 Good morning Thanks so much for coming. I'm Jane Nakano. I'm senior fellow with CSI's energy national security program And it's my great pleasure and honor to welcome back Lazzel Ovaro Mr.. Ovaro is the head of a gas coal and electricity markets division at the IEA International Energy Agency based in Paris and he served in this capacity since March 2011 the IEA does issue several mid-term market reports and gas is one of their key publications and it looks at gives a detailed analysis analysis and five-year projections of natural gas demand supply and trade developments and in light of the Oil price decline since last summer. I think there's so much that Has perhaps changed Since the last report I've imagined but there has also been a series of geopolitical developments that have impacted some of the supply pictures and It's it's quite timely to have Lazzel back It's been more or less, you know It's been a year since the oil prices began its decline and And since you have his bio before you I don't want to take up too much time And and I believe there'll be a lot of questions and answers I think historically whenever we have lots of we get a lot of great questions and a lot of so discussions with the audience So without further ado Lazzel, please I'm going to talk about the the prospects for natural gas until the end of the decade But I will take the advantage of being the head of gas cool and power at the IEA because gas Has a very interesting interaction with the rest of the energy system with coal with renewables through the electricity Generation sector The bottom line conclusion is that gas is slowing down So despite the significant decline in prices we revised our headline gas demand projection down globally of for an average 2.3 percent gross rate to a 2% gross rate now this 0.3% negative reduction does not seem much, but during the five-year time horizon this multiplies up to negative revision of around 140 billion cubic meters This was the size of the negative revision of global gas demand for the year 2020 So with a bit of a simplification the equivalent of Qatar disappeared from The global gas production and this is this is despite the declining prices in many important regions So so what has happened? Well first of all in Some important regions of the world economy. It was macroeconomic developments, which Caused the reconsideration of the energy projections the two easy ones I mean the not from a policy point of view But from an analytical point of view are the Middle East and Latin America Because the declining oil price in general is a good news for the global economy But for export dependent commodity driven economies Which is the case in the Middle East and also in most countries in Latin America It is a bad news at the regional level So there is a significantly lower GDP growth and a significantly lower investment activity in the Middle East and the Middle East is a very big Gas user and Latin America especially Specifically Brazil is in a recession Venezuela is facing a difficult situations of several important countries in Latin America The outlook is also less bright the China is a special case because in China there is an interaction of microcomic policies and macrocomic developments at the microcomic level the news for gas are quite good because Environmental policy in China is intensifying and there is an increasing political priority in tackling air pollution And that of course benefits clean energy sources such as natural gas So natural gas is is rapidly increasing its share in the Chinese energy pie especially in Especially in residential and commercial applications. So as we speak on average 20,000 residential homes are connected into gas heating in China every day So the northern China has around a hundred million buildings which require winter heating That's a distinguishing factor of China compared to India Brazil or Indonesia where you don't need winter heating in China you do need winter heating and Gas is rapidly rolled out to eliminate the correlated consumption in building heating as small-scale boilers But that's the good news The bad news is that parallel to that development the total pie in China the total energy use is Almost stagnating there's a the Chinese economy is not simply slowing down Okay if the only thing that happened in China was that GDP grows goes from 10 percent to 7 percent Then the impact on the energy system would not be very large But this GDP slowdown is accompanied with a remarkable structural change in the Chinese economy and the rebalancing from the heavy Construction activities last year if you if you add together the the energy consumption of the cement steel Aluminium glass and plastics industries in China Over four percent of the total global energy consumption was built into Chinese buildings In the form of cement steel glass and plastics So as the construction as the real estate sector sows down in China as GDP rebalances from the heavy investment and construction driven economic model the The impact on energy use is very very large Chinese energy consumption gross is much lower than it was before and that Overcompensates the effect of a stronger environmental policy So we ended up revising Chinese gas demand projections down Because no matter how fast gas increases is sharing the pie if the pie is not growing as it used to be that is a powerful impact now in the OECD countries the most important reason for the slowdown in gas and the most important reason why we had religions is that the we we revised our electricity demand models and we revised electricity demand gross big time for both Europe the United States and also Japan in fact in the past Three years electricity consumption has been stagnating both in Europe and also the United States and it's even declined in Japan The which is our very relatively recent phenomenon up until very recently actually up until the financial crisis the There was a very strong relationship between GDP and electricity consumption Even in the most advanced market market economies So if you take let's say the United States which had the internet bubble recession in 2000 and the financial crisis in 2008 Between these two shocks the income of the city of electricity consumption in the US economy was 0.65 So a percentage point of GDP gross was associated with a 0.65 percent electricity gross in the US economy in Germany if you take the structural breaks of the German reunification And the financial crisis the income velocity the parameter was 0.85 So there was an almost one-to-one relationship between electricity and GDP for us in Japan during the Financial crisis the lost decade of the 1990s Electricity intensity actually increased in the Japanese economy because the export oriented heavy industries in Japan continue to do well So the stagnation of electricity consumption is a is a new phenomenon and the potential important game-changer Because in such a huge system as the US or the European electricity system even a half percent gross matters on a longer-term time horizon Of course in Europe the most popular explanation for that Is that electricity in Europe is so terribly expensive that all the industry is leaving Europe now if that was the explanation Then the question is that why electricity consumption is not growing here in the United States where electricity is not cheap So the if I compare Germany which has very expensive electricity and the United States which has dirt cheap electricity There is no meaningful difference between the recovery from the financial crisis and there is no meaningful difference between the Electricity demand patterns. So this is this is more than the financial crisis because under the old Structure relationships the recovery of the financial crisis should have triggered a much stronger electricity consumption growth And this is not simply about electricity prices because we don't see meaningful difference between cheap and expensive electricity regions I think the the explanation is partly due to the Accelerating impact of energy efficiency policies The now in the US 37 states have state-state level electricity efficiency policies in Europe There is a big political dive for energy efficiency. So is in Japan so you can see at the micro level that Refrigerators washing machines Freezers all sort of household appliances are continuously getting more energy efficient and that overcompensates the impact of the uiT applications the And the other is the structural change in the economy the increasing share of the service sector So and the the slowdown and stagnation of electricity consumption has a disproportionate impact on gas Because in most electricity systems gas is the highest marginal cost marginal generator So when you have an unexpectedly low electricity consumption Nuclear plants will continue to run flat out Wind and solar will continue to run wherever the weather is favorable, but The higher marginal cost gas plants will be squeezed now within this stagnating and slowly growing electricity system Gas is facing formidable competition from coal Now of course here in the United States coal is in a bit of a trouble But the United States is actually an almost an outlier globally Because if you take the how gas competes with coal what you find is that the There are only three important countries the United States Australia and Russia We which have a meaningful coal industry and also large domestic gas resources. So these three countries Coal competes with domestic gas But 75% of the global coal use including China India Japan Korea Europe is countries where Their coal competes with imported gas and price is set by LNG liquefied natural gas now that creates two big challenges for gas one is That the structural changes in the Chinese economy that I described to you had brutal impact on coal markets Because of course China is heavily coal dependent. So coal prices are falling like a brick And there's a massive excess supply of dirt cheap coal available out there in international markets So it means that the the recent gas price declines to a very Significant degree were simply an attempt to run faster and faster just to stand still With the current European gas prices a year ago We would have had a gas renaissance in Europe But that was a year ago and coal prices have declined by another 25 percent since then so the the Coal is likely to remain very very cheap because you know Chinese coal consumption Definitely stopped growing fast quite possibly it actually peaked. That's that's a serious possibility Certainly, it's not going to go grow anywhere near the previous growth rates and that caught the coal markets completely by surprise So they there's an unexpected Surplus which will stand on the market for a long long time the other major challenge in this context is that Liquefied natural gas is the only technological option to transport gas from one continent to another continent And as the name suggests you have to liquefy fire the gas you have to cool it down to minus 170 degrees In order to put it to a special ship and the laws of physics tells you that this is never going to be a cheap and easy process So you pay the liquefaction cost you pay the shipping cost by the time you get to Asia by the time to get to Europe you will be hard-pressed to compete Okay here in the United States the coal industry is dreaming about the day when gas prices will go up above five dollars per MBTU the liquefaction and the shipping costs from the United States to Japan is more than five dollars per MBTU So even if gas was for free in the United States by the time you get to Japan it will be more expensive and that meant that the The coal plants which are already built Will happily operate okay, and again It's not difficult to find a green NGO who believes that coal is now over. It's history. It's finished Nobody told nobody told that to the coal industry. Okay, so the past four years In just four years 350 gigawatts of new coal power generation capacity was built in Asia That's more than the current US coal fleet. So that was built in four years the and Even get countries which are abundant in natural gas such as Malaysia decided to invest in coal because the economics was just so much more attractive now if you take a Cutting-edge high efficiency ultra-superactical plants like the new Chinese plants the Japanese the Korean plants or this Malaysian example and You run a high efficiency facility on a dirt cheap primary fuel your marginal cost will be unbeatable So if you want to constrain the operation of such a plant with gas-fired power generation You would need either a $4 per MBT U LNG with the current Asian coal prices. Good luck for that Or you would need on $8 per MBT U LNG plus a $50 per ton carbon price Which is of course a much higher carbon price than the democratic political process was able to create either in the United States or in Europe so why do we expect that Vietnam will have it of course they will not so they So those coal plants that were built They they will operate base load flat-out and generate electricity now China is Cleaning up the air That's a very very high political priority for them But it's cleaning up the air in a characteristically Chinese fashion They are not copy pasting the US and the European example No, the US and the European example was that cleaning up the air was primarily done by Converting things to natural gas and so natural gas reach the 20-25 percent of total energy consumption I don't think natural gas believe leech the 25 percent of the Chinese energy consumption probably ever in history If you take a look at the investments that are taking place currently in the Chinese energy sector Motivated by Chinese environmental policy the biggest by far is the least known outside China is the The investment wave to equip the Chinese coal-fired power plants with modern environmental control technologies Most importantly electrostatic filters which deal with particulate smog and flue gas disauthorization Which deals with acid rain related emissions? So we believe that by the end of the decade that will enable China That will enable China to transfer over a thousand terawatt hours of coal-fired power generation Which is more than the entire electricity production of Japan From dirty coal plants to clean coal plants equipped with modern environmental controls That's the that's the biggest single thing by far So even though coal in China stopped growing rapidly It will remain the largest single energy source in the Chinese economy hence done for a long long time Now the second largest thing that is happening in China is our genuinely gigantic investment wave into low-carbon energy sources Nuclear hydropower wind and solar China is the largest investor in the world economy in all four of these sources If you combine these four it is significantly more than what the United States and the Europe and Europe is doing combined Okay, so so you anybody who criticizes the the climate agreement That was signed between the United States and China on the grounds that China is not doing anything Is not familiar with the real-life data of the Chinese energy system It's a very very strong investment effort which is ongoing in China for low-carbon energy sources Natural gas is actually a distance third in the rank of the solutions It does play a role, but it's not going to be a natural gas based energy system now another Even probably more serious challenge that whereas if you are relaxed about climate change You just stick to call but if you do care about climate change You increasingly switch to wind and solar So the the numbers that I showed to you are not done by our By an analysis or an economic model or an assessment and so on these are real life Contracts signed by real investors who are putting real money into projects and each and every one of these Project contracts wind power in the Atlantic coast of Brazil solar power in Gujarat Wind wind power and solar power in South Africa solar power in Dubai wind power in Northern China Each and every one of them are cheaper without a single cent of subsidy than burning imported LNG in a gas-fired power plant in that country Okay, so the interesting the interesting question for LNG is no longer whether is it competitive with Russian gas The interesting question is whether is it competitive with solar power in India? And the answer is increasingly no the that That means that for in some countries the investments into domestic renewables constrain the The import dependency on gas in other countries like South Africa, which is an extremely cold dependent country I don't think South Africa should bother starting to import LNG They should continue their exit they could should continue the wind and solar program that they launched And they can diversify away from coal in a much much more cost efficient fashion now, of course You the wind does not blow always and the Sun does not shine always You do need flexibility into a power system which has large Wind and solar capacities and that is very often mentioned as the critical computer contribution of gas but this role puts gas into competition with Google the the Systematic application of modern IT technology on electricity system operation Delivers very very interesting results, which have major impact on how much gas Flexibility you need in the power system Wind and solar cannot be predicted well the future cannot be predicted in general But it turns out that if you build a big data System for wind and solar data and have the pot proper algorithms Then it is actually much more predictable than we previously thought the average prediction error of future wind speeds in Spain Which is the most advanced system in this respect was declined was cut by half wind is much more predictable than what we previously thought close to real-time operation Makes this predictability even better then the In Germany in the past five years the reserve requirements of the German system were revised down Because parallel to the deployment of wind and solar power There was also a major effort to improve the coordination and IT communication between the German system operators and The synergies from better communication and better IT control over Compensated the volatility coming from wind and solar So if you ask the question how much backup capacity Germany needs for this new wind and solar capacities the answer is zero Zero nothing at all And last but not least there is a very important Innovation in the renewable industry itself to make the renewable production smoother They're talking about wind turbines which are specifically designed to generate less electricity in strong winds But generate more electricity in weak winds And have smoother operations So the so the old stereotype that you need a gas turbine backing up every windmill is absolutely not true This is the the the Flexibility of the power system is provided by a portfolio of sources of which gas is one But not necessarily the cheapest option here in the United States for example decentralized internet-based demand-side response aggregators regularly beat gas-fired power plants in capacity auctions for the for The capacity mechanism The however that is one very good news for gas and that's the way got created the solar system Was currently the most promising and most rapidly growing renewable sources solar PV Now for solar PV faces two challenges one that the earth is spinning. So we have a night That problem I believe will increasingly be solved by batteries. I'm very excited about the Tesla battery product The I think that's going to be a very successful product and will play a significant role in Taking the solar production in two o'clock in the afternoon and using gas at 10 o'clock in the evening that batteries can do But there's another challenge for solar PV and there's the declination of the earth Which is the reason why we have been there now if you are a if you are in the middle latitudes like New York like Europe like Japan or nor or most of China then around 85 percent of your annual solar PV production Will be between the middle of March and the middle of October and if you are an average middle-class citizen And you want to rely only on your solar panel and your batteries The know we don't want any Centralized energy system then you run the numbers. It turns out that on average you will need 1,700 kilowatt hours winter stockpile Accumulated by the middle of October because this is the mismatch between your average winter solar production and winter Consumption now this is 250 tesla batteries. Okay, so make sure that you have a pretty big garage To have all those batteries fit the So unless there is a genuinely revolutionary technological breakthrough You will need dispatchable power generation to get through the season of fluctuations in Europe For example, half of the gas-fired power generation is cogeneration which is running only in the winter when there is not much sunshine That is not going to change with the current level of technology Now another interesting application where declining oil prices had an impact is natural gas in the transportation sector The there there are diverging fortunes in different transportation segments I believe that for personal vehicles for cars gas missed the boat and electric cars will leapfrog the The market for CNG cars completely collapsed with the oil prices the market for electric cars actually continue to grow Continues to grow very nicely People who buy electric cars they buy them because this is the right thing to do They don't really care about declining gasoline prices the and also electric cars have been very successful of capturing the Consumers imagination, but there is more to the transportation system than Tesla cars Tesla is yet to offer an electric silent rock the Or an electric Garbage truck or a delivery van these things are not as fashionable But they consume very large amounts of energy and interesting of this segment Also continues to grow because in this segment what really matters is whether you already rolled out the infrastructure And if the infrastructure is rolled out, then gas is robustly competitive even with the current oil prices so this is the the US vehicle market last year this narrow little black sink is CNG cars Completely negligible compared to the nicely growing electric car segment But the overall impact of natural gas vehicles is four times bigger than electric cars But that's four times bigger impact is in school buses municipal vehicles garbage trucks Deliver events and so on Where natural gas is emerging as a quite significant alternative to diesel fuel Another interesting transportation application is LNG as a bunker fuel for a hundred years The refining industry was working from the assumption that any Dirty junk which is left at the bottom of the barrel can be get rid of by burning in ships now So once you introduce environmental regulations on ships The game changes now if you ask a chemical engineer, whether is it possible to produce surfer field bunker fuel? The answer is yes, it does not follow the laws of chemistry It can be done But the amount of investment that you need in a refinery to do so is not trivial so so LNG is Very much emerging as a potentially competitive bunker clean bunker fuel And it also benefits from the flag that global shipping heavily concentrates on maybe a dozen mega ports Like Singapore, Yokohama, Dubai, Rotterdam, which almost all of them already has have an LNG terminal So LNG is regularly arriving into Yokohama or Singapore or Rotterdam You have to sort out the local bunkering infrastructure, but that that can be done So that I believe this is and that segment also very nicely survived the declining oil prices now on the supply side The as demand is moving down, of course, of course supply is slowing down as well the major negative revisions Compared to last year's projection were first of the so first of all the Middle East where in the Middle East we see bad upstream regulation inadequate upstream investment and also Prevalent security problems in a number of countries Libyan gas production never recovered from the Civil War Yemen LNG was lost to the conflict and It's it's difficult to be very optimistic on the short term about the the improvements of these things We also had a significant negative revision on Africa For pretty much the same reasons The bad investment environment inadequate upstream investment and hardcore security problems in some parts of Africa and The third significant negative revision around the 40 billion cubic meters were cut from our Chinese domestic gas production projections, China is apparently facing quite significant challenges in Developing share gas per share gas in China now we do believe that those challenges will will eventually be tackled So we have we have our our growing domestic demand for a growing domestic production projection for China And at share gas will eventually emerge in China, but it's not going to be a copy paste of the North American experiment It's it's much more difficult and it's going to be a much slower much slower process the In North America specifically when when we started crunching the numbers the first thing I asked from my team is that if Lower oil prices kick the US light-titan industry hard How much we have to revise gas production numbers down? Because in the past couple of years US gas production grows very strongly benefited from the expanding light-titan industry and the associated gas production in The Permian and Eagle Ford now we actually ended up revising North American gas production up Because it is not only the declining oil price which happens in North America The declining oil price to get a brutal wave of cost-cutting in the oil field service industries And there is a continuous learning by doing at a continuous technological development in the industry and we came to the conclusion that the better technology and And more stringent cost management overcompensates the impact of the loss of revenues from associated liquids So we had a significant positive revision for North America, and I should imagine I should mention as well that the despite Despite us being pessimistic about the prospects of the LNG projects in Western, Canada We actually project increasing gas production in Canada Because by the end of the decade very large volume of gas will leave North America from the southern United States The LNG exports from the Gulf Coast and the pipeline exports to Mexico Which will trigger a north-south gas flow across the North American gas system and suck in production increase also from Canada So get Canadian gas production Stars to recover even before us any of the Canadian LNG export projects being built the whereas About Canada we are pessimistic But we do foresee a very large wave of LNG hitting the voters The first wave is the Australian projects, which are which had a difficult adventure But now the the that adventure is is now largely over and the project are coming online one by one and the second wave is the Close to the end of the decade the US LNG projects So far the US LNG projects have succeeded in avoiding the the project management adventures of Australia and hopefully that Will remain that way outside Australia and And North America the only major LNG projects which has are Some chance are some possibility of coming online this decade It is not in our baseline projection But it is there is a possibility that they could make it happen is is yamal LNG Without the sanctions or Russia it would very firmly be in our baseline, but of course with sanctions or Russia They face extremely difficult serious difficulties Securing project financing for yamal LNG. It remains to be seen Whether they can whether they can finance that project under the current political environment however Even though the the US projects progress well from a project management point of view there We also see an impact of oil prices No in 2013 first half of 2014 oil prices were not simply high, but also high and stable So hundred hundred and ten dollars per barrel and that created the illusion of predictability Now if you start from the assumption that you can buy at Harry hub You liquefy it you ship it to Asia and then you sell it in Japan and Korea at oil index Asian prices Then I mean this is a license to print money So during that period would look at the green dots 2013 first half of 2014 a multi-billion dollar contract was signed for us LNG Literally every week and the buyers are the who is who of the Asian and the European energy establishment The large major contracts were signed in August 2014 just a week before oil prices started to collapse ever since oil prices started to decline we see a very different attitude from the From the potential buyers Since last August there was only one contract signed for us LNG and that was less than a million tons So it's a really small quantity very visibly the potential buyers are asking themselves the question that Hold on. Let's slow down a bit hold on for a second. Does it make still does it still make sense? Is it still competitive? Now we believe that it is still competitive But it is no longer a money machine. It is something which is competitive But you have to be careful about your project management. You have to be careful about your portfolio. You do take risks now Of course the green dots the projects that signed of the contracts have absolutely no difficulty Using those contracts to mobilize investment capital Consequently even in the period of declining oil prices several large US projects started construction And we have no doubt that those projects will go ahead But we believe that there will be a measurable slowdown in the further developments the Will we took a look at how the market is absorbing this big change in the net trade positions They in the case of Australia the change in the net position is that they export much more in the case of North America North America is changing from a small import there to a large exporter So that's also a very large change in the net trade position plus you can add Japan and Korea which will import more Because of the recovery of nuclear power in Japan a call is doing very well in both Japan and Korea Solar power is doing well in Japan. So there are a long list of reasons why LNG imports will decline in industrialized Asia interesting to the the biggest Component of how the market absorbed that that LNG is The region which we don't really talk about very often the Asia outside Japan and China Okay, there's more to Asia than Japan and China Traditionally the gas industry looked at that part of the world as a large net exporter with Indonesia and Malaysia But what we see is that in in Indonesia and Malaysia they continue to export But increasing quantities of gas are absorbed by domestic demands. So their exports decline India currently has an underutilized gas infrastructure and underutilized gas-fired Poverjation capacity a 15 dollar per MBTU LNG price is simply not economically viable for India It's not it's just not affordable So at the at the skyrocketing high gas prices They just refused to buy and and they the underused utilize their infrastructure capacities But India has a serious energy shortage So India is one of the countries which they will take advantage of the better availability of LNG Import more and electrify the country more rapidly And last but not least In all around the rest of Asia you have a new LNG import project coming in the Philippines To in Vietnam yet another one in Thailand yet another one in Pakistan a million tons here a million tons there and the numbers Add up pretty quickly. So so not only see the Asia is the biggest single sink for the new LNG China will import more LNG, but in China LNG will have to compete China has other options But on realistically Asia will not absorb this big veil of LNG So there will be additional LNG cargoes looking for a place now If you are talking about small quantities, you can sell a cargo or two in the Middle East or in Latin, Latin America But in really large quantities if you have to go to somewhere that somewhere is Europe So LNG will have to come back to Europe And the big question is what will be gas from strategic response where the American invasion begins the because Gasprom can decide to go to a price war and given that they have a very low marginal cost production and no ready some cost Infrastructure if they decide to go to a price war, they can fight really hard If they decide to do that then the Russians and the Americans will be done the price of gas in Europe to the level But it finally starts to be competitive with coal and in that case American gas will replace coal in the European energy system or gasprom can decide just to tough it out and and Protect its contract portfolio and let the Americans come in Now I don't claim to have any insider information of what gas from strategic thinking on this question Our modeling was based on the observation that in the past five years Gasprom very consistently had the strategy of protecting its contract portfolio That has been their strategy and we based our modeling on this assumption That basically gasprom will focus on protecting its contract portfolio and we let American LNG and telling the European markets China specifically has our almost 200 almost 150 billion cubic meters demand increase where the the demand increase will be supplied by a nearly perfect diversification The biggest source the biggest increasing source to China is the pipeline imports Both from Turkmenistan and also by the end of decade also to from Russia The second biggest source is the increasing domestic production Even with the difficulties of Shell gas that they face they do have a meaningful increase in domestic production as LNG is only the third source So it's it's a very cool. It's going to be a very competitive gas market Specifically on the Russia China pipeline We believe that this is a project which Russia can do even on their sanctions from the West Developing the boven and co sorry developing the covid square and the China in square fields And building the new pipeline across East Siberia is difficult But it is a type of difficult that the Russians have done before So gasprom has the technological capability to do that and most of the costs are in rubles because they can rely on The domestic industry and Russia is not running out of rubles. They they they can print as much as they want So so we we do believe that this project has has has a very strong strategic priority from the Russian side And we also believe that they have the capability to do that even in the current geopolitical environment However, there is a period at the age of capital discipline coming We also our impression is that currently gasprom has the capital strengths to do one big sink And we also based our based our modeling on the assumption that that one big sink will be the Siberia China All the rest is public relations okay, so South stream was cancelled last year because of values Officially it was cancelled because of various legal difficulties It is possible to structure a major pipeline project so that it complies with European law. It can be done Gasprom could have done it. I I believe that they were simply running out of money Same same story about turkey stream given that gasprom already contracted for steel pipes and engineering services for turkey stream They can build Maybe one stream for the turkey stream, but they know they don't have they they don't have the capital strengths on for Redirecting all the gas flows same applies for the North's MS North stream Expansion as well. I wouldn't bet on any of these projects at the bookmaker the Which also means that the current transit contract between Russia and Ukraine is Expiring in 2019 gasprom is on the record stating that after the expiry of this contract They want to eliminate transit through Ukraine. We don't believe this to be credible We we believe that Ukraine will remain an important transit country And I should also emphasize that in the past year Ukraine proved to be a very reliable transit country They faced a military conflict and a serious macroeconomic crisis But all the transit obligations were fulfilled by the letter So that that is something to be there to be recognized In Europe we do foresee an increase of gas demand I'm cheating a bit because 2014 the baseline year was on abnormally warm year So more than half of the demand increase that we project is actually the normalization of the winter temperature specifically adjusted by temperature residential gas consumption in Europe is now has a structural decline because the Slow but steady improvements in energy efficiency now overcompensate everything else. So you can have a you can have a Cold winter in which case heating energy demand goes up But adjusted by temperature it is now a structural decline for building heating and in the power generation sector To the extent Europe ever had a core aerosols that is now over with the large combustion plant directed kicking in coal plants are being decommissioned and That enables some recovery of gas consumption. We already see that happening in the United Kingdom and last but not least Europe will continue to lose nuclear capacity so So guess is recovering primary in the private agent sector Very important to be became very pessimistic about European production I mean if you combine what the lower prices do to the investment in the North Sea Plus the decisions of the Dutch government to constrain production in Groeningen because of the earthquake risk Plus the almost comprehensive failure of shale gas all around the European continent. The outlook is really bleak so our numbers such as that on their normal market conditions the Amount of US LNG coming to Europe will roughly be sufficient to compensate for the decline of domestic production But it will not really eat into the European purchases of Russian gas So the European imports of Russian gas will change will remain roughly at the current level But they're not increased further and that is true beyond 2020 as well Europe is facing a similar to news decline of three very important domestic energy sources Coal is facing a crunch time because of European climate policy If you wanted to rip if you wanted to compensate the decline of coal with domestic renewables in Europe You would need a hundred twenty thousand windmills in the next 20 years Germany currently has 22,000 So 120,000 is quite a lot Nuclear is also facing a crunch time There is a there are a couple of nuclear plants here and there under construction in Europe United Kingdom one in France one in Finland But they will not be able to compensate for all the nuclear phase-out policies If you take the nuclear reactors which are currently scheduled to close down in the next 20 years Their production could be compensated by solar panels of 52 million Homes and You add the depletion of the North Sea So wind and solar is growing in Europe But there's no chance in hell that they can compensate for the simultaneous decline of these three important domestic resources That's and that meant that the Ukraine conflict Created very pessimistic expectations about gas in Europe. The interesting there is an interesting disconnection that the The Ukraine conflict did not lead to a physical disruption of gas supplies into Europe. In fact the In the European gas industry the opinions are very firmly in the comfort zone So the the European gas industry does not really believe that before we have on our significant energy security problem But at the same time at the foreign policy level the trust in Russia is worse than in any time since the Cold War And that's this is an this is a dangerous imbalance Because Europe currently does not have the ability to keep the lights on without Russian gas Such a relationship has to be built on the foundation of trust now whether this trust can be revealed or not I mean that's a foreign policy question and I cannot I cannot comment on it but what is certainly a case that the that That unless The unless this trust is being rebuilt There will have to be consequences for energy policy and energy security measures as well You cannot have a disconnection between the foreign policy and the energy industry mindset And of course the second biggest Import source to Europe is North Africa The North Africa for reasons unrelated to the Russian conflict is also a quite difficult area In fact the largest geopolitically related gas supply disruption in Europe a history was the disruption of Libyan gas supplies to Europe Which never recovered from the civil war and that was replaced by guess what Russian gas so the the so without the emergence of large new LNG sources The outlook would be very very pessimistic however with the emergence of new LNG sources We have a chance to transform this perception Into something like this and and restore the trust in gas and it on that optimistic note I'm happy to take your questions and comments. Thank you Thanks so much a lot of information And a lot of thought-provoking points and I suppose this Captain America poster coming soon probably says to your nearest You know LNG importing facilities Pretty exciting. I do have a lot of questions I wanted to open up with a couple questions But then invite the audience to ask them questions. The ground rules would be to please identify yourself Who you're with and then also wait for the microphone? To start with I do have a lot of questions that I can ask but on the supply side though You did mention North Africa and also an earlier on for the supply picture The Africa for now is you know, I think You know, it's the still net importing region for the next five years Of course, you know East Africa has a great potential Where would you put it for which one of this the future? You know the mid-term market gas market reports. Do you see the East Africa potions starting to show? Okay, I mean East Africa is facing a challenge which is shared by Australia, Canada, many other regions is that the the I mean, there is no LNG industry Okay, there is only an oil and gas industry and that oil and gas industry or companies like Exxonbobil, Shell, BP They we call them oil companies, but they are increasing the in fact gas companies I mean Shell is already a gas company in terms of their their their production structure So they play a critically important role in developing new gas projects for in East Africa If and when the development will happen There is no doubt that the super majors will play a major role in that now for practically all of the super majors their strategic response to the declining oil price was to Cut capital spending quite significantly while maintaining the dividend payouts for the shareholders And I have to say that that from the point of view of our capital allocation of an oil and gas company Longly time capital intensive LNG project in a potentially political risky location I mean, that's a very attractive target to be to be to be cut if you have to cut capital spending So so a very significant proportion of these projects Maybe not cancelled and maybe not killed for good, but at least delayed for several years, so And given even if we start it today it would take At least five to seven years to have a full development in East Africa So so I think for East Africa now got into the question of let's say What is the next big sink around 2025 and and if you if you ask that question then yes East Africa is a very credible candidate for being the next big sink, but but before that I think they will face delays So Questions from the audience. Yes. Hi Stay not rich Cosler. It's from George Mason University stain on the gas supply question for Europe You didn't mention the southern gas corridor from from Azerbaijan There seems to be a fixation in the media that somehow this is going to Change see the energy balance in Europe But getting much beyond 10 BCM in a reasonable time frame doesn't seem to be in the cards Where do you see that fitting into your your description of the supply situation? Okay now? Azerbaijan is moving ahead with the shock Dennis development and the ton up top pipeline developments which will deliver Precisely as you mentioned 10 BCM to southern Italy this 10 BCM Is around 2% of European gas supply? It is it is useful and it also it is also I would say this is the first major project Which was developed after the European Union third package was implemented So it's a very important vote of confidence in the new European regulatory environment So I think it is a major success, but in volumetric terms It's not going to be more than than than 2% for the first phase now Azerbaijan has more than shock Dennis. They have the option on discovery by total They have the deep layers of us as a rich in anguishly so in the second half of the 2020s our projections show a higher level of exports from Azerbaijan then Then what sure Dennis could do alone But but I agree with you that that's we are talking about the second half of the 2020s now on that time horizon There are there are three countries that can potentially be game-changers If the politics works out well, that's Turkmenistan Iran and Iraq The Turkmenistan is currently very strongly orienting towards China so The infrastructure system is already being built up So two pipelines are already operational to us China one is being completed the force started construction CNPC is involved in the field development of the garishly super giant field so so It's it's hard to see how Europe will come back after the Chinese having such a such a headwind in the race In the case of Iran, you will need a you would need a geopolitical green light Plus you would need the Iranians getting direct together because even if there is a geopolitical green light The current investment environment in Iran is not not very attractive In the case of Iraq the Korwar and the Cham Chamal giant fields in Iraqi Kurdistan Could outcompete Azerbaijan hands down from the point of view of their geological attractiveness But that again would require a series of optimistic assumptions on the political and security situation in the region Either of that could happen But frankly Europe does not have a very strong ability to influence the developments on the ground for for any of them so it's it's more like it's more like We hope that the situation will improve rather than We can have all that design strategy to improve it. Thank you Kevin Massey with stat oil two questions the first is just a kind of Reflection I guess on the evolution of thinking in the IEA around gas four years ago. We were heralding the golden age of gas What have been the major kind of changes in in the picture that have brought us to where we are now? And second is when you look at the US gas supply situation And that and therefore the shale gas production potential and the and the LNG export potential Do you take account of upstream regulation and are there things that could change that would change the the outlook for US production? The First of all the the golden age of gas I actually I actually was expecting this question So I read the that original report and I The picture is mixed. I mean here in the United States Our current product production for US gas production for 2020 is higher than what the golden age of gas report four years ago Projected for 2030. Okay, so so North American product North American share production is running a decade ahead of the golden age. It's like a diamond age or a platinum age. It's just beyond the already already in the already in the Golden age of gas report we emphasize that conventional good old-fashioned conventional exploration is not out of fashion Now since the publication of that report the resource base that was discovered in East Africa is accurate to 85 years worse of US share gas production So that that that exploration success again very much confirmed Our view on the on the golden age of gas However We have been disappointed by in the past four years If there is somebody from Exxon Mobil then congratulations for Papua New Guinea Because Exxon Mobil did brought Papua New Guinea LNG online ahead of schedule without the cost over on but Apart from that everywhere from Angola to Australia the project management experience has been extremely extremely negative and the and that And when you have LNG with multi-billion dollar cost over arms competing with low-carbon resources where the technology is improving at the cost of declining. I mean, that's that's not the way to win So the so it the LNG industry has to get its act together and has to deliver projects It are in a very reliable Reliable fashion And I would should also mention that the most important reason for the negative revisions on gas demand is The revisions of total energy consumption growth in China and the revisions of electricity consumption growth in the advanced industrialized economies So the in terms of the share of gas in the total energy system it is increasing It is growing more rapidly than total energy use And For your other question we did We did run a scenario not this not in this report, but on two years ago We did run a scenario for North America, which we titled what if the tide turns Which basically assumed that something like the share gas equivalent of Fukushima happens and There is a political backlash against hydro fracturing in North America now in that scenario the United States goes back into a gas gas importer gas prices in the United States roughly double and Coal is happily coming back to a second life now You know Unexpected black fans have happened in history But currently I don't see a very high political risk And I don't see I don't see many US policymakers who would find this an attractive future Hi, I'm Tom Dieters from the Department US Department of Energy I wanted to find out a few had factored in the the European Commission Anti-competition case against Gazprom into some of your calculations about Russian natural gas prices to Europe There was a presentation about it two or three months ago that said that you know the results of that Investigation or the results of that suit could dramatically decrease prices of Russian gas just because it would make public you know the past Pricing practices. I just wanted to see if you had any thoughts of that if you if you felt that there was an impact on prices to Europe or even to China China or other, you know customers for Russian gas I I would not like to comment on the specific prosecution case because that's Most of most most details are kept confidentiality by by digi competition in in general, but in general the the there is a more stringent Enforcement of third-party access and competition law in the European gas gas system in general so they the the the competition prosecution against Gazprom is I Would say a legally a separate case But at the big picture level it is one piece of the puzzle another piece of the puzzle is The capacity allocation guidelines developed by ESL the agency for the coordination for energy regulation Which will significantly enhance the transparency of capacity allocation some of the initiatives of the energy union and so on so all together All together there is a very Significant likelihood that this will lead to a much more interconnected much more transparent much more competitive gas market inside Europe Now whereas the European Union does not have very strong capabilities to influence the developments in the ground in Turkmenistan It does have very strong legal tools to influence the developments in the ground in Europe itself and they are using that So the so I would say that the Europe is being lucky with North American energy coming to the market because that creates the fundamental basis of Competition but the regulators and the policymakers and the competition authorities have to do their homework as well The now whether you know, whether the specific guest from case because current will result in Out-of-court settlement between the European authorities or gas from or whether it will settle it will Conclude with our harsh fine and structural remedies time will tell But certainly the from the point of view of regulation and competition policy the situation is improving in Europe And I also took a note that I tell me your question also include, you know, what may think that what the implication may be for age I think a lot of you know a major LNG importers in Asia are closely Watching I mean because that something the details also include, you know, the Destination clauses and how now it's not only Russia, but you know, in my view, you know Then what other major suppliers may have to do like Qatar is etc. And then how that may May or may not but you know, the certainly yet the buyers in other regions also closely watching Frank Frank for astro CSIS lots of thank you It's always content rich great presentation I want to take you beyond your slides though So two things that you alluded to as the gas market changes, especially over the last couple of years Can you talk a little bit about? Evolving financing and what contracts what changes need to be made on the on the commercial side and on the geopolitical side when you look at Interconnections specific countries so like Turkey for example, right If you look at Iran Iraq Middle Eastern gas moving to Europe, what are national policies and what can they do if the EU doesn't step up What are the roles of individual countries when infrastructure gets put in place? well on the On on the evolving market and financing when the third part get when a third package was discussed And I will concerns and I will claims by the gas industry that it will be just impossible to develop new super projects under such a regulation Now there were a couple of success stories that proved them wrong One of them for example is the South Hook LNG project, which is a Qatari LNG project in the United Kingdom Typically typically Qatar is not an enthusiastic proponent of the idea of liberalized gas markets But the But the Qatar is managed to they did the homework they structured their project in a way that even the United Kingdom has the most I would say the most Stringent pro-market regulatory regime in Europe and the Qatar is could structure their projects So that's how that is complied with all the UK regulatory environment and everybody's happy and the project is happily operating But that was an LNG project and that's why I think that they did that that Shogdan is and top had had the impact of breaking the Psychological being a psychological barrier because that was a pipeline project. And of course with a pipeline project. You don't have You don't have market flexibility A pipeline is like a handcuff that you physically handcuff the exporter and the importer together So that that requires a very strong As a stakeholder Relationship and even that was possible to be done In an example refreshing so the the top pipeline project received an article 38 exemption from the European Commission There are more there are more than 10 buyers on the European side So it's not so the project is not reinforcing the nominal position of a conventional monopoly But creates a competitive structure at the at the entry point, of course That project very strongly benefited from having Soccer and BP, you know a powerful and rich national company and the powerful rich and professional IOC having a strong strategy commitment and pushing it pushing it ahead that that is this is how life is that that has to be done Now what individual countries can do I spend before coming to the eye I spent several years from my life working on the nobuco pipeline project so You learn a lot from your failures, so that's I'm glad I'm glad I did that I have to say that Medium-sized European countries cannot do all that much That's the that that's the that's the number of a lesson from the failure of the nobuco as a pipeline project And I think for this reason There will be a stronger strategic emphasis on LNG Because we have been in the case of in the case of let's say Lithuania that even a small country can do a lot on LNG And you can have a You can lease a floating LNG terminal you can have it delivered on the coast you link it to your pipeline system and so on Your capabilities are are are much stronger in that level so they I think the only you know the only way I can conceive a large degree of flow from the Middle East to the To Europe is if the political situation either in Iran or in Iraq or in both Improves to the level that eventually you have players like so car emerging You know who who have the upstream resources and they want to push them to the end user market and make it happen I think without that I don't think I don't think you can do much from from our medium-sized European country Andrew sure Andrew Dowdy consultant a laszlo really enjoyed your presentation a couple of I Appreciate if you could give it a little bit of thought or give us some of your insights on The cost structure the future cost structure of LNG If you go back to the 1990s, which I realized was a long time ago But people were marketing LNG for probably less than three dollars a million BTUs delivered I talked to somebody once who said they shipped LNG from Trinidad and the bagel to Boston for less than two and Obviously there's inflation, but I think in real terms the cost of liquefying and shipping LNG has gone up phenomenally in real terms in Part because the shortage of Construction companies that are qualified to build as we saw in Australia the cost per ton of liquefaction just shot up So longer term if you see that trend softening will we see something almost like the drilling industry? So you might see cost capital costs start to come back down and that's that's the first part of the question second part would be For all intents and purposes the LNG facilities the United States Capital cost is sunk and so the marginal cost of say shipping LNG into Europe if you're a merchant broker Would simply be the cost of buying buying at Henry hub and shipping it across the pond Which could very well fall, you know well below five dollars a million BTUs Anyway, I just appreciate your thoughts on on how that future cost structure might play out Yes, well, I think I think in general probably in the past decade the increasing complexity Of ups in projects a bit outrun the ability of the oil and gas industry to manage that complexity So the this this difficult post project management and cost management experience. This is not unique to LNG the a lot of the a lot of the more difficult oil projects had the same unfortunate experience the a specifically Specifically in LNG and I'm in Australia had a very unfortunate combination of remote locations Labor scarcity very tight environmental regulations and competition with the mining sector for for skilled labor and engineering services Now this this is this is a very challenging combination I have to say that Western Canada has the same precisely the same combination of remote locations very tight environmental regulations tight labor market So and so on do you have you do you as golf course is in a much more advantageous position? It has been a it has been an oil and gas region for a hundred years. So there's a much much broader labor pool In terms of engineering workers suppliers and so on a lot of the infrastructure is already in place Both in the case of Australia and also in the case of in the future for the future Canadian projects linking the upstream with the Site of the terminal by pipeline is a major part of the challenge That's already done for our for our brownfield project where the pipeline So so I think the I think when we observe that so far the US experience Fingers crossed is more favorable. I think that that that there is a fundamental reason for that Having said that I'm also watching very Intensive some of the technological developments one is the the the smaller scale modular LNG facilities theoretically large facilities would have all the economy so scale advantage, but if you can have Factory manufactured modular facilities With our very low project management risk Whereas with our mega project chances are that you have some project management issue that that can that can be a very interesting alternative and some in some regions we see the emergence of that and also the the first couple of floating projects are now hitting production and Samsung is apparently doing a very good job constructing the pre loot floating LNG for Shell There seem to be no serious project management issue on the Korean side but again Whether Whether this is will be something which is a which is an engineering vehicle and a nice shell project or whether this is something where Where there will be several more projects for Samsung did a very good job building prelude But I mean how many engineering companies are out there which have the same capability as Samsung I probably not very many So a floating energy could emerge as a very interesting technology, but it's it's it's too early to declare success Sort of a follow-up quick follow-up question that you mentioned if sort of a shipping sort of shipyard and technology Side potential constraint on the floating LNG LNG, but in general for the LNG industry You know could the shipping side be one of the constraints, you know if we do have all these Volumes, you know materialize in the next no that's that does not that does not seem to be a big concern because right now They basically pretty much all the Japanese and Korean shipyards are running flat out Constructing LNG ships So there are some 80 large tankers under construction and More than one-third of the tankers under construction are owned by financial investors Who build a tanker? Their business model is that they will lease out the tanker and make it available for for spot traders so So I think we will see We will see a Quite favorable Barker situation for that. Okay. I'm so quickly yes Doug Hangle German Marshall fund Laszlo How much US LNG do you see going to Europe vis-a-vis Asia and is that based on? contracts already signed or price assumptions It's around half-half And it is it is based on the the modeling of the of the LNG market because The US contracts are signed without the station restriction Now some of the buyers are European buyers But even those European buyers will ship it to Asia without hesitation if the market is more attractive in Asia but Two things will drive Significant quantities of US LNG into Europe one that is this must see flood of LNG coming from Australia to Asia so that Will even before US LNG coming to Europe? We already observe a change in the trading strategy of Qatar So Qatar is already increasing its sales in Europe Because they see the incoming Australian wave and they don't want the price war with the Australians in Japan So and the second thing is that the the Pacific is a pretty big ocean So the shipping costs are significantly Higher from the US Gulf Coast to East Asia Then to Europe and even the Panama Canal extension will not help much in this respect So so you would need are you would need a sizable price differential between Europe and Asia To drive to eliminate the shipping costs are done. I'm Michelle Melton with the CSIS energy program Well, thank you. This was as always fascinating and entertaining. We really enjoy your presentations here So thanks for coming. I was hoping you could expand a little bit on gas competition with the wind solar IT And I would add demand response and demand side resources like what we're seeing in the US right now You were speaking mostly about solar and wind taking away Market share from gas in markets where when in gas importing markets I was wondering if you could talk about whether I know this is obviously the medium-term gas market report but whether your models go out and show any Eating into competition in gas exporting markets like the US What what are the cost assumptions that are necessary? What are your cost assumptions for for price declines among gas? Excuse me wind and solar just if you could speak a little bit about the next You know beyond the medium term maybe the next 10 years In that respect. Thanks. I mean wind Wind and solar are currently the most rapidly growing electricity generation sources and the technology is improving very nicely In in Europe wind and solar investment currently is around a hundred million dollars a day And that but that has proven to be quite robust even to the eurozone crisis And the so so that that that is not going to go away The so One question is whether gas is cost-compatible even a per kilowatt hour basis with wind and solar And that is in that is increasingly a challenge not I mean renewables are not you cannot make an and Across the board statement that renewables are now competitive everywhere. That is not true What you need is a combination of good resources and good policies that attract investment That's if you have that combination that you can you have a good regulatory policy Which can channel low cost of low cost of capital financing Into a place which is where the natural resources for wind and solar are good Then then you made it and the examples that I showed you like the like the South African solar or the Brazilian wind Are these good examples? There are of course many bad examples So so you can you can you can you can have a review of a policy going bad in multiply ways the but in terms of volumes The we don't know we do project gas-fired power generation capacity Gas-fired power generation increasing globally that is there's no doubt about it Around half of the growth of gas is generated by the growth of gas-fired power generation, but Renewables are emerging as a serious competitor and the renewables are eating into the pie quite significantly now of course The you have the problem of the integration of wind and solar to the power system Which can this is a technological problem which can be solved But the system that by the system transformation that you need is not trivial So you need better interconnection capacity and the electricity transmission side And I'd say that both Europe and the United States and Japan Systematically under invest in the electricity transmission networks. So there's nowhere near on track for for that Then you don't simply need the better physical infrastructure You also need to transform how this infrastructure is managed now in that case there are there are there is no perfect model In this respect because for example, the Europeans are doing a better job in improving renewable forecasting and they are doing a better job in in continuous Intradiate price signals, but the Americans are doing a better job introducing locational signals Into the electricity system. So I would say that for for me the ideal the ideal System would be a combination of the good examples from from Europe and the United States But that faces a very significant institutional barrier again in many many Power systems and I think battery technology is improving but under realistic technological assumptions It's not going to solve the problem alone So the bottom line is that you will continue to need the good old-fashioned flexible power generation in the power system In fact, let's say if I if you take the our 450 ppm Scenario, which is an all-hands to the deck effort to tackle climate change In that the gas-fired power generation which is in the European system is almost the same as in the base case The and around 80 gigawatts more than the current one now This is a very good news for G and Siemens the companies who are in the business of selling those gas turbines Okay This is not necessarily a good news for gas from a shuttle a the companies who are in the business of selling the gas Because when you operate a gas turbine only when the wind is not blowing and the sun is not shining then your Utilization collapses to roughly a thousand hours a year So you don't consume a lot of gas But you consume that gas in a very volatile and very unpredictable fashion Essentially your operation of volatility will be the mirror image of the volatility of in that solar. So so so the actual volumes Are not very high and our 40 50 ppm scenario global gas consumption is increasing Even in the 450 ppm case, but the rate of increase is only 0.7 percent compared to the two that we currently Project so an awful lot of gas stays on the ground And you need a you need a very different gas infrastructure You need a unit you need pipeline systems and you need gas storage facilities Which are optimized for this new role of gas and this this has not happened yet Yes, so even if you take the United States last Last winter during the polar vortex US electricity consumption jumped By 5% compared to the seasonal in normal level During the polar vortex, of course, that was not much sunshine that it was very windy So wind was doing well what 4% out of the 5 came from coal and so they so the The a low-carbon system will have to have flexibility from new sources and that that is still a challenge in Practically every country. Thanks for the patience It's all right. Thanks Dave Nagel formally BP have a question about methane emissions That's been a subject that's been debated analyzed here at CSIS and a pretty active conversation in the US Our similar conversations occurring elsewhere that have come on your radar screen elsewhere across the globe and if so How do you see that impacting utilization of gas? Very very good question. I think the the United States probably has the strongest Conversation in this respect. I mean in Europe, you know in Europe the conclusion is very simple Gas is a fossil fuel fossil fuels are evil gas is evil With methane emissions. It's one more reason to regard it evil the The in Asia in Asia this does feed into the the conversation because If you have a if you have a bad gas upstream project Then the carbon intensity of an LNG fired gas-fired power plant in Asia could Considerably be worse than for a good ultra-supercritical coal-fired power plant and that that is that is that is emerging in the discussion in Asia that the that How much methane leakage you can have before you would kill the advantages of let's say a US LNG project in In Japan compared to a cutting-edge ultra-supercritical coal plant and the and the answer to that is that the is that the If you have a Professionally well-managed upstream project applying the proper green well completion techniques And the pipeline systems are operated. I mean I come I'm coming from the from and from the oil and gas industry I have a I have a hard-line view on this question I think this is I think this is essentially a managerial problem I think the I think the the oil and gas gas industry has all the technological and engineering capabilities to keep metal leakage At all very very low level which would safeguard all the environmental advantages of gas The the question is whether there is a proper management attention to the issue in some companies the consulate is yes In other companies, it's unfortunate to know So the our impression is that in that the metal leakage is there's a long tail of badly operating Projects and they have a disproportionate share of the metal leakage So I think the the challenge is to I say to bring up the management performance to us go to a consistently high level both for upstream and also for pipeline operations So natural gas may be that the evil in Europe a seems to be sort of a lesser evil specifically in this shipping Industry or I'm not as a you know bunker fuel and I actually I've been wanting to ask you and that's this you know Your question gave me a perfect perfect segue You did mention that a you know the the regulations one of the drivers if you could just elaborate on you know certainly, you know Europe European You know regulations have been widely reported, but you know is your basically leading The trend and our people following I mean what what are some of the trends in that on Shipping Europe does play an important role because first in the Baltic Sea and then in the Mediterranean and the North Sea as well Sulphur dioxide regulations were introduced into ships as well and that that triggered an inch an increasing interest in In You know it started with easy small-scale projects like ferries in Norwegian fjords Or that then it also came to inland shipping in the rain in the Netherlands It's actually quite difficult to find Accurate data The data on it, but but there's certainly it's certainly going on I think very very Europe is missing an opportunity is the is the the road transportation sector Where I mean the city of Paris for example, I mean France has a low-carbon nuclear dominated electricity system And the city of Paris actually has an awful particular emission problem all coming from diesel engines so the So there is more to environmental pollution than coal-fired power plants And they're not sure I guess vehicles could play a much bigger role than what they do today Any other questions sure Linda Linda Domen energy information administration, I'd be interested in hearing how your views on Mexico have changed unsupply and demand since the Legislative changes between last year's outlook in this year's outlook plus the prices Now We are we are very excited about the policy reforms in Mexico and they I mean It's it they are really doing a very very good job and they are overturning decades long Long traditions. I think what is our what is going to be a challenge for for Mexico? is the That very soon we will have an endless flood of dirt cheap American gas in Mexico Now this is actually a benefit for the for the Mexican industry in general You know Mexico is our is our country on a medium-scale the medium level development They they are in a stage of development where their growth should be driven by Manufacturing outsourcing from the United States. They actually have industrial electricity prices which are twice as high as the US Electricity prices so this this flood of very cheap American gas which enables Mexico to significantly cost cut the cost of power generation This is a very good thing for the Mexican economy in general Specifically for the gas sector that means that any new Mexican share gas project We'll have to have the same cost efficiency as the ones in Eagle Ford from day one Because they could be a complete with the same gas price and even though, you know, the share resources of North and Mexico are quite attractive, but still, you know Achieving the same cost efficiency as Eagle Ford from day one. I mean, that's a very tough bar And in almost everywhere else in the world like for example, Argentina Where the I had to say that the legal and investment environment in Argentina is much much worse than in Mexico But the initial development in Wacka Muerta competes with imported LNG So they have a they have a shield they can have they can spend a couple of years figuring out how to do it Mexico does not have this grace period So we actually project a stagnating gas production in Mexico And a very big flood of US exports to Mexico. I guess the EIA has also mentioned in the AEO, right that there'll be a greater volume of US gas going but Certainly not primarily via pipelines. I mean for for now. Yeah, that's yeah Um, so it's already time. Unless anyone sure one last question. My name is Ilona Doja. I'm with the Atlantic Council I have two questions. The first one is how you Exactly managed or imagine the US LNG to reach the center eastern European region like is a pipeline integration and building interconnect Interconnectors is already enough to connect the CE region to the Western European LNG facilities or or Will the EU be able to finance projects like the Kirk Island LNG terminal together? because I believe like Croatia would not be able to do that alone and Lithuania is also like criticized for its LNG terminal because it's not entirely economically viable So like a regional cooperation is definitely needed in this field and my second question is In my understanding you spoke about US LNG reaching Europe Slowly on an economic basis. I just wonder how politics can be connected to this The US seems to be reluctant to have a energy chapter in TTIP negotiations While it could be useful Security for or in the European point of view So do you see any risk on that or or this gas will reach Europe in an economic Basis as well and there is just no need about like connecting politics to this Thanks start with the second question basically our our analysis based on the on the observation that I mean the US has our quite complicated Complicated licensing regime for LNG facilities But in in every single case when the final final decision was made on an export project the final decision was positive So there is there's not a single there's not a single case when the US government would have prohibited an LNG an LNG export project It's an interesting discussion of why the process is so long and why whether it could be shortened and so on but But but the the baseline assumption is that the US LNG Export projects will be based on project economics and contracts And and and the base assumption is that any any US LNG project Which has private investors who are prepared to make the investment will eventually get the approval from the US government So we don't we don't assume We don't assume the US government putting legal and political restrictions on exports the export level In our view will be determined by by project economics the and if you work from this assumption then Incorporating into the free that he incorporating it into the the transatlantic Freighted agreement would not really change the outlook the For your for your first question Lithuania and Poland already has LNG terminals which are underutilized with plenty of excess capacity So that the the the spot LNG cargoes can go directly there then the The there is a large excess capacity of LNG terminals in northwestern Europe the This is a bugger Rotterdam The terminals in the southern United Kingdom plus Dunkirk in France is coming online this year this This region has the pipeline infrastructure To what will actually happen that this region will buy less nor region gas more near virgin gas will go to Germany That's Russian gas will go to Germany So the pipelines flows will readjust From Germany onwards back to Central East and Europe The trans gas system in the Czech Republic is is already fully reverse for capable and as of today It is already running in a reserve reserve flow mode. So the Czech system is already very gas from the west to the east And the Slovak system is already is also Reverse for capable there are still issues in the in the German Polish border and also Italy has significant underutilized LNG capacity But the Italy Austria pipeline interconductor is also not fully reverse for capable in both cases in the German Polish and the and the Austria Italy border the reverse for capabilities around around only around 20% of the of the capacity on the other direction and also in Also all around Central East and Europe. There are major issues in about the Transparency of capacity allocation So the general principle on in European law that every every interconductor has to be reverse for capable and Capacity allocation has to be done in a market-based and transparent fashion Who would disagree to that? But when you take a look at the actual situation in the ground There are many governments in Central East and Europe who have a very creative interpretation of what what what our transparent market-based allocation is So that's that that Touches back on on your gravity is that In Europe the issue is not simply building new pipelines. The issue is a much stronger Enforcement of the already existing Energy and competition Registration I also had personal involvement in my previous job in the creek energy terminal I came to the conclusion that a future reactor is a more realistic short-term solution than that that I mean that can change If if you have significant quantities of cheap us energy being available changing the attitude of the key stakeholders Might even happen But but that that project had a long and set history. Thank you so much. I mean both the presentation in Q&A Discussion session were just spurred. I'm always happy to have Laszlo back, and I hope you'll keep coming back Please join me in thanking Laszlo