THE FUTURE OF EUROPEAN NATURAL GAS

Transcription

1 THE FUTURE OF EUROPEAN NATURAL GAS Roberto F. Aguilera University of Vienna Department of Economics Hohenstaufengasse 9, A-1010, Vienna, Austria Overview The debate over the availability of natural gas has been nearly as strong as that for conventional oil. In Europe, the debate is strengthened due to the region s dependence on natural gas from outside countries. In addition, concern has been expressed by some energy experts in recent years about an imminent shortage of natural gas from Europe, caused supposedly by dwindling natural gas resources and a peak in annual production. Thus, the purpose of this analysis is to addresses the concern by assessing the availability of natural gas in the region. Figure 1 show a map of Europe divided into petroleum provinces. The provinces with vertical stripes have been given volumetric estimates of natural gas by the United States Geological Survey in their World Petroleum Asessment, henceforth referred to as USGS (2000). There are thirteen provinces for which gas estimates are provided by USGS (2000). In total, Europe can be divided in 62 provinces, thus there are 49 provinces which have not previously been assessed for gas volumes. Table 1 provides a list of name of the previously assessed and unassessed provinces. Table 2 provides the endowment volumes estimated by the USGS (2000) for the thirteen assessed provinces. Endowment volumes as defined by the USGS are equal to known plus undiscovered volumes. The total gas endowment volume for those provinces is estimated to be 796 trillion cubic feet of gas (TCFG). Fig. 1. Sixty two petroleum provinces in Europe. Provinces with horizontal stripes were assessed by USGS (2000). 1

2 Table 1 Assessed and Previously Unassessed Provinces in Europe Region Assessed Provinces Region Unassessed Provinces 1 Europe North Sea Graben 15 Europe Southwest German Basin 2 Europe Vestford-Helgeland 16 Europe Pyrenean Foothills-Ebro Basin 3 Europe Northwest German Basin 17 Europe Irish Sea 4 Europe Anglo-Dutch Basin 18 Europe Hammerfest-Varanger Basin 5 Europe Provence Basin 19 Europe Alps 6 Europe Po Basin 20 Europe Molasse Basin 7 Europe Transylvanian Basin 21 Europe Faeroes-Shetland-Orkney Basin 8 Europe North Carpathian Basin 22 Europe Tuscany-Latium-Paola 9 Europe Pannonian Basin 23 Europe Ireland-Scotland Platform 10 Europe Carpathian-Balkanian Basin 24 Europe Adriatic Basin 11 Europe German-Polish Basin 25 Europe West Black Sea Basin 12 Europe Bohemia 26 Europe Sicily 13 Europe Munsterland Basin 27 Europe Baltic Shield-Norwegian Caledonides 14 Europe Mid-North Sea High 28 Europe Svalbard High 29 Europe Anglo-Paris Basin 30 Europe Aegean 31 Europe Iberic Cordillera 32 Europe Alentejo-Guadalquivir Basin 33 Europe Central Barents Platform 34 Europe Midland Valley-Forth Approaches Basin 35 Europe Massif Central 36 Europe Lion-Camargue 37 Europe Baltic Depression 38 Europe Aquitaine Basin 39 Europe Horda-Norwegian-Danish Basin 40 Europe Rhine Graben 41 Europe Spanish Trough-Cantabrian Zone 42 Europe Barents Continental Slope 43 Europe Dinaric Alps 44 Europe Jura 45 Europe Tajo-Duero Basin 46 Europe Troms-Bjornoya 47 Europe Hatton-Rockall Basin 48 Europe Fennoscandian Border-Danish-Polish Margin 49 Europe London-Brabant Platform 50 Europe Armoricia 51 Europe Trans-graben 52 Europe Bresse Depression 53 Europe Apulia Platform 54 Europe Dobrogean Orogen 55 Europe Corsican-Sardinian Basins 56 Europe Tyrrhenian Basin 57 Europe Iberian Massif 58 Europe Galician Basin 59 Europe Lusitanian Basin 60 Europe Crete 61 Europe Betic Zone 62 Europe Andalucia Table 2 Natural Gas Estimates for Assessed European Provinces Cumulative # of World Provinces Gas Endowment Province Name N t (TCFG) TOTAL North Sea Graben Vestford-Helgeland Northwest German Basin Anglo-Dutch Basin Provence Basin Po Basin Transylvanian Basin North Carpathian Basin Pannonian Basin Carpathian-Balkanian Basin German-Polish Basin Bohemia Munsterland Basin

3 Methods The methodology used in this study relies on a recently developed Variable Shape Distribution (VSD) model (see Aguilera, 2006) that estimates the endowment volumes of natural gas in European provinces that have not previously been assessed. The VSD is a statistical method known as size distribution analysis. These types of models have been very successful in complementing geological techniques used to estimated natural resources in previously unassessed areas. Figure 2 shows a size distribution graph with number of provinces on the vertical axis and province size on the horizontal axis. Typically, nature s endowment of oil and gas resources has been modelled with an assumed lognormal or the Pareto (fractal) distributions (see Kaufman, 1962; Mandelbrot, 1982). In fact, all previous size distribution methods have been based on an assumed form of the size distribution of oil and gas resources. The VSD model is different because we use non-linear regression to generate a curve that gives the best fit of actual data instead of specifying the size distribution relationship beforehand. The model is then run on additional provinces that were not previously assessed. Fig. 2. Lognormal curve and Pareto (fractal curve). Adapted from Barton (1995). When the Pareto (fractal) curve is displayed on a graph with log log coordinates, a straight line results (see Figure 3). On this type of graph, the largest assessed provinces tend to form a straight line before curving to the left as the province size decreases. The Pareto line is fitted over these large data points and is extended to some arbitrary minimum volume. The area between the straight line and the observed oil and gas data represents the unassessed volumes of oil and gas. Experience shows that this Pareto method tends to overestimate actual resources, while the lognormal distribution tends to underestimate them (see Drew, 1997). 3

4 10000 Fractal curve Cumulative Number of Discovered Fields Undiscovered oil and gas Discovered oil and gas Limit of economic perceptibility Field Size, in mmboe Fig. 3. Pareto (fractal) curve on log log coordinates. Adapted from Barton (1995). This paper does not show the development or details of the VSD models. For comprehensive coverage of the VSD, see Aguilera (2006) and Aguilera et al. (2009). However, this paper does present the results of the VSD model for the case of natural gas in Europe. Results Figure 4 shows the thirteen European provinces for which USGS (2000) provides gas volumes. The data is plotted on a log log graph showing number of provinces versus the size of the provinces. A straight (Pareto) line has been placed over the largest provinces, which approximate a straight line. As mentioned earlier, the total gas volumes for these provinces is 796 TCFG. 4

5 Fig. 4. Number of European provinces versus size of provinces. Data from USGS (2000). Figure 5 shows the estimated VSD curve for the thirteen provinces. As can be seen, the visual fit is very good, with an R 2 of In addition, the volume given by the curve, 796 TCFG, is the same as the estimate presented by USGS (2000). Given this validation, we can now run the VSD model for the previously unassessed provinces. Fig. 5. Number of European provinces versus size of provinces. Data from USGS (2000) and VSD model. 5

6 Figure 6 shows a new VSD curve for all sixty two European provinces, including those previously not assessed. The estimated gas volume for these provinces is approximately 1,403 TCFG. Figure 7 shows an additional curve that takes into account reserve growth. Reserve growth is defined as the increases in volumes of previously assessed areas, often due to technological advancement. In this case, reserve growth accounts for an increase in volumes of 55.91%. The figure is calculated from the estimated gas reserve growth presented in USGS (2000). However, in that study, reserve growth only applies to known volumes. In this study, reserve growth applied to previously unassessed volumes as well. This is because it s possible that even previously unassessed volumes will experience the growth that comes from developments such as improved recovery factors. The volume estimated by the new curve, including reserve growth, is 2,188 TCFG. Fig. 6. Number of European provinces versus size of provinces, including previously unassesed provinces. Fig. 7. Number of European provinces versus size of provinces, including previously unassesed provinces and reserve growth. 6

7 The volumetric estimates provided by the VSD model are next combined with production costs to construct cumulative availability curves for natural gas from Europe. These curves, first proposed by Tilton and Skinner (1987), show how the fixed stock of natural gas varies with prices or costs for all time (see Figure 8). This is different than a traditional supply curve, which shows flow variables (for a specified time period) that can continue from one period to the next (see Figure 9). Price ($ / bbl) Cumulative Quantity (bbl) Fig. 8. Cumulative availability curve representing stocks for all time. Price ($ / bbl) Quantity (bbl / year) Fig. 9. Traditional supply curve representing a specified time period, such as a month or year. Figure 10 shows two cumulative availability curves. The first shows the gas endowment volume of natural gas in European countries, including volumes from previously unassessed provinces, versus average total production costs (capital plus operating costs). The gas endowment volume generated by the VSD model for sixty two provinces, 1,403 TCFG, is distributed proportionally by country according to the proved reserves of each country (EIA, 2009). The second availability curve includes reserve growth, which shifts the curve to the right by the reserve growth factor of 55.91%. The volumetric and cost data used to generate the curves is presented in Table 3. 7

8 Table 3 Natural Gas Volumes and Costs by Country Location Gas Gas Endmt Gas Gas Endmt Average Average Average Total Endowment plus Reserve Endowment plus Reserve Capital Operating Production (TCFG) Growth (TCFG) (BBOE) Growth (BBOE) Cost Cost Cost (2008US$/BOE) (2008US$/BOE) (2008US$/BOE) Gas Growth = 55.91% Gas Growth = 55.91% Albania Austria Bulgaria Croatia Czech Republic Denmark France Germany Greece Hungary Ireland Italy Netherlands Norway , Poland Romania Serbia Slovakia Spain Turkey United Kingdom TOTAL: 1, , Sources Compania Espanola de Petroleos Sociedad Anonima, CEPSA (2005) Deutsche Bank (2009) United States Geological Survey (2000) Variable Shape Distribution (VSD) model Wood Mackenzie ( ) 8

9 Fig. 10. Cumulative supply curves for European natural gas. Conclusions Results of the study indicate that the quantity of natural gas in Europe is greater then often assumed. This is due to the tendency for concerned experts to overlook the significant volumes that may exist in previously unassessed provinces. Many analysts also tend to overlook significant volumes that may come from the important factor known as reserve growth. In addition to this result, the endowment volumes of natural gas can be produced at costs that are economic at current market prices. Compared with mid-2008 prices, the production costs are substantially lower. These results suggest that natural gas in Europe should last longer than many concerned experts claim. This result, together with the finding that the natural gas endowment in the region can be produced economically, should assist in ensuring security of gas supply in Europe. References Aguilera, R.F. (2006). Assessing the Long Run Availability of Global Fossil Energ Resources. PhD Dissertation, Colorado School of Mines, Golden, CO. Aguilera, R.F., Eggert, R.G., Lagos, G., and Tilton, J.E. (2009), Depletion and the Future Availability of Petroleum Resources, Energy Journal 30 (1): Barton, C.C. (1995), A New Approach to Estimating Hydrocarbon Resources, United States Geological Survey Fact Sheet, 9

10 Compañía Española de Petróleo Sociedad Anónima CEPSA (2005). Personal Communication with H. Quiroga. Deutsche Bank (2009), The Cost of Producing Oil. London: Deustche Bank AG, Global Markets Research. Drew, L. J. (1997), Undiscovered Petroleum and Mineral Resources, Assessment and Controversy, New York and London: Plenum Press. Energy Information Administration (2009), Natural Gas Proved Reserves. Washington, D.C. Kaufman, G. M. (1962), Statistical Decision and Related Techniques in Oil and Gas Exploration, Englewood Cliffs, NJ: Prentice-Hall. Mandelbrot, B. B. (1982), The Fractal Geometry of Nature, San Francisco, CA: Freeman. Tilton, J.E. and Skinner, B.J. (1987), The Meaning of Resources. In D.J. McLaren and B.J. Skinner, eds., Resources and World Development. New York: John Wiley & Sons. United States Geological Survey (2000), World Petroleum Assessment, CD-ROM. Wood Mackenzie ( ), Upstream Asset Analysis Reports. 10