MUNI FSS CEE and its future role in energy security of Europe Mgr. Martin Jirusek, Ph.D. 1 CEE and its future - Indispensably interconnected with the future of EU - In need of structural reforms both in terms of infrastructure as well as policy-making - Varying in terms of supply-dependence on Russia - CZ - no RUS contract - PL - no Rus gas - SVK - Natural gas still coming from Russia - AUT - LTC (2040) - HU-LTC (2036) - UA-transit? The war changes everything - European markets are lost for Russian 0& G after 24.2.2022 - supply weaponization means lost trust in times of looming decarbonization - Oil - price capped, imports banned - Natural gas - supplies ceased, diversification i progress, substantial saving measures in place - Market changes in the EU - proposed market reform to stabilize prices and enable building capital-intensive projects Are European markets lost for Russia? - Oil is more fungible than gas, less dependent on a rigid infrastructure - Some buyers willing to import more Russian oil (India) but others tend to avoid Russian supplies for reputational risks, sanctions and difficulties in securing insurance - Crude oil imports banned (Dec 2022) - exception: the Druzhba pipeline (CZ, HU, SVK, BLG, CRO) - EU vessels banned from transporting Russian oil (unless the price cap is applied) - Russian shadow fleet - Oil product imports banned (Feb 2023) - International oil price cap (60USD/bbl) on Russian crude agreed on by the EU, Australia and the G7 members - non-members of the price cap coalition happily followed the suit - buying Russian crude at a discount - Russia's oil export volume back to pre-war levels but revenues trailing by ca. 40% - Russia's exports partly reoriented, but bring less money to the state budget 5 MUNI FSS Are European markets lost for Russia? - Russian gas supply manipulation (from Q2/2021) reslting in high spot prices - High prices and panic buying drove the spot price high (Q1 - Q3/2022) - resulted in high gas and electricity price (merit-order principle) - Natural gas price cap/correction mechanism (12/2022) - rather generous trigger conditions - Gas demand reduction (15%) - "Iberian exception" - high gas price impact in states with a large share of RES/low running cost sources - decoupling of natural gas and electricity price in the merit-order principle price formulation Are European markets lost for Russia? - EU's 2050 carbon neutrality goal - closing window of opportnity for fossil fuel suppliers - What will the EU look like when/if Russia is allowed to return? - New suppliers want a bite - Qatar, US,... ? - Revival of LTCs? - Qatar's 15-year deal with Germany (2,8 bcma) - What kind of future for natural gas? - EU (green) taxonomy involved natural gas (and nuclear energy) - under (relatively strict) conditions - 2035 deadline, 100% low-emission gases, permanent repository,... 7 MUNI FSS Demand changes in Europe post-2/2022 - Gas demand decrease compared to 2019-2021 avg. - 12% decrease in 2022 - 20 % decrease in 2023 - Highest demand reductions in industrial, residential, and commercial sectors (in that order) - Increase in power generation - result of serious droughts and missing nuclear-based power in FRA - gas-based generation as a high-price substitute - Coal-to-gas switching, French nuclear and winter temperatures pose important factors in 2023 - Demand rebound possible 8 MUNI FSS Figure 3: Evolution of annual gas demand in Europe between 2019 and 2022 (bcm) 500 - 490 480 470 460 450 440 430 420 410 400 390 \ -3.5% +4.2* \ -12.7% 2019 2020 2021 2022 Gas Demand, January 22 to December 23 vs 2019-21 average Percentage red uction -5 Clash of principles: market vs. state - EC'proposed market reform (3/2023, EP-agreed 4/2024) - strengthening of long-term contracts - contract for difference - power purchase agreements - (regulated asset base?) - More regulation, less free market? - To provide price stability for a long-term planning - Capital-intensive projects, e.g., nuclear power plants need to calculate return of investments - Capacity markets - A seminal shift for the EU energy market model? 11 MUNI FSS EU in new position - The European Green Deal - net-zero GHG by 2050 - Energy security and decarbonization seen as mutually inclusive after 2/2022 - Reconciliation of diverging views in the EU - Carbon Border Adjustment Mechanism (CBAM) - "carbon tarif" to prevent "carbon leakage" - "The Brussels Effect" of 0,5 bn. market - Energy solidarity - transborder measures/solidarity in gas supplies 12 MUNI FSS EU in new position - Joint gas purchases via the EU Energy Platform - demand aggregation (12/2022 - in effect since 4/2023) - to prevent internal competition and overpaying - limited scope of compulsory measures (only ca. 13 bcm - 15% of storage obligations) - Rare earth minerals and materials crucial for RES and related technologies - e.g., neodymium magnets for wind turbines, silicon fore solar PVs - Critical Raw Materials Act (proposal) 13 MUNI FSS Gazprom's Export Position - EU - Nord Stream I & II: inoperable - Ukraine transit: underutilized but operating - Yamal: empty - Turk Stream: operating - Missing demand for the pipeline gas (plus a price cap) - 14th package finally taking on LNG? 14 MUNI FSS Gas imports to EU - US as the savior? Memorandum to supply at least 50 bcma to EU through to 2030 - 141 % increase between 2021 -2022 Domestic position of fossil fuels remains a question, concerning climate-mitigation policies Investment viability? - Inflation Reduction Act vs. EU's Green Deal 15 Annual U.S. liquefied natural gas exports by destination (2020-2022) billion cubic feet per day 8 7 5 - 3 2 ' 0 all other Netherlands 46% Taiwan India South Korea 2020 2022 Asia 2020 2022 Europe 2020 2022 rest of world Chile Argentina Brazil eia China's rise - US NSS (2022): China as a systemic challenger, Russia as a "mere" - US re-focus as a result of long-term process (since B. Obama) - focus shift to Indo-Pacific EU forced to stand on its own - China's fossil fuel demand to rise into 2030s - Biggest investor in RES Can Russia pivot to China? - Europe is a market Russia will not be able to replace in foreseeable future - China's gas demand expected to double by 2035 - SE Asia as the obvious target - All options are far from being non-problematic - Power of Siberia 2 as the potential game-changer/an actual "switch" - LNG will play a key role in reaching China and other main customers in SE Asia - Tight competition in SE Asia (esp. LNG) - Lower investment stability comp. to EU 17 Can Russia pivot to China? 18 MUNI FSS Thank you for your attention -jirusek.martin@mail.muni.cz MUNI