the role of natural gas in the global fight against climate change. We wish you an enjoyable read.
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December 2015/ Vol. 8/ Issue 6 – COP21 Special Edition
A World without Natural Gas? Look at the Price Tag! It sometimes feels that natural gas, as a fuel, is taken for granted. The cleanest of all fossil fuel, squeezed between dirty coal and the fanciful expense of renewable resources, natural gas is often assumed to be available for governments and consumers alike. Let’s, for a moment, take away natural gas as an energy resource - what might happen then?
Actually, “procurement” is not applicable in this case because the renewables unlike natural gas cannot be stored.
It is widely accepted that fossil fuels are here to stay for the immediate future. Even the ardent campaign group Greenpeace accepts that no switch away from fossil fuels will take place ‘over night’.
The fluidity and liquidity of global energy markets would stutter too. Shale gas discoveries and LNG deliveries? Nonexistent. Natural gas pipeline infrastructure projects, with all the investment opportunities they offer companies and the secure energy supplies for consumers they provide, are no longer opportunities to embrace.
In a world with no natural gas, dirty coal would move to take on greater prominence within the global energy mix. Take power generation in Europe alone, for example. Recent figures note that natural gas contributed to around 16% of power generation within the EU-28, whilst coal contributed to approximately 26.7%. With no natural gas available, coal would increase its share, as European countries seek to meet their growing energy demand. The effect would be more drastic on a global scale, where coal already accounts for about 40% of the world’s electricity generation. This figure would likely rise if natural gas, which today accounts for just over 20%, was not available. Inevitably, this would lead to an increase in CO2 emissions across the world. In fact, coal is responsible for up to 60% more CO2 emissions in comparison to gas when used for power generation. Without natural gas, governments would be handicapped in the attempt to meet global carbon targets within the low-carbon agenda. Crucial agreements, like those expected to be concluded during the Paris climate change talks (COP21), would simply not be viable. Take natural gas away, and it is not possible to proceed with the decarbonisation of the global economy, and negotiate low carbon solutions in a cost effective way. Governments and institutions would therefore face a choice. Of course, they cannot just ignore the effects of emissions’ surge and the subsequent impact on climate change. However, the world has no transition fuel to turn to, if natural gas was taken out of the equation. So what is the second option? Invest into renewable energy in an attempt to drive down emissions.
The reliability of global energy supplies would plummet as a result of a growing dependence on renewable energy in its present immature technological format.
It would be a very, very different world without natural gas.
So, with COP21 in mind and moving toward a global climate agreement, let’s not sideline the fossil fuel integral in the transition toward a cleaner energy future. Natural gas is an enabler; it is a fuel that enables a low carbon future. It will feature heavily during the Paris discussions, because it is an essential element in ensuring that climate change agreements are realistic and cost effective. Let’s not take gas for granted.
The outcome of this scenario is far from comforting. Costs would go up, whilst global energy security would fall. Countries such as Germany, having pursued a pro-renewable agenda, have already passed on the cost to the consumers: it is estimated that German industrial and household consumers pay over $20bn a year to subsidise the privileged status of the renewables in the energy balance. More often than not in this part of Europe the sun does not shine all year round and the wind does not blow incessantly, thus creating large gaps in energy procurement.
1 http://www.greenpeace.org.uk/climate/dirty-energy 2 Calculated using: European Commission (2015), EU Energy in Figures Statistical Pocketbook 2015 3 http://www.iea.org/publications/freepublications/publication/keyworld2014.pdf 4 http://www.gasnaturally.eu/uploads/Modules/Publications/gn---flipbook-- %28update-oct.-2012%29.pdf
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The Evolution of Climate Change: What’s at Stake? In Paris, leaders from across the globe search for compromise to agree on a new international climate change agreement. It seems we have been on this carousel ride before, have we not? What makes Paris so important? What sets COP21 apart from previous international gatherings? In short: urgency. However, to understand the path forward, let’s take a brief look at the evolution of this debate from the combined perspectives of science, politics and the energy industry.
A brief history of climate negotiations While a formal, institutionalised discussion on climate change and greenhouse gas (GHG) emissions began in 1979 during the first World Climate Conference (WCC), scientific theory had already developed a few hypotheses on this topic. Scientists have known about climate change for almost two-hundred years. However, it was Swedish chemist Svante Arrhenius who first concluded that increased emissions from human activity (i.e. burning fossil fuels) increases the temperature of the Earth, the so-called greenhouse effect. During the 20th century, the focus of climate change varied from decade to decade as new scientific information came to light and technological innovations developed. For example, in the 1960s, carbon dioxide was seen through the lens of air pollution, while in the 1980s the focus turned towards saving the ozone layer by phasing out chlorofluorocarbons (CFCs) and hydrofluorocarbons (HFCs) through the Montreal Protocol (1989). The focus on the 2°C threshold started in 1990 when, based on scientific understanding, the Stockholm Environment Institute first suggested that to avoid the worst impacts of climate change, the threshold of global warming should be set at 2°C. Soon after, this idea started to appear in more mainstream 6
political settings. Yet, it was not until 2010 and the signature of the Cancun Agreements that the limit became formally enshrined into international climate policy, committing governments to “hold the increase in global average temperature below 2°C above preindustrial levels.” In the 1990s, some progress was made in Japan to achieve a binding global agreement. The Kyoto Protocol required global cuts in emissions of approximately 5% compared with 1990 levels by 2012. Although it was adopted in 1997, the United States Congress would not ratify the agreement. As a result, the protocol was not legally enforced until countries representing 55% of global emissions had ratified the treaty. It was not until 2014 that the protocol came into force when Russia passed the treaty.
Paris’ specifics & natural gas From Rio to Copenhagen, and now onto Paris, the need to take action has substantially increased - although it cannot be said that each COP is created equally. What is different in 2015 in Paris compared to 2009 in Copenhagen? There is urgency, momentum and a realisation that the Kyoto Protocol commitments will run out in 2020; hence governments are expected to produce a binding and universal agreement on what happens for the following decade and potentially beyond. Namely, to prevent the average temperature from rising by 2°C or more which can lead to catastrophic consequences. Apart from deciding on emissions reduction targets, a review period for the agreement and its legal status, a key question and contentious issue will be finance. Poorer countries want rich countries to provide them with funding. Additional funds that will enable poorer countries to invest in clean technology, ultimately cutting their emissions and adapting their infrastructure to potential damage from
December 2015/ Vol. 8/ Issue 6 – COP21 Special Edition climate change. While some wish for funding to come from rich governments, the latter insist on the need to involve the private sector, namely international development banks. Today, more than 150 countries have submitted their targets, known as Intended Nationally Determined Contributions (INDCs). Alongside the commitment and momentum pushed by this year’s host, France, these documents form the basis of negotiations. Interestingly enough, a draft 20-page document has already been produced! Not only have the United States and China committed to specific goals - problematic partners during Kyoto and Copenhagen - but industry from across various sectors are for the first time making pledges to contribute to a low-carbon solution. The Executive Director of the International Energy Agency (IEA), Dr. Fatih Birol, recently pointed out that the energy sector as an industry is responsible for 2/3 of emissions, and as a result, he would like to see an energy roadmap post-Paris. The role of industry is indeed one of the most striking differences between Paris and other international climate agreements. Specifically, the positive commitments announced by the energy sector. In the past, energy companies were only seen as part of the problem: emitting emissions and not taking steps to address the issue.
BLUE FUEL Today, a number of natural gas producers have declared their commitment to take steps to offset emissions and contribute to building a low-carbon economy. For instance, on 14 October 2015, Gazprom’s 40-year partner Engie announced its decision to stop investing in coal. Two days later, the CEOs of ten international oil and gas companies, including Total, BP and Saudi Aramco, made a collective declaration on climate change. Among their priorities they list “contributing to increasing the share of gas in the global energy mix, ensuring it results in significantly lower lifecycle emissions than other fossil fuels for power generation.” And Gazprom, the number one natural gas player in the world, believes that natural gas is an important component to efficiently take on the post-Paris climate change challenge. Climate change is not restrained to specific borders or regions – it impacts the global community. To curb greenhouse gas emissions faster and cost effectively, it’s vital to switch from dirty energy to clean energy... with natural gas, a bridge fuel in the world’s energy transition and a safe energy resource. For its part, natural gas producers such as Gazprom are committed to finding tangible solutions to satisfy fast growing global energy needs in a sustainable way.
Enhancing Quality of Life by Reducing Emissions – Natural Gas and Urban Air Quality A contribution by the International Gas Union (IGU) On the sidelines of COP21 in Paris, the International Gas Union (IGU) put forward the case that enhanced use of natural gas will not just have a carbon mitigation benefit. Adoption of natural gas in applications such as energy generation, heating and industry will drastically reduce emissions, mercury and particulate matter, thereby providing enhanced quality of life for virtually everyone in urban society. A particular public health benefit would be the reduction in incidences of respiratory diseases such as emphysema and asthma. IGU supports policies that therefore reduce GHG emissions and emissions of health-damaging air pollutants such as: 1. Improve end-use energy efficiency; 2. Increase combustion efficiency (reducing or eliminating black carbon and other products of incomplete combustion); 3. Encourage fuel switching; 4. Increase usage of non-combustion renewable energies
Outdoor air pollution is among the most significant environmental threats to human health. According to the World Health Organization, air pollution contributed to 3.7 million premature deaths each year—and this may be an underestimate since it does not include deaths from exposure to long-term pollutants other than particulate matter. As more people move to cities, deaths from urban air pollution will increase substantially. There are many connections between climate change and health damaging air pollution. For example, climate change is likely to exacerbate local air pollution problems which may lead to more stringent air pollution controls going forward. More importantly, the burning of high carbon fossil fuels predominantly causes both greenhouse gas emissions and local air pollution.
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As a result, many efforts to reduce GHG emissions can also reduce emissions of health-damaging pollutants, and vice versa. When used to generate electricity, heat or fuel industrial processes, natural gas results in negligible emissions of sulphur dioxide (SOx), nitrogen oxides (NOx), mercury (Hg) and articulates (PM2.5) compared with other fuels. Switching from coal to gas-fired power is often the fastest and cheapest way for countries to reduce the abovementioned emissions and fine particulates that are detrimental to the environment and have a significant impact on human health. IGU will press ahead with these crucial messages among others. We also call on our members across the natural gas value chain - from upstream explorers down to marketing / trading & sales- to join our call to arms that natural gas is not just a solution to the long-term challenge of carbon and global warming. Natural gas can be the answer to ending a significant level of human suffering. By cleaning the air, we could significantly enhance the lives of billions of people round the world.
Average Pounds of Pollutant-Forming Emissions per MWh for U.S. Coal and Natural Gas Power Plants
NOx
SOx NATURAL GAS NATURAL GAS
COAL
COAL
0
2
4
6
8
10
12
0
14
1
2
PM2.5
3
4
PM10
NATURAL GAS
NATURAL GAS
COAL
COAL 5 0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0
0.2
Source: EPA AP-42 Compilation of Air Pollutant Emission Factors; CenSARA Area Combustion Emissions Inventory Enhancement Project – Final Report 2011
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0.4
0.6
0.8
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December 2015/ Vol. 8/ Issue 6 – COP21 Special Edition
Fuelling Ambitious Climate Goals through NGVs An interview with Eugene Pronin, Gazprom Export Senior Specialist, IGU WOC5 Chairman Are the recent revelations around falsified pollution tests on diesel cars a watershed moment for the transport sector and for NGVs in particular? The Volkswagen case, or “Dieselgate” as some already call it, shows bolt-on technologies are not the answer to reduce emissions from the transport sector. Instead, it is time we turned our attention to alternative fuels, starting with natural gas, which is currently our best option to replace diesel. I hope the recent revelations will be a wake-up call for leaders of the automotive industry to embrace natural gas as a solution fuel for their sector and boost the production of natural gas vehicles (NGVs). How can NGVs provide consumers with an alternative to diesel cars, but also to other green solutions – such as electric cars? Natural gas as a motor fuel offers significant advantages over traditional fuels, and indeed over other “alternative” fuels. NGVs are clean – they emit 25% less carbon dioxide than petrol vehicles and 95% less nitrogen oxide and produce virtually no particulate emissions. Gas vehicles also make much less noise. Most importantly, this alternative energy is available immediately: petroleum motors can simply be replaced by natural gas motors. Yet, to date, petroleum still provides almost 92% of the total energy used by the transportation sector globally. Natural gas does not compete with other alternative fuels, such as synthetic methane, electric power or hydrogen, which also have a significant role to play in the transition to sustainable mobility. In fact, theses fuels are complementary as each of them has its own specificities. What is the state of the global NGV market and in Europe? We have observed significant growth of the global NGV market in the last decade. Since 2004, the population of NGVs has increased six-fold globally and 2.5 times in Europe. Italy and Germany are the leading markets for NGVs in Europe, now followed by Sweden, the Czech Republic, Bulgaria, Switzerland, and France. The competitiveness of natural gas is among the factors explaining this positive evolution: regardless of the recent fall of oil prices, compressed natural gas (CNG) and liquefied natural gas (LNG) remain the cheapest transportation fuel in Europe at the moment.
What about Russia? The Russian NGV market is growing too, thanks to a very strong impetus given by the Russian government in 2013 when it set ambitious targets for 2020. At least 5,000 new CNG and LNG filling stations are planned for construction by major network developers, half of which will be built by Gazprom. The Russian NGV sector is expected to create 20,000 new jobs by 2020. The Russian government is providing the necessary incentives for these investments to take place via subsidies and reduced tax rates. In this context, what is Gazprom’s strategy for NGVs? Gazprom is the leader in the NGV market in Russia today. It is actively working on developing this segment both in Russia and internationally, leading various initiatives to promote the use of NGVs. Gazprom Group is currently operating 34 CNG filling stations in Germany, 14 in the Czech Republic and two LNG stations in Poland. 39 more stations will be added to the network by the end of 2016 in these countries as well as in Slovakia, Hungary, and Croatia. To promote CNG and LNG, Gazprom Export and E.ON joined forces to organize the 9th Blue Corridor Rally from 24 May - 3 June 2015, bringing together natural-gas-powered vehicles for a tour from St Petersburg to Paris. What are the prospects for developing the use of LNG in the shipping sector? It is definitely a sector with great potential, as LNG is the only clean and cost-efficient alternative to oil for ships. Using LNG to fuel commercial ships is a must if the EU wants to meet its new shipping emissions standards. It also has a promising future outside Europe, in countries such as China, South Korea or the United States, which are building and operating more and more LNG-powered ships and boats. According to DNV GL experts, the world fleet of LNG ships may increase ten times by 2020. To promote this trend, in 2016, the 10th edition of the Blue Corridor NGV Rally - named ‘Amber Road’ - will drive through the Baltic seaports to encourage the use of LNG for bunkering. What is your message to the leaders who will meet in Paris for COP21? Air and water pollution recognises no boundaries. It is therefore necessary to join efforts and intensify the international dialogue and cooperation to promote investments in the NGV sector. The technology is already available and mature. Now, we need political will and to provide investors across the value chain with support to develop the market through fair market rules and concrete incentives.
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40th Anniversary of First Contract for Gas Supplies to France The town of Tsarskoye Selo (Pushkinsky “We are happy to celebrate with Gazprom the anniversary of the long-term solid District of St. Petersburg) hosted partnership uniting our companies. It has a ceremony dedicated to the 40th considerably contributed to developing anniversary of signing the first contract the European gas industry. ENGIE’s for Russian gas supplies to France. participation in the Nord Stream 2 project Taking part in the event were Alexey bespeaks our faith in continuing this Miller, Chairman of the Gazprom cooperation. Management Committee, and Gérard Mestrallet, Chief Executive Officer of Natural gas is of key importance for ENGIE. “Today we celebrate the 40th anniversary of our cooperation, 40 years of stable supplies of Russian gas to France. This is a clear testament to the constructive, mutually beneficial relations between two world class companies. We proceed in our cooperation with ENGIE based on long-term contracts which constitute an important element of energy security in France. Today we also celebrate another jubilee – five years ago ENGIE became a partner in Nord Stream. Today the success of the project is known to everyone, so in September we and our European partners, including of course ENGIE, made a decision to construct Nord Stream 2. The project will bring to the European market additional 55 bcm of Russian gas,” said Alexey Miller.
upgrading the energy sector, particularly, for reaching the European Union targets to reduce greenhouse gas emissions by 2030,” said Gérard Mestrallet. During the ceremony Alexey Miller and Gérard Mestrallet signed an Addendum to the Sales and Purchase Agreement for shares of the Nord Stream 2 joint project company (JPC), which executes the Nord Stream 2 project. The document provides for increasing ENGIE’s stake to 10%. Thus, once the deals for the purchase of JPC shares by foreign shareholders are closed, the shareholding structure will be as follows: Gazprom – 50%, BASF, E.ON, ENGIE, OMV and Shell – 10% each.
Alexey Miller, Chairman of the Gazprom Management Committee, and Gérard Mestrallet, Chief Executive Officer of ENGIE 10
December 2015/ Vol. 8/ Issue 6 – COP21 Special Edition
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Background French ENGIE (GDF SUEZ before 2015) implements projects in the areas of gas prospecting, production, processing and sales as well as power generation. The cooperation between Gazprom and ENGIE in the gas supply area started back in 1975, when the first and second contracts for Russian gas supplies to France were inked. In 1983, the companies concluded the third (and largest) contract. In 2006, all three contracts were extended till 2030. Running from Russia to Germany under the Baltic Sea, Nord Stream is an export gas pipeline with an annual capacity of 55 bcm. Nord Stream AG is a joint venture (Gazprom holds 51%, E.ON and Wintershall – 15.5% each, ENGIE and Gasunie– 9% each) operating the project. On 4 September 2015, Gazprom, BASF, E.ON, ENGIE, OMV and Shell signed the Shareholders Agreement to construct the Nord Stream 2 gas pipeline system with the capacity of 55 bcm of gas a year from Russia to Germany across the Baltic Sea. In addition, Gazprom and ENGIE cooperate in sci-tech development, personnel training as well as implementing joint cultural projects.
Transparency & Reactivity: The Winning Duo of Gazprom Energy in France By Edouard Ibled, Marketing & Commercial Director of Gazprom Energy France In 1996, the EU decided to create a single European natural gas market through two directives which have been transposed into French law in 2003 and 2004. In 2007, after several gradual steps, the French gas market was fully opened to competition and in the past two years, regulated gas prices offered by historical players were removed for industrials first and then SMEs. In this context, Gazprom Marketing & Trading France (GM&T) sells gas under the brand name Gazprom Energy as part of the broader mission that GM&T is tasked with: building an integrated business model combining supply, trading and marketing. To do so, it has developed a very competitive strategy. The group has chosen to put transparency and reactivity at the core of its strategy, providing its customers with continuous support, before and after the signature of their contract. To that purpose, we have developed several services. We, for instance, created an online platform helping our commercial team to compare our offer with any other suppliers’ contract or offer and to highlight our competitiveness or address any of the potential client’s questions regarding contract changes. On the other side, customers have access to a portal enabling them to monitor consumption levels on their various supplied sites.
In addition, we have created very detailed bills which enable our customers to understand how costs are divided along the supply chain. As costs such as storage fees keep increasing in France, it is indeed fundamental that our clients can access the molecule price, for which Gazprom Energy is among the most competitive suppliers. We further offer customers a detailed and continuous monitoring of their consumption and budget. More importantly, they have the possibility to amend their contracts - during their duration – if they want to add or remove delivery points. Thanks to this transparent approach and flexibility, Gazprom Energy now supplies more than 6,000 sites in France for an approximate of 11.2 TWh (1.15 bcm) per year. Today, our main objectives are twofold: perpetuating our current client portfolio and expanding our sphere of activity to the public sector. The group has been present on the French market since 2006, supplying end customers since 2007 with a strong focus on large industrials. From 2011, we have started targeting smaller clients such as small and medium sized companies/ industries and very small businesses. More recently, we have also expanded our portfolio to include public entities such as local communities and public associations, with the creation of a specialized unit in charge of answering public tenders at all regional levels in 2012.
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Adapting our approach to the public sector has been rather smooth as the private and the public sectors’ qualitative requests are similar. Supplying natural gas to large professionals requires high reactivity, detailed bills, comprehensive information, and SMEs’ demands are usually centered on transparency and guidance: the public sector wants all of this. Our offers, experience and constant striving for optimum quality are our best assets – and so far this has proven to be quite successful.
Over the past few years, Gazprom Energy has successfully built and strengthened its position on the French gas market. The opening of the market represented a challenge for gas suppliers in France. Gazprom has demonstrated its ability not only to adapt to this changing environment, but also to perform within it. Today, Gazprom Energy is ready and equipped to face future developments and become one of the largest and most reliable natural gas suppliers in France.
Gazprom Features Prominently at Gastech 2015 in Singapore Singapore played host to a large swathe of energy professionals, including Gazprom’s Deputy Chairman of the Management Committee, Alexander Medvedev, who converged on Singapore for Gastech in late October 2015. With participation from major international energy companies, national gas companies, global utility companies, shipbuilders and shipping corporations along with engineering contractors and other service providers, Gastech’s exhibition offers a unique opportunity to
network with business contacts. Its fourday conference, which runs alongside the exhibition, features a comprehensive lineup of speeches, papers, presentations and panels covering topic from commercial to technical matters related to the natural gas and liquefied natural gas value chain. Mr. Medvedev delivered a keynote speech on the opening afternoon of the conference on 27 October, touching on the challenging times currently faced by industry players as well as sharing
Alexander Medvedev, Deputy Chairman of the Gazprom Management Committee, speaks at Gastech 2015 12
December 2015/ Vol. 8/ Issue 6 – COP21 Special Edition updates of Gazprom’s strategy for the Asia Pacific LNG market. He was part of a prestigious line-up of keynote speakers, including the CEO of IE Singapore, Teo Eng Cheong, BG Group CEO Helge Lund and Pavilion Energy’s CEO, Seah Moon Ming. The latter announced in his speech the signing of a 10-year SPA between Gazprom subsidiary, Gazprom Marketing & Trading Singapore and Pavilion Gas, a subsidiary of Pavilion Energy. Earlier in the day, Mr. Medvedev had participated in a closeddoor VIP Programme. The invitation-only event was attended by over 200 top management executives of the most influential players in the natural gas and LNG industry. The agenda comprised a keynote address from the new Executive Director of the International Energy Agency, Dr. Fatih Birol, and panels featuring Mr. Medvedev and the leaders of ExxonMobil, Shell, Total, E.ON, SNC-Lavalin, GAIL and Delfin LNG who shared some thought provoking insights and discussed the state of their companies, markets and the industry in these uncertain times.
BLUE FUEL Medan Abdullah, Managing Director of Gazprom Marketing & Trading Singapore also spoke on 29 October, covering the topic of “Evolution of LNG trading activities, LNG pricing and project development in Asia Pacific” as part of a highly-topical “contracting, pricing & trading” panel session. Over the days of the conference, a general theme of staying the course, continuing to be focused on the long-term, and investing for the future emerged. Many speakers agreed that despite the currently testing market conditions, we must be visionary, adapt as the industry evolves and invest for the future. Indeed, as Mr. Medvedev optimistically declared in his keynote speech, “These are difficult times…. but if you work hard, you can make progress.” The next Gastech will be held in Tokyo, Japan on 4-7 April 2017.
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GM&TS Sign LNG Supply Agreement with Pavilion Gas Gazprom Marketing & Trading Singapore (GM&TS) and Pavilion Gas signed an LNG Sale and Purchase Agreement effective for 10 years. The document stipulates LNG supplies from Gazprom Group’s portfolio to Asian countries, including Singapore.
“Today’s agreement is the backbone of trading relations with Pavilion Gas, which extends our long-term cooperation with Singapore. This deal reinforces our position in the Asian LNG market and supports our business strategy to further expand into emerging LNG markets,” said Alexander Medvedev, Deputy Chairman of the Gazprom Management Committee.
Germany’s Energy Transition under Review Energy experts convened in Gelsenkirchen, Germany to discuss the current state of the energy sector and what the future might bring. Germany’s energy transition and the role to be played by natural gas were the key issues discussed at the 5th Schalke Energy Meeting, held on 28 October at Schloss Berge in Gelsenkirchen. More than 30 decision makers from the energy industry and government took up Gazprom Germania’s invitation to attend the event. Gazprom Germania’s Senior Managing Director Vyacheslav Krupenkov welcomed speakers Dr. Harald Hecking from the University of Cologne’s Institute of Energy Economics (EWI) and Dr. Felix
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Christian Matthes from Öko-Institut in Freiburg. In his welcome address, Mr. Krupenkov said he would like to see an “honest stocktake” of the energy transition. The three goals being pursued by Germany’s energy policy – the protection of the environment, security of supply and affordability – were not being achieved by the current market and subsidy regime, he noted. CO2 reduction was behind schedule and energy prices were increasing. Meanwhile, security of supply has not necessarily increased. Germany’s industry needs to be able to rely on stable conditions, he commented.
December 2015/ Vol. 8/ Issue 6 – COP21 Special Edition Gazprom remains ready to support Germany’s energy transition with its natural gas, stressed Mr. Krupenkov. Natural gas is the ideal partner with which to secure increased energy supply from renewable energies. Germany is the largest foreign importer of Russian natural gas, said Mr. Krupenkov, and referred to Gazprom’s acquisition of BASF’s 50 % shareholding in WINGAS in late September as “a positive signal for Gazprom’s most important European market”. “WINGAS’s situation will definitely change now that Gazprom is its sole shareholder,” said WINGAS’s Managing Director for Sales, Dr. Ludwig Möhring. North-West Europe is an attractive market on which Gazprom wants to establish itself in the long term, making its acquisition of WINGAS a perfect fit, he argued. “WINGAS is already one of the most important sales channels for Russian natural gas in Europe,” said Möhring. Dr. Harald Hecking, Managing Director of EWI Energy Research & Scenarios GmbH, took stock of Germany’s energy transition and reminded his audience that the primary goal of the energy transition was to reduce greenhouse gases. Germany had achieved much in reducing carbon emissions, but it is becoming increasingly difficult and therefore increasingly expensive to achieve further carbon savings in Germany. Dr. Hecking presented a model for a cost-optimized electricity generation mix involving no subsidies for any particular energy carrier. Under the model, a tonne of carbon would have to be priced at EUR 73.00 for Germany to achieve a 40 % reduction in carbon emissions by 2030, he said. To achieve a 55 % reduction in carbon emissions by 2030, EUR 101.00 would have to be
BLUE FUEL paid for each tonne of carbon emitted. Dr. Hecking suggested involving other countries in such an effort more effectively, as saving on carbon is possible at much lower cost in other countries – for example, at the many inefficient coal-fired power stations in China and India. In his address entitled ‘Energy Market of the Future,’ Dr. Felix Christian Matthes, Research Coordinator for Energy & Climate Policy at Öko-Institut, pointed out that the energy market was changing long before its liberalization and the energy transition. For example, there was the introduction of nuclear energy in the 1960s and the establishment of natural gas infrastructure in the 1970s in Germany. What will change in the future, however, is that energy supplies “will become significantly more diverse”, he noted. For example, there used to be four large electricity producers operating conventional power stations in Germany. Today, the many photovoltaic facilities means the number of electricity producers is in the millions. While that is leading to a decentralization of energy supplies, centralized electricity and heat supplies will continue to play a significant role given the structure of municipal and rural energy supply and transport systems, he said. The fact is, commented Dr. Matthes, that the energy supply of the future will be a low-carbon. He considered the future of natural gas as a provider of heat for industrial production processes, a field in which natural gas’ positive characteristics give it an advantage.
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Gazprom Germania Acquires Four Natural Gas Filling Stations Gazprom Germania, a subsidiary of Gazprom Export, and ENTEGA AG agreed the acquisition of four natural gas filling stations in the Rhine-Main region by Gazprom Germania. “The current discourse around diesel shows that we need a broader mix of alternative fuels. That’s why we have acquired natural gas filling stations in the Rhine-Main area for the first time. We see great potential in natural gas for eco-friendly mobility,” said Timo Vehrs, Director of Business Development at Gazprom Germania.
Natural gas vehicles are among Germany’s most popular alternative-fuel vehicles, with around 100,000 registered. The acquisition brings the number of stations Gazprom Germania operates in Germany to 34. Gazprom Germania is continuing to invest in Germany’s network of natural gas filling stations and plans to be operating at least 44 natural gas filling stations by the end of 2016. Gazprom Germania is also collaborating with its subsidiary VEMEX on additional filling stations in the Czech Republic and Slovakia.
Fuel of the Future from Serbia NIS - Naftna industrija Srbije (The Petroleum Industry of Serbia) whose majority shareholder is Gazprom Neft, commissioned the first plant for the compression of natural gas aimed at industrial consumers in 2014. In August 2015, the company opened its first retail unit offering compressed natural gas (CNG) as a fuel for consumer vehicles and light trucks. CNG is considered to be one of the most promising environmentally-friendly, but also cost-effective conventional fuels of the future. By introducing CNG in its wholesale and retail system, NIS is actively contributing to increasing energy efficiency and improving sustainable development and environmental management policies. It thus keeps in line with the strictest EU directives promoting the limitation and gradual, targeted reduction of harmful gas emissions into the atmosphere.
than air, in case of leaks it goes straight into the atmosphere and does not accumulate in the soil. Due to methane’s high auto-ignition temperature (580°C) it is not highly flammable, representing an additional road safety factor, especially when compared to other fuels. By using CNG in consumer vehicles, engine noise is significantly reduced. Since it is already in the gaseous state, CNG provides a faster and easier engine start and the best possible use of engine performance even in severe weather.
In comparison to other derivatives, CNG whose main ingredient is methane, has the lowest CO2 emission coefficient per unit of released energy, contributing as such to air quality. Environmental benefits of CNG in comparison to other energygenerating products are practically immeasurable. CNG does not contain sulphur as well as other toxic additives to lead compounds or benzene; it is not poisonous or corrosive. Being lighter
In addition to the environmental benefits, CNG is considered the most costefficient conventional fuel for passenger vehicles, especially when compared to petrol, diesel fuel or liquid petroleum gas. Financial savings may amount to 50%, depending on the type of vehicle, while the average consumption per kilometre is lower due to CNG’s high caloric value. The growth dynamic in terms of the number of vehicles using alternative
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BLUE FUEL The car manufacturer FCA Serbia has started production of CNG car models in their Serbian factory. Although the costs of cars running on CNG are still higher, the evidence on environmental and economic benefits speaks in favour of using them. The advantages of using this type of alternative fuel did not go unrecognised among truck manufacturers. The number of these vehicles in Serbia has increased significantly in the last several years. As a company that owns the largest network of petrol stations in Serbia, NIS is also the first in the country to offer CNG in its portfolio.
fuels globally speaks volumes in favour of the economic and environmental benefits of this fuel. Since 2002, the number of vehicles running on CNG globally has increased more than tenfold. The dynamic growth and development of this market is more and more evident in Europe. Italy is ahead of the other EU countries in terms of the number of vehicles using natural gas (more then 880,000) and some of the larger EU cities, such as Madrid, Vienna and Rome, have a significant number of public buses running on CNG. This is primarily due to the fact that buses running on diesel cause high emissions of harmful gases and are the leading air pollutants in urban areas. Even though the CNG market is relatively under-developed in Serbia, primarily owning to poor infrastructure, i.e. low distribution of retail units, some positive changes can be observed. The retail market for CNG cars is broadening.
“NIS recognised the benefits of using CNG and the impact of its production and placement both on the domestic and the regional markets. The company intends to expand this market activity by introducing CNG at 20 petrol stations in Serbia by 2020. One of our primary objectives in Serbia is taking a leadership position in this field,” said General Manager of NIS, Mr. Kirill Kravchenko. NIS owns a plant for the compression of natural gas, the Palić Oil and Gas Field, where the production volume currently reaches 530cm of gas per hour. The procedure of compressing natural gas under high pressure and loading it into special vehicles with batteries of cylinders (called trailers) is technically safe owing to tailor-made compressors. NIS intends to expand its production capacities in the near future, with the construction of additional facilities where CNG will be produced and sold.
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LNG in the Global and European Gas Market By Michal Hudec, CEO at Energy Analytics, s.r.o. (Slovakia)
Half a century has passed since the first commercial delivery of liquefied natural gas (LNG). Since then the share of LNG in global gas trading has increased by almost one third. What is the potential for LNG from the perspective of European and global gas markets? Today, the topic of LNG is keeping every major gas producer busy, including Gazprom. Although pipeline systems continue to be a priority for the Russian producer, who is a key supplier of gas to the European market, a line of announcements in the last few months suggest a growing importance of LNG in Gazprom’s future portfolio. The Russian supplier is considering the construction of a regasification terminal in Dong Nai in South Vietnam, as well as supplying Pakistan with LNG via the terminal in Karachi. Back in Europe, Gazprom and Royal Dutch Shell announced in September 2015 the launch of negotiations on a Baltic LNG project. Currently in the EU, natural gas as a fuel is not in a very favourable position. A wholesale price of electricity distorted by subsidies for renewables, cheap coal, and a low carbon price indicate that natural gas is losing its share among fuels used for power generation. Also, EU policy towards natural gas is rather ambiguous. Looking at several official
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documents and listening to various EU officials, Brussels is seen speaking in favour of natural gas and simultaneously against it. Then within the frame of diversification of sources and routes, individual EU countries wager highly on LNG - although the utilization rate of new capacities is often questionable, such as in Poland. However, what might be expected are more significant amounts of U.S. LNG entering the global gas market in the future. Although characterized by a low price in the domestic market, the question remains whether this low price can be maintained in the event the U.S. becomes one of the major natural gas exporters to foreign markets. If we look back to 2013 - 2014, existing capacities of LNG terminals in Europe were used only up to 26%, which represented the lowest utilization of LNG import capacities since 2004. It is also necessary to emphasize that a substantial amount of these imports to Europe were re-exported to other markets where a higher price level existed – such as the Asian markets. For example, ENGIE expects 32% utilization of European LNG import capacities in 2015. As indicated at the beginning, the share of LNG in global gas trading is on the rise. Thus, what can LNG bring to the gas market? Firstly, LNG may affect international political geography. LNG signifies the utilization of new sources, while new producers are added to the palette of traditional ones. LNG, together with the expansion of volume traded, may stimulate momentum for the gradual globalization of the natural gas market. More flexible trading and transportation may also influence
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December 2015/ Vol. 8/ Issue 6 – COP21 Special Edition the creation of a wholesale gas price and shift liquidity from long-term products towards short-term trading (i.e. seasonal products, spot market). On the other hand, the success of LNG does not depend solely on density and capacities of LNG terminals around the world. It should be underlined that, according to estimates by the International Gas Union, more than 400 nautical shippers of LNG are in business. Yet, the current high density of marine transport might be a limiting factor for significant long-term growth of additional transport capacities. Also, as soon as LNG is delivered to a terminal it needs to be distributed to final consumers. The existence of sufficient distribution capacities of local infrastructure is a missing piece of the puzzle.
Important natural gas customers in the EU have remained sensitive to potential price fluctuations. If Turkey is to become a hub for gas to the EU, including LNG, it is necessary to build additional infrastructure. Simultaneously, pipelines currently used for transportation of natural gas from Russia are wellknown for their competitive operational costs. Last but not least, Gazprom as a supplier of natural gas to the European market has made numerous concessions regarding volumes agreed (take-or-pay) and price formulas (gas-on-gas formula). There is no doubt that LNG will find a more eminent place in the fast growing Asian markets and it is foreseen that major global gas producers are responding to this trend. Nevertheless, on the stagnating European market, LNG will remain a complementary rather than a primary economic choice.
If we come back to the European gas market, a question appears: what market share will LNG eventually gain?
SKODA AUTO Bets on CNG Technology An interview with LuboĹĄ Vlcek, Managing Director of Skoda Auto Czech Republic
What segments of the automobile market do you consider most prospective for the use of CNG? CNG fuelling technologies have first entered the transport market in the segments of public transport, primarily buses. Today, CNG is an attractive and growing segment for the personal cars as well. We think that the potential of CNG in fuelling private cars and providing environmentally clean and economically advantageous individual mobility is yet far away from being fully utilized. We still expect substantial growth in this segment for years to come. Why have you chosen CNG among all alternative fuels? Ĺ KODA AUTO perceives CNG as the innovative and sustainable technology, definitely positive for the environment and economics of vehicle use. Moreover, this alternative fuel is affordable for consumers, without any operational limitations or compromised usability. Being a progressive car manufacturer, we already are and will remain involved in further alternative technologies as well. However, currently, and under the given market environment, we consider CNG as the optimal alternative fuel. CNG cars present a perfect balance of economic and environmental benefits. Do you think they will maintain their competitiveness, keeping in mind the improvement of engines of cars powered by other fuels? Personally, I think that the balance of price against performance, or purchase and operational costs of such vehicles vs its real Continues on page 20
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value, is now, compared to hybrid or electro-cars, definitely in favour of CNG tecnhology. Aside from the infrastructural development and various limitations that other alternative fuels are bound to under the current phase of technical development. Please describe a typical buyer of a CNG vehicle. Which categories of clients could be most attractive for car producers in the future? Our data show that a typical buyer of CNG vehicles in the Czech Republic is a medium to large enterprise, with a well-organized and effectively managed vehicle fleet that foresees concept-based updates. However, private customers also present a significant share of clients. This is of special pleasure to us. This year, within the CNG segment of the SKODA brand we will have approximately onefourth private clients. This is an entirely unprecedented phenomenon. Please tell us more about the current situation and development prospects for the natural gas-fuelled vehicle market in the Czech Republic and the EU. We are very positive about the development and improving quality of the CNG infrastructure in Czech Republic, in terms of increasing network density and number of fuelling stations. By the end of this year, already over 100 CNG stations will be operational in our country. We see this number already as very comfortable for the use of CNG in private transportation. For the years to come we expect further growth in the number of stations, reflecting the growing share of newly-registered private CNG vehicles. As to the regulatory environment, we are witnessing a substantial drive towards support of our partners, including those in the service segment for NGVs. Also increasing is the awareness of users and parking operators, that earlier made no difference between cars fuelled by liquefied petroleum gas (LPG) or CNG. The progress is visible here as well, however, it is exactly the segment 20
that deserves substantial facilitation of regulations. We feel the situation within the entire EU is very similar. What would be crucial for the eco-transportation is a CNG strategy (not just for the Czech Republic but for the entire EU) after 2020. Do you think any state support, like incentives or subsidies, is needed for the development of this market? It is pretty obvious that setting up clear and forward-looking conditions could speed up environmentallyfocused vehicle fleet renovation in a number of countries. Speaking of the Czech Republic only, I think that such actions would considerably help the modernization of fleets, meaning the private sector in the first place. How different are the technical characteristics of CNG vehicles and those with traditional fuels? ŠKODA AUTO currently offers two vehicles suited to ne driven on CNG. These are the Citigo G-TEC and the more powerful Octavia G-TEC. The attractive Octavia G-TEC is bi-fuelled by natural gas as well as conventional fuel. The vehicle’s dynamics, its reaction to the throttle pedal, the level of noise and other characteristics are fully comparable with those of existing SKODA cars equipped with traditional combustion engines. From the point of performance and driving comfort, the client would not be able to tell the difference between a CNG-fuelled vehicle and one with a traditional engine of comparable power. The client, thought, can benefit from very favourable operating costs. The feedback from our existing clients shows that the users of NGVs can reach fuel costs as low as less than 1 Kc/km (1 Kc is approx 0.037 Euro). Do you think CNG will remain competitive under the current drop in diesel and gasoline prices? Even under the currently record low prices of oil and its products on the global markets, we do not witness a significant decline in the economics or
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December 2015/ Vol. 8/ Issue 6 – COP21 Special Edition cost-effectiveness of CNG vehicles. No doubt, oil prices will not stay at current low levels forever. I think that after prices return to long-term averages, such considerations will be out of the question. How did the characteristics of SKODA CNG cars change in the last years, and compared to previous models? ŠKODA AUTO presented its first series CNG-fueleld vehicle in 2012. It was the Skoda Citigo G-TEC. Last year, it was joined by the new Octavia G-TEC. Both cars are performing well in terms of sales, and fully meet our expectations. It is important to stress that in both cases we speak about a serially manufactured NGV with full-value warranty, which means a great difference from any types of re-equipped vehicles of varied quality that are available on the market now. Can you evaluate the infrastructure of gas fuelling stations in the Czech Republic and Europe? Can we drive from Prague to Lisbon without using any petrol?
I have not tried it from Prague to Lisbon yet, but I think that nowadays the CNG infrastructure is very well developed in the Czech Republic. I expect that the situation will even further improve as new players who see the big potential are entering this market. There are well developed markets in Europe, as well as those that still have a lot of potential. This is not a problem, however, for our Octavia G-TEC. As mentioned, it allows doublefuelling of natural gas and petrol, so you can drive up to 920 km using its petrol tank, and up to 410 km with one CNG fuelling. So the Octavia G-TEC, once fully fuelled, can all together drive up to 1,330 km. What other EU markets are of most interest for the sale of CNG vehicles? The most attractive markets are the Scandinavian countries, Italy, Austria or Switzerland. The reason is among others the expressed environmental awareness of these countries in what concerns the personal transportation.
Experts Predict NGV Boom in Central Europe with the support of E.ON, Vemex, Gazprom Gas-Engine Fuel, and the Czech Gas Association. Experts from gas-trading companies including Gazprom Export and E.ON, gas distribution companies, LNG equipment producers, the Ministry of Industry and Trade as well as the Ministry of Environment of the Czech Republic highlighted their vision for essential steps to be taken to facilitate the development of LNG infrastructure in Central Europe.
The Czech Republic is not only a country that gave birth to world famous writers like Franz Kafka and Jaroslav Hašek or to extraordinary artists like Alfons Mucha, but it can also be proud of one of the fastest-growing NGV markets in Europe. Counting just about 450 NGVs and a dozen of CNG filling stations 10 years ago, now the country is home to 12,000 NGVs and more than a hundred of filling stations. Forecasts are very encouraging: 150-160 CNG filling stations are expected to become operational by the end of 2016. In autumn 2015, around 60 experts gathered at a roundtable event in Prague to explore the opportunities of another promising fuel for transportation: LNG. The seminar was held under the patronage of the International Business Congress
The conference participants predicted a bright future for LNG as a transport fuel in Europe. Given its environmental and economic benefits, this particular fuel ideally suits long-haul trucks, construction machines, lift trucks and busses. In view of emission standards in the Baltic Sea region due to become more rigid, LNG will also be prioritized as marine bunkering fuel. Delegates to the forum were also given a chance to see and touch the first of its kind LNG bus, the Solbus Solcity 12, which was brought to the seminar by Gazprom Germania. Today, the European leaders of LNG use in transportation are Spain, the UK, Belgium, and the Netherlands. However, other countries are trying to catch up with the trend. A strategy for LNG use is now under development in the Czech Republic at the government level. The optimistic scenario implies building five LNG filling stations by 2020.
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Gazprom Group is actively engaged in gas for transport across Europe. Gazprom Germania currently operates 35 CNG stations in Germany, 15 CNG stations in the Czech Republic in partnership
with Vemex, and also two LNG stations in Poland which fuel 46 LNG busses in Warsaw and Olsztyn. The company also works on a small-scale LNG project in the German port of Rostock.
Small-Scale LNG – An Appropriate Solution for Archipelagos By Karthik Sathyamoorthy, Managing Director, and Tushar Raval, Manager, Galway Group
Karthik Sathyamoorthy
Tushar Raval
With growing demand for energy, and an increasing thrust by governments for diversification of energy sources, the world has seen an increased development of traditional LNG infrastructure over the past couple of decades. Such traditional terminals are usually in the range of about 3 to 5 MTPA
and above, with the lower sized ones usually being floating solutions (FSRU/ FSU). There are cases wherein a single tank 1.2 to 2.5 MTPA terminal has been designated as a conventional large scale terminal. However, such instances are few and far between and typically result in higher usage charges unless supported
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by a base load anchor customer. A case in point is the 1.7 MTPA AES AndrĂŠs terminal in the Dominican Republic.
configuration and technology) and a development time of anywhere between 36 to 48 months.
Traditional large scale infrastructure is ideal for locations that have an aggregated demand which would amount to an adequate capacity utilization of the terminal. A higher capital cost and higher real estate footprint for large land based terminals, and higher charter rates for conventional floating terminals lead to an increased unit cost of delivered LNG if the terminal is not adequately utilized.
As far as the last mile connectivity is concerned, the options available to customers range from gas delivered through pipelines to having LNG delivered through trucks with on-site vaporization infrastructure at the customer premises.
As an example, a typical single tank land based terminal with a throughput of 160,000 MMBtu per day would require capital expenditure of about US$ 400-500 million. If this terminal is used to meet the gas requirement of a 1,000 MW power plant (assuming the power plant is the only customer for the terminal), the unit cost of natural gas would be about US$ 1.25 to US$ 1.75 per MMBtu. On the other hand, if the same terminal is employed to serve a 150 MW power plant (assuming it to be the only customer), the unit cost shoots up to about US$ 7.5 to US$ 10.5 per MMBtu. Moreover, typical LNG carriers delivering cargoes to large scale terminals require deep water access and relatively large port facilities to deliver LNG. A 137,000 cubic meter vessel would need a minimum draft of about 12-15 metres. In order to ensure that gas demand from smaller demand centres is met in an economical manner, project developers have begun to explore small scale LNG infrastructure options. A number of such terminals are currently in operation at many locations globally. Particularly notable is the development of such infrastructure in Europe. According to Gas Infrastructure Europe, there are an estimated 23 planned and operating small scale terminals in Northern Europe (Finland, Norway, Sweden and Estonia) alone. A major driving force behind the discussion around the development of a small scale LNG value chain has been the advancement of technology which provides numerous options for each component of the value chain. There has been significant progress in the development of small scale LNG carriers (7,500 – 12,000 cubic meter capacity) that are ideal for ports that do not have deep water access. An advantage of these ships is that they have better maneuverability and can be served using smaller tugs. The capital expenditure for such ships starts at about US$ 55-60 million as compared to US$ 200+ million for conventional large LNG carriers. Small scale regasification infrastructure for throughput capacities of up to 0.5 MTPA of LNG is a rapidly emerging technology option with capital expenditure starting at about US$ 75-80 million (depending on the throughput desired) and a construction period of about 24 to 30 months. As opposed to this, a full scale regasification terminal could warrant an expenditure of US$ 0.5 to 1.5 billion (depending on the size,
The Case for Small Scale LNG in South East Asia There is a very strong case for the small scale LNG model in the South East Asian region. First and foremost, the geography of many of the South East Asian economies makes it extremely difficult to develop gas pipelines that can ensure last mile connectivity for natural gas supplies. The Malay Archipelago which includes countries such as Indonesia, Malaysia, the Philippines, Brunei, and East Timor consists of over 25,000 small and large islands. Secondly, the power requirements in a large number of the smaller inhabited islands range from less than 1 MW to a couple of hundred MW. Feeding such marginal demand centres by developing large scale LNG infrastructure may not be economically feasible. On account of the burgeoning consumption of energy, this region has witnessed the demand for fossil fuel used in power generation increase by about 4% annually over the past five years (Figure 1). A considerable amount of power generation is done using high-priced liquid fuels. Owing to a substantial price differential between liquid fuels and natural gas, it makes economic sense for power generators to switch to the latter.
Small scale LNG value chains in the region can be developed on account of the technology advancement especially in areas such as break-bulking and small scale shipping. Large parcels of LNG can be broken down and loaded onto small LNG carriers to serve stranded demand centers. Last mile natural gas delivery can be achieved using local gas pipelines or LNG trucking as discussed before (Figure 2).
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Different governments in the region have shown an interest in the development of a small scale LNG value chain. A case in point is the recent prequalification tender launched by the Indonesian state electricity company PLN for the supply of 230 mmscfd equivalent of LNG that is intended for the company’s small and medium scale gas fired power plants. About 25 of these small and medium scale power plants are located in the remote Kalimantan and Sulawesi regions of the nation and are expected to be supplied by implementing a small scale LNG value chain. The intrinsic value that project developers and governments see in such development is manifold and includes quick project implementation (quicker route to market), substantially smaller capital expenditure on infrastructure development and a smaller project footprint. Benefits to the end customers of the natural gas delivered through the smaller scale chain include a potential opportunity to share upsides that arise from switching over from expensive liquid fuels like diesel to lower cost LNG and also the opportunity to project a “green” image of their company on account of utilizing a less polluting fuel. Having said that, the successful implementation of a smaller scale value chain has its own set of issues that need to be addressed. Firstly, a majority of the small target customers may not have the appetite to participate in the 24
development of the value chain. Secondly, these customers may not always have the capability to invest in the necessary fuel conversion technologies at their facility. Thirdly, from the point of view of a project developer, there may be an issue of the credit worthiness of the small gas consumer that the project intends to supply gas to. Lastly, smaller customers may be unwilling to commit to long term contracts that underpin the development of the potential small scale LNG infrastructure.
Case Study – Small Scale LNG Using the Break-Bulk Option Except for the islands of Java and Sumatra, Indonesia lacks an established pipeline infrastructure. Hence, power plants resort to utilizing No. 2 (diesel) and No. 6 (HFO) fuels that are not only expensive, but are a cause of some serious pollution as well. Fuel oil cost run-up and shortages in recent years have sensitized power generators and governments to the need to diversify fuel choices and source cheaper alternative fuels. A large potential for development of small scale LNG infrastructure exists in the northern and eastern part of the nation, which has a number of stranded gas demand centres (power, mining). On the regasification side of the value chain, a number of options exist where break-bulking larger LNG cargoes can be carried out. For our case study (Figure 3) we have assumed:
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is still substantial rent that can be shared between the project stakeholders (Figure 5).
a. Regasification terminal has existing break-bulk facility b. Stranded power customer located ~450 nm from the terminal. Potential LNG demand – 0.4 MTPA c. Smaller 3000 cubic meter ships carry the LNG to customer location d. Last mile connectivity achieved using small scale trucking option with vaporizers located at customer premises Small scale LNG implemented using the break-bulk option from a regasification terminal in Indonesia reflected favourable economics until 2013/14 in a US$ 100/bbl oil world (Figure 4). The LNG price assumed is 12% JCC + US$ 1.00. The potential upsides arising out of switching fuels from diesel to natural gas was in the range of US$ 6.03 per MMBtu.
Conclusion In the current oil price scenario, the small scale LNG concept undergoes a stress-test by facing stiff competition from reduced prices of alternative liquid fuels. However, if implemented using the right technology option, the small scale concept has economics in its favour in spite of low oil prices. Project developers need to continue focusing their efforts on development of a small scale LNG value chain by being innovative in their concept implementation approach. With a number of global LNG supply projects slated to come on stream by the end of this decade, prices will remain competitive, thus making the case of LNG adoption even stronger.
References 1. The Emergence of Small and Mid-Scale LNG in Asia – presented at the APAC Small and Mid-Scale LNG Conference, Singapore (May 14, 2015)
With the geo-political situation panning out as it has over the past 10-12 months, we are currently living in a sub US$ 50/bbl oil world, which has led to a consequent decrease in liquid fuel prices. It should, however, be noted that the drop in liquid fuel prices is not in proportion to the drop in the prices of crude oil as typically the prices are linked to an average of historical prices and includes several elements of taxes and subsidies. For this reason, in the current scenario, although the economics do not stack up as they do when oil is at US$ 100/bbl, there
2. Developing A Cost-Efficient And Productive Floating Hub and-Spoke Model for Asia – Pre-Conference Workshop on LNG Carriers & FSRUs (June 24, 2014)
Bibliography • http://www.bp.com/content/dam/bp/pdf/Energy-economics/ statistical-review-2015/bp-statistical-review-of-world-energy 2015-full-report.pdf • http://www.gie.eu/index.php/maps-data/gle-sslng-map • US Energy Information Administration (EIA)
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Protecting the LNG Value Chain through Proactive Risk Management By Reza Simchi, Principle Consultant, Facts Global Energy Singapore
Recent market developments have evermore highlighted the risks inherent across LNG’s value chain. Low oil prices have threatened investment in upstream activities and downstream we can observe increased usage of alternative fuels such as diesel and fuel oil. Moreover, lackluster demand combined with uncertainty caused by downstream market deregulations in Asia have increased the risks for both buyers and sellers. Such developments combined with the rigid structure and illiquidity of forward contracts have made management of such risks more difficult. As such, LNG risk management has been taking center stage in LNG value chain management. Among the traditional methods one could mention S-curves and DQT/UQT clauses. In addition, newer areas such as more contract flexibility, active spot markets and exposure swaps have come to see the light of the day. This article briefly discusses a few of such methodologies from a more quantitative point of view.
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Forward Exposure Management One of the main issues of exposure management in the LNG industry is the lack of a liquid forward curve for LNG. In fact, long term forward LNG contracts are still predominantly oil-linked whereas the LNG spot market is based on short term supply and demand fundamentals, as depicted in the following graph.
Under Scenario 1 of the above graph an LNG buyer would try to maximize its UQT and avoid the spot market. However, under Scenario 2 (current market conditions) the same buyer would exercise his DQT and benefit from the spot market.
Contract Flexibility Flexibility in LNG contracts can offer both operational and financial benefits. These include diverting cargos to proper demand centers or those of higher value, optimizing of storage tanks and meeting of seasonal demands. Let’s consider a buyer who needs to decide how to match his summer LNG demand profile. The buyer needs to strike a balance between his long terms and spot market as well as making optimal use of his storage facilities. The following graph depicts the problem that needs to be solved.
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Let’s assume a buyer who is targeting a long term $10.50/ mmBtu LNG portfolio and needs to decide the portion of Henry Hub pricing in his portfolio. As such, the buyer needs to optimize his portfolio such that his cost of procurement, seen as of today, stays around $10.50/mmBtu and is such that his price risk stays within his risk tolerance limits. The following graph demonstrates a few scenarios and their associated outcomes.
To solve such a problem the buyer needs to consider all of the options and arrive in a decision matrix illustrated below.
Each strategy in the above table will have its own drawbacks and benefits and the ultimately chosen one is the one that meets the buyer’s requirements the best. From a financial value stand point the following picture compares a few of such strategies.
As the above graph shows, depending on the market conditions there may or may not be an optimal portfolio mix. Moreover, when there is a solution, such a solution depends on the buyer’s risk tolerance.
Needless to say the impacts are material and can make a difference to the bottom line.
Conclusion As the LNG markets are evolving fast and the risks for market participants are becoming more pronounced, proactive risk management has become an essential part of protecting the LNG value chain. Moreover, proper risk management not only can protect the value but through optimization can improve market participants’ bottom line.
Hybrid Pricing Rapid development of liquefaction in the USGC has introduced Henry Hub-based LNG pricing to the market. Moreover, JKM and European-based pricings such as NBP and TTF have been on the rise. As a result both buyers and sellers need to strike a balance between their pricing formulas and their associated risks.
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Gazprom Germania Supports Russian Language Competition
The winners of this year’s Bundescup Russian language competition are Catharina and Morris from the German federal state of Saxony. The students beat 15 other teams from throughout Germany at the final at Europa-Park on the last weekend of October to win a seven-day educational trip to Moscow and St Petersburg next year. The second and third-place winners also won trips to Russia. The Bundescup “Spielend Russisch lernen” (“The fun approach to learning Russian”) Russian language competition is organized by the German-Russian Forum and has been held annually throughout Germany since 2008. Players participate in teams of two – one who already has knowledge of the Russian language, and one who doesn’t. This approach gives young people who have no prior knowledge of Russian an easy start to learning a new language. “The Bundescup Russian language competition is about cultural exchange between Germany and Russia. Two young people learning each other’s language together brings both closer, promotes mutual understanding, and nurtures cultural coexistence”, says 28
Burkhard Woelki, Director of Corporate Communications at Gazprom Germania. The company has sponsored the language competition since 2008 and invites the winners of the regional heats to the grand final. Since 2013, the grand final has been held at Europa-Park in Rust, near the city of Freiburg in the South-West of Germany, and has seen the contenders embarking on a rally through Europe featuring the blue fire Megacoaster powered by Gazprom, white water rafting in the Norwegian fjords, and the vastness of space with Russia’s Mir space station. To end the event, all finalists meet at Gazprom’s interactive Experience Energy pavilion at Europa-Park, where they learn about natural gas and its diverse applications. This year, about 5,000 students from 202 schools around Germany have taken part in the Bundescup competition. It aims to promote the Russian language in Germany and generate new potential for cooperation between both countries. 15 ministers of education of German federal states have taken over patronage of the Bundescup.
December 2015/ Vol. 8/ Issue 6 – COP21 Special Edition
BLUE FUEL
BLUE FUEL www.gazpromexport.com | newsletter@gazpromexport.com +7 (812) 646-14-14 | comm@gazpromexport.com
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