European gas markets have lost 10 years of growth: Stern
London (Platts)--12Dec2012/850 am EST/1350 GMT
European gas markets have lost over 10 years of growth, with demand back
to the levels of the 1990s, Professor Jonathan Stern of the Oxford Institute
for Energy Studies told the UK House of Lords EU energy subcommittee
He said that "European gas demand has been in freefall" due to economic
recession, the growth of renewables, low coal prices and strong gas prices.
There had been "declines in gas demand to levels that we never expected
to see," he said, arguing that Europe was seeing more of a "dark age of gas"
than the once-predicted "golden age." The International Energy Agency in a
2011 report asked whether the global energy market was entering a "golden
age" for gas in which the fuel would take up a bigger share of the global
Stern said that the market was "beginning to see the decline of gas in
Europe as a whole," although he pointed out that neighboring Turkey, a
possible future EU member, was experiencing double-digit growth.
Article continues below...
|Request a free trial of: European Gas Daily|
European Gas Daily is a flagship Platts publication that delivers crucial competitive intelligence across the entire European gas marketplace. It keeps you ahead of critical price changes and their effects on the industry -- to help you make informed market decisions.
Stern also told the committee that hub-based prices were becoming
increasingly important in European gas markets. He said this year, or at
latest next year, the majority of gas sold in Europe would be on hub-based
prices, and that in three or four more years "virtually all gas sold into
Europe" could be on hub prices.
He said that hub prices were "becoming more and more co-integrated"
across Northwest Europe, although Eastern Europe, Spain and Italy showed
greater variation in prices.
Major producers had less pricing power at a time when demand was falling
and the market was becoming more global, he added, though cautioning that the
gas market "is not and will never be as fungible as the global oil market."
Stern did not expect US gas prices to head much over $6/MMBtu in the
near-term and did not see European prices falling much below $10/MMBtu,
noting that this would have an impact on the competitiveness of major
gas-consuming industries in Europe.
SHALE, CCS PROGRESS SLOW
Stern said that he doubted there would be much significant shale gas
production in European countries before 2020, which he defined as more than a
couple of billion cubic meters a year.
Since a study by the Oxford institute two years ago results had been
more disappointing than expected, with for example some big companies pulling
out of Poland.
Stern said, however, that shale gas was "a real prospect" in some
Eastern European countries in the longer term, and in the UK given sufficient
"public tolerance" of drilling operations.
Studies from the institute also showed slow progress on carbon capture
and storage. Though technically feasible, it was not working commercially.
The only active projects are in enhanced oil recovery schemes, which
benefit from oil prices. But in power generation the economics did not work
Stern also said that the economics did not work at the moment for more
gas storage in the UK. "It does not pay to build large scale storage in the
UK," he said, adding, "but we should." The future of gas in power generation
varied from country to country across Europe.
In Germany, gas looked like being "progressively phased out" of power
generation in favor of coal and renewables, whereas in the UK the market was
moving more toward gas and renewables.
Stern said that the government's new gas-fired generation strategy did
not create a new "dash for gas" in UK power generation.
There were already a lot of underutilized gas-fired power plants in the
UK, he said. The reasons for new plants not being built was not a lack of
sites or planning permission, but the plants struggling economically without
changes to the market framework.
--Alex Froley, email@example.com
--Edited by Jonathan Dart, firstname.lastname@example.org