The Role of Natural Gas, Oil and Electricity in Eurasian Energy Security Energy Charter Executive Training Programme International Oil & Gas University, Ashgabat, Turkmenistan 1st-2nd June 2017 Dr Jack Sharples European University of St Petersburg https://eu-spb.academia.edu/JackSharples

Eurasian Energy Security Challenges and the Role of Gas Through to 2030: How to Handle, What to Expect

Eurasian Energy Security Challenges Power generation: Power generation must track demand, due to storage limitations Demand fluctuates on a daily and seasonal basis This reflects human activity during the day, the greater need for light and heat during the winter, and air-cooling in the summer Baseload demand is relatively constant (24 hours per day) Intermediate demand occurs during regular human waking hours Peak demand during the afternoon and early evening

Source: Sharples, 2016. The importance of gas storage facilities in the European gas and power markets. IJES, 73(3), 369-378 [Link]

Eurasian Energy Security Challenges Traditional power generation model: Coal, nuclear, and hydro are used to meet baseload demand Coal and nuclear take hours to ‘power up’ and ‘power down’ Contributions from renewable energy sources (RES) also fluctuate Such RES include wind; solar; and tidal/wave energy Gas-fired power plants can ramp up and down quickly This makes them ideal for tracking power demand and fluctuations in RES power generation

The Role of Gas in Decarbonisation Two key questions: How does natural gas contribute to decarbonization objectives? How will gas co-exist with alternative sources of energy? Power generation: Nuclear power is limited to a small number of countries (31), of which several have pledged to phase it out (e.g. Germans/Swiss) Coal for power generation is a major source of CO2 emissions On 22nd April, UK was powered for 24 hours without coal On 30th April at 2pm, 85% of German power generation was provided by RES (64% for 24 hour period)

Source: Carbon Brief [Link]

The Role of Gas in Decarbonisation Context of shifting balance of coal, nuclear and RES Role of RES in power generation is growing Gas will play a key role in balancing supply/demand Gas can be stored, and used to generate power when it is needed Not only in gas storage facilities, but also in the gas pipeline system itself (line-packing) Power-to-gas (using electrolysis to convert water to hydrogen, which can then be stored and later used for power gen) Hydrogen can be burned along with methane, but can corrode some steel pipelines over the long term

Role of Gas in Decarbonisation Increasing use of LNG as a shipping fuel (e.g. Baltic Sea) Focus on Sulphur emissions control area (ECA) LNG also produces no fine particle (particular matter – PM) pollutants and less CO2 than heavy fuel oil (HFO) CNG as a land-based transportation fuel Also has benefits regarding CO2, Sulphur, and PM Competition from electric and hydrogen fuel cell transportation Which is more efficient : To generate electricity from gas for electric vehicles, or use gas as a transportation fuel directly?

Conclusions Gas will not directly replace coal or nuclear directly But it will become increasingly important as a flexible ‘balancing fuel’ for power generation in an age of RES Ability to store gas at point of demand is important Natural gas will not completely displace fuel oil in shipping by 2030, but it will play an increasing role CNG has greatest potential in heavy-duty vehicles, but faces competition from electricity in light-duty vehicles Part of a ‘portfolio’ of transport fuels by 2030

Mobilising Investments and Diversifying Delivery Routes in Order to Strengthen the Sustainability of the Gas and Oil Supply

Eurasian Energy Security Challenges What gas delivery infrastructure currently exists in Eurasia? Russia to Europe (Ukraine, Belarus, Nord Stream 1); Norway to Europe; North Africa to Europe Central Asia-Centre; Turkmenistan-China; LNG Planned projects: Nord Stream II (55 bcm); Turkish Stream (15 bcm per line) TANAP-TAP (10 bcm, expandable to 20 bcm) Power of Siberia; Turkmenistan-China pipeline expansion TAPI (33 bcm)

Diversification of Gas Delivery Routes Diversification of gas transportation routes as a key element of gas strategy: Silver bullet for whom? Turkish Stream would end Russian gas deliveries to Turkey via Ukraine – Control over delivery costs & reduced dependence NS1 brings gas to NW Europe & Czech Republic NS2 aims to bring Russian gas to Baumgarten gas hub This would enable deliveries to Italy via NS2 Romania, Bulgaria, Greece, FYRM, Hungary, Serbia, B&H to remain dependent on gas transit via Ukraine – Small markets for Gazprom

Diversification of Gas Delivery Routes Why does Gazprom wish to reduce gas transit via Ukraine? Naftogaz no longer purchasing gas from Gazprom directly This gives Ukraine leverage with no ‘exposure’ (Balance of power) Question of transit fees via Ukraine & delivery costs Higher transit fees makes NS2 more commercially viable Desire to ‘lock in’ European partner companies as investors that also purchase gas delivered via the new pipeline This worked with NS1, but not NS2 or Turkish Stream Is reduction of transit revenues for Ukraine part of Russian FP?

The Ukrainian Response Strategies of transit states: Ukraine Post-2009, transit could not be leveraged for price discount Discount of 2010 was based on ‘Gas For Fleet’ (Sevastopol) Strategy of reducing dependence on Russian gas imports and integration with EU gas market, especially post-2013 Integration into competitive market is more valuable than transit, especially since Gazprom is diversifying its delivery routes Russia & Ukraine were in state of ‘negative mutual dependence’ Both have reacted with diversification

The Impact on Investment In Knowledge Stream I, we discussed power generation and the role of gas in relation to alternative fuels How to prevent ‘stranding’ of investments in gas? Gas demand in China & India is unlikely to decline before 2030 But pipeline supplies will face competition from LNG In Europe, gas demand will depend on development of competing fuels and development of gas-based transportation NS2 will re-route gas deliveries away from Ukraine, so is less dependent on ‘new’ European gas demand

Conclusions Gas markets are becoming more competitive Flexibility of deliveries/imports is now key Companies are investing in new import/export routes Demand projections vary across Eurasia Growth will be stronger in the East How to prevent ‘stranding’ of investments in gas? Do not invest in new infrastructure unless it can be used to supply multiple customers, or demand is secured by an LTC Example of Turkmen & Russian supplies to China

Thank you for your attention

For More Information Please Contact: Dr Jack Sharples European University at St Petersburg European Geopolitical Forum jsharples@eu.spb.ru https://eu-spb.academia.edu/JackSharples http://eu.spb.ru/en/professors/13154-sharples-jack http://shop.gpf-europe.com/