Why Gas Flexibility Is High on the Agenda for Russia and Europe [GGP]
The question of flexibility is always important for the gas industry because of the seasonal nature of gas demand. In the past few years the role of flexible Russian gas in meeting Europe’s growing call on gas has been indispensable. This paper looks at how Russia meets its own flexibility requirements in the domestic market and whether peak domestic demand for gas in Russia can introduce constraints on seasonal export flow flexibility. It proceeds with analysis of the roles of seasonal production swings and gas withdrawals from storage in Russia and in Europe in covering seasonal demand peaks.
The question of flexibility is always important for the gas industry because of the seasonal nature of gas demand. Flexibility is a major concern in Europe because of declining indigenous production which had provided a significant amount of seasonal swing in the past. Historically, the production swing by the Groningen field was key to flexibility in Northwest Europe. With gas output at the field down more than 30 Bcm in just three years, a lot of this flexibility has been lost. European gas imports have grown, but they have a flatter seasonal profile than consumption. Moreover, and not only in the past few years, Europe’s growing call on gas has been met with rising gas imports from Russia, and the seasonal demand swing has been also secured by flexible Russian gas deliveries.
|
Advertisement: The National Gas Company of Trinidad and Tobago Limited (NGC) NGC’s HSSE strategy is reflective and supportive of the organisational vision to become a leader in the global energy business. |
In the past five years Russia acted as a swing gas supplier for Europe. After the lull of 2014-16 in 2017-18 Russia ramped up its gas production and exports to Europe. An obvious, but often forgotten, characteristic of a recovery, however, is that the ability to constrain and then quickly revive production is different from the ability to increase it beyond the previously achieved level. With faster-than-expected European gas market rebalancing and tightening in 2018-19, the question is: will the call on Russian gas exceed available domestic supply in the near term? This brings the issues of production capacity and flexibility of Russia’s gas in meeting Europe’s needs into the spotlight.
Will Russia have enough gas flexibility in the future? Recent research demonstrated that the ‘safety cushion' of massive spare gas productive capacity in Russia has been quickly shrinking1. This paper extends the analysis to the demand side and looks at how Russia meets its own flexibility requirements in the domestic market. Could peak domestic demand for gas in Russia introduce constraints on seasonal export flow flexibility? And what is the best way to address the problem –by upstream investments in additional capacity or downstream investments in storage?
The concerns are exacerbated by ‘Problem-2020’ –the possibility of a major Russian-Ukrainian gas transit crisis (following the expiration of the existing transit contract at the end of 2019) with the risk of an extended cutoff of Russian gas imports to Europe. This focuses even greater attention on the issue of flexibility requirements and gas storage capacity both in Europe and in Russia. In the end, Europe’s choice boils down to three options: to continue relying on Russian gas as the mainsource of flexibility; to focus on imports of LNG; to invest in expansion of its storage facilities; or to use some combination
The aim of this paper is four-fold:
-to research the evolution of flexibility requirement by Russia’s domestic market
-to assess in which proportions Russia has used production and storage to ensure it has enough flexibility on the supply side
-to evaluate the need for additional flexibility in the future
-ultimately, to answer the question as to whether Russia is going to have enough flexibility, or will it face the trade-off between satisfying its own peak demand and responding to possible higher export calls on its gas?
DOWNLOAD the full paper, It Don’t Mean a Thing,If It Ain’t Got That Swing:Why Gas Flexibility Is High on the Agenda for Russia and Europe from the Oxford Institute for Energy Studies
The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.