1. 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

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

3. 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

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

6. 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

7. 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)

8. Source: Carbon Brief [Link]

9. 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

10. 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?

11. 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

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

13. 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)

18. 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

19. 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?

20. 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

21. 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

22. 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

23. Thank you for your attention

24. For More Information Please Contact: Dr Jack Sharples European University at St Petersburg European Geopolitical Forum