An international association dedicated to Natural Gas information, CEDIGAZ has been the industry’s reference provider of fundamental gas data since its creation in 1961. Geoffroy is an Energy Economist; his fields of expertise include upstream oil & gas economy and worldwide hydrocarbon reserves. At CEDIGAZ, besides his activity as General Secretary, Geoffroy is in charge of worldwide gas reserves estimations.
1. What role will gas play over the next five years in the European energy mix?
Within the next five years we think there will be a slight recovery of gas in the European Energy mix. The introduction of the carbon floor price in the UK may mean that some coal plants that will have to close due to lack of compliance with air quality regulations. Less competition from coal should allow for a recovery in gas demand.
2. Do you think the recovery of gas will be related to the amount of LNG that Europe buys from the US?
The introduction of US LNG into the market might be beneficial to the recovery of gas, but what we can’t predict is how coal prices will change. We have seen a marginal increase in coal prices recently but this may not necessarily continue in the future. Personally I believe this rise in coal price will not be sustained in the longer term and will remain lower than gas prices. Support from carbon floor price in the UK may aid the switch from gas to coal, but this may be matched by gas to coal switching elsewhere in Europe in response to falling EU Emission Trading System price.
3. Will we see more successful LNG projects appearing in Europe?
This is not something that you can make a generalisation on and you have to look at each project individually. There are LNG import projects in a number of European countries that are likely to be successful for reasons such as the immediate political situation and supply routes. Some LNG projects are likely to be successful as they have the benefit of negotiating power with countries that have one main gas provider. However overall it is the price of gas which will matter the most as to whether new LNG projects in Europe are likely to be successful.
4. Are long-term gas/LNG contracts are becoming thing of the past in Europe?
I don’t think long-term gas projects are necessarily a thing of the past but I don’t think that we will see many 20 years contracts being signed in the future and what we perceive to be a long-term contract will be shorter. Long-term contracts are often necessary for projects to get secure a Final Investment Decision (FID) because they require long term financial support. However, for projects which have already secured investment they don’t require a long-term contract and there are a growing number of other possibilities in terms of contract length. Another reason why long-term contracts are lessening is that demand is quite uncertain in Europe, and example of this is Gazprom who seem to be ready to make adaptations to the way it markets its gas in terms of contract length.
5. Is there a great need for investment in the current European Gas market and how are companies getting the necessary funding for projects?
There are still projects in existence that are supported by the European Union such as interconnectors and projects that can enhance the flexibility of the system. In terms of investment I think it’s going to become increasingly difficult to finance long-term projects in the future. Long-term import pipelines for instance maybe challenging to fund given the fact that gas demand in Europe is in a downward curve as gas prices fall.
6. USA vs Russia: who will be the biggest supplier?
I believe that Russian will remain as the biggest supplier by a considerable margin. It is difficult to say how much of the market the US will take, and it is highly dependent how Russia reacts to the arrival of US LNG. So far we have not seen a large amount of US LNG coming to Europe; I believe it has just been one or two cargos so far. If the Russian’s are ready to adjust in order to remain competitive then they will have little difficulty keeping their market share and potentially increasing it. I do not believe it will be easy for US LNG to find its place in the market and it’s hard to predict what percentage of the market the US will take.
7. What do you think the main benefits are of events such as EGC for the industry?
I think it’s important for the actors of the industry to meet regularly to keep updated with the evolution of the market and the current opinions of their peers. Often conferences such as EGC are an opportunity to disclose new updates from companies and provide a launch platform for new technologies.