Embed Size (px)
Citation preview
BLUE FUELMarch 2016/ Vol. 9/ Issue 1
www.gazpromexport.com | [email protected] | +7 (812) 646-14-14 | [email protected] 1© Gazprom Export
www.gazpromexport.com | [email protected] +7 (812) 646-14-14 | [email protected]
Elena Burmistrova: Ensuring Russian-European Energy CooperationPage 5
Nord Stream 2 – Enhancing European Energy Security and the Entire EU Gas MarketPage 9
“Blue Corridor-2016” to Start in May in St. PetersburgPage 11
BLUE FUELMarch 2016/ Vol. 9/ Issue 1
Gazprom Export Global Newsletter
Blue Fuel Focus: GermanyPage 18
2
BLUE FUELGazprom Export Global Newsletter
Publishers Contact Info:www.gazpromexport.com | [email protected] +7 (812) 646-14-14 | [email protected]
In this issueMarch 2016/ Vol. 9/ Issue 1
To Our Readers .........................................................................................................4
Elena Burmistrova: Ensuring Russian-European Energy Cooperation ...................5
Gazprom Hosts Investor Days in New York and London .........................................8
Nord Stream 2 – Enhancing European Energy Security and the Entire EU Gas Market ...................................................................................9
“Blue Corridor-2016” to Start in May in St. Petersburg ........................................11
Viktor Zubkov: A Bright Future for Natural Gas ......................................................12
Demostenes Floros: Natural Gas – The Ultimate Answer to the Climate Change Challenge .........................................13
GM&TS Signs Cameroon LNG Deal .......................................................................16
St. Petersburg Ladies Trophy WTA: Just another Ace ...........................................17
Blue Fuel Focus: Germany ......................................................................................18
Facts & Figures about Gazprom and Germany.................................................19
The Integration of WINGAS into the Gazprom Group: An Enormous Opportunity for Growth ............................................................. 20
Gas Storage in Germany: From Cavern to Consumer ......................................22
The German Natural Gas Market in 2016: Challenges and Expectations .........21
Eckhard Cordes: We Have Missed an Opportunity to Reach Out to Russia ....24
German-Russian Young Leaders Conference in Kazan: Building New Trust between Russia and Germany ..........................................25
Russian Cinema in Berlin ..................................................................................26
4
To Our Readers
The fall in oil prices, sanctions against Iran partially lifted, and the climate agreement in Paris were the top three most searched energy-related phrases on the Internet in 2015. During the past year, global oil and gas markets had to face strong price volatility which posed a threat to multibillion investment programs of major energy companies, tightened competition and made new global environmental goals less attainable.
It was also the year of near record gas supplies for Gazprom Export amid harsh and challenging market conditions. Last year our gas exports rose to an impressive 158.6 bcm representing an 8.2% growth. Gazprom’s share in the European gas consumption widened to 31% - an all-time record.
Did we follow the dynamics of the market? This is only partially true. On the one hand, we saw a moderate revival of European gas demand, particularly in comparison with the ‘lame duck’ year of 2014. On the other hand, weather conditions and the beginning of gas’ comeback into power generation made the biggest contribution to the solid growth of 27 bcm in European gas consumption. Yet, the fundamental trends of the European gas industry remain unchanged. Gas has not yet realized its full potential.
Today, Russian gas remains the most commercially attractive ‘blue fuel’ for European consumers. Germany – by far the biggest gas market for us – imported 17% more gas from Gazprom in 2015, increasing its offtake of Russian gas to 45.3 bcm, France bought 9.7 bcm (+37.7%), and Great Britain 11.117 bcm (+10%). The first two months of 2016 have shown that the trend points upwards, and our partners continue to increase purchases of Gazprom’s gas.
The year of 2015 was also about innovation. To give our clients access to the full range of trading mechanisms, in September 2015 Gazprom Export successfully carried out its first gas auction. We are planning to expand this activity in the near future.
Furthermore, the past year marked the start of great projects. In the most remote areas of the East Siberian taiga, where no man or woman had made a footprint, Gazprom laid dozens of kilometers of steel pipes of the Power of Siberia trunkline, which will become one of the world’s longest cross-border gas transportation network. Some 2,000 kilometers to the East, our Chinese partners launched construction works on their section of the pipeline.
In the West, things are also moving. In June 2015, Gazprom signed an agreement with its European partners to build the Nord Stream-2 pipeline, which will double the capacity of the current direct gas route from Russia to Germany.
The last year also saw a lot of myth-busting. With the erosion of the Asian premium many analysts proclaimed a triumphant comeback of LNG, originally destined for the Asian markets, back to Europe. However, this did not happen. Last year Europe imported only about 4 bcm of LNG more than in 2014. European regasification terminals are staying half-idle, just like months earlier.
Apart from its modest impact on the European energy sector, LNG has gained enormous influence elsewhere in the world. It has become a truly global commodity like oil, coal or iron ore. From 2004 to 2015, the number of LNG importing countries more than doubled (from 14 to 30) while the number of exporters increased by more than 50% (from 12 to 19). The global LNG arena has become a place for tough rivalry between producers, definitely creating a buyer’s market. Under these tough circumstances Gazprom’s LNG marketing arm – Gazprom Marketing & Trading – performed well above the market. Last year, GM&T’s LNG supplies increased by 6% while the market grew by 2% only. This success is another vivid illustration of the professionalism of our trading team, a showcase of their experience and expertise enabling them to optimize transportation routes, conclude swap
BLUE FUELMarch 2016/ Vol. 9/ Issue 1
www.gazpromexport.com | [email protected] | +7 (812) 646-14-14 | [email protected] 5
Ensuring Russian-European Energy CooperationSpeech by Elena Burmistrova, Director General, Gazprom Export at the European Gas Conference, Vienna, January 2016
It is a special pleasure for me to visit Vienna, and it is a fine tradition of starting the business year with the European Gas Conference.
It has been a mixed year for the European gas sector. On the one hand, producers have been under pressure from gas prices falling in the wake of lower oil prices; on the other, this has made gas more competitive by making it more affordable for consumers. This has
been one of the factors stimulating the growth of natural gas consumption in Europe and its comeback to power generation. Let’s hope we are finally seeing a steady trend toward changing a situation where gas, a clean and abundant fuel, has been ousted from Europe’s energy balance, even as consumers’ interest in it has only grown in the rest the world. Clean natural gas had been replaced by coal in European power generation of late. Obviously, this trend has not brought Europe any closer to meeting its ambitious climate targets.
Some impressive targets for the transition to a carbon-free economy were announced at the recent COP21 conference in Paris and endorsed by the entire international community. Presumably, this is another factor that should facilitate a steady rise in the share of gas among the world’s priority energy sources. After all, gas consumption strikes a unique balance between environmental and economic benefits. No other energy source can deliver that. Coal may be cheap, but using it has a detrimental impact on the environment. Petroleum products are convenient to transport, but expensive and by no means ideal from the standpoint of emissions. This plays a particularly
important role in the transport sector. For all their “green” advantages, renewables are too volatile to rely on exclusively. Nuclear power means accepting the environmental risks in the event of accidents. Clearly, gas is the best choice for working toward a low-carbon economy.
Thus, after several years of reduced gas consumption in Europe – driven by declining economic activity, decreasing use of gas for power generation, and fairly mild weather conditions – demand on the continent is now recovering, having shown 4% growth over 2014.
So where did Europe source these moderate but still rather significant gas volumes – around 19 bcm? Obviously, the continent’s domestic output continued to fall, as in previous years. Europe’s growing demand for natural gas last year was met primarily by imported gas. What is more, contrary to what some may have assumed, LNG was by no means the sole source of these volumes. Gas imports from Gazprom in 2015 grew by more than 8% thus considerably outstripping the market trend, while re-gas terminals stayed substantially underutilized.
In total, Gazprom Export supplied almost 159 bcm of gas to Europe in 2015 – only slightly below the record figures of 2013, and significantly higher than the average indicator in the past five years.
We are pretty sure, and most experts agree, that Europe’s gas import needs will continue to grow fairly rapidly in the long term. Gas is already making a comeback to power generation, having managed to reverse the “coal renaissance” trend. In the future, substantial volumes of gas will also be required for transport, including shipping, where vessels have to meet stringent
deals or ship-to-ship LNG transfers, and thus stimulating future market growth.
The year 2015 was marked by a global tectonic shift towards a broader use of natural gas. Big international oil companies started to place stakes on gas instead of oil, expanding their resource base, getting involved with LNG, discovering new outlooks and accelerating the pace of change towards a global market that will be less focused on oil but more on gas.
Affordability, abundance and its environmentally friendly nature are the qualities that make natural gas the most competitive energy source in times of economic challenges. Its truly global footprint, its ability to innovate and develop sustainably are the competitive edges that allow Gazprom to remain on the upside. We are confident that the year 2016 is going to be another special and rewarding year for Gazprom, and for natural gas, the energy driver of the future.
Elena Burmistrova
Continues on page 6
6
emission requirements. According to a consensus forecast by the world’s leading research agencies, Europe will need to import additional 140 bcm of gas by 2025 and 165 by 2035.
It is quite clear that in order to meet this growing appetite for imported gas, transmission systems should be constructed right now. We do not have any time for delays. This is why we and our partners have decided to expand the Nord Stream project, which reliably delivers natural gas directly to the European Union. The planned expansion will raise the trans-Baltic pipeline’s throughput capacity to 110 bcm a year. These figures mean reliable supplies of resources for heating and electricity for tens of millions of European households. This is exceptionally relevant not only to meet future demand, but also to substitute falling domestic production in Europe given the decline of production at the Groningen gas field in the Netherlands, the largest in Europe.
Moreover, major oil and gas companies including Norwegian ones are now cutting their investment programmes in order to respond to the sharp fall of gas prices in Europe. According to the Norwegian Petroleum Directorate, investments into gas production and transportation in Norway in 2016 will plunge by more than 20% compared to 2014.
In these challenging conditions Gazprom offers Europe new infrastructure projects. Furthermore, it should be mentioned that gas from Nord Stream 2 will not only go to consumers in North-Western Europe. According to our plans, gas will be delivered to the Baumgarten hub in Austria, and from here it can be transported to many other countries in Central and Southern Europe.
Nord Stream 2 will be laid across the Baltic Sea bed, along a tried and tested route. Essentially, the subsea pipeline will duplicate the first project, built to the highest standards and meeting the strictest environmental protection and safety requirements. Rather than reinventing the wheel by creating an
entirely new route, we have decided to use the successful experience of the existing pipeline, which transports gas to European consumers reliably, without any transit risks. So there will be no need for us to spend months designing the project from scratch, not to mention the considerable cost savings.
I would like to emphasize that Gazprom is not alone in considering it necessary to build Nord Stream 2. This conviction is shared by Europe’s largest energy corporations, with whom we have already signed a shareholder agreement. They include, our host today - Austria’s OMV as well as Royal Dutch Shell, Germany’s BASF and E.ON and French ENGIE. The shareholders list includes companies who participated in the first Nord Stream project, with first-hand knowledge of the trans-Baltic gas pipeline’s advantages. The interest shown by these energy majors confirms that Nord Stream 2 is indeed in demand and it is highly commercially attractive.
The growth of Gazprom’s supply to the markets of Western Europe also proves the expediency of Nord Stream’s expansion. Last year, more than 65% of Gazprom’s exports to Europe came to Western Europe compared to 58% in 2010.
Europe will need a great deal of natural gas in the coming decades, and there will be room enough for all in the gas market. What should be ensured now are equal terms for everyone – creating an environment of fair competition. Last but not least, let’s not forget the costs of new infrastructure for European taxpayers. Actually, Nord Stream 2 will not cost them a cent: this project is not seeking any funding from the European Union, since we and our partners are prepared to finance it ourselves.
Gazprom is a modern corporation that keeps track of European gas market development trends and adapts its strategy to changes there. It would be hard to accuse us of not being straightforward – after all, we are continually improving our trading system,
BLUE FUELMarch 2016/ Vol. 9/ Issue 1
www.gazpromexport.com | [email protected] | +7 (812) 646-14-14 | [email protected] 7
introducing new instruments, maintaining daily dialogue with our clients and taking account of their wishes in signing new agreements and working on existing contracts.
Last September, Gazprom Export held its first ever auction for gas supplied via the Nord Stream pipeline to the Greifswald and Olbernhau delivery points. The auction resulted in over 40 deals with 15 counterparties from various European countries, including established partners and new clients alike. We have tried a new trading mechanism that allows diversifying our business in our traditional markets. The gas auction proved that such way of trading does have a niche in Europe, objectively limited by the market itself. In future, Gazprom plans to sell maybe up to 10% of its export volumes at auctions of this kind.
Incidentally, some supporting evidence for our position can be found in the trading results for gas supplied to Greifswald for subsequent transmission via the OPAL pipeline’s restricted capacity. Just one lot was sold at the auction there. I’d even call this example the exception that proves the rule. And the rule is this: nobody but Gazprom is interested in using the OPAL pipeline’s capacity. Unfortunately, the capacity-restricting regulation still remains in force, so a modern pipeline that could be transporting heat for European citizens and energy for the European economy continues to work underutilized.
Our position is that the concept of energy security in Europe is not only about diversification of supply routes. Flexibility and security of supply are the top factors to contribute to energy security.
Getting back to our policy of flexibility, I would like to emphasize that Gazprom’s operations make use of all gas trading instruments, including oil products indexation and hub indexation as well. I can assure you that hub-based contracts make up a high proportion in our portfolio. Is this not the best
evidence that we are taking a progressive approach to the market?
Our open and flexible policy does not, however, mean fluctuating from side to side. In a sector where investment cycles are measured in years and contracts cover decades, changing to suit fleeting market shifts would be short-sighted, to say the least. We still believe that the European market’s established hybrid price formation model offers the best possible reflection of the balance of power and interests between suppliers and buyers. Conversely, the idea of applying spot prices across the board not only violates fair play principles for price formation by sending inaccurate pricing signals, but also endangers the gas supply system’s reliability. Whereas conventional long-term contracts allow consumers to manage their purchases, taking more at peak demand periods and less when demand falls, the spot market’s purchasing mechanism gives buyers no such opportunity at all.
I wish to emphasize that in a number of EU member states, where Russia is the sole gas supplier or one of a few suppliers, Gazprom cannot dictate pricing terms to consumers. The formula-based price, once set, evolves automatically. Our price formation is always market-based, allowing for the specifics of each country’s energy balance.
It is in our key interest to maintain and expand the role of natural gas – the cleanest fossil fuel and the best energy source for the transition to a low-carbon economy. This strategy can be realized only if gas exporters, consumers, and official bodies are willing and able to hear out and listen to each other’s arguments, break down the walls of mistrust and misunderstanding instead of raising them, and remain open to dialogue rather than a monologue sometimes laden with ultimatums.
8
In February 2016 Gazprom held its 11th annual Investor Day, presenting an update of the company’s strategy to the capital markets community in New York, London, and beyond through live webcast.
The delegation was led by Alexander Medvedev, Deputy Management Committee Chairman of Gazprom, who together with Oleg Aksyutin and Vsevolod Cherepanov, Management Committee Members, Mikhail Sirotkin, Department Head, Igor Shatalov, First Deputy Department Head, and Mikhail Rosseev, Deputy Chief Accountant, provided investors with valuable insights into Gazprom’s corporate development.
In New York, the Investor Day was attended by around 70 portfolio managers and analysts from major international investment funds and financial institutions. In London, some 130 visitors listened to Gazprom’s senior management team as they provided details on the Company’s operational and financial performance, its activities in key export markets, and strategic development areas, including the expansion of Gazprom’s business in Asia-Pacific.
In an environment where the price of oil hovers around $30 a barrel, prospects of continuous oil and gas market oversupply and many LNG projects coming on-
stream, global energy industry is facing challenging times. Gazprom’s message to the investment community during the Investor Days was loud and clear – the company is successfully adapting to the changing market environment and remains one of the leading global suppliers of natural gas, an energy source that is widely expected to see growing global demand.
This is the core of Gazprom’s investment proposition in both equity and debt capital markets: to be a champion for increased usage of natural gas across the world. Many companies are switching to gas. Both BP and Shell have recently announced that they will soon produce more gas than oil. Gas is the cleanest fossil fuel, abundant, secure and safe. The long term respiratory health benefits, and therefore economic growth in global megacities could be reliant on the conversion from coal to gas. It is the predicted enhanced use of natural gas that is a major investment driver for Gazprom.
Gazprom’s long-term position in the global energy market remains stable thanks to the largest resource base in the world, a well-developed transport
infrastructure and low production costs, combined with long-term gas supply contracts and an ongoing diversification
Gazprom Hosts Investor Days in New York and London
BLUE FUELMarch 2016/ Vol. 9/ Issue 1
www.gazpromexport.com | [email protected] | +7 (812) 646-14-14 | [email protected] 9
of the company’s product range, supply routes and markets. Only Gazprom can supply two separate continental markets through major wholesale pipeline supplies. In addition, we can optimise our global position through a growing and successful participation in LNG trading.
Despite the challenges the global oil and gas industry is facing, Gazprom has kept its strong financial position. This is the result of a well-conceived strategy which, inter alia, provided conservative budgeting of the company, includes a clear
prioritization of investment projects, strict control over costs, and effective debt management.
With comfortable debt indicators and the required liquidity reserve, Gazprom has considerable flexibility in adapting to low oil prices and is confident that it will be able to implement all of its priority projects.
The Nord Stream pipeline raised the bar for large-scale international infrastructure projects and has become the benchmark for offshore pipeline construction. Providing a direct connection from natural gas reserves in Russia to consumers in the EU via the Baltic Sea, Nord Stream can deliver enough gas to meet the energy needs of 26 million households each year. But with Europe’s domestic gas resources in the North Sea in decline, a robust, reliable supply of additional gas is required to meet import demand, especially during peak periods. Some of the world’s leading gas companies will therefore work together to extend the pipeline through the Baltic Sea by two additional lines. Nord Stream 2 will increase supply capacity and improve liquidity in the EU gas market while helping to meet Europe’s energy needs in a safe, ecological way under sensible economic conditions.
Since being fully commissioned in 2012, the Nord Stream pipeline has been a positive development in the long-standing energy partnership between Russia and the EU. It reliably delivers much-needed gas supplies to the EU and has received
many accolades for its outstanding environmental and HSE standards, as well as for its open involvement of the public. In September 2015, PJSC Gazprom, Engie, E.ON, OMV, Royal Dutch Shell, and Wintershall agreed to build on this success by developing a further two pipelines along a similar route under the project name Nord Stream 2. Like its namesake, Nord Stream 2’s twin pipelines will stretch some 1,200 kilometers across the Baltic Sea, connecting the Russian coast with Germany’s shoreline near Greifswald. They will have the capacity to deliver 55 bcm of natural gas directly to the EU each year for more than 50 years.
The benefits of the project are clear: Nord Stream 2 will provide the EU with an additional supply route for the gas it needs to cover its growing import gap. At the same time, the added liquidity it will bring to the EU’s hubs will strengthen its internal market and spur the development of further interconnections.
Domestic gas production in Europe is in rapid decline – especially in the North Sea, where the United Kingdom, Germany, and the Netherlands are all facing decreasing production. The EU’s domestic gas production is projected to fall by 50% in the next 20 years, as ageing assets are retired and hard-to-reach basins in the North Sea become increasingly uneconomical, particularly in a period of low gas prices. While Norway will fulfil part of the EU’s demand for the near future, it too is projecting a decline in production. As a result, Europe needs to import more gas to meet its needs.
At the same time, the EU is also seeking to reduce its CO2 emissions. Due to the EU’s pledge to realize a 40% reduction in these emissions by 2030 compared to 1990 levels, its member states are looking for economically viable solutions to achieve their targets. Many renewable energy technologies hold great promise for the future, but it will be several years until they can provide a scalable, affordable, and reliable energy
Nord Stream 2 – Enhancing European Energy Security and the Entire EU Gas Market
Continues on page 10
The technical design of Nord Stream 2 calls for the same pipe specifications as the existing pipeline system: 12-metre sections of concrete-weight-coated pipe with a diameter of 48”.
10
supply. Natural gas is the fossil fuel with the lowest carbon intensity; using it to produce electricity, for example, creates about 50% fewer emissions per kilowatt-hour compared to coal. While natural gas currently accounts for one quarter of the EU’s primary energy consumption, demand is rising as Europe works to meet its energy needs and reach its decarbonisation goals.
The Nord Stream 2 pipeline will complement the existing infrastructure, strengthen the EU’s gas hubs, and assist the region in maintaining a secure energy supply. By delivering additional gas to hubs in northwestern and central Europe, the project will also be fundamental in rounding out the EU’s internal market.
As with the first Nord Stream pipeline, the project will be carried out transparently and in accordance with the most stringent environmental protection criteria. This entails researching and assessing the construction’s potential environmental
impact on the Baltic Sea and taking account of the findings when planning the optimal pipeline route. The experience gained in the original Nord Stream project
– coupled with six years of environmental and social monitoring during both its construction and operation – has demonstrated that a pipeline can be developed through the Baltic Sea without any significant or long-term environmental repercussions.
Nord Stream 2 is at the beginning of its development, but will be delivered to the same high standards as its namesake in terms of safety, technical excellence, transparent public consultation, and environmental protection.
Following in the footsteps of Nord Stream, it will extend a decades-long partnership and enhance Europe’s energy security by providing a reliable gas supply route from Russia to Europe.
Source: Nord Stream 2 AG
BLUE FUELMarch 2016/ Vol. 9/ Issue 1
www.gazpromexport.com | [email protected] | +7 (812) 646-14-14 | [email protected] 11
“Blue Corridor-2016” to Start in May in St. Petersburg
The 10th annual NGV Rally “Blue Corridor-2016: Amber Road” will start its engines on 26 May 2016 in St. Petersburg. The Rally kicks into gear as the 19th Annual General Meeting of the International Business Congress (IBC) takes place in St. Petersburg.
This year the route takes the natural-gas-fired vehicles (NGVs) around the Baltic Sea through the territory of Russia, Estonia, Latvia, Lithuania, Poland, Germany, Denmark, Sweden and Finland.
The NGV Rally 2016 is named “The Amber Road” after the ancient trade route which supplied amber from the Baltics to the Mediterranean.
The main focus of the jubilee NGV Rally will be on bunkering of marine vessels with liquefied natural gas (LNG). Round tables, gathering politicians, port administrators, ship-owners and ship-builders, automakers, equipment manufacturers, transportation and logistics companies as well as journalists, will be organized in key Baltic seaports the Rally passes through.
LNG bunkering has become exceptionally important in light of increasingly stringent standards on the sulphur content in marine fuels used in the Baltics Sea that have been enforced since January 2015.
LNG offers ship and truck owners an ideal combination of ecological and economic bonuses, thus allowing them to save fuel costs and meet environmental standards. Natural gas use in road transportation will also be discussed during the Blue Corridor-2016 Rally.
“A sea port is the crossroads for passenger and cargo corridors with all modes of transport blended into the natural hub for CNG and LNG filling infrastructure,” said Eugene Pronin, Gazprom Export’s Rally coordinator.
“There are already 1.8 million NGVs driving across Europe. They are helping to save fuel costs and contribute to cleaner air. In light of the recent commitments undertaken by international community at the COP21 conference in Paris, the expansion of LNG use in marine vessels becomes a matter of aparticular importance,” Andre Schumann, Head of Technical Cooperation and Project Support Department at Uniper, one of Blue Corridor’s other organizers, underlined.
The Blue Corridor Rally was initially organized by Gazprom Group in 2008. In 2010, several prominent European gas and automotive industry stakeholders joined the project, expanding this event internationally.
Over the years, the Blue Corridor project has seen over 150 factory built CNG and LNG vehicles drive 34,000 kilometers across 22 European countries from Yekaterinburg to Brussels and from Helsinki to Sochi at a third of the gasoline budget and with ultralow Euro standard emissions.
The rally has traditionally been coordinated by Gazprom Export LLC and Uniper SE (former part of E.ON).
12
The global energy industry is changing. Within the past year we have witnessed a considerable drop in the price of oil and increasing volatility. In this regard we, the gas exporters, can send a positive signal to the energy industry about the essential and possible long-term predictability of prices of basic energy sources.
At the end of 2015, the Gas Exporting Countries Forum (GECF) leaders met in Tehran to discuss these developments and define common approaches and principles of the international gas trade, which we believe to be fair, and promote predictability of the energy sector as a key element of the global economy’s development.
An abundant, safe and clean fuel, natural gas is a realistic and affordable choice to help achieve a sustainable low-carbon future. The GECF countries, being reliable exporters that have access to the most significant global gas reserves, are determined to meet this growing demand of the global market.
Global natural gas consumption is estimated to grow by over one third and may exceed the symbolic level of 5 tcm by 2035. Within this timeframe the global
gas market will be shaped by Asia-Pacific where gas demand will surpass consumption levels of the mature North American market. The aggregate share of these markets will grow to about a half of global gas consumption over this period.
We in the Russian Federation attach crucial importance to cooperation between GECF Members, which serves as a guarantee of the world gas markets’ stability and secures the sovereign rights of each Member State to independent development of its natural gas resources.
It is no secret for gas industry experts that long-term contracts are one of the most important instruments to achieve stability of gas consumption and supply. During the Tehran Summit GECF states pointed to the absolute importance of long-term contracts being linked to oil/oil product indexation which allows for a balanced risk sharing between producers and consumers. Such contracts are and will remain focused on guaranteeing crucial investments in the gas production chain and supporting a fair gas price (taking into account that gas deposits are not renewable but exhaustible and that gas is an energy-efficient and ecologically clean fossil fuel).
There is no global integrated gas market which makes it difficult to determine the “correct” price pricing mechanism. The “blue fuel” is a specific commodity, its physical features seriously limit the possibilities of long-term storage, while consumers cannot accrue substantial reserves earmarked for future use producers cannot work for a long time to build up reserves for future sales. However, natural gas is and must remain a competitive fuel, whose price is formed through oil/oil product indexation that coexists with hub prices and prevails over it in hybrid price formulas as well.
A Bright Future for Natural Gas By Viktor Zubkov, Russian Special Presidential Representative for Cooperation with Gas Exporting Countries Forum (GECF)
BLUE FUELMarch 2016/ Vol. 9/ Issue 1
www.gazpromexport.com | [email protected] | +7 (812) 646-14-14 | [email protected] 13
Emissions
Natural Gas – The Ultimate Answer to the Climate Change Challenge
By Demostenes Floros, Energy Analystat the University of Bologna (Italy)
Natural gas is the only fossil fuel that will see an increase in total consumption, in Europe and Asia particularly, over the next decade, with positive implications for the global economy and the environment.
To date, fossil fuels account for 87% of the global energy mix, and for decades to come oil, coal and natural
gas will continue to be the main raw materials of our economies, while we wait for the urgently-needed development of renewable resources, as well as a much-desired solution to the thorny issue of radioactive waste. Thus, we can no longer postpone considering how to use fossil fuels in the most environmentally friendly way.
Among the main fossil fuels, natural gas—which exists in abundance— has clear advantages in terms of reduced pollution, especially in comparison with coal, but also with oil (compared to which it is less expensive). New technologies allow for its more efficient use — think, for example, of new car engines compared with those of a decade ago — and it is relatively easy to store and transport. In fact, almost all estimates regarding the energy mix of the future indicate an increased use of natural gas.
Trends in the Global Energy MixIn 2014, global primary energy consumption reached 12,928 Million Tons of Oil Equivalent (MTOE). Compared with 2013, it had increased by 0.9%, equivalent to 198 MTOE, approximately 133% of Italy’s annual consumption (149 MTOE).
In 2014, China was the world’s largest energy consumer, with 2,972 MTOE, followed by the U.S. (2,299 MTOE), the EU (1,611 MTOE) and Russia (682 MTOE) (see table 1).
The GECF has no role in defining production quotas or influencing pricing, but simply believes in the importance and protecting of investments and securing a balance of interest between producers and consumers of natural gas.
In Teheran, the GECF Member States demonstrated their unanimous understanding of the need to support a common approach and mechanism of policy coordination and strategy alignment between Member States, gas consuming countries and gas industry stakeholders to promote market transparency and stability.
To achieve this and also form a coordinated response to challenges on the global energy scene, the GECF urged to
strengthen the Forum’s role as a platform to define and defend the Member States positions. GECF leaders see it as crucial to develop new effective forms of dialogue between natural gas producers and consumers which has been stipulated in the Teheran Summit Declaration.
The Third Gas Summit made Member States even more cohesive and highlighted to all producing countries and their national companies the importance of cooperation in times when natural gas is becoming the best fuel of choice to secure sustainable development, plays a bigger role in the decarbonization of the global economy and reduced the negative human impact on the environment for the sake of the next generations.
Continues on page 14
14
The global energy mix in 2014 was largely comprised of fossil fuels: specifically, by oil at 33%, coal at 30% and natural gas at 24%. Natural gas occupies a role of primary importance since it covers a little less than a quarter of global consumption.
In absolute terms, we saw an increase in all energy sources. In particular, oil recorded +0.8% (+1.1% in 2012/13), coal +0.4% (+2.8% in 2012/13), natural gas +0.4% (+1.1% in 2012/13), hydroelectric power +2% (+2.7% in 2012/13), nuclear power +1.8% (+0.6% in 2012/13), and renewables +12% (+16% in 2012/13).
Estimates show that total global consumption in 2030 will grow significantly, up to 16,720 MTOE. In relative terms, the natural gas component will remain substantially unchanged compared with the current situation, unlike that of oil and coal which will drop by 4 percentage points. As we shall see later in detail, the use of natural gas will increase considerably in absolute terms.
Future Prospects in Major Global EconomiesLooking at the energy mix of the most important economies, we can draw a number of conclusions. The EU shows the least use of fossil fuels (76%) compared with a global average of 87%. This is no doubt due to its greater use of nuclear power and renewables. In other major economies, however, the percentage of
fossil fuels is between 80% and 90%. In Japan it reaches 93%.
Japan (43%), the EU (37%) and the U.S. (36%) show a greater percentage of oil in their energy mix than the global average (33%). China (17%) and Russia (22%) are the lowest consumers of oil in relative terms. In absolute terms, the U.S. is the largest oil consumer in the world. The energy mix of China (66%) and India (57%) show the highest use of coal among major economies, while that of Russia (12%) and Italy (9%) show the lowest use. In absolute terms, China is the largest consumer of coal, followed by the U.S. and India. The energy mix of Russia and Italy are characterized by a greater use of natural gas: 54% and 34%, respectively. Even the U.S. energy basket shows a significant use of natural gas (30%), of which a significant amount is derived from fracking. China (6%) and India (7%), on the other hand, make the least use of the most environmentally-friendly fossil fuel. The above considerations must be assessed in light of the level of each country’s foreign dependence.
Among the major energy importing economies, the only one that has reduced its dependence is the U.S. — from 21% to 13% in the period between 2011 and 2014—thanks to the revolutionary — if environmentally questionable — technique of hydraulic fracturing. On the contrary, China has seen an increase in its dependence to 16% (in 2011 it was 6%). In the period 2003-2012, China’s
BLUE FUELMarch 2016/ Vol. 9/ Issue 1
www.gazpromexport.com | [email protected] | +7 (812) 646-14-14 | [email protected] 15
consumption has more than doubled in absolute terms, increasing its share of the world total from 12.5% to 23%. Russia is the largest net exporter of energy. In 2014, Moscow sold 629 MTOE on the international markets, equal to 48% of production and 92% of domestic consumption.
Gas: Present and FutureRussia leads the world in proven natural gas reserves, with just under 50,000 Tcm. It is followed by Iran, Qatar and the U.S. (see table 2).
The world’s largest gas producers and consumers are, respectively, the U.S. and Russia (see table 3). More precisely, in 2014, the U.S. was the world’s top gas producer, at 782 bcm. In 1996, its output was equal to 528 bcm, which decreased slightly to 515 bcm in 2006. This considerable growth is attributable to the country’s shale gas effect. The output of U.S. natural gas — conventional and unconventional — has been decreasing for the past three months due to a large number of drilling rigs ceasing operations. According to Bank of America Merrill Lynch, in 2016, for the first time in a decade, production could record a decrease.
Russia, Qatar and Norway are respectively the largest natural gas exporters, while the EU, Japan and China are the main importers of the blue gold (see table 4).
Finally, future estimates regarding global natural gas consumption indicate a 3.5% increase by 2030 to 3,797 bcm from 2,844 bcm in 2012. In particular, the largest increases are expected to occur in China (from 123 bcm to 353 bcm, +287%), India (from 49 bcm to 116 bcm, +237%) and the rest of the world (from 1,192 bcm to 1,712 bcm, +144%).
The future for natural gas in Europe is, however, also bright. According to comments by Laura Cozzi, Deputy Head at the Office of the Chief Economist of the International Energy Agency, during the 15th Italian Energy Summit, “natural gas is the only fossil fuel that will see an increase in absolute consumption in Europe by the end of the next decade.”
This article is a summary of an article published in Oil magazine #30 in December 2015.
Demostenes Floros, a geopolitical analyst, is a professor of the Masters’ in International Relations Italy – Russia, at the University of Bologna Alma Mater, as well as the head and professor of the third course in Geopolitics, established at the Open University of Imola (Bologna). He also contributes to ENI’s ABO - About Oil, Oil - ENI’s quarterly journal, the Energy International Risk Assessment (EIRA) and geopolitical magazine Limes.
16
GM&TS Signs Cameroon LNG DealIn December 2015, Gazprom Marketing and Trading Singapore, Perenco and Société Nationale des Hydrocarbures (SNH) signed a Sales & Purchase Agreement for 1.2 million tons of LNG a year from the Hilli FLNG terminal in Cameroon.
The Agreement was concluded for an eight-year term. Supplies on a FOB basis will start in 2017. LNG from the Hilli floating terminal will strengthen GM&TS global portfolio and boost the company’s position in the global market.
The project is based on the allocation of 500 BCF of natural gas reserves to be supplied by SNH and PERCAM from the Sanaga Sud and Ebome fields. The FLNG Terminal will be owned and operated by
GOLAR via its Hilli FLNG vessel currently under conversion at the Keppel Shipyard in Singapore. First LNG deliveries from the terminal are scheduled to commence during the second half of 2017.
On the basis of the deal, SNH and Perenco Cameroon also announced the Final Investment Decision (“FID”) for the FLNG project.
The project represents an outstanding industry initiative bringing off-shore liquefaction solutions to monetize previously unexploited or marginal natural gas accumulations. Commercial innovations and optimisations in the upstream, mid-stream and downstream value chain have been decisive elements leading to the FLNG Project’s FID.
BLUE FUELMarch 2016/ Vol. 9/ Issue 1
www.gazpromexport.com | [email protected] | +7 (812) 646-14-14 | [email protected] 17
St. Petersburg Ladies Trophy WTA: Just another Ace The St. Petersburg Ladies Trophy, a Women’s Tennis Association (WTA) international tournament, was held in St. Petersburg on 8-14 February 2016. It was the first time St. Petersburg hosted a women’s tournament of such caliber. The main sponsor of this event, along with the St. Petersburg Open men’s tournament in autumn of 2015, was Gazprom Export. The prize fund totaled $750,000.
This tournament was a truly interesting, colorful, memorable and significant event – not only for the city, but for the Russian sports world in general. The organizers managed to attract an impressive line-up of competitors. The faces of the St. Petersburg Ladies Trophy were four of the world’s top 20 female tennis players: Switzerland’s young talent Belinda Bencic, 2015 U.S. Open finalist Roberta Vinci, and former world champions Caroline Wozniacki and Ana Ivanovic.
The final, played to packed stands (the tournament drew a total of 17,700 spectators), featured 18-year-old Belinda Bencic from Switzerland and experienced Italian player Roberta Vinci, who delivered a bright and beautiful spectacle for all tennis-lovers. Experience trumped youth on this occasion, with Vinci winning 6-4, 6-3. Despite losing the final, the young Bencic left St. Petersburg in excellent spirits: she had been top-seeded for the first time, and reaching the final let her break through into the world’s top ten, rising to World No. 9. Meanwhile, tournament champion Roberta Vinci was so inspired by her success that she promised St. Petersburg fans and the press to change her decision and stay in the Tour for at least another year. “The St. Petersburg win is very important to me, it’s got a special flavor!” said the happy winner after her triumph.
The doubles matches were equally interesting, featuring the world’s best pair: Martina Hingis (Switzerland) and Sania Mirza (India). This duo won the top trophy in St. Petersburg – their 40th win in a row. “It was an excellent tournament, one of the best in the last ten years of my career,” the happy Martina Hingis remarked after the competition.
“Gazprom Export is proud of its role in bringing a women’s tennis tournament of this magnitude to St. Petersburg. The decision to become the main sponsor of this tournament, along with the long-established St. Petersburg Open men’s tournament, fits into our strategy of supporting important sporting, cultural, and social initiatives,” said Gazprom Export Director General Elena Burmistrova at the awards ceremony.
“I’d like to thank the tournament organizers, who took on the responsibility of hosting the event at a worthy level and handled this challenging task brilliantly. The judges and volunteers deserve high praise. But of course, the greatest contribution to the success of any sports competition comes from its actual participants: the players. It’s their mastery, passion, daring, and thirst to compete and win that have turned the St. Petersburg Ladies Trophy into a celebration of big-time sport,” she noted.
The 2016 St. Petersburg Ladies Trophy tournament was an important event for all Russian sports players and tennis fans. It is sure to facilitate the development and popularization of women’s tennis in Russia and worldwide.
Blue Fuel Focus: Germany
By Vyacheslav Krupenkov, Senior Managing Director, Gazprom Germania GmbH
Germany has traditionally been Gazprom’s most important partner, largest foreign customer, and most important market in Europe. Our company’s acquisition of WINGAS only serves as further affirmation of our commitment to the country.
One of the main topics covered in this special focus is the role natural gas is playing in Germany’s energy transition. We truly believe that natural gas is poised to gain further importance as a reliable, environmentally friendly energy source. Indeed, without a gradual increase in the use of natural gas in generating electricity, Germany’s energy transition – and in particular, its campaign to reach its climate goals – can hardly be overcome.
We will also bring you up to speed on the expansion of UGS Katharina in Peissen and the planned extension of the Baltic Sea pipeline Nord Stream – two major projects in which we’ll be working with our partners to continue to supply Europe with a secure supply of energy.
BLUE FUELMarch 2016/ Vol. 9/ Issue 1
www.gazpromexport.com | [email protected] | +7 (812) 646-14-14 | [email protected] 19
8 FACTS ABOUT GAZPROM AND GERMANY
5,000 KM
¼3
45 BCM169,000 KMOver seven days, natural gas covers about 5,000 km
in travelling from West Siberia to Germany. That equals more than three times the distance between
Berlin and Moscow.
In 2015, GAZPROM set an all-time record in delivering 45.30 bcm of natural gas to Germany.
Natural gas accounted for 49.3% of the German heating market in 2014 (followed by fuel oil at 26.3% and district heating at 13.5%).863.1 BILLION KWH Germany’s natural gas
consumption in 2015
Nuclear
Other
Lignite
Renewables
Hard Coal
More than 900 natural gas filling stations are now available to customers across Germany. GAZPROM Germania plans to be operating at least 50 of these stations by the end of 2016.
GAZPROM’s gas pipeline network comprises 169,000 km, making it by far the longest in the world.
It could circle around the world more than four times.
13%
2013 2014
49.3%
13.5%
9.1%
12%8%
>1%
Primary energy consumption by energy source in Germany, 2015
13%
40%RUSSIA
19%NORWAY
8%GERMANY
3%OTHER
30%NETHERLANDS
26.3%
2015
40.18 bcm 38.70 bcm 45.30 bcm
The majority of natural gas in
Germany (40%) originates from
Russia.
THE
Natural Gas
Oil34%
21%
The Integration of WINGAS into the Gazprom Group: An Enormous Opportunity for Growth
Dr. Gerhard König is Chairman of the Board of WINGAS, which became a wholly-owned subsidiary of Gazprom Group in October 2015. In an interview with Blue Fuel, Koenig talks about the deal, the integration of WINGAS into the Gazprom Group and the company’s strategy for the future.
Dr. Gerhard König, WINGAS, which used to be a joint venture of Wintershall and Gazprom, and is now a wholly owned subsidiary of the Gazprom Group. What does this mean for your company?
Gazprom has been a reliable partner and supplier of natural gas for Germany and Western Europe for decades. Gazprom’s 100% stake in the WINGAS Group helps to strengthen supply security for the European customers even more.
At the same time, it shows how important the European gas market is for the world’s largest natural gas producer. Since WINGAS was founded in 1993, WINGAS and Gazprom have worked together closely as shareholders and partners. And from the very beginning it was very clear that the positive development of our company was going to be receiving strong support.
The asset swap between Gazprom and BASF-Wintershall, in which WINGAS was transferred fully to Gazprom, was originally supposed to take place a year earlier. Why did this transaction, which had long been planned, fall through at that time?
All the parties involved firmly believed that the asset swap made sense – even in December 2014 when it was put on ice. The political conditions back then were
simply not favorable for implementing the deal. It seemed wiser to postpone the asset swap. It makes us all the happier now that the deal has been closed, as it sends out a signal about the continuity of our cooperation. In politically difficult times we should be building bridges, not tearing more down.
What had changed since the end of 2014 that enabled the deal to go ahead in September 2015 after all?
As I said, the companies themselves never disputed that the asset swap made sense. Outside our companies many people also realized that the asset swap between Gazprom and Wintershall offered major opportunities for all sides, both East and West alike: it would give Wintershall, as the first German company, direct access to Russian natural gas sources, and a Russian company, Gazprom, would be investing in natural gas trading and gas storage across the EU. It is hardly possible to create more supply security for Europe.
BLUE FUELMarch 2016/ Vol. 9/ Issue 1
www.gazpromexport.com | [email protected] | +7 (812) 646-14-14 | [email protected] 21
Gazprom has gained over 500 new WINGAS employees in Europe. How are you integrating your staff into the Gazprom Group?
The preparations for the asset swap were lengthy. So the WINGAS and Gazprom colleagues had plenty of time to get to know each other much better and start building their relationships. It is, of course, our goal to become more influential and successful in Europe together. At WINGAS we are very motivated to master the challenges that currently shape the market. And together with Gazprom, we have enormous potential to accomplish this.
What do you say to critics who fear an even greater dependence by Europe on Russian gas with Gazprom’s acquisition of WINGAS?
An appropriate and dependably secure energy supply for Europe is only possible with Russia. With the acquisition of WINGAS, including our storage subsidiary astora; with its investment in Nord Stream and the downstream pipeline network in Germany, Gazprom is the only notable energy producer that is actively contributing towards supply security on the market and is investing in supply security locally. For this reason, I don’t like the word dependence.
Gazprom is a reliable supplier that is investing billions in European gas infrastructure. It is therefore very much in Gazprom’s interests to keep the gas flowing to Europe.
Gazprom is taking a big step towards German customers. Does its long-term strategy envisage becoming more and more involved in the German market?
The integration of WINGAS into the Gazprom Group is an enormous opportunity for both companies to strengthen their market position. Of course, we want to develop our trading and storage business in Germany and our other core European markets together with Gazprom. The successful positioning of WINGAS on the German and, increasingly on the European markets, supports Gazprom’s strategy of expansion in Europe.
As you have already indicated, Gazprom is also strengthening its involvement in the storage business with WINGAS. What role do natural gas storage facilities play in your plans?
With our storage subsidiary astora the WINGAS Group has over a fifth of Germany’s storage capacities at its disposal, and thus makes a really important contribution to the country’s supply security. With its 4.4 bcm of working gas, the Rehden storage facility alone, which is the largest storage facility in Western Europe, forms the backbone of German natural gas supply. With
the foreseeable continuing decline of Europe’s own production, additional natural gas imports will be necessary, which means the importance of natural gas storage will also grow.
The energy transition is a task that will take generations to accomplish, and which requires a cross-border approach. Does natural gas, a fossil fuel, even have a future?
Those who think we can replace fossil fuels completely in the near future are wrong. An energy supply system that relies solely on renewable energies is not feasible yet. It needs a secure and permanently available source of energy that can step in when the wind is no longer blowing or the sun is not shining. Natural gas can do this. Natural gas is efficient, can be used in many applications, is available in plentiful supply and has the lowest emissions out of all the fossil fuels.
And in light of the burgeoning global population, on a global level the demand for energy will continue to grow in the coming decades too. Natural gas will play a key role in meeting this demand.
How do you, as a manager of an energy company, see the energy transition?
When you look at Germany’s energy transition, it quickly becomes clear that the original purpose of the transition, i.e. to protect the climate, is not being served. CO2 emissions are increasing even though the German people now spend €25bn every year on subsidies for renewable energy. Climate protection would be much more affordable with natural gas.
A few months ago the German media was full of headlines about how cheap wholesale prices for natural gas were not being passed on to end customers by the energy suppliers. How do you, as one of Germany’s largest gas traders, view what is happening on the end consumer market?
The prices are set by each utility individually, so it is not really possible to give a general statement about this. However, what is true is that the gas price that the end consumer ultimately has to pay is influenced by numerous factors. As well as the procurement costs, taxes, network fees and concession levies alone account for 40% of the gas price. The fact is, particularly in the household segment, the customer can choose from many suppliers. So it is competition that can ensure that customers get fair prices. And we also try to gain market share with attractive prices.
Gas Storage in Germany: From Cavern to ConsumerThey are gigantic, highly engineered and largely invisible to an outside observer: natural gas storage caverns have tremendous dimensions and extend deep below the surface. This is no different in Peißen near Bernburg, in Saxony-Anhalt: this is where the UGS Katharina underground storage facility is being built. Its caverns reach heights of around 220 meters and extend to depths of up to 700 meters.
The Katharina storage facility – named after the Russian empress Catherine the Great – is operated by Erdgasspeicher Peißen GmbH (EPG), a VNG – Verbundnetz Gas AG–Gazprom Germania GmbH joint venture. This long-established Leipzig-based company and the German subsidiary of Gazprom Export invest in supply security and are able to look back on more than 40 years of energy-related, German–Russian partnership. Overall, Gazprom Germania is involved in nine storage facility projects around Europe – not only in Germany, but also in Austria, the Netherlands and in Serbia.
In the summer of last year Dr. Karsten Heuchert, Chairman of the Board at VNG
– Verbundnetz Gas AG, and Alexander
Medvedev, Vice-Chairman of the Board at PAO Gazprom, personally inspected the progress of works at the major site in Peißen: “We are on schedule. The aim is to complete the surface facilities in April 2017, allowing normal operations to start as planned,” said Medvedev. At that point five of the twelve caverns in total will be operational – including the connection to the JAGAL pipeline, linking the storage facility to the European natural gas network. By comparison: with a total length of 37 kilometers, the connecting pipeline is twice as long as the Gotthard tunnel beneath the Swiss Alps.
Germany is one of the world’s largest gas storage nations. A total of 47 underground storage facilities across the country balance out fluctuations in consumption. They are filled during the summer when gas demand is low, to enable them to be used to cover the increased demand during the winter months.
With a total volume of 23 bcm, their capacity roughly corresponds to one quarter of the total annual German demand.1 In the context of the German energy transition, in which the country’s long-term energy supply is being
Looking to Saxony-Anhalt: Gazprom and VNG representatives visit the Katharina gas storage facility
BLUE FUELMarch 2016/ Vol. 9/ Issue 1
www.gazpromexport.com | [email protected] | +7 (812) 646-14-14 | [email protected] 23
The German Natural Gas Market in 2016: Challenges and Expectations
converted to renewable energy sources, the importance of gas storage facilities will probably even increase: because when no wind blows and the sun does not shine, flexibly operating natural gas-fired power stations may contribute to long-term power grid stability.
Today, at around 200 mcm, the Peißen site already provides one third of the working gas volume to be delivered by the gas storage facility on completion. The caverns in the underground salt dome will be developed in additional stages by 2025, using complex drilling and leaching methods. During leaching, water is pumped into the salt dome under high pressure until an ideal cavity for natural gas storage is created.
In its final condition, UGS Katharina will have a total of 12 caverns with a gas storage volume of around 600 mcm. This means that the underground storage facility will be capable of safely and reliably providing around 300,000 German households with Russian natural gas annually – and will add another chapter to Gazprom and VNG’s joint 40-year history.
More information on the Katharina gas storage facility can be found on the www.ugs-katharina.de website and the storage facility portal www.ugs-katharina-speicherportal.de.
By Heiko Lohmann, Energy Analyst and Journalist
The argument that the German natural gas market is still rather healthy overall may seem a bit surprising. Natural gas has, of course, faced tremendous headwinds in the power production sector for years.
Despite it being the least carbon-intensive fossil fuel, natural gas’ contribution to the power generation sector dropped from 159 TWh to 85 TWh between 2010 and 2014. According to preliminary data, this downward trend continued in 2015 by a further 7%. Even in the power sector, however, there are faint signs of potential improvement: In 2015, the German government began discussing a plan to phase out coal due to its adverse effects on the country’s 2020 emission targets.
The government has achieved only meagre success thus far, with its main idea involving the decommissioning of old lignite plants and longer hours of operation at more efficient hard coal power stations. Nevertheless, these discussions have had some minor positive results for natural-gas-fired power plants, including in the amendment of Germany’s legislation on combined heat and power (CHP) that passed the country’s two houses of parliament just before Christmas 2015 and took effect on 1 January 2016. This amendment calls for efficient existing natural-gas-fired power plants to receive an extra subsidy of 1.5 cents/kWh for a four-year period to prevent them from ceasing operations due to the difficult conditions in their sector. In addition, new natural-gas-fired CHP plants that replace old coal-fired plants will also receive special remuneration.
These incentives notwithstanding, it should be emphasized that much more must be done to enable natural gas to play a greater role in power generation in the near term. Most observers in Germany doubt that this will occur, although the recent COP 21 Paris Agreement should put more pressure on coal. All in all, a more intensive discussion about phasing out coal-based scenarios may finally improve conditions for natural gas.
In the heating market, the situation is more favorable. Natural gas is the fuel of choice for households. In fact, many local utility representatives are satisfied with their business in the segment and reporting increasing numbers of customers who are switching from oil to natural gas. New regions are even being connected to natural gas grids despite differing views on the extent to which this is still economically feasible.
Official statistics show that roughly 50% of all new buildings are heated with natural gas, and the fuel’s market share in existing buildings is also around 50%. Due to increasing energy efficiency and competition from renewable energies, however, heating is not a growth market, and its future development will be even more challenging.
Meanwhile, the German Federal Ministry for Economic Affairs has laid out a clear vision for dramatically reducing the country’s use of natural gas in the long run (by 70-80% by 2050 compared to 2008), either by improving building insulation or by replacing natural gas with renewable energies. This is part of a decarbonisation strategy that was devised prior to COP 21 – one that would admittedly cost a great deal of money. For the natural gas industry, the main challenge in 2016 will be to convince policymakers that picking the low-hanging fruit in reducing emissions – by supporting efficient natural gas heating systems – will be more efficient than betting directly on expensive alternatives.
Eckhard Cordes: We Have Missed an Opportunity to Reach Out to Russia
After five years in office, Eckhard Cordes (above) resigned as chairman of Germany’s Committee on Eastern European Economic Relations in December 2015. Though he was disappointed by the EU’s decision to extend its sanctions on Russia, Cordes expressed his hopes for a new approach to more amicable relations under the committee’s new leadership in this farewell interview with Blue Fuel in December 2015.
Mr Cordes, as you wrap up your tenure as chairman of the Committee on Eastern European Economic Relations, how would you sum up the current state of the German-Russian relationship?
Since its foundation, the committee has played an intermediary role between the realms of business and politics. Entrepreneurs have always been key in building bridges between the East and West, and these days, they’ve become even more important again – particularly with regard to Russia.
The Ukraine conflict has led to growing tensions between Russia and the West, which has made the committee’s mission more taxing than it used to be.
I have publicly stated opinions that have not always been in line with the official positions of the German federal government, but that’s part of my job as someone who represents economic interests. From the very beginning, we have made a point of recognizing the authority of the politicians involved even as we have questioned the political efficacy of the sanctions. We have, of course, been working tirelessly to point out their negative ramifications for the German economy while calling for initial steps towards ending the sanction regime and parallel progress in the Minsk Process. That is why it was generally disappointing to see the EU extend the sanctions by six months in spite of Russia’s efforts to de-escalate the situation. I think we have missed an opportunity to reach out to Russia and revitalize our mutual relationships.
Analyses have shown that the German economy is also missing out on significant opportunities due to the counter-sanctions Russia has imposed. To what extent have companies adjusted their strategies concerning Russia since this crisis began?
Most German companies are staying true to the Russian market and are lying low while the storm passes, so to speak. They have, however, put strict limits on their expenses in terms of investment and personnel. Due to the current conflict, plenty of German companies are also worried that Russia could turn away from the West; in fact, nearly half of the organizations the committee surveys are expecting the country to focus more on China and the rest of Asia. As a result, they are growing increasingly cautious about expanding their activities in Russia. On the other hand, there are quite a few large and midsize German companies that have stood by their investment plans and opened new plants there in the past two years.
BLUE FUELMarch 2016/ Vol. 9/ Issue 1
www.gazpromexport.com | [email protected] | +7 (812) 646-14-14 | [email protected] 25
Continues on page 26
What specific consequences have the sanctions had for German companies?
Unfortunately, the trade statistics are quite clear: Germany’s exports to Russia, for example, are just over half of what they once were, having gone from a record €38bn in 2012 to around €21bn in 2015. Of all the losses the EU countries have sustained in their total exports to Russia, the German economy alone has accounted for 40%. As a result, Russia has tumbled down the list of Germany’s most important trading partners, where it now sits behind the Czech Republic, Hungary, and Sweden – countries that do not even have a tenth of Russia’s population. This negative trend is also affecting virtually every industry. Germany’s mechanical engineering sector, for instance, has been hit particularly hard by the West’s sanctions on the Russian energy and defence industry, which require complex inspections on a variety of machine exports. Meanwhile, German agriculture is suffering from Russia’s counter-sanctions: The loss of the Russian market is contributing to an excess supply of milk, meat, and fruit in the EU and driving revenues down below the costs of production.
Do you believe that exerting this type of economic pressure on Russia has opened up new options in finding a political resolution to the crisis?
Western sanctions have only played a limited part in the difficult economic situation Russia is facing at the moment. The Russian economy – and by extension, the Russian government – are under tremendous pressure mainly because the price of oil continues to reach new lows, which has also done serious harm to the value of the ruble. These circumstances may actually lead the Russian government to take a more determined position on the global stage regarding the resolution of the Ukraine conflict. Nevertheless, I strongly believe that the sanctions alone have not caused Russia to alter its political course, nor will they going forward.
On the whole, however, we have definitely started seeing positive signs of reconciliation between Germany and Russia over the past few weeks, not least in the context of the conflict in Syria. The recent developments in Europe and the Middle East are giving everyone a clear demonstration of what happens when Russia and the EU do not see eye to eye on such problems. The refugee crisis, the bloodshed in Syria, the terrorist attacks in Europe – these things affect us all, and we can only solve them together. With the German federal government taking over the chair of the Organization for Security and Co-operation in Europe (OSCE) in 2016, I am hoping that it can use this role to initiate a new policy of reconciliation in terms of security, economics, and society at large.
German-Russian Young Leaders Conference in Kazan: Building New Trust between Russia and Germany
Every year, more than 250 young German and Russian leaders from business, politics, science, media, and culture meet to discuss the bilateral relationship between their countries, build
new networks, and strengthen their mutual understanding at the German-Russian Young Leaders Conference. Since the event’s inception, Gazprom Germania has been a key supporter along with other leading players from the Russian and German energy industries.
Under the theme “Trust in Troubled Times,” the seventh and most recent German-Russian Young Leaders Conference took place in the Russian city of Kazan, capital of the Republic of Tatarstan. In plenary debates, workshop sessions, and social events, more than 300 participants and leading experts from virtually every industry developed new perspectives on the economic and political relationships between the two countries. The main question over the three conference days was how new trust can be built despite the current tensions. Matthias Brückmann, CEO of EWE AG, and Giorgio Callegari, Deputy General Director of Aeroflot, were among those sharing their ideas.
A politically independent, non-partisan NGO founded in 2009, the German-Russian Young Leaders Conference has grown to become the leading platform for dialogue among 25- to 40-year-olds in the two countries’ new generation of leaders. The conference is a joint initiative of the Berlin-based NGO The New Generation and the Saint Petersburg State University of Economics, Russia’s leading economics university and the alma mater of Alexey Miller, Chairman of the Management Committee of Gazprom.
In his opening address, the Chairman of the German-Russian Young Leaders Conference, Christoph Herzog von Oldenburg, stressed the importance of the conference’s focus: “With regard to trust, German-Russian relations are for sure currently experiencing one of the most difficult phases in decades. And it is for exactly this reason that the next generation of decision-makers must now work actively to build trust anew. The great challenges and problems of our time can only be overcome together,” Oldenburg said.
In delivering a message from Gazprom Chairman Viktor Zubkov, Head of the Russian Steering Committee of the Petersburg Dialog, Vyacheslav Krupenkov (Senior Managing Director of Gazprom Germania) described the German-Russian Young Leaders Conference as an excellent example of successful German-
Russian cooperation and how to actively involve young people from both countries.
In his welcome message, German Foreign Minister Frank Walter Steinmeier added:
“I am very pleased that the German-Russian Young Leaders Conference is taking place for the seventh time and that it continues to enjoy a high degree of support from business as well as politics. To misquote a famous dictum, ’Relations between Germany and Russia are too important to be left to diplomats.’”
Meanwhile, former German Federal Minister of Justice and Consumer Protection Sabine Leutheusser-Schnarrenberger emphasized the importance of communications:
“Dialogue is critical, especially in difficult times. Germany and Russia can look back on a reliable economic relationship based on trust, and the decision to put this relationship at risk through sanctions should not be taken lightly,” she said.
“The German-Russian Young Leaders Conference in Kazan is an example of effective German-Russian cooperation. It is wonderful to see how a new generation of decision-makers is building a bridge of trust and understanding between the two countries – and thereby helping to create a common Europe.”
This 8th German-Russian Young Leaders Conference is scheduled to take place in Germany in the autumn of 2016.
Russian Cinema in Berlin
During Russian Film Week in late 2015, the next generation of German and Russian filmmakers presented their works in Berlin – thanks in part to cultural support that transcends borders.
The most recent Russian Film Week offered Berlin audiences a full spectrum of modern Russian cinema, spanning satire, psychology, romance, drama, and classic Russian melancholy.
In commemorating the 70th anniversary of the end of World War II, the 2015 festival focused mainly on historical films as it took place from 25 November to 2 December 2015.
Opening the film week was Sergey Mokritzkiy’s Battle for Sevastopol, which
BLUE FUELMarch 2016/ Vol. 9/ Issue 1
www.gazpromexport.com | [email protected] | +7 (812) 646-14-14 | [email protected] 27
portrays the dramatic life of Lyudmila Pavlichenko, a sniper who eliminated over 300 enemy soldiers during the war. “This Russian-Ukrainian co-production was likely one of the most discussed and most successful films of the past year in both countries,” noted Julia Kuniß, who serves as Russian Film Week’s artistic director. Lead actor Nikita Tarasov and producer Ulyana Savelyeva also made the trip to Berlin to present the film to the festival audience in person.
As the main sponsor of Russian Film Week since its inception in 2005, Gazprom Germania has sought in particular to support up-and-coming filmmakers. The festival thus includes opportunities for students to present their short film projects
and numerous events where young artists can engage in transnational dialogue.
The third student-produced trailer for the Russian Film Week, which was created in Moscow and Berlin in a co-production involving Film University Babelsberg Konrad Wolf and the Russian State University of Cinematography (VGIK), also celebrated its official premiere at the grand opening of the festival’s 11th edition in Berlin. “The team of German and Russian students that completed this film project have proven once more that the exchange of culture and creativity knows no boundaries,” commented Julia Zechiel, a student who was a producer of the festival trailer.
