European Utility Companies Leverage on Increased Global Gas Availability to Renegotiate Oil Linked Gas Contracts with Russia by GlobalData

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									         European Utility Companies Leverage on Increased Global
        Gas Availability to Renegotiate Oil Linked Gas Contracts with
                                   Russia
       Reference Code: GDGE0661VPT                                                                                                         Publication Date: June 2011


       1         Table of Contents                                                                  2       Summary
       1 Table of Contents.................................................................1        Natural gas consumption in Europe increased from 53.8 bcf per
        1.1 List of Figures ................................................................1       day in 2000 to 55.5 bcf per day in 2009. The increase in natural
       2 Summary .............................................................................1     gas consumption is driven by its growing importance in the
       3 European Utility Companies Leverage on Increased Global                                    primary energy mix in several European countries. Despite a
         Gas Availability to Renegotiate Oil Linked Gas Contracts                                   surplus gas supply situation globally and thereby low spot gas
         with Russia...........................................................................1
                                                                                                    prices, European gas and power utilities continue to import high
        3.1 Increasing Shale Gas Production in the US and Higher
             LNG Import Capacity in Europe Bolster the Latter to                                    priced gas under oil linked, take or pay contracts with Russia
             Lower Its Dependence on Russia and Norway..............1                               and Norway. This has affected the profitability of European
        3.2 High Priced Gas Imports Under Oil Linked Contracts                                      utility companies during 2009–2010 and in the first quarter of
             from Russia and Norway Impact the Profitability of                                     2011. It has led several gas utility companies to enter into
             European Utilities ..........................................................2         negotiations with Russian and Norwegian suppliers in order to
        3.3 European Utilities Renegotiate Contract for Reducing
                                                                                                    shift from costlier oil linked long term contracts to more flexible
             the Gap Between Long Term and Short Term Gas
             Prices ............................................................................4   gas contracts reflecting gas to gas competition. With an
       4 Appendix ..............................................................................4   increase in gas supplies globally and decoupling of oil and gas
        4.1 Methodology ..................................................................4         prices in recent past companies are seeking greater indexation
        4.2 Contact Us.....................................................................5        to spot gas prices in their gas supply contracts.
        4.3 Disclaimer......................................................................5
                                                                                                    3       European Utility Companies Leverage
                                                                                                            on Increased Global Gas Availability to
       1.1       List of Figures                                                                            Renegotiate Oil Linked Gas Contracts
       Figure 1:  Gas Market, the US, Shale Gas Reserves (tcf) and                                          with Russia
                 Production (bcf) Vis-a-Vis Natural Gas Imports (bcf),                              Some of the European gas and power utility companies were
                 2007–2009 ...............................................................2
                                                                                                    seen renegotiating their gas contracts with Russian and
       Figure 2: LNG Regasification Market, Europe, LNG
                 Regasification Capacity, bcf, 2005–2015 .................2                         Norwegian suppliers in the recent past. The move is an offshoot
       Figure 3: Price Movements, Natural Gas ($/MMbtu) and                                         of a recent change in the global natural gas industry
                 Crude Oil ($/Bbl), January 2009–April 2011 .............3                          environment. Since the successful production of unconventional
       Figure 4: Natural Gas Market, Supply Risk-Impact Matrix                                      gas in the US, its import dependence on gas has reduced. This
                 (Kraljik Model), Shift in Natural Gas Status from                                  has resulted in increased gas availability to be diverted towards
                 “Strategic Product” to “Leverage Product” ................3                        Europe – which has already started developing its LNG import
                                                                                                    infrastructure. Europe, with increased avenues for meeting its
                                                                                                    gas requirement, finds itself well placed to renegotiate the terms
                                                                                                    of gas supply contracts in its favor.

                                                                                                    3.1    Increasing Shale Gas Production in the US
                                                                                                           and Higher LNG Import Capacity in Europe
                                                                                                           Bolster the Latter to Lower Its Dependence
                                                                                                           on Russia and Norway
                                                                                                    The global gas supply scenario has improved remarkably in the
                                                                                                    recent past with an increase in shale gas production in the US
                                                                                                    and commencement of six new LNG trains from Qatar over the
                                                                                                    last two years. The proved shale gas reserves in the US
                                                                                                    increased significantly during 2007–2009 as a result of
                                                                                                    extensive development of shale plays.



                                                                                                                         
								
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