The Impact of US LNG on Russian Natural Gas Export Policy

welcome everyone thank you for joining us today my name is Amy Jaffe and I am the co-chair of the women and energy steering committee here at the center for global energy policy at Columbia University I'm also the David Rubenstein senior fellow for energy in the environment and the director of energy security and the climate change program at the council foreign relations today we're going to talk about the impact of u.s. LNG on Russia natural natural gas export policy we have a set of very distinguished experts and I will introduce them in a moment growing supplies of liquid natural gas from the United States and other countries have had dramatic implications for global gas markets especially around pricing and flexibility of delivery in particular the changes underway have important implications for traditional dominant players like Russia one of the top suppliers of gas to Europe today we will discuss how Russia how Russian monopoly firm gas problem will respond to rising competition of new LNG producers let me quickly say about our format today like all of the events at the center we are being webcast live both with full video and a podcast recording will be available on our website and on iTunes in coming days and for those of you watching online as well as people here in the audience you can ask a question for the panelists at any time using the hashtag cg EP events or our twitter handle at columbia you energy I'm pleased to announce our panelists today we will begin with the presentation by dr. Tatyana Metro v''e she is a fellow here at the center for global energy policy and 20 years experience writing about and commenting with very high accuracy on the global and Russian energy markets she her research covers production transportation demand energy policy pricing and market restructuring she serves as director of Skull covo energy center in Moscow we will she will be joined after her prepared remarks by sorry dr. Timothy Frye who is the marshal de human professor for post Soviet foreign policy here at the Columbia's political science department dr. Frye specializes in a wide range of topics but is one of the premier scholars working on public opinion polling in Russia so has some very interesting insights to contribute today and our final panelist is IRA Joseph who was a fellow here at the Center for global energy policy in his full time capacity he manages Pyrus european energy service which includes distinct services on european natural gas european electricity and he also is a leader in piracy service IRA is co-author of Pyrus 2013 liquefied Henry hub study as well as the 2007 globalization of gas study so with not without further ado I am going to ask tatiana to come up and begin her presentation thank you Amos thank you for this introduction and thanks to everybody for coming here in the morning so I'm really very pleased and very happy to be here and to share with you some thoughts which are actually in a 50 page publication which is ready to to be published but it will be very interesting to get your feedback your ideas so please feel free to ask questions I really want to make it more interactive and to have you involved because actually the topic we are going to discuss today it's fascinating so how I think you all heard analysts talking about price war between Russian gas us LNG that was the hottest topic for the last I don't know three four years I believe the probability of the price war is not that big frankly but I am absolutely convinced that everything that has happened with the US LNG during the last let's say five seven years it has tremendously affected the Russian gas export policy and I would say it has affected it to the better so that was very constructive and that was very helpful and positive both for the Russian gas export strategy and for the global gas market development so just a few words of introduction so just look at these graphs actually US and Soviet and Russian gas production was very close so you see they were competing for number one in the gas output for many years and just recently us took over so it is now number one in terms of gas output while in terms of exports that was completely different so Russia was player number one in the global gas trade primarily pipeline gas and only recently you can see this spike in the US gas exports so they've never actually being the largest gas producers they never until recently have faced any direct competition so we are now entering an absolutely new phase in the global gas market environment when suddenly instead of one dominant player we have two really very inferior influential very flexible very big players coming to the market and of course it well will have consequences for the market itself actually until recently the impact of the u.s. LNG on the Russian gas export strategy was more say it was a bit theoretical so the influence was there definitely but it was not a direct competition of the US and Russian gas moleculus it was more anticipation and expectation that US LNG will come to the market and this expectation this psychological factor itself has made a lot in transforming the global gas environment and Russian gas export strategy so first of all the first example was the huge Stockman project which Russia was carrying on and the stakes were really high the project was supposed to produce up to 75 million tonnes of LNG one project so you can imagine and it was all targeted at the US market but then shale revolution happened and the u.s. became self-sufficient and gas so the project which is quite expensive and technologically challenging it was stopped but the other things started to happen beginning from 2009 when there was a major downturn and the global economic activity and European gas demand went down actually these expectations that soon there will be more LNG available on the market forced gas Brom to start to revise its contracts the customers were absolutely unhappy with the oil indexation so they were pressuring on Gazprom requiring contractual revisions to go for hybrid pricing to reduce take-or-pay obligations and some other things to remove destination clauses so gas prom had to go for that because first it tried to resist in Europe it tried to protect its old-fashioned way of making business and selling gas and it began to lose market share from 2009 to 2013 its share dropped from 30 percent down to 23 percent which was quite sensitive I would say more importantly it has created a huge pressure on Gazprom domestically so a lot of criticism on this inertial slow unofficial marketing in Europe a lot of criticism of course coming from Nova tech and Rosneft which are major gas prompts competitors of the domestic market they do not have export access while gas perm does so of course they felt jealous and they were criticizing Gazprom quite strongly so Gazprom had to go for contractual revisions during the this period from 2009 till 2015 it has actually revised at least three times all its long term contracts providing at least 25% price discount and reducing the tako pay obligations so there was a huge work done they were very interesting and sophisticated schemes of pricing implemented like this retroactive payments when the customers were paying for gas at oil linkage but then at the end of the year compensated for the part of the gap between hub price and long term oil linked price so they were very interesting ideas but anyway they were bringing Gazprom's pricing more closer to the market pricing to the hub pricing and right now I would say in Europe there is no single oil indexed contract left they are all hybrid with a different share of spot pricing in the formula but I would say Gazprom seems to be monitoring very closely these development and this gap between hub prices and will and their long-term contractual prices trying not to allow this gap to become too big so that it would undermine its competitive position the other outcome of the u.s. LNG expectations was that Russia speeded up several of its pipeline projects so it was like Oh Americans are going to target this market so we have to secure our position we need to be flexible we might have to compete on price so we need to have spare capacity in order to provide more additional gas and I believe so that was the case in Europe I believe that partially that was one of the arguments for speeding up power of Siberia going to China so it's not only the European market where this idea that we we can relax we cannot just sit and wait because otherwise they will be competing gas coming from from the US and conquering the market which we are regarding as our natural market I've mentioned already domestic pressure on Gazprom which also had a very interesting consequence which is Russian allergy development so basically since 2009 when the first LNG project was commissioned and sahal in Russia is in the club of LNG producers but then there was a very long pause so nothing was happening there were some projects including Stockman on the table they were under discussion but they were not proceeding and Gazprom was always very slow more focused on the pipeline business not actually that keen and enthusiastic about going for LNG so finally this domestic pressure and this changing environment has incentivized Nova tech to step in and they've managed to convince the country's leadership that they can do it they need some support some tax breaks and help in the infrastructure development they were provided all this stuff and they've made a miracle I would say so building such sort of a project on time on budget in Arctic that was unbelievable frankly know all the analysts thought that they will deliver but they did actually the second train was commissioned in August ahead of schedule which is absolutely extraordinary so they doing a really good job and they they've announced in December very strong ambitions to expand this allergy production in Himmel and in Gidon so the first project which is Amal LNG it's 16 million tons but they are now talking about going up to 70 80 million tonnes altogether Arctic LNG to Arctic LNG one article in t3 so the reason number of the further projects they have secured the resource base they are working hard on the cost reduction and yeah so they've they've proved that they can manage such type of projects so at the end of the day what we have is that the very promise of the u.s. LNG has already made Russian export policy more diversified it bring in these competing players like Noah Tech it made gas prom it forced Gazprom actually to become more flexible more market oriented because otherwise it was losing the market and once again before even the first cargo from Sabine Pass reached Europe or Asia so that is a really a very unique situation and let's take a look how it could evolve in the future so actually the European gas market I will mainly focus in Europe because this is probably the main battlefield if we are talking about this competition it consists of two segments long term contracts and spot supplies and Gazprom has actually secured an amazing very strong portfolio of long term contracts so you see these minimum minimal contractual quantities this gray area me know minimal contractual quantities of the Russian pipeline gas that's a lot and they are beginning to expire post 2030 so most of these contracts are really lasting going forward and you see that basically the market niche which is not contracted it's rather tiny so the the real room for competition for a normal competition because the customers are obliged to off take this gas this minimal contractual quantities take up a quantities from the long-term contracts these contracts are very how to say very well protected so we couldn't we will look at me made a special study looking at the legal issues and whether they could be terminated no way so they are designed so that they are there to stay there could be different changes in terms of pricing there could be adjustment in terms of this level of take-or-pay volume it could be it go down from 80 percent or 75 50 percent so that's possible but the contract will stay there and that means that basically this very room for competition is very much limited so Europe is locked in these long term contracts in it has no way out actually in the foreseeable future and moreover even for this part which is the competitive area this market this free market niche Gazprom has a very good competitive position in terms of costs so right now they are pricing their gas with a some mixture of oil indexation as port indexation but actually their real costs are well below these price levels and you see that even with the export duty which is this light yellow area two point one dollar per member to you so that's the state's take even with that gas Proms pipeline gas is extremely competitive so maybe Nigerian LNG is cheaper and Qatari analogy is also very competitive but Russian gas seems to be extremely competitive both on the long-run marginal cost basis so if you look at the full cost including investments and if you look at the short-run marginal cost basis so avoiding like let's forget some costs let's skip all the confection costs because they are also long-term contracts so forget about that but that could be applied similarly to the transportation costs of Gazprom so these pipelines have paid back for like three or four times already they are completely amortized these are sunk costs actually upstream investments in Himmel for example in Bowen and cava are also sunk costs already so here again Gazprom seems to be competitive when you are comparing apples to apples it is quite clear and moreover I wanted to show you this graph that actually Gazprom has made a unique thing it was strongly criticized for that by the way domestically in 2008 they've decided that okay we go for benign cover development bhavani Ankara is the major field on Himmel peninsula which soviet union was looking at since 1980s and never actually stepping in because it is so huge and it is really in the middle of nowhere with the permafrost with everything any construction everything needs to be brought from the continent so it's really very unpleasant environment so exactly in 2008 right before the oil prices drop down Gazprom made historical investment decision we go for Yamal and that was above hundred billion dollars so I mean the whole project including all infrastructure development aids something tremendous Gazprom went for this oil prices collapsed so these investments became a real pain but once they began already they couldn't stop they had to deliver that so in 2013-14 they began the first production now they are building it up I believe last year it was approximately 80 billion cubic meters on plateau of this field alone bhavani ankov is able to produce 100 30 BCM so that's huge it's like comparable to all Russian gas exports to Europe and it's more than Norway is producing just one field can can even mention but what is most interesting just look at this graph that even assuming all these investments assuming that gas prom so you know there is a discussion that oil companies are not investing enough right now and that we are going to face deficit of oil and gas because the investments were cut and so whether they will start invest right now or not gas prompt has invested in 2008 and it is the first basically among the global oil and gas companies which is already in the next investment cycle so all these investments can be regarded already sunk investments they are made they are already approaching Plateau production which will be there for like 30 years so the reserves are really very very big and look at the costs what happened with the costs of this new gas so it is Gazprom's average cost it is old gas new gas altogether so there was a spike in the cost in 2013-2014 but then due to the ruble devaluation actually they went down and right now we can say that on average gas Proms gas its upstream part so it is production and all the taxes that are applicable they are below dollar per member to you and this slightly less than dollar per member to you is there to stay for let's say like 20 years so Gazprom has secured that amazingly cheap resource base for a very long period of time to come and in terms of its strategy I'm quoting here uliana bro Mustafa who is CEO of Gazprom exports and I think it says very clearly we need our market share and once again the bets are very high gas prom cannot allow to use market share again because then it will be facing very severe criticism domestically from Rosneft and nova tech requiring to lift export monopoly because gas promised miss performing so they have to keep this market share even if the prices are going lower they are not interested in expanding this market share for a very simple reason they understand that European customers and antitrust regulation will not allow them to do that everybody is complaining about too much being dependent on Russian gas so one-third seems to be like a mutually acceptable target and they will try to keep with it by the way last week last year it was 34% so they slightly exceeded this because of the price environment I will come to that on the next slide so summing up what is happening in Europe and what is the strategy basically I cannot say that there is one strategy there are different strategies depending on the market situation and in this respect Gazprom is very reactive it's not proactive actually it is well its opportunistic behavior it's trying to adjust to the market so until recently we were in this upper left corner with low oil prices and high Asian demand we're basically Gazprom didn't have to do anything so all LNG was going to Asia Gazprom's contractual prices which are linked to cheap oil were really very competitive they were below TTFN so all the customers were absolutely happy to offtake Gazprom's gas there for the last two years Gazprom was demonstrating record export volumes in Europe so this year in seems to be something about 200 million cubic meters so that includes actually former exports to Ukraine which are now going to Europe and then as reverse flows going back to Ukraine so there are some statistical tricks but basically anyway Russia's gas exports to Europe in this part of the matrix are increasing without once again any additional marketing efforts but that doesn't last for a long time so we see already that we are moving to the upper right corner with higher oil prices and the gap between gas Proms prices and TTFN prices hot prices is increasing so here once again Gazprom will have to start this contractual revisions price adjustments some providing some discounts so there will be increasing competition as the margin in Europe in this case is becoming bigger but it seems that Gazprom is prepared is well prepared and it has already enough experience to adjust in this situation as well the really bad and difficult situation starts when we go to the lower side of the matrix what if Asia and demand slows down that could happen because we know that Asian demand right now is driven primarily by China that means by the Chinese by the political decisions of the Chinese leadership so the last winter this decision to switch from coal to gas in the heating sector that was the major driver of this amazing LNG demand growth but will it be consistent with the higher oil prices I am not that sure so that could happen not even mentioning trade wars economic slowdown and other unpleasant stories if oil prices are low this is very similar to the upper right corner so Gazprom will have to adjust more prize discounts being more flexible voluntarily decreasing contractual prices but that's that's all manageable but the real problem begins in the lower right corner and that is exactly the part of the matrix where we could see price war for a period of time because you see this combination of high oil price and week Asian demand would Allah is unlikely to last for a long time but that could be a period of the cycle one year two years when actually there will be not sufficient demand growth in Asia and all LNG will go to Europe and the stakes are high the prices are high so the margins are very attractive so the companies will really fight for this market by providing price discounts going for price dampening as I've shown Gazprom has a very big room for price discounts so it could easily go to three point five dollar per but to you as it did already in 2015-2016 just due to the lower oil prices it is very close to their breakeven but theoretically they could go even below that just to protect market share not to allow competitors to conquer the market so you see that it is all very liquid it is all very fluent but what is interesting once again it is about market competition it is about price adjustments it is actually illustrating that for the first time in the history gas market is becoming truly global so it's not just European domestic issues that drive it it's really much more globalized which is good I believe and it is actually it is providing some hopes that due to the increasing competition and variety and diversification of both supply sources and demand there will be the the gas market will become more well liked and the customers will step-by-step quit this perception that gas is a politicized fuel so if you have a choice it's not that important and actually the case of Lithuania has demonstrated it quite well when the guys built FS ru and started to import LNG from the US they've obtained much better price from Gazprom Gazprom had to reduce its price for approximately 30% they are still buying some LNG from the US on the seasonal basis it's not a big part of their consumption they are still mainly reliant on Gazprom scale pipeline gas which is cheaper but they know that they have this choice and if something goes wrong if Gazprom starts to execute its market power they can switch to LNG so that is really providing confidence for the customers and that is expanding potentially market for gas which is competing now with coal with renewables so it is not like demand for gas for gas is not granted so this more liquid more profound market for gas I think is very positive outcome from this competition and this market competition that's something we should welcome so there are some takeaways on the Gazprom strategy in Europe but actually what I wanted to say to finalize my presentation is that if there are markets ruling if it is like a fair competition between the largest producers with huge resource base with a huge transportation infrastructure with this enterpreneurs period and looking for different creative decision solutions that's perfect but what is the danger if it is actually if the US will apply the same methodology which Russia was applying to its gas exports making it a political tool so when you are not saying here is my gas is price here are my conditions so flexibility and tech okay well II volumes destinations and so on if you're not competing in this market environment but if you are going to say that these gas is good these gas is bad this is a gas of Liberty and this is gas off I don't know totally tourism then it will actually move us to this vicious circle to the security spiral and unfortunately I have an impression that that's exactly what we are observing during the last let's say half a year I think that is very destructive for the gas market itself because I saw already like Japanese customers German customers saying oh my god so we had Russia exercising this gas weapon now we have the u.s. pressuring on us that we have to buy the US LNG because it is good so okay we would better go for renewables because that's too politically sensitive dangerous and who knows how these big guys will solve the energy or political issues so I'll stop on that and yeah would be happy to discuss further all your questions and comments [Applause] Donna trova director of the skull Kovu Energy Center in Moscow and the CG fellow dr. Timothy Frey chair of the Department of Political Science and Marshall Schumann professor of post-soviet politics at Columbia University and IRA Joseph C gep Fellow and global head of gas and power analytics for S&P global Platts we are discussing the impact of US LNG on Russian natural gas export policy we will have a conversation amongst the panelists and then open it up to questions from the a little bit for those here in person if you have a question raise your hand and we will bring a microphone to you at your seat for those watching online again you can use the hashtag CGP clips or excuse me see gep events and our twitter handle at columbia you energy to ask a question so I'm gonna start our discussion by asking the panelists a few questions tatianna my first question is something that you didn't mention specifically in your talk so the LNG market is going to be quite flexible you're going to have players that will pivot between Europe and the Pacific market based on price trends do you see your mouth LNG making those same kind of pivots or do you think they will specifically focus on the Pacific Marc thank you that's a really good question well look they would love to do that but the reason limitation which is called northern sea route so they can't go to arc tear through this route to Pacific 12 months per year actually right now it's open for for six months maximum they are working hard together with rasa tahn float with the nuclear icebreakers to make it open for nine months but that is requiring nuclear icebreakers going back and forth and keeping this route open and anyway there will be some gas going to Europe some energy going to Asia it is they have contracts both with the European customers with the Chinese with Japanese customers so I think it will be quite flexible and basically you've seen already that this market can bring very big surprises in terms of where exactly the LNG is heading so you remember this Yamada land G actually which was resold three or five times and ended up in Boston last winter so and that's normal I mean if you remove politics from that that is perfect that's exactly how the liquid market should work well I have a follow-up question of a similar nature for you IRA in the long run are you expecting Europe to focus specifically more on Russian pipeline gas because the price consideration is that tatiana mentioned or do you think there will be a greater emphasis on LNG in the long run I think it'll be a combination both I I mean Europe Europe what demand isn't necessarily gonna grow Europe when you saw Tati on a slide it was like it may grow a little it may drop a little bit more or less demand the long-term outlook for demand so you're just talking about replacing existing supply in them in the market so reduced Dutch supply of reduced UK supply and by mid next decade probably reduced Norwegian supply and so there'll be a combination of both there'll be a more Russian gas pipeline gas and they'll be more LNG now will that the question of course becomes will the LNG come from the US or will it come from Nigeria Algeria Trinidad somewhere else in the Atlantic Basin the answer is is that that it will come from you know all of those places and and the price competitiveness of u.s. LNG relative to other LNG players is as important as its price competitiveness against Russian gas so it'll be it'll be a combination of all those things in terms in terms of can't really think growth but in terms of supply replacement of the sort of traditional suppliers to the market alright dr. Fry now I'm gonna go to the political context of this tatiana raised a very interesting idea that in europe the best way out of the box is to go more forcefully for renewable and so my question for you is in light of that context that Europe's obviously perceiving a strong rivalry between the United States and Russia and energy how do you think that new rivalry because we've never had an energy rivalry between two major powers that had a larger footprint we've seen a Venezuelan Saudi rivalry we've seen an Iranian Saudi rivalry we've seen an Iraqi Saudi rivalry look this would be the first time we had two superpowers in an energy rivalry how do you think it'll affect the us-russia relationship a great question because what's novel is not just the rivalries that you describe but yeah the US and Russia don't really compete economically on any fronts that historically have not so in this way it is you know very much a novel situation in my sense is to the extent that the global last Martin gas market is truly becoming global and truly becoming a market it's harder for politicians to politicize these issues and they still can of course and the extent to which this issue becomes politicized well not dependent so much I think on the energy market as it will on other issues so when the when there's conflict over geopolitical issues then you will see incentives on both sides to politicize the gas issue as one where we're directly competing with the other side and we need to get ahead because we're we're rivals however if the relationship improves then I don't think you know you would see this being a real cleavage between the US and Russia you know to the extent that this is a global market and they're both big players but you know there are other players as well they're renewables there are other you know 10 or 20 years ago then I think the scenario of this really being a big wedge issue would have been a lot more lively with the liberalisation and the technological advancements and all the changes that we've seen I think the incentives for that go down so it'll be a hostage to politics but not in this market but probably on other issues so IRA follow-up question for you as we've talked about this sort of increasingly competitive LNG market there's some questions about what is the number at which US LNG competes because if you start taking the Henry Hub price and adding shipping costs to it and then you build in return on investment on LNG you know the United States looks pretty uncompetitive but can you foresee any scenarios where as Tatyana mentioned the United States gas would go down to you know you know look away from its sunk costs we're gonna have basically waste gas in the Associated fashion in Texas and some other locations where the shadow price will be essentially zero and possibly negative how do you think that will affect the competitiveness of US LNG pricing in in if we had a slower market well it does I mean that the distinction between Henry Hub prices and US gas prices is really the important one there because you have a situation where most of the decisions about being made about higher US gas production are predicated on oil oil prices in oil production because we have an inverted relationship now in the future at least in North America between oil production and gas production and oil prices and gas prices the higher oil prices are the more gas that's going to kick off and the more gas that kicks off the more bearish that is for gas prices I mean right now as it stands even in West Texas I mean gas is only contributing you know in a wet gas field there there it's only contributing maybe five or six percent of the total revenue of the well and we're gonna get down to something like two or three percent or even lower than that so it's really again about oil and so the issue is is sort of you know where do we start from the first generation of big US LNG exports from from the US Gulf Coast were priced at a premium to Henry Hub the next generation I would imagine should probably not be priced that way that would seem to be a little too high of a price to start from you basically want to look at a waha price which is the West Texas hub plus transport to the US Gulf Coast as kind of your starting point in the price and that price is going be below Henry Hub which of course makes us LNG exports more competitive because you're starting with a lower excuse me the commodity price start with a lower commodity price the delivered price to anywhere you go in the world even northwest Europe or even you know far farther east into Germany Poland or Lithuania you're gonna get a much more competitive price as tatiane pointed out the price for Russian gas can go very very low on a cost basis and while Russia historically has never ever competed on price they have never been sort of aggressive price Hawks in the market if the market got too low they pulled gas off the market and that and that supported price and I would imagine that would be a strategy that they would they would turn to in the you know in the future as well in terms of flowing gas into the market but the u.s. second generation projects yes on a long-run marginal cost basis I think are highly competitive but so is so where the Qatari expansion so are some of the Russian expansions and these are sort of the three sort of building blocks I think of you know where we're going to go in terms of LNG production in the future so Tatiana you know in the Russia's face sort of as we look out into the future face sort of some very interesting trade-offs you know you mentioned the gas problems desire to you know hold a fixed market share in Europe and as I was discussing that could mean at a much lower price than they might be imagining today in their minds and that leaves a sort of a conundrum for the Kremlin which is you know what matters the most you know your schematic of the high price oil price scenario and the low oil price enero and a high price oil scenario bringing a much more competitive market possibly for gas I mean if those circumstances come to be is the emphasis still going to be on oil revenue and a higher oil price overall because if it's important to the economy or with the geopolitical importance of natural gas be a factor weighing in that's a perfect question so in 2009 facing this increasing competition gas problem the government by the way decided that they go for price maximization strategy so they really they cut it supplies to the market and well basically the the montes Europe it is price elastic but not that price elastic so if you reduce prices two times you do not get twice la Jordan at all yeah there will be slight increase maybe five seven percent so basically from the purely economic point of view that was the right strategy but they've lost market share in Europe they were as I said gasp from God severely criticized domestically and so if you look at it not from the economic point of view but from the stakeholder management point of view you see that they won't be willing to repeat this experience they will try to avoid it even though the revenues will drop down probably but they will keep their position and the Russian state will keep this dominant position in Europe which is extremely important from the geopolitical point of view and actually if you compare oil revenues and gas revenues their importance for the budget oil is providing approximately like forty three forty five percent of the total federal budget revenues gas is responsible for five to seven percent so it's far lower so of course we are talking about billions of dollars but still it's not comparable with the importance of let's say OPA class and green okay I'm gonna throw a curveball here now we've talked a little bit about the importance of China's demand for the LNG market IRA I've heard you talk in other forums about China's broader role in the energy market so not just as a consumer but as an exporter of renewable energy technology could you elaborate on that I mean the Russia in the United States have to worry about China as an energy export rival yeah well this also ties it into Russia to a me because you know I interesting it would tatiana thinks about this too but i think sort of the the day that renewables took off was the first cut off between russia and ukraine and was hit was six new year here's a new year's eve i think it was had to go to work that day so that that really started to set off their renewables trend within europe which is now become global and and and the chinese government and chinese panel manufacturers really sort of embraced that and that's kind of where we you know we've gotten to a place today where we've we've almost had a fully complete switch from a world where gas or which is originally when the when the european gas market was expanding was competing with oil to a world where gas has to be competitively priced against renewables but now we've even gone past that where crises were a gas really at the at the margin is gonna have to compete with battery storage so that was a really sort of important changing point in sort of that the the evolution of the market and the decarbonization in the market to some extent as well so as amy and i have talked about you know we you can't really just look at china as an importer of energy and that's their importance there they are producer of energy they produce panels and that's that's a very important way to look at the market in the future because every year they're producing in in capacity of panels like the equivalent of like german power demand I mean these are we're talking a lot of panels and wherever they go they affect the growth of European gas your pink-ass them and they affect the growth of all gas demand because no longer you have to consider now you have to consider like renewables the base load supply for for power going forward and so you're going from a world where gas ten years ago was like oh well ninety percent of gas demand was going to come from power generation is going to be baseload 24 hours a day - now renewables is half of power generation growth around the world in our forecast going forward half of it in terms of capacity and now the gas portion which is a large component of that other 50% of the growth is only really fighting over now for like four to seven hours a day and not 24 hours a day so it got hit twice it got hit baseload and then it got hit you know and then it got hit on the number of that hit on the number of hours a day but then an underlying aggregate growth so I think if I think in terms of the Russia if they could go back in a time machine to 2006 and would have realized that this one thing would have caused all of this to happen in less than it well a little over a decade now I think maybe you know there would have been some different thinking on interesting thing to think about and also for Russia's path forward given the fact that Russia is the deep financial obligations to China are they perceived as an energy competitor and how do you see that evolving in the relationship going forward so I think that's a fascinating topic so I mean the energy transition and the role of Russian hydrocarbons not only gas but or also oil in the future that's the biggest question mark and I would say it seems that Russian government government begins to realize that the demand is not granted and actually all these transformations in Europe with the European gas demand they were very illustrative because if you look so first of all energy demand is not rising in many countries look at the UK look at France they they are actually their total primary energy demand is going down their electricity demand is going down even more surprising so these are mature economies with very good energy efficiency so basically the market which has been growing for 50 years suddenly it stops to grow and then we look at this competition between gas coal and renewables I wouldn't actually drop out coal because it is it is dirty but it's very competitive it's very cheap and still it performs quite well in Germany in Poland in China of course so that's a strong competitor and then if you look at the different ways how gas could improve its position when gas is priced at let's say $4 per member to you as it was in 2015-2016 with so many gas fired power plants go into the full load and yeah this spark spread is very attractive so that that's fine but while gas goes back to $8 per but who as it is happening right now then its position is far less secure and moreover if we imagine introduction of the co2 price which was actually made in the UK first you see that gas is very fast in squeezing of coal that happens but then the next year you see that gas is being squeezed from the market by renewables because differently from renewables gas from still has co2 contents so it's not that competitive so it's a very complicated mixture and the question it's really a question for the whole gas industry what is it going to propose in this whole energy transition except for saying that gas is bridge fuel which doesn't sound that convincing any longer so it has to prove why it is transition fuel when you have batteries which are becoming cheaper and cheaper and cheap and which can provide this backup capacities for which gas was always presented as like a necessary part for off energy transition then it's not that straightforward so I believe that gas industry has to do a very strong job on looking for green gas looking for beyond methane looking for hydrogen so there is some way how to survive in the deck urbanizing world but it is connected to a lot of innovations and cost reductions so should be a competitive value proposition which is not there in place and therefore you've mentioned this graph with the European gas demand actually my personal belief is that it will go down and as I mean you said the logical move of the European politicians which are looking at the US and Russia exercising their power in the gas market is okay we will go for pneumos and that's basically what they've have just announced so they've set the new targets to reach 32 percent of renewable electricity by 2030 which is like a day after tomorrow which means that they have either to close I mean we've made calculations they have either to close all the coal-fired power plants so you can imagine what that means or they have to lose half of gas fired power plants so it could have very strong consequences for the whole global gas market and as for China there is really it is very complicated relationship between Russia and China and Russia has been always very cautious in dealing with China it feels still quite disappointed during the last few years when the sanctions were introduced that China actually didn't help with the capital it was like staying as an observer not not actually going into the project or going only in those projects where it can get really good equity share as it was with no attack so Russia is not looking at its own domestic market as a big playing field so with cheap hydrocarbons it's not going to be a big customer on renewables but at the when comparing different scenarios for India for China itself for Europe for the non-oecd Asia Southeast Asia actually these cheaper and cheaper solutions especially solar solutions accompanied with the batteries they are becoming a very disturbing factor and they are all produced in China basically so it is a real competition forthcoming but at the same time for Russia as a hydrocarbon exporter China is now becoming the major point of growth so European market will not grow that's that's clear China can absorb a lot of additional oil a lot of additional gas so it is a very important client so here Russia will have to navigate in this very turbulent environment trying to build up relations with the best client but at the same time to compete on the other markets very very interesting discussion so I'm gonna switch gears for one minute because what the subject of sanctions was mentioned I'm gonna ask one last question to dr. fry and then we'll go to you the audience with questions dr. fry how do the average Russians feel about sanctions are are they working because the United States when it when it comes to the polling in Russia is the u.s. strategy on sanctions an effective one okay so thanks a lot yeah I've done some research on this and Russia is a great subject for studying public attitudes toward sanctions because sanctions usually get levied on Iran North Korea Sudan not places where you can do great public opinion research right Russia by contrast has a very well-developed a public opinion research and people are generally willing to answer lots of normal kinds of questions we ask so if you there's a claim out there that the sanctions have had a rally around the flag effect and allowed President Putin to keep his ratings up and my research hasn't shown that at all it's shown that the boost that President Putin has had over the last four years although it's come down recently is primarily due to the annexation of Crimea and has very little to do with US sanctions towards Russia so the interesting part though is that since 1992 one of the best predictors of support for first President Yeltsin and then for President Putin is the underlying state of the economy Russians react the same way people react in other countries the state of the economy has a big impact on how they view how they view the government and from my research I found that still the case if you remind Russians about fairly dismal economic performance since 2012 their support for the government and for President Putin goes down and that's true across the board people who support Putin people who are more skeptical they all reduce their support but they don't make the next step in saying that oh the sanctions are behind this they blame corruption they blame inefficiencies and in in Russian policy they blame lots of things but they don't see the sanctions having a direct impact on them because supposedly the sanctions are targeted they're hitting the hitting the via these particular oligarchs so in a way that the sanctions are having an effect on support for the Russian government in a very indirect way by slowing down economic growth most estimates suggest that the sanctions are contributing to around a 1% cutting off about 1% of Russian economic growth and this is an economy that's growing only by about 1% a year so that's a fairly substantial number but you know we don't see any evidence of a rally around the flag due to sanctions now if the this next round of sanctions the sanctions from hell were to have a much more visible impact we might see that shift but we'll have to wait and see you know what happens for that okay well let me open up to the audience when you have a question go ahead get the microphone and please speak into the microphone because for our podcast listeners thank you very much Gabriel after Reno's energy mentors formerly potent and partners ology I have a two prong question one which is medium term and what which is longer term for the medium term I'd like to hear a little bit more about the competitive strategy of Russia versus Qatar because both of them are really in the same bailiwick of expansions and existing assets and amortized the one difference that I'd like you to address is competition of dry gas LNG economics versus wet gas LNG economics which are positive and negative depending on what oil prices are doing and of course the fact that you have joint ventures with Western European and Asian companies in Qatar versus we remain to see what's happening in Russia the longer term question is exactly what ira talked about which I agree very much with China to be looked at not only as an importer but as an exporter especially for renewables in addition to solar panels they're also number one in wind turbines and if you combine their longer-term plan which is already in implementation stages right now the global energy interconnector domestically it says that something like about 2025 to 2030 you might be seeing China really spreading its renewable energy producer supply or exporter throughout Asia which means limiting the potential for Russia or Qatar or others to export LNG and combine that with the fact that you will probably by that time have more shale gas available in other countries than the US and therefore diminishing the requirement for LNG imports thank you thank you great questions so first on petition with cutter actually in my paper that's exactly what I am saying that we should not look that much on the competition between Russian pipeline gas and US LNG but rather and their competition with Qatar which is far more competitive and having much better economics so indeed competition with Qatar was very painful during the previous cycle in 2009 2011 it was Qatari gasps Qatari LNG taking over Gazprom's market share in Europe so it looks that the next cycle it is promising to be a bit different so there will be more players on the market we have cut our Australian US and Russia so that's a more interesting set Qatar historically likes to go to Asia so they have long term contracts and they move additional supplies to Europe only if Asian market is not able to absorb it because Asian market has premium normally so but it could well be that if Asian market goes slower that we will see more Qatari LNG in Europe especially assuming their plans on expansion so going up 210 million tonnes which they've announced recently but at the same time look this moratorium on dealing with Qatar this whole geopolitical situation and the region it definitely doesn't help there was just recently an amazing news that Nova tech has sold its latest LNG carrier I think was it Abu Dhabi yeah so it is actually it's a natural market for Qatar but for the political reasons it has to bring it from from from from Arctic so I mean there could be some political obstacles on the way of Qatar but basically if we remove politics Qatar is better-positioned LNG producer in the world especially due to this wet gas economics so actually draw the gas that they are liquefying is coming as a zero cost byproduct of producing natural gas liquids but I would say Nova Tech in this respect has very similar economics so Nova Tech is actually it has always been known inside Russia not even that much as gas produced about as condensate producer so it is very strong in natural gas liquids and it knows how to monetize them differently from Gazprom by the way so natural gas liquids in their economics in hematology and in the further projects also play a very important role so now going to your second question about long-term competitiveness of Russian hydrocarbons and demand for these hydrocarbons I am responsible for the global and Russian energy outlook which we are producing every year so that's a major exercise between Skolkovo and Academy of Sciences absolutely independent we are not paid for it it's just our own interest to try to look how how the markets will evolve and since 2013 our main message is look guys Russian hydrocarbon exports will not increase dramatically there could be some additional incremental growth but much slower not like 50 percent as it was in the first decade of this century it is exhausted the potential it is exhausted the role of hydrocarbon revenues in the GDP federal budget investments everything it will have by 2040 so there will be this sector is no longer able to be driver long-term driver of the economic growth for the country that's absolutely clear and it's both its unconventionals it is a Brazilian offshore Ghana so there are many new oil producers there are many new gas producers very strong pressure from renewables and electricity storage and energy efficiency is playing a tremendous role in limiting oil demand by the way so so there are many factors which altogether are actually narrowing this niche for Russian hydrocarbons so therefore what we are trying to deliver to the Russian leadership that we have to change the model because it will not long work for a long time okay I just want to follow up and see what's the response when you tell people that one gets you know initially late social is period everyone knew what the problems were and nobody did anything it's not an uncommon problem so so the first reaction in 2013 2014 was very negative so they thought that we are like foreign agents or something like that but then I would say we managed to change the perception so they are saying ok yeah we see that it will become more difficult and margins will shrink they Williams will not grow as much as we hoped so we need to become much more efficient we need to look for new market niches and by the way LNG is regarded exactly as the new market niche compared to the pipeline gas looking at hydrogen looking at renewables actually you know during the last two years Russia has made a very big step in developing renewables domestically and the public perception has changed so historically it was like a toy for rich nations that was the attitude now more and more people and especially students I would say so the younger generation they are all crazy about renewables and the raw big investment so they now building five gigawatt of renewable capacities and Russia so I think that finally the common sense will have victory in this battle but it takes time to change people's perception and in this respect popularization and education plays a very significant role I'm gonna take one last question which I'm taking from our online listeners online a question from Twitter about the role of changing currency on the accounting bases and the new contracts with Europe whether that's going to the euro or to some kind of Asian foreign exchange do you think the recent strength and the dollar or u.s. changjun's US sanctions will change any of the calculation on this currency aspect currency aspect is extremely important and I apologized that I didn't mention it during my presentation because it was actually falling rubble rate exchange rate which allowed Russia to become so competitive both in gas and in oil and actually in coal there is the recent years where the record coal exports because costs are mainly nominated in troubles so when your currency hopes then you are really becoming extremely competitive at the same time all the financial sanctions and problems with making deals in dollars they are really becoming more more visible so the reason actually a strategy I don't know how profound and well calculated it is I haven't seen it because it was made secret on moving on deadlier ization as it's called so moving to trading in euros in in any other in Robles actually any other currencies well I don't think that trading in Robles is very attractive for the customers given its unstable exchange rate but euros for me seem to be absolutely reasonable choice if you are selling oil and gas to Europe why the hell you nominate it in dollars so that makes sense and I am sure that there will be some steps and there will be probably new financial instruments and actually there is some promising development at San Petersburg Mercantile Exchange so they have oil trading they have gas trading it is very limited it is very so far quite artificial exercise but theoretically if it is more opened up if there is a bit more liberalisation on this trade that could become a good platform in dealing with the foreign customers in their currencies so I think there will be some way forward in this respect very interesting well I want to thank everyone for joining us as I mentioned the full video recording of this event will be available on the cge P website in a few days you can also subscribe to her podcast series on iTunes stitcher SoundCloud and other platforms this has been one of a number of great events we've been hosting in the coming weeks upcoming in best include the I EAS very timely in light of our conversation renewable energy market report 2018 the speaker will be heimi baja renewable energy markets analyst at the International Energy Agency and he was the project manager for the report that will be on October 26th from 9:30 a.m. to 11 a.m. here it's sefa in room 1501 and then a second event IEA is gas 2018 medium-term report and global gas security review the speaker will be John batiste do brielle senior natural gas analyst at the IEA on October 30th 6:00 to 7:30 p.m. at wool Hall in the East gallery we hope to see you again soon and please join me in thanking our speakers one last time [Applause]

Channel: Columbia SIPA

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Id: 1N_KcxCQK1Q

Length: 71min 16sec (4276 seconds)

Published: Fri Oct 19 2018