The IEA recently published a special report on unconventional gas, ‘Golden Rules for a Golden Age of Gas’, which recommends principles that regulators and companies should adopt to enable full development of unconventional gas to take place.
From the perspective of EU demand for Russian gas, the IEA’s report confirms our view, we believe, that the growth of non-conventional gas in Europe is likely to be slow and that the demand for imports will rise robustly.
Under the IEA’s ‘Golden Rules Case’, EU domestic non-conventional gas supply reaches just 11bcm/a by 2020, or 1.9% of demand. That compares with our stated view that shale gas will not be transformative for Europe. In the IEA’s ‘Low Unconventional’ case, there is no development of shale gas in Europe at all.
The IEA’s report confirms that drilling results in shale gas prospects, on what remains a very early stage process in Europe, have ‘put something of a damper on the initial hopes for a rapid take-off in production’.
The IEA puts the EU’s gas import requirement in 2020 at 432bcm under its ‘Golden Rules Case’, which is close to the 434bcm base import requirement we forecast in deriving our estimated call on Russian gas imports into Europe of 195bcm in 2020.
The IEA assumes a USD 10.5/mmbtu (USD 371/kcm) real gas price view which compares with our nominal medium term forecast of USD 11.4/mmbtu (USD 403/kcm) for the generic oil-linked gas price at USD 95/bbl Brent.
The pressure on Russian gas imports to Europe this year is a combination of weak European demand and Norwegian supply running ahead of the national forecast, which we expect might well reverse. We remain of the view that oil linked contract pricing around the USD 400/kcm mark is sustainable and that Europe is likely to need more, not less, Russian gas in the future.