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World Natural Gas Markets and Trade: A New EMF Study Hillard G. Huntington Stanford University EMF, USA International Energy Workshop IEA, Paris, France June 22-24, 2004 The Coming LNG Tsunami: 4.8 Tcf (15% share) into USA by 2025? Resources Are “Centrally Isolated”

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world natural gas markets and trade a new emf study

World Natural Gas Markets and Trade: A New EMF Study

Hillard G. Huntington

Stanford University EMF, USA

International Energy Workshop

IEA, Paris, France

June 22-24, 2004

an integrated assessment will help improve decisions about
Anintegrated assessment will help improve decisions about:
  • Trends and relationships in regional prices
  • Where and when investments
  • Which investments will be most vulnerable to changed conditions
  • Which geopolitical constraints create the largest lost opportunities
  • How markets adjust to resource depletion in North America or delayed pipeline construction from Russia
  • Opportunities for Russia to practice cartel pricing
why model when geopolitics dominate
Why Model When Geopolitics Dominate?
  • North American experience shows when politics is costly:
    • Canadian export policy & price
    • Canadian uniform border price
  • Politics drives many global gas flows today:
    • Both Qatar and Trinidad supply USA and Spain (1999)
    • Competition encourages more north-south trading:
      • Middle East, Africa, Russia to Europe
      • South America to USA
      • Asia to Asia
  • Economics may overcome politics in some cases
    • Could Venezuela become like Trinidad? Possible.
    • Piping gas through Pakistan to India? Not too likely.
    • Political costs can be inserted to restrict gas flows.
are natural gas imports insecure
Are Natural Gas Imports Insecure?
  • Gas producers are more concentrated than oil producers
  • Resources concentrated in politically volatile regions
  • Most LNG capital resides in producing country (50-70%)
    • Foreign investors have high stakes
    • Infrastructure reduces supply vulnerability
  • Terrorists threaten LNG & other energy sources
    • Perceived risks are high; actual risks may be lower
    • LNG facilities versus railroad trains filled with fuel
where when to invest
Where/When to Invest

Price

  • Which projects will set the market price?
  • Project A is much more vulnerable to changed conditions than Project B.
  • Political decisions can be costly (Project C).
  • Since conditions change over years, timing becomes very important.

S

Losses

P

A

C

Larger

extra

returns

Minimal

extra

returns

B

D

D’

Quantity

north america a natural gas sink
North America: A Natural Gas Sink
  • USA has 10% more reserves since 1990, with additions outstripping production in 7 of last 9 years.
  • But US natural gas prices are higher
    • ‘Localized’ Resource Depletion in North America?
    • Or Higher Oil Prices? Are we running out of world oil?
  • EIA and NPC expect domestic supplies to meet only 75% of future USA demand: “a giant sucking sound”
  • Canadian imports becoming more costly
  • Mexico expects to use more than it produces
lng supply will affect price
LNG Supply Will Affect Price

Price

Price

North America

Forever:

NPC (1999)

AEO (<2004)

US Policy

Constrained:

NPC (2003)

Price

Price

  • World-Market
  • Constrained:
  • Geopolitics
  • Economics

Residual Supplier

Or “Tsunami”

effects of emf prices on lng netbacks source james jensen for lng facility costs
Effects of EMF Prices on LNG Netbacks*Source: James Jensen for LNG facility costs.

# Probably unrealistic since only Yemen and Iran remain in the running for new projects.

possible world and regional modeling analysis frameworks
Possible World and Regional Modeling/Analysis Frameworks

(pending final commitments)

  • Rice University
  • Charles River Associates
  • International Energy Agency
  • Energy Centre for Research in the Netherlands (ECN)
  • ECON, Norway
  • International Institute for Applied Systems Analysis (IIASA)
  • Argonne National Laboratory (AMIGA)
  • Energy Information Administration (NEMS)
  • Global Insight Inc.
  • Pace Energy Consultants
  • Lukens Group (North American Regional Gas)
  • Environmental Protection Agency/ICF, Inc. (IPM/NANGAS)
potential scenarios of interest
Potential Scenarios of Interest
  • Reference case based upon Energy Information Administration or International Energy Agency business-as-usual cases.
  • Lower pipeline capacity from all possible suppliers into Europe and lower Russian pipeline capacity to China.
  • North American depletion (or expansion).
  • Unrestricted LNG regasification and liquefaction capacities without any changes in pipeline capacities.
  • Cartel pricing by major countries, like Russia.
  • Any number of “surprise” developments: GTL, gas-fired vehicles, or displacement by coal gasification, nuclear or renewables within power sector.
a concluding comment
A Concluding Comment
  • “All models are wrong, but some models are useful.”
  • EMF goal: identify those frameworks that add value and on which issues.
  • Focus: the user who makes decisions.
  • Compare results to learn about market rather than discuss detailed model outlooks or structures.
emf process revolves around working groups
EMF ProcessRevolves Around Working Groups

Experts

Modelers

Corporate &

Policy Advisors

Intergovernmental

Panel on Climate

Change

Council of Econo-

mic Advisors

Corporate Affiliates

& Government

Sponsors

EMF Working

Group on Topic

Stanford

EMF Staff

analysis for insights and decisions a communication bridge between developers and users of analysis
Analysis for Insights and DecisionsA Communication Bridge Between Developers and Users of Analysis

1. Compares Different Approaches

2. Develops Important Insights

3. Identifies New Research

Analysis

Users

Analysis

Developers

Critical Decisions

Structured Thinking

comparing natural gas models

Results

Scenarios

Models

Comparing Natural Gas Models

Scenarios:

Low Oil Price

Low Drilling Productivity

High Growth (& Power)

High Oil Price

Expanded Frontier

Models:

NEMS (EIA) MUSINGS (CRA)

POEMS US MARKAL

EPA/ICF NARG (CEC)

CERI