1. Tomorrow‘s role for gas ? W A L T E R B O L T Z Former ACER Gas Working Group Chair, ACER BoR Vice Chair CERRE, Brussels, June 14, 2016

2. Agenda  Source: https://ec.europa.eu/energy/sites/ener/files/documents/trends_to_2050_update_2013.pdf  Economy  Gas Market Realities  Gas Ambitions  Can the Gap be bridged? CERRE, June 14, 2016, W. Boltz2

3. Economy – Driver of Gas Demand  Source: https://ec.europa.eu/energy/sites/ener/files/documents/trends_to_2050_update_2013.pdf  EU growth rates for 2016 solid but on a low level (1,6% - 1,8%)  ECB stimulus to continue and grow in volume  Global outlook characterized by uncertainties  Concerns about China  Greek recovery ?  Brexit Y/N  Refugees create severe political strains  Business & consumer confidence going up (slightly) CERRE, June 14, 2016, W. Boltz3

4.  Source: ACER Market Monitoring Report http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_Report_2015.pdf Gas Market Realities Long phase of decline CERRE, June 14, 2016, W. Boltz4 -17% 2008/2015

5. Decline of gas in heat and steam generation CERRE, June 14, 2016, W. Boltz5

6. CION‘s decarbonisation plans will change the energy mix by 2030/2050  Source: https://ec.europa.eu/energy/sites/ener/files/documents/trends_to_2050_update_2013.pdf  Steam and heat demand continues to grow in the EU28 till 2020 and then stabilises. Main sources of demand are industry and households  Fierce fight for market share between fuels – globally and in the EU  Coal is doing much better than anticipated  Gas share likely to decline…  LT carbon emission targets require CO2 „free“ power production and heating CERRE, June 14, 2016, W. Boltz6

7.  Source: https://ec.europa.eu/energy/sites/ener/files/documents/trends_to_2050_update_2013.pdf EU Policy calls for a declining Share of Gas e.g. in electricity generation CERRE, June 14, 2016, W. Boltz7

8.  Total demand should grow 4% to 496 BCM in 2016  Strong increase in pipeline imports ( RUS +16%, N +11%, ALG +40% ) in Q1&Q2  LNG imports -4 %  Indigenous production further down (-10% in 2015)  Power sector likely to drive a small gas demand growth  Europe is very well supplied with gas  Prices should stay quite low (11,5 – 12,5 Euro/MWh)  Is there any upside potential for gas? CERRE, June 14, 2016, W. Boltz8 Gas Market Realities Current Situation – a glimmer of hope ?  Source: https://ec.europa.eu/energy/sites/ener/files/documents/trends_to_2050_update_2013.pdf

9. Gas Ambitions  Source: https://ec.europa.eu/energy/sites/ener/files/documents/trends_to_2050_update_2013.pdf  To retain and possibly grow the market share of gas in the EU fuel mix  To replace coal as the fuel of choice as backup for REN  To be recognized as a flexible and attractive (at least mid term) alternative for stabilizing the electricity grid in times of high REN shares  To support climate change actions by e.g. replacing oil in transport with gas CERRE, June 14, 2016, W. Boltz9

10. Natural gas set for a revival ? … … in Spanish power sector: Sedigas Barcelona (Platts)--20 May 2016 1047 am EDT/1447 GMT Natural gas could increase its share of primary energy supply in Spain to up to 33% by 2030 given the flexibility of gas-fired power plants and abundant gas infrastructure, industry group Asociacion Espanola del Gas (Sedigas) said. With EU legislation urging a move to a reduced carbon scenario as well as moves by regional sector players in Spain to reduce their coal-fired output, Sedigas said Friday the future lay in a combination of renewables and back-up thermal technology. Sedigas, citing a study conducted in conjunction with consulting group KPMG, noted gas-fired plants can, in many cases, reach full output in less than an hour, while Spain's seven LNG terminals and three major import pipelines afforded a high level of security of supply. Between 5.5 GW and 10 GW of new-build combined cycle gas plants might be necessary if Spain is to conclude the move to a lower carbon future and meet renewable targets at the same time, the group said. (full article: http://www.platts.com/latest-news/natural-gas/barcelona/natural-gas- set-for-a-revival-in-spanish-power-21502307 )http://www.platts.com/latest-news/natural-gas/barcelona/natural-gas- set-for-a-revival-in-spanish-power-21502307 CERRE, June 14, 2016, W. Boltz10

11.  Source: https://ec.europa.eu/energy/sites/ener/files/documents/trends_to_2050_update_2013.pdf Energy mix in the EU over the time Net electricity generation by plant type CCGT share declines from 17% in 2010 to 14%/12% in 2030 /50 CERRE, June 14, 2016, W. Boltz11

12.  REN expansion still rather expensive and difficult to finance in lower income EU member states  A too quick „Energiewende“ will result in stranded investments and quite high surcharges for consumers and in electricity prices everywhere in the range of DK/D  Only rather otimistic forecasts show that in spite of the rapid REN expansion beyond 2020, electricity prices could stabilize and even decrease. (  hope dies last!)  The impact of high REN shares on total energy system costs is in any case that they become much more capital intensive over time. Challenges arising from increased REN Opportunities for Gas ? CERRE, June 14, 2016, W. Boltz12

13.  Gas has the potential to make the structural changes in the energy towards a more sustainable electricity sector less costly and risky and more predictable and managable  Outside the gas industry and a few stubborn supporters of gas this potential future role of gas only finds limited support so far  E.g. the EU Roadmap 2050 sees no gas being used in 2050 Opportunities for Gas ? CERRE, June 14, 2016, W. Boltz13

14. Scenarios: co-existence of REN & Gas ENTSO-G „Green Transition Scenario‘: April 2015: gas demand for power generation will in- crease from 94 bcm (2015) to 167-232 bcm in 2035. source: http://www.entsog.eu/public/uploads/files/publications/TYNDP/2016/TYNDP0 46_160511_TYNDP17_Scenarios_storylines.pdf http://www.entsog.eu/public/uploads/files/publications/TYNDP/2016/TYNDP0 46_160511_TYNDP17_Scenarios_storylines.pdf ENTSO-G TYNDP 2017: „Gas before coal scenario“ in electricity production, April 2016 source: http://www.entsog.eu/public/uploads/files/publications/ TYNDP/2016/TYNDP046_160511_TYNDP17_Scenarios_sto rylines.pdf http://www.entsog.eu/public/uploads/files/publications/ TYNDP/2016/TYNDP046_160511_TYNDP17_Scenarios_sto rylines.pdf CERRE, June 14, 2016, W. Boltz14

15. CERRE, June 14, 2016, W. Boltz15

16. Scenarios: co-existence of REN & Gas 33%  EUROGAS „Environmental Scenario“ (Envt.): gas increase to 230 bcm by 2035, assuming a rebalancing for the power mix towards more renewables and gas (33%), RES (44%) and coal decrease to 6% ttp://www.eurogas.org/uploads/media/Eurogas_Brochure_Long- Term_Outlook_for_gas_to_2035.pdf  pre-requisite: cost- efficient low-carbon investment EU policy… CERRE, June 14, 2016, W. Boltz16

17. Scenarios: co-existence of REN & Gas 33%  EUROGAS „Environmental Scenario“ (Envt.): gas increase to 230 bcm by 2035, assuming a rebalancing for the power mix towards more renewables and gas (33%), RES (44%) and coal decrease to 6% ttp://www.eurogas.org/uploads/media/Eurogas_Brochure_Long- Term_Outlook_for_gas_to_2035.pdf  pre-requisite: cost- efficient low-carbon investment EU policy… CERRE, June 14, 2016, W. Boltz17

18.  Gas has the potential to make the structural changes in the energy sector less costly and risky and more predictable and managable  Most gas experts will agree to this statement  But gas so far lack a broader support amongst policy makers  Today´s panels should look into the question what can be done about this broader misconception Todays Panels CERRE, June 14, 2016, W. Boltz18

19.  Questions:  Q1: Renewables will play a key role in helping the EU meet its energy needs beyond 2020. With a renewable target of 27% for 2030 (and 40%+ by 2050 ) how much gas will still be needed in the EU energy mix then ?  Q2: What measures are needed to replace coal by gas in the power generation sector?  Q3: When do you think the EU will really not need any (substantial amounts of) gas in the energy mix any more ? Panel 1: What is the role of Gas in today’s EU energy mix? Does it need to reinvent itself? CERRE, June 14, 2016, W. Boltz19

20.  Q4: : In their ‘Green Transition’ scenario of the TYNDP ENTSOG projects a gas demand for power generation of 167-232 bcm in 2035 (95 in 2015/154 in 2010) What would need to change in the EU energy market for this to happen ?  Source: CEPS Report, February 2016 https://www.ceps.eu/system/files/GasDemandFinal.pdf Panel 1: What is the role of Gas in today’s EU energy mix? Does it need to reinvent itself? CERRE, June 14, 2016, W. Boltz20

21.  Questions:  Q1: How could a long term view of the EU energy market look like with a sizable share of gas  Q2: How could gas attain a major role in transport? And when?  Q3: Is there anything (besides ECS) that could increase the attractiveness of gas vs. coal ?  Q4: Why is there so little policy support for the long term use of gas? Panel 2: What would reinvention look like for Gas? CERRE, June 14, 2016, W. Boltz21

22. Walter Boltz Former ACER Gas Working Group Chair, Former ACER BoR Vice Chair contact: walter@boltz.at walter@boltz.at CERRE, June 14, 2016, W. Boltz22