RUSSIA NEEDS EUROPE
Gastech News spoke with Mark Simons, Director Europe Gas Marketing at BG Group about his views on Europe's gas dynamics, security of supply and the role of gas post COP 21.
Gastech News: What are the key issues affecting gas companies today?
Mark Simons: The biggest issue affecting gas companies within the European gas industry is low prices, because low prices mean less revenue and less profit. To add to that, in Europe, the competition for gas from coal and renewables means that demand is down and that's shrinking the industry which of course is worrying for the gas market going forward.
Gas has been losing market share in the last few years and that is as a consequence of increased renewable capacity built largely through subsidies – and lack of competitiveness versus coal – making coal production much more competitive. The problem is that gas-fired power plants, in particular, are not economic to run most of the time and there's no incentive for people to build new gas-fired power stations. So as those coal stations look to retire, there's not going to be any capacity from a gas perspective that's going to replace it that will continue the growth of gas demand in Europe. Unlike the rest of the world, we're seeing shrinking of gas demand in Europe whereas everywhere else it's growing.
Gastech News: Increasing Europe's gas security: Is LNG a key solution to Europe's energy supply challenges?
Mark Simons: I do not consider that Europe has a gas supply challenge. If Europe was subject to energy supply challenges then prices would be much higher than they are. However, I believe that we will see greater volumes of LNG imported into Europe over the coming years than we have done in the last few years and policy makers, who tend to be most concerned about supply security, should feel much more comfortable than they do today.
Policymakers always worry about Russia having too much market share of European gas, but from my point of view Russia needs Europe a lot more than Europe needs Russia. The reason for that is that gas has been losing market share in Russia and in Ukraine. Russia's projects to straddle across to Asia are not progressing so well and also its LNG projects are not progressing quickly. So really the only game in town is Europe, particularly from a price perspective. However, that means that their dependency on Europe is growing so policymakers do not need to worry about Russia.
Gastech News: Government policies vs. industry realities: What is the role of gas post COP 21?
Mark Simons: That's an interesting question, and I think that there's no obvious answer at this current point in time. I believe gas has a golden opportunity in Europe to make its case to policy makers. With global supply rising and prices falling gas should be at the heart of how Europe's future power is generated. The case for preserving coal in the power mix continues to weaken and the gas industry must take the opportunity to increase gas demand through new gas fired power capacity, but the industry will need the support of governments to make this happen.
Gastech News: With regards to the recent discoveries in the East Mediterranean region and the potential new Iranian gas supply to Europe, how can Europe's gas market change?
Mark Simons: More supply competition is always a great thing because it means that policymakers can be relaxed if there are more different options. Are those projects economic in a world of $40 oil? Probably not, because they're going to require a lot of investment if they're going to have a root market particularly in Europe. Therefore, those projects will probably take a little time to get to FID and eventual production and consequently a role in the European market. But, the danger of course is by then it's too late and the European gas market is contracting further, so there's a relatively small window for these projects to be able to stake their claim to a share of the European market because of pricing. The question is, can they compete with Russian gas and U.S. short run marginal costs of LNG exports?
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