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Geopolitical dimension of natural gas infrastructure

Geopolitical dimension of natural gas infrastructure. Sylvie Cornot-Gandolphe Principal Gas Expert International Energy Agency GIE Annual Conference Athens, 3-4 November 2005. Agenda. 1. The importance of cross-border gas trade 2. Main features of cross-border trade and their consequences

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Geopolitical dimension of natural gas infrastructure

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  1. Geopolitical dimension of natural gas infrastructure Sylvie Cornot-Gandolphe Principal Gas Expert International Energy Agency GIE Annual Conference Athens, 3-4 November 2005

  2. Agenda 1. The importance of cross-border gas trade 2. Main features of cross-border trade and their consequences 3. Do politics matter? 4. Conclusion: key role of governments

  3. The importance of cross-border trade Today over 68% of OECD European consumption crosses at least one border

  4. OECD Europe is becoming more import dependent Source: World Energy Outlook 2004

  5. “Ambre” Several new cross-border pipelines will fill the supply “gap“

  6. Importance and main features of cross-border gas trade Contributes to free and open trade • For producers: Allows to reach markets and earn revenues • For consumers: Reliable/ secure supplies • For transit countries: Stable income Also carries significant risks • Highly capital-intensive • Large up-front investment and subject to obsolescing bargain • Involved different jurisdictions/no overarching legal regime • Involved public and private stakeholders • Characterized by their long life • Mechanisms to share the profit and rent between the different players? • Natural monopoly (regulation) • Lack of flexibility (point A to B)

  7. Characteristics of gas pipelines and their consequences

  8. Five main overarching conditionsfor their successful realisation • Rules must be clearly defined and accepted by all parties • Projects must be driven by commercial considerations • Credible threats to deter obsolescing bargain • Mechanisms to create a balance and alignment of interests between the parties • Transparency of the terms involved

  9. So, do politics matter? • Only those pipelines which have a commercial basis will fly… • …But, only if they get strong support by politicians • ….Ideally, separation between the political and commercial roles of sovereign governments

  10. The Maghreb-Europe pipelineAn international successful project commercially driven… June 1992 • Sonatrach (Algeria) / Enagas (Spain) long-term supply agreement to deliver gas at the Algerian-Moroccan border. • Ministers meet in Hassi R’Mel decide to start the construction of the pipeline July 19992 • Signature of the Moroccan Convention: Moroccan government, SNPP (Morocco) and Enagas establish the procedures for the construction, operation and use of the pipeline • Setting up of EMPL as project leader and pipeline owner November 1994 • Transgas (Portugal) joins the project taking a 28% stake of EMPL’s capital stock November 1996 • Pipeline Commissioning: Algerian piped gas reaches Spain

  11. The Maghreb-Europe pipeline…Which needed strong political support Necessary Agreement among three Governments Algeria to supply Morocco to provide transit Spain to market the gas Guarantee of the Spanish State: Through Enagas /Sagane Declared of “public interest” in Morocco Supported by international financial institutions : mainly EIB European Union Priority Project: Essen Summit, Dec. 1994

  12. North European Gas Pipeline (NEGP) • Length: 1200 km • Capacity: 55 bcm (2 lines) • Expected start-up: 2010 (1st line) • Capital investment: €4 billion (offshore section) • Project finance basis for the offshore section • Capital structure: • Gazprom: 51% • BASF 24.5% • Eon 24.5% • TEN project

  13. NEGP: major uncertainties • Strategic importance for Gazprom: • Access to the largest European gas markets (Germany, UK, +others) • Direct line (no transit fees/issues, also no TPA) • Increased exports of Russian gas to Europe • Strategic importance for Europe • Access to Russian upstream • Diversification of routes • Additional gas supplies • Clear disadvantage: • Additional cost of NEGP compared with adding another string to the Yamal pipeline • And still a lot of uncertainties

  14. Conclusion: What can be done? • Active participation of Governments, Supranational Entities (i.e. EC through special financing vehicle) and Multilateral Organizations • Importance of multilateral legal regimes e.g. Energy Charter Treaty • ECT binding and non-binding agreements • WTO rules • Importance of harmonizing investment and trade rules • Reinforce international dispute resolution mechanisms

  15. Governments Should Contribute to: • Stable and sound macroeconomic policies • Need secure investment climate in host countries • Stability in fiscal regime • Stability access to hard currency, effective legal protection • Transparent and efficient legal, regulatory and institutional frameworks • Regulation on access to pipelines based on transparency, non discrimination and cost-reflectiveness • Removal of market barriers to cross-border trade • Effective enforcement of rights • Improving international political co-operation and dialogue with gas producers/transit countries

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