The Future Of The Natural Gas Market In South East Europe

The Future of the Natural Gas Market in Southeast Europe analyzes the role of natural gas in the energy mix to meet future demand in nine markets in the region: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Macedonia, Montenegro, Romania, and Serbia. These markets are all signatories of the Athens Memoranda of 2002 and 2003, which commit the participants to regional cooperation in electricity and gas. Most countries heavily rely on solid fuels (such as wood and coal) or electricity (that is generated from thermal power) to meet domestic energy needs. Natural gas markets are underdeveloped or do not exist. This study identifies regional, cross-border, and country-specific gas infrastructure projects that are economically, financially, and technically sound. It makes proposals for the institutional and policy issues related to funding and implementing gas infrastructure projects. This study also examines sources of gas supply from Russia, the Caspian region, and other current and prospective producer countries through Turkey and other transit routes (including liquefied natural gas) and it assesses costs of supply and gasification prospects in Southeast Europe. CONTENTS......Page 7 ACKNOWLEDGMENTS......Page 17 ABBREVIATIONS......Page 19 OVERVIEW......Page 23 How This Report Is Organized......Page 24 1 Study Tasks, Phase 1 and Phase 2......Page 25 Supply-Side Options......Page 34 Institutional Framework and Implementation Issues......Page 50 Conclusions and Key Findings......Page 57 1. INTRODUCTION......Page 61 Study Background and Objectives......Page 62 Study Methodology and Approach to Analysis......Page 65 Overview of the Work Program and Report Content......Page 68 Background: The Economic and Energy Sector Contexts......Page 71 Demand Projections......Page 75 Fuel Price Scenarios......Page 83 Analysis of Prices, Demand Side......Page 92 Storage Demand......Page 102 3. SUPPLY-SIDE OPTIONS......Page 115 Analysis of Prices—Supply Side......Page 116 Gas Sources of Potential Interest to Southeast Europe......Page 121 LNG Potential Supply......Page 127 3.4 European Gas Grid, Showing Potential New Pipelines to Europe......Page 157 Regional Gas Transmission Infrastructure......Page 166 Regional Underground Gas Storage......Page 188 Economics of Gas Distribution Networks......Page 224 Gas Value Chain......Page 237 Interaction with Western European Gas Markets......Page 245 Implications of Supply Analysis for Each SEE Market......Page 257 The Gas Market in Southeast Europe......Page 269 National Gas Markets......Page 277 Cross-Border Framework......Page 282 Underground Gas Storage......Page 288 Financing of Regional Gas Investments......Page 299 Conclusions on Institutional Issues......Page 310 Economics of Gasification......Page 317 The Energy Community Gas Ring: A Cooperative Regional Vision for Gas Development......Page 319 Phased Development of the EC Ring......Page 321 Access to Upstream Pipeline Capacity to Supply the EC Ring......Page 322 Institutional and Regulatory Framework to Realize the Regional Ring Concept......Page 323 Roles of Public and Private Sector Players in Realizing the Gasification Vision......Page 324 A Future Russian Gas Prices......Page 327 B Liquefied Natural Gas Sources of Interest......Page 345 C Methodology for Calculating Pipeline Costs......Page 351 D Detailed Transmission Pipeline Routes......Page 355 E Prospects for Underground Gas Storage in Southeast Europe......Page 377 F City Distribution Case Studies......Page 399 G Private Financing......Page 403 REFERENCES......Page 407 2.1 Product-to-Crude Price Regressions......Page 93 3.1 The “Energy Bridge” Model: An Alternative to a Regasification Terminal......Page 144 3.2 Case Study: Building a Distribution Business in Nigeria......Page 236 4.1 The Balgzand-Bacton Line......Page 273 4.2 South Caucasus Pipeline Project......Page 274 4.3 Risk Mitigation Instruments in the West African Gas Pipeline Project......Page 311 1 Projected Gas Demand in Nine SEE Markets, 2005–25......Page 32 2 Projected Supply Gap in Nine SEE Markets, 2005–25......Page 33 3 Expected Long-Term Load-Duration Curve in Southeast Europe......Page 35 4 Storage Demand Outlook and Supply Options in Non-EU Southeast Europe......Page 49 2.1 Power Generation Capacity and Gas Demand under Three Scenarios, 2005–20......Page 79 2.2 Projected Gas Demand in Nine SEE Markets, 2005–25......Page 80 2.3 Projected Supply Gap in Nine SEE Markets, 2005–25......Page 81 2.4 Projected Supply Gap in Seven Westernmost SEE Markets, 2005–25......Page 84 2.5 Daily Spot Prices of Crude Oil and Selected Products, 2000–09......Page 85 2.6 Rolling Average Prices of Crude Oil and Selected Products, 2000–09......Page 86 2.7 Oil Price History, 1860–2009......Page 88 2.8 Oil Price Changes, in Major Currencies and Relative to Gold, since January 2000......Page 89 2.9 Oil Price Outlook, 1990–2030......Page 91 2.10 Inferred Relationships between Gas Prices and Crude Oil Prices......Page 95 2.11 Comparative Netback Pricing Approach......Page 97 2.12 Simplified Fuel Price Comparison......Page 98 2.13 Assumed Load Buildup in Seven Non-EU SEE Markets, 2010–35......Page 103 2.14 Expected Annual Volume—2.4 Bcm/y Low-Swing Initial Anchor Loads......Page 104 2.15 Annual Take-or-Pay Constraint—2 Bcm/y Low-Swing Initial Anchor Loads......Page 105 2.16 Annual Take-or-Pay Constraint—2 Bcm/y High-Swing Initial Anchor Loads......Page 106 2.17 Contracting Based on Annual Average Quantity Showing Monthly Average Days......Page 107 2.18 Contracting to Keep Maximum Daily Quantity within a Monthly Average Days Constraint......Page 108 2.19 Long-Run Mean Year Load-Duration Curve and Seasonal Profile......Page 110 2.20 Long-Run 1-in-20-Years Peak Day and Mean Year Load-Duration Curves......Page 111 2.21 Long-Run 1-in-50-Years Energy and Mean Year Load-Duration Curves......Page 112 3.1 Historical Comparison of Crude Oil and Selected Estimated Gas Import Prices, 2000–09......Page 119 3.2 Overview of Atlantic and Pacific LNG Markets, 2000–15......Page 130 3.3 Utilization of Liquefaction, Shipping, and Regasification Capacity, 2000–15......Page 131 3.4 Typical Value Chain for LNG......Page 132 3.5 Growth of Shorter-Term LNG Trading, 1996–2020......Page 135 3.7 Market Developments in LNG Pricing......Page 136 3.8 LNG Shipping Costs and Carrier Size......Page 139 3.9 Schematic of Typical LNG Regasification Terminal......Page 140 3.10 LNG Regasification Capacity, 1990–2010......Page 141 3.11 Effect of Adding Injection Points on the Capacity of a Ring......Page 175 3.12 Capacity Development Plan for Banatski Dvor UGS, 2008–17......Page 191 3.13 Storage Demand Outlook and Supply Options in Non-EU Southeast Europe......Page 208 3.14 Comparison of U.K. and U.S. Gas Price Forward Curves, Early October 2008......Page 215 3.15 Estimated City Distribution Costs Versus Population......Page 235 3.16 Value Chain for Russian Gas with Brent Crude Oil at $65 a Barrel......Page 240 3.18 Value Chain for Russian Gas with Brent Crude Oil at $25 a Barrel......Page 241 3.19 Historical and Projected Gas Demand in Western Europe, 1960–2030......Page 246 3.20 Projected Maximum Capacity and Annual Gas Demand in Italy, 1970–2030......Page 249 3.21 Projected Maximum Capacity and Annual Gas Demand in Italy, 2005–30......Page 250 3.22 Historical Prices for Gas from Various Sources to the Italian Market, 2000–09......Page 251 4.1 Road Map and Action Plan Structure......Page 279 4.2 Aggregated Gas Storage Inventory Data Published by Gas Infrastructure Europe, 2007 and 2008......Page 290 4.3 Country Risk Ratings......Page 301 4.4 Risk Coverage Typology......Page 306 4.5 Sample Gas Project Guarantee Structure......Page 307 4.6 Nabucco Pipeline Corporate Structure......Page 314 4.7 Replicating Nabucco Corporate Structure for the EC Gas Ring......Page 315 1 Gas Sources of Interest to the Nine SEE Markets......Page 37 2 Potential New Pipeline Routes......Page 38 3 Key Existing and Potential Transmission Network Nodes for Southeast Europe......Page 41 4 Concept of the Energy Community Gas Ring in the Regional Context......Page 45 5 Existing and Potential UGS Sites in Southeast Europe......Page 47 3.1 Key Existing and Potential Transmission Network Nodes for Southeast Europe......Page 117 3.2 Gas Sources of Interest to the Nine SEE Markets......Page 125 3.3 Adria LNG, Krk, Croatia......Page 143 3.5 SEE Markets Domestic Production, Import Volume, and Capacity......Page 159 3.6 Regional Overview of Proposed Major Transmission Pipeline Projects......Page 162 3.7 Branches with Offtakes for Russian Gas Supply from Existing Corridors......Page 167 3.8 Branches with Gas Offtake from the Proposed Nabucco Pipeline......Page 168 3.9 Branches with Gas Offtake from the Greek Transmission System......Page 169 3.10 Branches with Gas Offtake from the Proposed Blue Line Project......Page 170 3.11 Concept of the Energy Community Gas Ring in the Regional Context......Page 171 3.12 Existing and Potential UGS Sites in Southeast Europe......Page 190 3.13 Options for Gas Supply to the Seven Westernmost SEE Markets......Page 253 4.1 European and SEE Gas Projects......Page 275 4.2 European and SEE Gas Projects......Page 276 2 Equivalent Gas Border Prices, Relative to International Marker Prices......Page 27 3 Competitive Netback Prices at the Burner Tip, by Fuel and Market......Page 29 4 Margins for Transmission, Distribution, and Supply, Indicated by Netback Analysis......Page 30 5 Projected Demand and Supply Gap, 2005–25......Page 31 6 Preferred Near- and Medium-Term UGS Options in Western Southeast Europe......Page 48 7 Progress on Implementation of EC Treaty Provisions in the Nine SEE Markets, Late 2008......Page 52 1.1 Study Tasks, Phase 1 and Phase 2......Page 66 2.1 Basic Demographic and Economic Data for the Nine Markets, 2004......Page 73 2.2 Energy Profiles of the Nine Markets, 2004......Page 74 2.3 Gas Sector Industry Structure in the Nine Markets, 2008......Page 76 2.4 Projected Demand and Supply Gap, 2005–25......Page 82 2.5 Oil Price Points and Corresponding Natural Gas Price Estimates......Page 94 2.6 Equivalent Gas Border Prices, Relative to International Marker Prices......Page 99 2.7 Competitive Netback Prices at the Burner Tip, by Fuel and Market......Page 100 2.8 Key Parameters in Annual Load Modeling......Page 113 3.1 Margins for Transmission, Distribution, and Supply, Indicated by Netback Analysis......Page 120 3.2 Proved Reserves and Production from Gas Sources of Interest to Southeast Europe, Various Years......Page 122 3.3 Criteria for LNG Receiving Terminal Site Selection......Page 146 3.4 Greek Capacity and Potential for SEE Access to Revithoussa LNG......Page 152 3.5 Domestic Production, Import Volume, and Capacity in the SEE Markets......Page 158 3.6 Gas Import Sources and Routes to the Nine SEE Markets......Page 161 3.7 Potential Major Regional Pipeline Projects......Page 164 3.8 Source of Anchor Demand Assumptions......Page 177 3.9 Diameters for Each Section of Each Branch Along the Ring Alignment......Page 180 3.10 Capital Cost Matrix for Each Section of Each Branch on the Ring Alignment......Page 182 3.11 Estimate of Capital Cost of First New Pipeline to Injection Point......Page 184 3.12 Estimated Incremental Capital Costs for the Ring, Relative to Alternatives......Page 185 3.13 Existing and Potential UGS Facilities in Southeast Europe......Page 192 3.14 Summary of Potential UGS Sites Identified......Page 197 3.15 Parameters for UGS Facilities’ Engineering Specifications......Page 199 3.16 Summary of Economic Costs for Six Potential UGS Facilities......Page 204 3.17 Preferred Near- and Medium-Term UGS Options in Western Southeast Europe......Page 207 3.18 Estimates of the Value of Lost Load, Selected Gas Markets in the Region, 2006......Page 210 3.19 Line-Pack in the EC Ring......Page 212 3.20 Opportunity Cost of Storage, Gas Supply Contract Strategy ACQ = AAQ......Page 218 3.21 Avoided Storage Capacity, ACQ = AAQ Strategy......Page 219 3.22 Avoided Storage Capacity, Peak Month Average Day = MDQ Strategy......Page 220 3.23 Distribution Case Study Cities......Page 226 3.24 Reference Cases for Typical Distribution Costs......Page 230 3.25 Cost of Service Connections to Distribution Mains......Page 231 3.26 Estimated Costs of Transmission and Distribution......Page 233 3.27 Case Study Cities in the Context of the Region......Page 238 3.28 Future Russian Gas Production......Page 242 3.29 Upstream Value Chains for Russian and Caspian Gas......Page 244 3.30 Selected Natural Gas Trade Movements by Pipeline and LNG, 2006......Page 247 3.31 Supply Options for the EC Ring in Southeast Europe......Page 254 3.32 Supply Options of Immediate Interest to Albania......Page 258 3.33 Supply Options of Immediate Interest to FYR Macedonia......Page 264 4.1 Progress on Implementation of EC Treaty Provisions in the Nine SEE Markets, Late 2008......Page 280 4.2 Selected EU Cross-Border Gas Supply Investments......Page 286 4.4 Commercial Credit Ratings......Page 302 4.5 Categories of Project Risk and Contractual Approaches to Risk Mitigation......Page 304 4.6 Details of Sample Multilateral Risk Mitigation Instruments from the World Bank Group......Page 309

The Future of the Natural Gas Market in Southeast Europe analyzes the role of natural gas in the energy mix to meet future demand in nine markets in the region: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Macedonia, Montenegro, Romania, and Serbia. These markets are all signatories of the Athens Memoranda of 2002 and 2003, which commit the participants to regional cooperation in electricity and gas. Most countries heavily rely on solid fuels (such as wood and coal) or electricity (that is generated from thermal power) to meet domestic energy needs. Natural gas markets are underdeveloped or do not exist. This study identifies regional, cross-border, and country-specific gas infrastructure projects that are economically, financially, and technically sound. It makes proposals for the institutional and policy issues related to funding and implementing gas infrastructure projects. This study also examines sources of gas supply from Russia, the Caspian region, and other current and prospective producer countries through Turkey and other transit routes (including liquefied natural gas) and it assesses costs of supply and gasification prospects in Southeast Europe.

This study was to analyze the future role of natural gas in the energy mix of countries of South East Europe. The study further identifies regional, cross-border and country-specific gas infrastructure projects that are economically, financially and technically sound. The study also analyses, and makes proposals for, the institutional and policy issues relating to funding and implementing gas infrastructure projects. The study examines sources of gas supply from Russia, the Caspian region and other current and prospective producer countries through Turkey and other transit routes (including LNG) and assesses costs of supply and gasification prospects in nine gas markets in the South East Europe region: Albania Bosnia and Herzegovina Bulgaria Croatia Kosovo Macedonia Montenegro Romania Serbia These markets are all signatories of the Athens Memoranda of 2002 and 2003, which commit the participants to regional cooperation in electricity and gas.