ECONOMIC CONSULTING ASSOCIATES LIMITED 41 Lonsdale Road London NW6 6RA UKtel +44 (0)20 7604 4545 / fax +44 (0)20 7604 4547 www.eca-uk.com
1 (C) 2002. Economic Consulting Associates Ltd
SEE Regional Gasification Study(funded by the World Bank)
Ray TomkinsStephen Wilson
2nd Workgroup on SE Europe Gas InfrastructureSerbia, 3 October 2005
2 (C) 2005. Economic Consulting Associates Ltd
Aims of the project
Assess the economics of increased SEE gasification:
based on Russian gas based on pipelines linking Turkey with Western Europe
increased LNG imports
Outline reform steps that would support increased gasification in SEE
3 (C) 2005. Economic Consulting Associates Ltd
Project team
Econ
om
ic
Con
su
ltin
g
Associa
tes (
EC
A)
- econ
om
ics a
nd
p
olicy
Pen
sp
en
-
gas
infr
astu
ctu
re,
en
gin
eeri
ng
Various country experts economics and technical
Ray Tomkins project director
William Derbyshire institutional issues
Paul Lewington prices and forecasts
Stephen Wilson pipeline economics
Bob Grabham Russian prices
Ian Thomson Caspian prices, LNG prices
Derrick Blaikley Western European markets
Malcolm Groom legal issues
David Mortimer commercial issues
John Hegarty transmission Investment
Paul Trundle distribution Investment
Dave Adams distribution cost estimates
Malcolm Barber transmission analysis
4 (C) 2005. Economic Consulting Associates Ltd
Overview of tasks - 2 phases
1 Price-demand projections and opportunities for Tx and Dx investments
2 Economics of SEE gas’n with Russian supply
3 Transmission pipeline costs for SEE supply
4 Economics of SEE supply 6 Turkish border prices 8 Economics of gasification by source
5 Economics of SEE gas’n based on LNG 7 SEE gas’n and Western European
markets 9 Institutional framework
Phase I
Phase II
5 (C) 2005. Economic Consulting Associates Ltd
Economics forwards or backwards
Delivered price
Border price
Transmission and transit
Distribution cost
Demand
+
+
=
Netback price
Distribution cost
Transmission
Border price + transit
<
NetbackOil$
6 (C) 2005. Economic Consulting Associates Ltd
Key issues likely to be faced by the study Supply scenarios
Distribution - which cities?
Demand - netback analysis
Gas, oil price scenarios
Policy issues
1
2
3
4
5
7 (C) 2005. Economic Consulting Associates Ltd
Supply scenarios
Economics of SEE gas supply options ...
… and relation to proposed new pipeline routes to Western Europe
Source: EU INOGATE Projects of Pan-European Interest, Proposed Priority Axes for Natural Gas Pipelines, Dec 2003.
8 (C) 2005. Economic Consulting Associates Ltd
Which cities for distribution investment case studies
How to select the 20 cities?
Suggested criteria: existence of anchor loads size (population) density location, relative to Tx pipeline price of fuels that gas would displace
availability of reliable and comprehensive data
representative of the region
9 (C) 2005. Economic Consulting Associates Ltd
Initial list of candidatecase study cities Need to select 20 cities
At least one from each country No more than (say) 3 from each
country Each country should propose their
case study cities, with justifications based on the criteria
10 (C) 2005. Economic Consulting Associates Ltd
Netback analysis
Incumbent fuel Natural gas
Depot price Netback to trunk line
+ delivery cost + taxes
= Factory gate price
= burner tip price = burner tip price
Netback to city gate
Netback to factory gate
Market price Import price
For each incumbent fuel in each market segment, calculate the quantities and netback price
11 (C) 2005. Economic Consulting Associates Ltd
Example netback
0
200
400
600
800
0 1 000 2 000 3 000 4 000
Gas Demand (mmcm/y)
Wholesale Gas Price ($/mcm)
+Residential
+Commercial
+Industrial
+Fertiliser
Generation
12 (C) 2005. Economic Consulting Associates Ltd
Gas price scenarios
What will Russian, Caspian and Turkish border prices be?
Will Gazprom price differentiation between countries continue?
Will Caspian gas undercut Russian gas?
How will prices transition from current to new structures?
Propose to consider price scenarios for 2010, 2015, 2020, 2025 … this will be related to the oil price outlook
Consider issues of swing, seasonality, storage, price convergence
13 (C) 2005. Economic Consulting Associates Ltd
Oil price outlook
0
10
20
30
40
50
60
70
80
1995 2000 2004 2009
Crude oil ($/bbl)
NYMEX 2.3.2005
NYMEX 26.9.2005
daily WTI spot
annual mean
14 (C) 2005. Economic Consulting Associates Ltd
Institutional and policy issues
Level and structure of final customer gas prices
Financing industry structures and regulation
transmission pipeline ownership transit arrangements
Moving towards compliance with EU Gas Directive 2003/55/EC
15 (C) 2005. Economic Consulting Associates Ltd
Methodology
Task 2: Economics of Russian supply
a) Price outlook
b) Incremental Tx costs
c) compared with SEE price-demand
Task 3: Pipeline costs(i) Nabucco:
TUR-BUL-ROM-HUN-AUT
(ii) TUR-GRE/BUL-MKD-KSV-SRB-...-
AUT
(iii) TUR-GRE-ITA
(iv) TUR-GRE-MKD-ALB-ITA
Task 5: Economics of LNG supply
a) Landed LNG price
b) terminal-to-network Tx costs
c) Delivered LNG price
Task 6: Turkish border prices
a) Turkish gas contracts
b) Turkish gas market
6c) Tx bottlenecks
d) Turkish border price & SEE price-demand curve
Task 7: w. European gas markets
a) incremental demand in w.
Europe
b) w. European border prices &
SEE prices
c) marginal impact of SEE gasification
Task 8: Economic overview by source
a) Benefits based on Caspian gas
b) Expected benefits based on Russian gas
c) Least cost comparison
Task 9: Institutional framework
a) Elaborate a detailed institutional framework
b) Benchmark each country against it
c) Regional framework - broad principles
Task 1: price-demand & investment
e) investment opportunities
a) demand projections
Select cities
Dx costs
c) WtP netback
Dx investment opportunities
d) Price-demand curves
b) fuel prices
Task 4: Economics of SEE supply
a) Pipeline finanicing and commercial
requirements
b) Netback to w. Turkish border prices
16 (C) 2005. Economic Consulting Associates Ltd
Schedule and timeline
0 months 1 2 3 4 5 6
7 8 9 10
Oct Nov Dec Jan Feb Mar Apr May Jun
PHASE I
1 2 4 8 10Month
Price & Dx data
willing-ness to
pay
Screen & select cities, Dx investment opps
Russia Tx investment
Tx investments routes i to iv
Turkey Tx investment
gas demand
price-demand curves
financ-ing
netback to w. Turkey border
Russian & Caspian benefits
Russia gas price
outlook
Russia supply v SEE dmd
Turkish price v
SEE dmd
Turkey gas
market
Comparefor least
cost
Interim report
Draft final report
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