INSTITUTE OF ENERGY STRATEGY IES INSTITUTE OF ENERGY STRATEGY The Global Prospects for Unconventional Gas Russian view Alexey GROMOV PhD in Economic Geography Deputy General Director Institute of Energy Strategy, Moscow

Key challenges and risks for the Global Energy Sector IES Key challenges and risks for the Global Energy Sector Geopolitics «Arabian Spring» Geopolitical instability in the Middle East Energy security problem (Russia-Ukraine, Lybia etc) Economics Economic Crisis in the Europe State programs of decrease in an import of energy (USA, China) Growth of own energy consumption in the export countries (Saudi Arabia) Technologies Unconventional “revolution” (shale gas, shale oil, methan-hydrates) Shift to the Electric World (electric cars etc) New energy logistics: (change of global energy flows) 2

Energy Regionalization is more actual than Globalization IES Energy Regionalization is more actual than Globalization Oil Sands in Canada Shale Gas in the USA Heavy Oil in Venezuela Oil extraction on Brazilian Offshore Renewables in EU Energy Consumption Growth in China Oil of the Middle East LNG in Qatar Non Conventional Energy Sources in China Lybia In case of global instability and high volatility of oil prices, the major energy importers try to develop their own sources of energy, including UNCONVENTIONAL sources

“Golden Age” of Unconventional Gas is coming? Shale Gas Coal-Bed Methane Tight Gas Methan Hydrates Biogas Former Soviet Union Asia-Pacific North America Latin America Europe 5

Unconventional Gas resources are concentrated IES Unconventional Gas resources are concentrated in the major energy importers countries

Unconventional Gas can be cheaper than conventional gas… IES Unconventional Gas can be cheaper than conventional gas…

But “Unconventional Gas” Revolution happened only in the USA… IES But “Unconventional Gas” Revolution happened only in the USA… Significant dependence on external supplies Regional Gas balances 2011

IES Who’s next? Europe? China? The World?

Future role of unconventional gas in Europe IES Future role of unconventional gas in Europe Shale Gas Unconventional gas in Europe can’t solve the problem of import dependence, but it will help to reduce it Sources: Institute of Energy Strategy

The main restrictions of Unconventional Gas Revolution in Europe IES The main restrictions of Unconventional Gas Revolution in Europe Economics: 2.7-3.2 times more expensive than in the USA Regulation: more complicated Social: society doesn't want Ecology: high risk of contaminations

Europe: Not Unconventional Revolution but Energy Diversification IES Europe: Not Unconventional Revolution but Energy Diversification Biofuels Own oil&gas production Renewables CCS Coal Biomass Unconventional Gas Geothermal Energy The main goal is to reduce the energy import

Unconventional Gas: the main consequences for Russia IES Unconventional Gas: the main consequences for Russia Concurrence? Sales Market loss? decline of Russian Gas Industry?

Reserves, resources and production of gas in Russia IES Reserves, resources and production of gas in Russia Russia has a huge conventional resources to develop production of gas Unconventional resources will not play significant role in the gas mix in 20 years Sources: Energy Strategy of Russia for the period up to 2030, Ministry of Natural Resources of Russia

Export expectations vs. reality IES Export expectations vs. reality Russian Gas Export forecast up to period 2030 Factors of decrease in export expectations Europe: Competition growth US: refuse of future Russian LNG (the boom of shale gas production) Asia-Pacific: competition growth (Central Asia) 15-20% Risk of decrease in export on 15-20% 12

Russia's natural gas exports to Europe will be stable IES Russia's natural gas exports to Europe will be stable Sources: Institute of Energy Strategy

But Russian share in EU gas market will be continue IES But Russian share in EU gas market will be continue to decline…

But spot prices will grow, also limiting demand Russia continue to lose price competition in Europe… doll. for barr. doll. per tcm NBP spot Russian gas at the Germany border Brent But spot prices will grow, also limiting demand

Unconventional gas will help to smooth out the price of gas, IES Conclusion There will be not “Unconventional Gas Revolution” in the Europe but diversification of European Energy Mix to reduce energy import Unconventional gas will help to smooth out the price of gas, but will not reduce it significantly Unconventional Gas for Russia is not the source but the source of concurrence

Thank you for your attention IES The Energy of the Future in our Hands Thank you for your attention www.energystrategy.ru Alexey GROMOV Deputy General Director Institute of Energy Strategy, Moscow