Energy News Blog
The Future of the EU’s Gas Market: A Roundtable Led by ERIRAS’ T.Mitrova and V.Kulagin
Michael Camarda
On Monday, September the 14th, the Higher School of Economics at the National Research University hosted a roundtable discussion on the Future of the EU’s gas market. Tatiana Mitrova, the head of the Oil and Gas Development Department at the Energy Research Institute of the Russian Academy of Sciences (ERI RAS), and Vyacheslav Kulagin, the director of the Centre for International Energy Market Studies at ERI RAS, gave a dual presentation on the topic.
Their presentation was based off an in-house, 86 page reported titled, The Gas Market of Europe, Lost Illusions and Timid Hopes. Their presentation was divided into six parts: Demand of Gas in Europe; Price Formation; Regulation and Energy Politics; Domestic Production and Infrastructure; Level of Competition; and Russia’s Niche. Kulagin tackled the first, third, and fifth topic, while Mitrova addressed the second, fourth, and sixth topics, making for a tag-team style presentation.
Through graphs, charts, and maps the duo drew a sober picture of Russia’s position in the coming ten years in Europe (excluding Turkey). While they most addressed the likeliest case of flat to slightly decreasing demand for gas, their presentation allowed for many scenarios, ranging from high to low demand. An interesting note that was only later addressed in the question and answer session at the end is that all of their forecasts included the current geopolitical environment, including the sanctions regime placed on Russia by the US and EU remaining in place for the foreseeable future. Most predictions extended as far out as the next decade.
There were several topics that piqued the interest of the audience, which included energy reporters and researchers at other Russian institutions. Firstly, the future prospects of hub pricing as the chief mechanism of pricing gas in Europe and whether Gazprom’s historic resistance to this and reliance on long-term contracts would hold over the next decade; and. Secondly, the future of LNG, in which Mitrova highlighted the fact that LNG hasn’t grown over the last 3-4 years, but would see great growth by the years 2025, a phenomenon she described as “a bomb for global markets.” Thirdly, the rising level of competition led Kulagin to describe the potential for a major drop in pricing due to an overabundance of suppliers (to the potential exclusion of Russia) as the most interesting slide of the presentation. He even stated that he wouldn’t be surprised if American LNG producers sell at below marginal cost rates in order to secure European market share, at least initially.
The presentation ended with a detailed, multi-scenario, multi-contingency future of Russia’s niche. While some of the worst case scenarios of low European demand and high increase in competitors actually drew blank expression from some of those in the audience, Mitrova underscored that Russia, despite being degraded in EU energy policy from “strategic partner” to just another supplier, still occupies a strong position, and if Russia markets its energy correct, can maintain a leading position as the EU’s energy supplier.
Editor’s note:
The ERIRAS’ report ultimate aims to provide with analysis of developments in the European gas market; it is published in Russian and targeted at the Russian audience. Another publication with similar subject, but different perspective, was published during the same week by James Henderson of the Oxford Institute of Energy Studies and Tatiana Mitrova of ERI RAS. The Political and Commercial Dynamics of Russia’s Gas Export Strategy looks at Russian approaches to new economic realities in the European gas markets and is targeted at the European reader. We will make sure to write a review in one of the upcoming issues of the ENERPO Journal.