Have you ever heard the story of long-term contracts withering away, washed away by the emerging competition in regional, if not global natural gas markets? And have you really believed that in an industry characterized by multi-billion US-$ investments, “perfect competition” should assure long-term supply security? Ten years ago, when I started to work on long-term contracts in the natural gas industry, I believed in these stories too. Until I started to collect data and assembled what is now the largest database on long-term contracts world-wide. Continue reading »
“European consumers’ electricity and gas prices have risen and are still rising,” is a good summary of a recent report, Energy Costs & Prices in Europe, released by the European Commission in Brussels. Moreover, whilst almost all Member States have seen a consistent rise in consumer prices of electricity and gas, the differences between national prices remain large: consumers in the highest priced Member States are paying 2.5 to 4 times as much as those in the lowest priced Member States.
Biofuels are a key component of the EU strategy to improve the efficiency in transport, one of the sectors with a larger energy use and carbon emissions in Europe, and for which the European Commission has set very ambitious reduction objectives Continue reading »
Except for the serious environmental problems brought up by their exploitation, of which we are utterly aware, what are the factors conditioning the success or the failure of shale gas exploitation in Eastern Europe?
Over the last few years we have been observing an irrational political confrontation between European and Russian energy strategies, something not even heard of at the times of the USSR. So let’s look at the irrationality of these confrontations from an economic perspective. Yes, Russia and Europe participate in a kind of monopolistic-monopsonistic relationship (where each side either has control of supply or control of demand) – these are naturally prone to debates about the division of the economic surplus, as both sides want to get the best possible deal out of it. But it should be possible even in these circumstances to come to some kind of rational equilibrium, where both sides benefit equally.
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In its February 15 report ‘Resurging North American oil production’, Citigroup’s analysts claimed that the shale gas boom was set to morph into a shale oil boom. The report said: “The concept of peak oil is being buried in North Dakota, which is now leading the US to be the fastest growing oil producer in the world. The belief that global oil production has peaked, or is on the cusp of doing so, has underpinned much of crude oil’s decade-long rally (setting aside the 2008 sell-off)”.
Forget the gloom about fossil fuels. True, oil is scarce; granted, coal is dirty – but natural gas is clean and plentiful. In terms of local air pollution, gas burns very cleanly indeed. In terms of greenhouse gases it emits half what coal does, per KWh generated. Unlike oil, or even coal, the world’s gas reserves are expanding dramatically. The coming decades could be a golden age for natural gas, as the International Energy Agency explored in a recent report by this title. However, it is doubtful that Europe will share in this new gas era.
The European Union is engaged in a process of market inte- gration over a long period. Cross-border energy infrastructure investments should play a key role in reaching this objective. However, cross-border investment projects having a European interest are currently undertaken only country by country with an insufficient cooperation between actors involved in such a project. Beside the lack of cooperation, the asymmetries of cost allocation and of benefit distribution of cross-border infrastructure plus the presence of economic externalities have lead to a suboptimal situation at the EU level. Continue reading »
The discussion on a target model for European gas network access has been going on for a while now,officially starting with the conclusion of the 18th Madrid Forum in 2010 which invited “the Commission and the regulators to explore, in close cooperation with system operators and other stakeholders, the interaction and interdependence of all relevant areas for network codes and to initiate a process establishing a gas market target model”.
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The fast development of shale gas has revolutionized the American natural gas market; shale gas production now represents more than 20% of the domestic consumption. Meanwhile, natural gas prices dropped: the NYMEX price now stagnates around $4/MMBtu from $12 in June 2008. How is it possible to ensure a fast-increasing and profitable production at such prices? Part of the answer is that producers were actually paid a much higher price, thanks to hedging strategies on commodity markets. But now, pessimistic market expectations make it harder and harder to benefit from this mechanism, putting an important share of this capital-intensive industry’s cash resources at risk.
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