Conclusions

This chapter summarizes prospects for the natural gas market in Europe. It can be concluded that EU gas demand can be expected to increase rapidly up to 2010, driven foremost by the power sector in southern Europe. At the same time EU gas import needs will increase at a faster rate than the demand caused by declining production in northern Europe, most notably in the UK. The evolvement of gas demand in the power sector after 2010 will to a large extent depend on further CO2 emission restrictions after 2012, the nuclear phase-out announced by some member states and the possibility of storing carbon dioxide in subsurface reservoirs. It seems that these factors together with barriers to rapid deployment of renewable technologies force EU member states into a high dependency on natural gas, counteracting security of supply.

Still, there will be ample supplies of natural gas in the foreseeable future. Although Algeria, Norway and Russia will continue to be main suppliers in the short term, a number of countries will substantially increase gas exports to the EU, both in the short and medium term. The increased competition, signs indicating that the EU gas market may be oversupplied between around 2007 and 2012, the competitiveness of Algerian and Nor wegian gas on the main growth markets as well as a number of problems in the Russian gas industry will most probably result in Russia losing market shares at least in the short and medium term. In the longer term, i.e., after 2020, it is expected that Qatar and Iran will emerge as major suppliers together with Russia.

The large, consistent need of investments to supply global gas demand is a serious concern, in particular in Russia where large investments are required which, in combination with low investor confidence, illustrates one of the above mentioned problems that may lead to a decreasing Russian market share in the short term. Investments will have to be carried out in a timely manner and at appropriate locations along the entire supply chain and will have to compete with large investment needs in other parts of the energy sector, such as in the oil and power sector.

Also in the future, the oil price is expected to continue to be a major determinant of gas prices. A crucial factor is the evolvement of global oil production capacity relative to global oil demand. The dependency on the Middle East not only for oil but also for gas and, thereby indirectly for electricity and heat supply, will increase. The increased share of LNG in gas supply can be expected to lead to increased price volatility and to create an upward pressure on average local gas prices, while increased competition both on the supply and the demand side (importers, transmission and distributors) should create a downward pressure. If the European market is oversupplied by gas the downward pressure on prices should increase and possibly spread throughout most of the continent. Also, the US market may experience considerable oversupply around 2010, reducing the possibilities for conducting arbitrage between markets in the Atlantic basin.

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