IGU

Execu

tive C

om

mit

tee W

ork

sh

op

Beyond the Underground Factors :What Response of Gas Industry to the Environmental

Challenges? A GECF View

Presentation to IGU Executive Workshop

by

Mahdjouba Belaifa

Head of Gas Market Analysis Department

Session : Global Gas Industry Issues & Opportunities

March, 30th 2017

2

• Who are We?

• Where does Gas Industry stand?

• Natural Gas Demand

• Climate Change Issue: What Governance?

• GECF & Climate Change Issues

• GECF Main Message to COP21

• Post COP 21 & Paris Agreement

• Natural Gas Weighted against Substantial Challenges

• Concluding Remarks

Content

3

Who are We?12 Member Countries

67%

33%

Gas Reserves

64%

36%

Total GECF Rest of World

64%

36%

Pipeline Trade LNG Trade

Algeria

Bolivia

Egypt

Iran

Libya

Nigeria

Trinidad

and Tobago

Equatorial Guinea

Venezuela

Russia

Qatar

United Arab

Emirates

OmanThe Netherlands NorwayKazakhstanIraq PeruAzerbaijan

7 Observer Countries

4Top Stories of 2016 - Where does Gas Industry Stand?

Economic Growth

Weaker-than-expeted economic growth in 2016 (~3.1%)-Sluggish global Trade; weak investement; high policy uncertenitiesSubued demand in advanced economy and solid growth in developing countriesLow energy price and subdued investement in oil&gas sector

Natural Gas Surpass Coal in Power Generation in the USEuropean demand increased in 2016 driven by coal to gas switching Impact of Carbon Tax in UK;Restart of Nuclear Power Plants in Japan .

Natural Gas Demand

Groningen gas production capped to 24 Bcmfor the next 5 yearsNewly commissioned Australia LNG projects continue to ramp up with challenges US’ Cheniere’s Sabine Pass LNG T1 and T2 commissioned in Q1 & Q3 2016;Malaysia: Commissioning( feedgas received) at first world’s FLNG project (Petronas 1.2 MTPA SATU FLNG) (Nov 16); commissioning cargo produced from the new Petronas 3.6 MTPA T9 (commercial operation in Q1 2017) .

Natural Gas Supply

Important growth in LNG Trade;Shift from Pacific to Atlantic Basin;Weaker LNG imports in JapanHubs initiatives Emergence in Asia.

LNG Trade

Shipping

Gradual growth of charter rate where average of Q4, 2016 reached above 27,400 $/day while it was 22,400 $/day in Q4, 2015 moved up by 22%.Drastic drop of charter rate to below 20,000 $/d in the early summer 2016.

Recovery of gas prices worldwide due to reinforcement of oil price and higher demand from buyers especially in Q4.NEA spot LNG price in 2016 averaged 5.83 $/MMBtu (fall by less than 23 % vs. 2015 );SWE spot LNG price declined by almost 22% in 2016 (5.01 $/MMBtu ) vs. 2015 (6.41 $/MMBtu) HH dropped by merely 0.12 $/MMBtu to 2.51 $/MMBtu in 2016 vs. 2015.Price divergence & restore of arbitrage opportunity across the Basins.

Prices

Environment (Paris Agreement & COP22)

BREXIT and US Presidential Election

Multiplicity of Market factors, Multiplicity of Opportunities for Natural Gas and Multiplicity of Risks

5Natural Gas Demand: A Moderate Expansion coupled with Uncertainties

Data: GGM, BP Statistical Review June 2016, GECF Estimates

Global average growth of 1.9% in 2015 is slightly higher than the last

5-yr average growth of 1.7%, but much higher than the 2014 (+0.8%).

OECD accounted for 46% of total consumption in 2015, although the

avg. growth of 1.4% is below the global avg. ( +1.9%).

0

500

1000

1500

2000

2500

3000

3500

4000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Latin America North America Non-OECD Asia

Non-OECD Europe OECD Asia-Pacific OECD Europe

Africa Commonwealth of Independent States Middle East

Regional Natural Gas Consumption (Bcm)

Natural Gas Consumption in OECD (Bcm) Short Term Outlook:

2016: preliminary estimates, gas demand grew to around ~3.55 Tcm in

2016, (an increase between 1.4 and 1.5%) compared to 2015, mainly

driven by Non-OECD economies: China and India, Non-OECD Asia and

the Middle East region.

OECD gas consumption is expected to increase, averaging 1.64 Tcm

particularly driven by OECD Europe with 3.6% growth.

2017: Further growth is expected as the economic conditions improve

and calls for gas as coal prices increase making gas more competitive,

but not sufficient to absorb the excess supply.0

200

400

600

800

1000

1200

1400

1600

1800

2012 2013 2014 2015 2016

OECD America OECD Asia Oceania OECD Europe

Moderate rise of natural gas consumption but clarity and stability of energy policies needed to encourage investments that support gas in arenewables-oriented world.

Cooperation in stimulation and support of natural gas demand worldwide based on a Win-Win Situation.

6Climate Change Issue: How is it tackled? & What Governance?

Adopted in

1997& entered

into force on 16

February 2005.

GHG emissions

targets:

First Tranch:

2008-2012

Second

Tranch:

2013-2020

1997/2005 2009

not adopted

and not passed

unanimously.

In 2009.

translated into

COP decisions

in Cancun.

•Guidance and

safeguards for

policy

approaches on

emissions

reduction from

deforestation &

forest

degradation in

developing

countries.

2010 2011

•Launching of

the Green

Climate Fund

•Extension of

Kyoto

Protocol’s life

through 2020

.

•Report of the

Green Climate

Fund: Calls for

more commitments

of developed

countries in GHG

reduction & in

feeding the fund to

support the

mitigations

(renewable

energies) and

adaptations

(strengthening

capability to cope

with climate

change) of

developing

countries.

2012 2013

•The Parties keep

negotiations on

climate change

issues and

prepare a global

treaty on GHG

emissions

reduction yet to

be agreed in COP

21 in Paris 2015.

Modest success of UNFCCC process through Kyoto Protocol in requiring approximately 5% reduction in the GHG emissions from industrialized countries by 2012 below 1990

levels.

Main Commitments :

China: Actions by 2030:

• Peak CO2 emissions around 2030 and make best efforts to peak early;

• Lower CO2 emissions per unit of GDP by 60% to 65% from the 2005 level;

• Increase the share of non-fossil fuels in primary energy consumption to around 20%;

European Union

• A binding target of at least 40% domestic reduction in greenhouse gas emissions by 2030, compared to 1990.

Japan: GHG emissions reduction of 26.0% by fiscal year 2030 compared to FY 2013 (25.4% reduction compared to FY 2005)

USA: intention to achieve an economy-wide target of reducing its GHG emissions by 26-28% below its 2005 level by 2025 and to make best efforts to reduce its emissions by 28%.

Will the Success of Paris Agreement be sustainable ? How to make it resilient?

•Format for

national pledges

on limiting the

GHG emissions

introduced in

2015.

•A working draft

for a new global

climate pact

under completion

for endorsement

Paris meeting in

December 2015.

•hold increase in

global temperatures

Implementation of

NDCs;

•Obligation for

developed

countries to

continue to provide

climate finance to

developing

countries ($100

billion a year by

2020).

•Support to

developing

countries on

technology

development and

transfer.

Aim : Mitigate the Climate change, tackle the global warming and cut global emissions of GHG

2014 2015 2016

• Reconfirming the

importance to

implement Paris

Agreement

•call for the highest

political commitment

to combat climate

change

•Release of Marrakesh Action Proclamation •GHGs reduction momentum was called as “irreversible”•Announced initiatives for funding and supporting GHGs mitigation and adaptation

7

GECF & Climate Change Issues

MM

Vision & Mission

Strategic Objectives

Cooperation

Notably, Article 3Natural Gas: Green, Abundant & Safe

Unclear and Unconsistent Energy Policies, Technology Advancement, Regulations, increasing Competition, Uncertainties.

Promotion of Natural Gas

Resolutions & Approval of Studies of the Forum

8GECF Main Message to COP21 on the Occasion of the 3rd Gas Summit

GECF recognizes the importance ofchallenges posed by Climate Change &Global Warming

Treat environmental concern in a responsible manner through pragmatism and globalpolicy coordination.

Natural gas as the cleanest of all knownfossil fuels is in a unique position to providethe lion share of global energy needs in thecoming decades

Natural gas is capable of easing the world’s transition into the age of renewableenergies as the relevant substitute for pollutant fuels, such as coal, currently inwidespread use.

As fuel of choice in the global energy mix that could contribute to achieving the goalsof sustainable development framework.

The Declaration of the 3rd GECF Summitalso underlines the role of natural gas

GECF member states are currently inpossession of major global gas reserves &are in a unique position to supply clean &safe energy in sufficient volumes to meetthe ever growing global energyrequirements

However, development of natural gas cannot be guaranteed without adequate andsecure investment, especially in the upstream sector.security of supply cannot be realized in a volatile environment shrouded withuncertainty;Long-term agreements and reasonable prices play key roles in maintaining security ofsupply essential for both producers and consumers of natural gas.To that end, collective efforts are required to adopt proper policies and instruments toexpedite the promotion of natural gas against pollutant fuels.

9

Post COP21 & Paris Agreement

A turning point in energy and climate policy development, BUT with Challenges….

Main challenges and uncertainties to meet the targets:• Political issues and support• Lobbying and resistance to change;• Security of supply priorities; • Growing energy needs; • Funding and affordability issues; • Economic viability of green projects;• Non-binding and conditional commitments; • Implementation of the detailed agreement mechanisms.

10

Gas has many advantages

• Gas emits less CO2 and other harmful by-products (Particles, NOx, SO2…);• Gas enjoys a good competitive position against renewables, and also coal in many countries, especially if environmental externalities are integrated• Good complementarity between gas and renewables; • Good energy performance of gas-based technologies and processes;• Gas is clean, abundant, affordable and allows to improve energy accessibility.

Range of power generation costs for gas, coal and renewables in European countries (US$/Mwh)

CO2 emission by unit of energy consumed (T.CO2/Toe)

0

50

100

150

200

250

300

350

Natural GasCombined

Cycle

Steam Coal Solar (CSP) Solar (PV) Wind (offshore)Wind (onshore) - 2,00 4,00 6,00

Natural Gas

Oil

Coal

NaturalGas

Oil

Coal

… but gas as cleanest fossil fuel needs to play a key role in these mitigation policies

Source: GECF GGM

11Natural Gas Weighted Against Substantial Challenges

Collective efforts to promote natural gas thanks to its environmental credentials and ability to partnerwith renewables in power generation .

In transportation sector, natural gas needs to be promoted as bunker fuel & as NGV. Need to promote and implement environmental policies that are friendly to natural gas, and to pursuecooperation with global environmental organizations.

CCS: A must

Has to be addressed

12

Concluding Remarks

Cautious about the important role of technology for sustainable environmental development,GECF is determined to play its role as reliable supplier of natural gas to the market over thenext decades, with the involvement of all the market players.

For this aim :

We look at the COP21 actions and their implementation an opportunity for natural gasexpansion rather than a challenge or limitation for natural gas developmentCollective commitments of the world nations to be robustPromotion of natural gas by restoring confidence in it in the power generation sector and to

be combined with renewables when applicable.Gas industry should cooperate and partner to address urgently the methane emissions issues

and take the necessary measures to reduce methane them,In terms of gas decarbonisation , CC(U)S is a must in the long run

We need to raise our voices for Natural Gas to get the recognition it deserves.

GECF Secretariat: 47th, 48th Floor, Tornado Tower, West Bay, Doha, Qatar, Website: www.gecf.org

Thank You for Your Kind Attention

www.gecf.org