Energy Security: Markets and Policy Pierre Noël EPRG, University of Cambridge Critical Infrastructure Conference, London, 20 April 2011
Contents Global Oil and the Middle East European Gas and Russia Japan Disaster: Lessons for Europe
One global oil market Key implications Demand Supply 1. No need to secure access to resources 2. US does not depend on the Middle East 3. China s upstream investment do not reduce our access to the oil market 4. Embargoes are never credible 5. Supply disruptions are felt by all consumers 6. The market itself provides security alternative supply always available
Oil supply has never been so diversified 100% 90% 1973 100% 90% 80% 80% 70% 70% 60% 50% 2009 60% 50% 40% 40% 30% 20% Middle East OPEC 30% 20% 10% 0% Top 5 suppliers top 10 suppliers 10% 0% Data source: BP Statistical Review 2010
Middle East = 30% of world oil Middle East Oil Production, 1940-2009 30 50% Left-hand scale 25 40% MM Mbd 20 15 10 Right-hand scale 30% 20% Middle East ME/World (%) 5 10% 0 0% 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Sources: American Petroleum Institute, "Petroleum Facts & Figures", 1958 ; BP Statistical Review of World Energy, 2010
Massive strategic oil stocks US Strategic Petroleum Reserve 140 800 120 700 100 80 600 barrels Million 60 40 20 0-20 500 400 300 200 barrels ANNUAL INJECTION ANNUAL WITHDRAWAL STOCK (end of year) -40 100-60 0 1977 1981 1985 1989 1993 1997 2001 2005 2009 Million Data source: US DOE/EIA
Real Oil Price (05$/bl) 200 190 180 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 3% 2% 1% High prices limit our dependence 2035 2030 2010 2035 2030 2030 2020 2025 AEO_04 AEO_05 AEO_06 AEO_07 AEO_07_HiPrice AEO_10_Ref AEO_10_HighPrice 2025 0 5 10 15 20 25 30 35 40 45 50 Middle East Production (MMbd) Oil Price v Change in Oil Intensity (USA, 1965-2007, 5-yr mov. average) on the Middle East Data sources: DOE/EIA, Annual Energy Outlook, various years 0% -1% -2% -3% on oil itself -4% -5% -6% -7% 0 10 20 30 40 50 60 70 80 90 Source: US Bureau of Economic Analysis; BP Statistical Review of World Energy
Contents Global Oil and the Middle East European Gas and Russia Japan Disaster: Lessons for Europe
Russian gas: important, not dominant 100% 90% 80% 70% 60% 40 years of diversification 50% 40% 30% 20% 10% 0% Russian gas as a share of EU 27 gas imports Russian gas as a share of EU 27 gas consumption Russian gas as a share of EU 27 primary energy consumption 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Source: BP Statistical Review of World Energy; International Energy Agency; Eurostat accelerated by the LNG boom 100 90 80 70 60 50 40 30 20 10 0 Jan-98 Dec-98 Nov-99 Oct-00 Sep-01 Aug-02 Jul-03 Jun-04 May-05 Apr-06 Mar-07 Feb-08 Jan-09 Dec-09 Nov-10 Bcm per year UK ITALY GREECE FRANCE BELGIUM SPAIN
Supply diversity is in Western Europe and there is little possibility to trade gas across Europe
Gas security in Russia-dependent EU Source: Noel & Findlater, 2010
Cost of improving security: Estonia Security premium 1,300 for an LNG 3 day's 1,100 terminal is ~ storage 7% 900 700 500 300 Estonia -- Heat back-up versus LNG 7 day's storage Light fuel oil 15 day's storage 30 day's storage million over 30 years 100 Heavy fuel oil LNG -100 Disruption length over 30 years Source: Noel & Findlater, forthcoming
UK as EU Western gas corridor GWh 800 600 400 200 600,000 500,000 400,000 300,000 200,000 100,000-80% 70% 60% 50% 40% 30% 20% 10% 0% Interconnector Flow (GWh) LNG Norway Continent gross imports as % of total supply Data source: DECC UK imports are booming GB markets attracts gas Interconnector exports are growing despite fall in UK production When EU oil-indexed contracts out of the money, direct challenge from UK gas GB emerges as Europe s Western gas corridor UK has a very high level of gas supply security 0 01-Jan-06 01-Jan-07 01-Jan-08 01-Jan-09 01-Jan-10 01-Jan-11-200 -400-600 Data source: Interconnector UK
Contents Global Oil and the Middle East European Gas and Russia Japan Disaster: Lessons for Europe
Japan: some lessons for Europe Energy markets create solidarity between consumers speeches and treaties don t UK pays more for gas to help Japan deal with the crisis because there is a global LNG market But would not pay more for gas if Poland was cut-off because there is no European gas market International hydrocarbon markets are a source of energy security Electricity market integration improves security Japan lost 10-15 GW our of 200+ and Tokyo experiences severe shortages of electricity Japan is poorly integrated, with regional monopoly suppliers