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Geopolitical dimension of natural gas infrastructure. Sylvie Cornot-Gandolphe Principal Gas Expert International Energy Agency GIE Annual Conference Athens, 3-4 November 2005. Agenda. 1.The importance of cross-border gas trade 2.Main features of cross-border trade and their consequences - PowerPoint PPT Presentation
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INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE
Geopolitical dimension of natural gas
infrastructure
Sylvie Cornot-Gandolphe
Principal Gas Expert
International Energy Agency
GIE Annual Conference
Athens, 3-4 November 2005
INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE
Agenda
1. The importance of cross-border gas trade
2. Main features of cross-border trade and their consequences
3. Do politics matter?
4. Conclusion: key role of governments
INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE
The importance of cross-border trade
Minsk
St. Petersburg
Bratislava
Berlin
Rome
LjubljanaZagreb
Oslo
Algiers
Madrid
Cordoba
London
Copenhagen
Prague
Warsaw
Vienna
Stockholm
Helsinki
Athens
Paris
Essen
Lisbon
Budapest
Tunis
Brussels
Sofia
Bern
LyonBelgrade
Dublin
Bucharest
Emden
HuelvaCartagena
Barcelona
Fos-sur-Mer
La Spezia
Montoir
Zeebrugge
TyraEkofisk
Kårsto
KollsnesTroll
GullfaksStatfjord
HeimdalFrigg
Sleipner Stavanger
Oseberg
W'haven
Belfast
Minsk
St. Petersburg
Bratislava
Rome
LjubljanaZagreb
Oslo
Algiers
Madrid
Cordoba
London
Copenhagen
Prague
Warsaw
Vienna
Stockholm
Helsinki
Athens
Paris
Lisbon
Budapest
Tunis
Brussels
Sofia
Bern
LyonBelgrade
Dublin
Bucharest
HuelvaCartagena
Barcelona
Fos-sur-Mer
La Spezia
Montoir
Zeebrugge
TyraEkofisk
Kårsto
KollsnesTroll
GullfaksStatfjord
HeimdalFrigg
Sleipner Stavanger
Oseberg
W'haven
Belfast
ArzewSkikda
Bilbao
Istanbul
Sines
Krk
Rovigo
El Ferrol
Valencia
Today over 68% of OECD European
consumption crosses at least one
border
INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE
OECD Europe is becoming more import dependent
Source: World Energy Outlook 2004
0
200
400
600
800
1980 1990 2004 2010 2020 2030
bc
m
Production Net imports
INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE
“Ambre”
Several new cross-border pipelines will fill the supply “gap“
INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE
Importance and main features of cross-border gas trade
Contributes to free and open trade For producers: Allows to reach markets and earn revenues For consumers: Reliable/ secure supplies For transit countries: Stable income
Also carries significant risks Highly capital-intensive Large up-front investment and subject to obsolescing bargain Involved different jurisdictions/no overarching legal regime Involved public and private stakeholders Characterized by their long life Mechanisms to share the profit and rent between the different players? Natural monopoly (regulation) Lack of flexibility (point A to B)
INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE
Characteristics of gas pipelines and their consequences
Characteristics Consequences
PipelinesSubject to economies of scaleLarge upfront investmentHigh fixed costsPotential for natural monopolyChanging capacity is difficult when builtHistory of state involvement
Full capacity operation is key to profitability
Requires regulation
Limited flexibility
Public vs. private interest
Cross-borderDifferent legal and regulatory regimes apply Need contracts governed by different legal regimes
Benefits must be shared across the border
Differing energy markets, degree of competition
TransitRequires transit agreementsMay involve competing for markets (or for volumes)
Involves governments
Increase the number of players
INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE
Five main overarching conditionsfor their successful realisation
Rules must be clearly defined and accepted by all parties
Projects must be driven by commercial considerations
Credible threats to deter obsolescing bargainMechanisms to create a balance and alignment of
interests between the partiesTransparency of the terms involved
INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE
So, do politics matter?
Only those pipelines which have a commercial basis will fly…
…But, only if they get strong support by politicians
….Ideally, separation between the political and commercial roles of sovereign governments
INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE
The Maghreb-Europe pipelineAn international successful project commercially
driven… June 1992 Sonatrach (Algeria) / Enagas (Spain) long-term supply agreement
to deliver gas at the Algerian-Moroccan border. Ministers meet in Hassi R’Mel decide to start the construction of
the pipeline July 19992 Signature of the Moroccan Convention: Moroccan government,
SNPP (Morocco) and Enagas establish the procedures for the construction, operation and use of the pipeline
Setting up of EMPL as project leader and pipeline owner November 1994 Transgas (Portugal) joins the project taking a 28% stake of
EMPL’s capital stockNovember 1996 Pipeline Commissioning: Algerian piped gas reaches Spain
INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE
The Maghreb-Europe pipeline…Which needed strong political support
Algeria to supply
Morocco to provide transit
Necessary Agreement among three Governments
Spain to market the gas
Guarantee of the Spanish State: Through Enagas /Sagane
European Union Priority Project: Essen Summit, Dec. 1994
Supported by international financial institutions : mainly EIB
Declared of “public interest” in Morocco
INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE
North European Gas Pipeline (NEGP)
Length: 1200 km Capacity: 55 bcm (2 lines) Expected start-up: 2010 (1st
line) Capital investment: €4 billion
(offshore section) Project finance basis for the
offshore section Capital structure:
Gazprom: 51% BASF 24.5% Eon 24.5%
TEN project
INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE
NEGP: major uncertainties
Strategic importance for Gazprom: Access to the largest European gas markets (Germany, UK,
+others) Direct line (no transit fees/issues, also no TPA) Increased exports of Russian gas to Europe
Strategic importance for Europe Access to Russian upstream Diversification of routes Additional gas supplies
Clear disadvantage: Additional cost of NEGP compared with adding another string
to the Yamal pipelineAnd still a lot of uncertainties
INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE
Conclusion: What can be done?
Active participation of Governments, Supranational Entities (i.e. EC through special financing vehicle) and Multilateral Organizations
Importance of multilateral legal regimes e.g. Energy Charter Treaty ECT binding and non-binding agreements WTO rules Importance of harmonizing investment and trade rules
Reinforce international dispute resolution mechanisms
INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE
Governments Should Contribute to:
Stable and sound macroeconomic policies Need secure investment climate in host countries Stability in fiscal regime Stability access to hard currency, effective legal protection
Transparent and efficient legal, regulatory and institutional frameworks Regulation on access to pipelines based on transparency,
non discrimination and cost-reflectivenessRemoval of market barriers to cross-border tradeEffective enforcement of rights Improving international political co-operation and
dialogue with gas producers/transit countries