Austria After Russian Gas: How Central European Gas Markets Have Changed | Christoph Zehetner, Inercomp

Gives him a warm round of applause, thank you. So thanks for having me, actually the title was not been chosen by myself but I have been asked to present about this. I was a bit surprised that there was not any question about the Strait of Homer or like Qatari volumes, but in the end I have to touch them as well, these things are all interrelated. I mean that gas is interrelated with everything else has already been shown in the last presentations, because I think each of the previous speaker has already touched that gas topic to some extent. So now for me, I will try to focus only on that gas topic. So with focus on the title, let's start with looking at what has changed with the Russian pipeline flows to Europe. And this would be the picture starting from end of 2021 till basically last week. And what we can see is that the total volumes from Russia basically dropped from around 3 terawatt hours per day down to around 0.5 terawatt hours per day. The different colors you're seeing is different transportation routes, pipeline routes, over which these Russian volumes have been transported to Europe. The yellow and the red areas is basically the North Stream volumes, which already dropped before the sabotage of the pipelines. Afterwards, they basically went to zero. On the top, you're still seeing the gray parts. This was the Polish volumes, like basically volumes which went via Belarus and Poland till Germany. They have also already stopped mostly before the start of the conflict. And then we are having like remaining this blue and green areas. Blue is the volumes which ran via the Ukraine and landed in Austria, so basically in Baumgarten. So the blue areas, this is basically the core topic of the session today. The green volumes, this is the Turk Stream. And these volumes are still running. According to European legislation, by the start of 2027, no LNG volumes from Russia are supposed to arrive in Europe anymore. And latest, by October 2027, also these volumes are supposed to stop. So this was basically start Russian volumes. Now looking at the bigger picture. So we are going to compare the European primary energy mix before the stop of the Russian flows and now afterwards, basically looking at the last year. And this is how it is looking. So natural gas before the Russian conflict was representing around 25%, so one quarter of the total energy supply of Europe. And this is also indicating one of the major problems that Europe has. Because still to this day, natural gas is representing around 20% of our total energy consumption. And if we combine oil and gas plus the imported share of coal and nuclear power, then it's close to 60% of the total energy consumption which Europe is importing. So I think that Lukas Pataki touched this topic that apart from decarbonizing our economy, the build out of the renewables is also a question of getting more independent from all that imported volumes. In the end, we have reduced the share of natural gas in our energy mix by around 3%, which is basically all, oops, sorry. Which is also basically the same share that the renewables increased. The rest is very similar. Also, like one number I haven't added on the slide, but I've just checked it today in the morning. Overall, from 2021 to 2025, the primary energy consumption of the European Union went down by 9%. So we also did have some efficiency gains or we lost some industries, whatever it is then. So the last slide basically showed us that even though we saw this record high gas prices, it's impossible for Europe to get rid of that gas, at least in such a short period of time span. So the question is, if we are not getting this Russian volumes, like how else can we get this gas to Europe? So this is why we are going to look at the infrastructure. So this is the Jamal Peninsula, where the majority of the Russian gas which came to Europe was produced or was extracted. These are the three different routes or basically four different routes which we have looked at in the first picture. So this is basically the Nord Stream. We are having this Polish-Belarusian pipeline. This is the Ukrainian-Slovakian which arrived to Baumgarten in Austria. And this would be the Turk Stream. Apart from this, Europe has other pipeline import possibilities, obviously from Norway, which is by far the most important supplier in these days. We have some volumes from Azerbaijan, some from North Africa, but that's it. All the pipelines apart from the Russian ones are basically running according to the full capacity. There is not much room to improve the volumes there. I mean, we would need new gas fields from the exporting countries and investments into the pipes in order to increase those volumes. So the answer, like how could we substitute that Russian gas is obviously the LNG terminals. So this is all that blue points you are seeing here at the shores of Europe, which are LNG import terminals. And something I will also show later, we have also invested in those ones. So we did increase the LNG import capacity over the last few years. So looking at the total gas consumption of Europe once again, and like now looking at how do we cover this consumption. We are starting once again in the year 2019, so way before the conflict. And we can see that this gray share here, this is the total Russian volumes which we have received in the past. So in 2019, Russia was still responsible for 40% of the total, covering the total gas consumption of Europe. The black part here, without numbers, this would be the US volumes. So they did play a very minor role in the past. Norway, always rather stable, was responsible for around 20% of our consumption. This is the North African flows coming from Algeria and Libya, landing in southern parts of Europe. And this red area, this is the Qatari volumes, also playing a very minor role in the European gas supply. So since that, what happened in 2022 already, the gas consumption in Europe went down. And the Russian volumes were decreasing a lot. And already in 2021, the share of the US volumes did increase. Now, if we move fast forward to the current days, the gas consumption in Europe went down further. So basically, around 20% over the last six to seven years. And the Russian volumes are now like below 10%, at least if we're looking at the pipe volumes. The Norwegian share increased. It's not that the Norwegian volumes didn't increase, but the share increased due to the reduction of consumption. And this is the US share. So in the last year, the US was now responsible for 25% of our total LNG imports. Also interesting to look at the own production. Also a topic which I will briefly touch in the end. So we can see that despite the decreasing trend of consumption, the own production is going down even further because the share is decreasing. So the own production of natural gas in Europe is decreasing faster than the decrease of the consumption. Which is obviously increasing our import demand. Good. So now looking at this LNG import capacities and also like how we used it. The turquoise line on the top, this is basically the maximum import capacity for LNG across the European shores. And while this has been below seven gigawatt hours per day before the start of the conflict, we have slowly and steadily increased this capacity. Most of these additions were coming from Germany. I mean, they have basically invested in the three floating storage and regasification units. But also in other countries, additional LNG import capacities have been built. Namely also Italy and France. And the bottom part is basically showing us how much LNG are we importing per day. The red lines are showing us the annual average. And this is basically like the daily imports. So if we're looking at these numbers, we can see that yes, the LNG imports did dramatically increase. So basically from around 2,500 gigawatt hours per day up to more than 4,000 over the last years. Only 2024 was a bit of the odd one out. But this was mostly related to a very warm winter before that. So we went out of that winter with nearly full gas storage facilities. So we just had less need for that gas. And if we're looking at the current year, we can see that there is not such a big decrease yet compared to the previous years. This is mostly coming from the rather cold winter in the last year. So like the higher volumes, which we have seen in the December, January. Now in the last few weeks and months, we can see that there was a decrease at least compared to the last year. I think it's also interesting to focus that I think Europe was over ambitious when it's coming to investing into LNG import capacity. Because if we are looking now at, for example, let's say from 2024 onwards, never ever we have used more than two thirds of our import capacity. So I think there was a bit of panic also on the policy side and there was a bit of too much investment into these terminals. Anyway, the importing terminals are not a limiting factor when it comes to the gas supply to Europe. It's the availability of the gas in the form of LNG, but it's not a problem when it's coming to the capacity which we have for importing. So what else has changed now after the loss of the Russian pipeline flows? For this, we need to look at prices and we need to look at European and Asian gas prices. So this is the price development for natural gas in Europe represented by the TTF. And we are going to compare it with the JKM LNG index, both of them looking at the front months product. And I've also highlighted the start of the wars. One thing which is interesting is that, I mean, whatever we are seeing now as gas price development is nothing compared to the year 2022. The second thing which I would like to highlight needs a bit of a zooming in. So what I did is it's the same chart like which we have seen on the left side. I'm going to show here now, but with cut it axis in order to look more in detail. This is interesting. In January 2021, which was shortly before the decrease of the Russian volumes, we can see that Asia showed an immense price spike. So the JKM price went up to nearly 60 euro per megawatt hour, while the European price remained rather stable at 25. So what happened at that time was it was extremely cold in Japan. Japan had to cover its heat demand by natural gas imports. They also had problems with the nukes at that time. And what happened there was the competition between the Asian buyers. And the reason that European prices didn't go up in the same extent is because we had the Russian pipeline flows. So we could give up on LNG imports at least for a certain amount of time. So it allowed these Russian volumes in the past allowed Europe to not be so dependent on the global gas market. And not having this full price convergence. So now if we are looking after the start of the Ukraine war and the dependency of Europe on that LNG volumes, you don't really see that price gaps between Europe and Asia. And it's also something which we wouldn't expect to happen in the next years to come. Because as long as LNG volumes are a scarce commodity, there is always this competition between Europe and Asia for the same volumes. So as long as Asian prices are increasing and we are not going to keep up with their prices, then we are simply not receiving LNG volumes anymore. And we cannot cover our energy demand. This is now also a picture to basically demonstrate what I've mentioned before. What you're seeing is a global map and each orange point is one LNG tanker. In the end, there is four big exporting regions. One is Australia. You can see the two big export terminals on each side of the continent. And they are mostly heading towards Asia due to the shorter transportation routes. The second thing would be the Gulf of Persia. Also those volumes in the past mostly headed towards Asia since the transportation distance was shorter than to Europe. Then we have the US, which in December, which was a rather cold December in the last year, was sending most of the LNG volumes to Europe. In the months of December and January, Europe got around 80% of the total exported volumes of the US. And the last one would then be Russia. Being here once again at the Jamal Peninsula, they are mostly sending it to Europe in the winter and to Asia in the summer. In the winter, it's very difficult to get to Asia for Russia. It would basically need to go all the way around. So now if we are looking at how is this picture looking now, this is basically two or three weeks ago, the picture is looking very different. Because these volumes are not being shipped anymore due to the Strait of Hormus conflict. And Asia still needs to cover their gas demand. So what they are doing is they are buying it from the US. They are basically willing to pay as much as needed in order to attract those US volumes to go to Asia and not head towards Europe. So the missing volumes of Qatar for Asia has been substituted by US volumes. And in the months of August, Europe received only around 30% of the total LNG volumes of the US. So a completely change of the share. And these US volumes, they don't have loyalty or they don't have any kind of designated target. These volumes, like these LNG tankers, are going to be filled up at the shores of the US. And whenever they are filled up, they are going to look at what is currently the price in Europe, what is the price in Asia, what are the transport costs and where do I make high contribution margins. And wherever they are making more money, this is where they will be heading. So this would be it now regarding the total European picture. Now I'm more heading towards Austria. I mean, in the end, it's also like one of my last points at the conclusion. For Austria, it's way more important what is happening in the total European gas market than what is happening locally. We are in very much interconnected markets with a very high price convergence. So this is basically now looking at the cross-border flows between Austria and neighboring countries in order to understand what has changed since the loss of the Russian volumes. Slovakia was the entry point for these Russian pipeline flows, which landed in Baumgarten. And we can see that in this year 2020, 2021, we received up to 35 terawatt hours per month, which is obviously way more than Austria needed to cover its own demand. In those years, Austria had around 90 terawatt hours, 90 to 95 terawatt hours of annual gas consumption. But we received around 35 per month, so around five times that volumes which Austria needed. And in that time, also Austria obviously didn't export any volumes to Slovakia. Now if we are looking in the last two years, Austria is even exporting some smaller parts of its gas volumes towards Slovakia. What else happened? Austria was basically working as a hub for this Russian volume. So we basically did receive all these volumes from Slovakia, but we didn't use all of it. So we basically forwarded to other countries. So this basically flows from Italy to Austria. Also in the past, none of this flowed, like no gas was flowing from Italy to Austria, but it was the other way around. So basically most of the gas which Austria imported from Russia and didn't consume by itself was forwarded to Italy. So out of that 35 terawatt hours which we have received from Russia, around 25 to 30 have been re-exported to Italy. And even to this day, even though Austria is not, doesn't have a shore and doesn't have an LNG import terminal, we are still exporting some volumes to Italy. This is something I will explain afterwards. So these two pictures are basically showing the most important things for Austria. It's basically what happened after the loss of the Russian pipeline flows is basically all other flows changed. The question is how is Austria now covering its gas demand and now we need to look at Germany. So once again, there is, in the past, there have even been in the winter times, there were moments where Austria was exporting gas to Germany. So some of these Russian flows also went to Germany, but only to a minor extent. Also in the past, Austria did mostly import from Germany. This was also Russian flows. It was basically Nord Stream flows or flows which came via Poland or Belarus to Germany. And some of those volumes have been forwarded to Austria. Now, if we are looking at this picture, now in the last years, Austria is mostly covering its demand from imported flows from Germany. So in the end, this is Norwegian and LNG imports from Germany, which are then forwarded to Austria. In the last few years, the total, also I will show this on one of the next slides, the total gas consumption of Austria also went down. So in the last three years, it was between 75 to 80 terawatt hours. And we are mostly covering this from the imports which we are having from Germany. And I remember in the year 2024, before the stop of the Russian flows, there have been quite a lot of news or voices in the Austrian media which were very, how to say, hysterical. Like, there were voices mentioning that Austria will have gas prices of 80 euros plus once the Russian flows are stopping, which was already before just bullshit. Because in these markets, we have interconnected prices. So, there was already a clear idea, like, if Austria is not receiving these Russian flows, then the only thing which will happen is we will be slightly more expensive than all our neighbours in order to attract those flows which we need to come into Austria. And this is also the picture which we are seeing now. So this is the current forward market prices for the frontier for Europe. I think the picture is now from last Friday. So it's a week old. Now we are already again slightly higher because we are still in this very strong upward trend for natural gas. But this is the picture. It's basically gas in Europe is having a very similar price level. Lukas Pataki already mentioned that earlier. Like, gas in Europe is basically the same apart from transportation costs and price area differentials which are needed in order to incentivise those flows to get to the countries which need the gas. So gas is the cheapest where we have most of LNG terminals, so for Spain and France. And it's getting more expensive towards the east. And Austria is just slightly more expensive than its neighbouring countries in order to attract those flows from Germany and to some extent, if possible, also from Italy to head towards Austria. Good. What else? Own production. The majority of the own production in Europe is decreasing. In Austria, we did have quite some interesting news last year because the OMV basically started a new gas field in the Weinfiertel. I think also in the media it's very difficult to understand relations and to put that into perspective because it was quite some big news, but it was neglecting how small that share of this own production is in reality. So this is the numbers which have been published by the OMV. So we have like 1,100 gigawatt hours per year, which is the expected production from this new gas field. And it's supposed to last for around 10 years. Later on, there is a second phase and then there is supposed to be even more gas flows. All in all, we are talking about 48 terawatt hours of recoverable gas reserves. Now to put that into perspective, looking at the total gas consumption in Austria. So we have, once before I already said, between 75 to 80 terawatt hours is the annual gas consumption in Austria. The red bars here are showing us what is currently being covered by own production. So we are talking around 5% roughly, at least in the year 2025. And now if we add 1.1 terawatt hours per year, it hardly even changes the percentage of what we can cover with our own consumption. So yes, Europe is lacking resources, specifically when it's coming to fossil fuels. So renewables is basically the only way to reduce that dependency. What else? Yeah, one last thing. Two slides, then I'm done. I think Tobias Frederico already mentioned the backwardation of the forward curve. So like if we are looking into the year 2030 gas prices are about half of the level which we are seeing for the front year 2027. And this is the main reason. It's basically a list of LNG export terminals which have already been through the final investment decision. Most of them are already being under construction and many of them are already in the ramp up phase. So, oops, sorry. Golden Pass is already being ramped up. They have already started the first chips. Corpus Christi is already starting its first chips. And these colors which you're seeing is basically indicating in which year they are supposed to start their operation. So in the current year 2026, if all these terminals are coming online expected, it's around 1000 terawatt hours. To put that into perspective, the Qatari volumes have been 1200 terawatt hours per year before the Iran conflict. And this is not the end because the next few years there is a lot of more LNG terminals supposed to come online. And the International Energy Agency is once per year publishing their World Energy Outlook. And they even had a chapter with the title, Where Will All the LNG Go? So before the start of this Iran conflict, there was the expectation that the world is going to be draining in LNG volumes. Do you all, I mean, it's also pretty obvious, it's like this Schweinezyklus. The last four years, these exporting regions have made shitloads of money by selling their gas way over the cost to Europe or Asia. And all these money was, or a lot of these money was then again put into new investments for new products. So in the next years, gas will not, next years, let's say in two to three years, gas will not be a scarce commodity anymore. Unless we're having again geopolitical conflicts. Coming to my conclusion. One thing is, without Russian pipeline flows or a substantial decrease of the European gas consumption, we will be very much depending on LNG imports. And this is going to last quite some years until we get less dependent on this one. The ongoing expansion of this global LNG import and export terminals has led to a very strong price conversion across global gas markets. This is now referring to the picture which I've shown where I'm comparing European with Asian prices. It's very important to understand it's basically impossible for European gas prices to not follow the Asian price development and vice versa. So whatever is happening in China will have an impact on European gas prices. If China is seeing the coldest winter in the last 10 years, it will cause a skyrocketing of our prices as well. Because it's going to increase their LNG import demand. They are going to be willing to pay more for it. And if Europe is not following these prices, then we are not getting these volumes anymore. So we are in a global gas market and we are not going to be decoupled from these Asian prices. A similar thing is happening within Europe. So also like all these investments in cross-border pipelines which Europe has undertaken in the last 20 years, has led to a strong convergence of the European prices. So prices in Europe for natural gas will be at a very similar level with the difference of just a few euros. And those euros will determine where the gas is flowing. And then there is this last maybe slightly positive outlook. Gas supply is supposed to get better despite whatever is happening with the Strait of Hormus because all these terminals, not all of them, but most of them are being built outside of the Persian Gulf. So there is going to be a significant increase of that global LNG gas supply, which is supposed to dampen the prices again. And as Tobias Frederico said, if you're looking at a very long-term forward curve, we are seeing gas prices which are already under the full, like the level of costs of this gas production. Thank you. Thank you very much, Krishat. Are there any questions from the floor? Yes, there's a couple of questions actually. So... Lukas. Thank you very much for the presentation. I have one question on the shipments from Qatar, because you have also shown there are more LNG projects coming online in Qatar. But knowing that Iran might be always a risk, is there any official planning of building a pipeline around Dubai to Indian Ocean from Qatar? Not that I'm aware of. I mean, I've just recently... Actually, I'm also teaching at university, and I had students from Iran who told me something I was not aware of, that before the start of the Syrian war, there have been plans to build pipelines from Iran via Syria to Europe. So basically, there was the idea of creating an additional pipeline system directly from Iran to Europe. But actually, I'm not aware that there is currently any plans like this. I mean, for oil... It was way easier for Saudi Arabia to bring out their oil than the LNG from the Persian Gulf. So Saudi Arabia, for example, is currently transporting lots of their crude oil through a domestic pipeline from the west of Saudi Arabia towards the... Ah, sorry, from the east of Saudi Arabia towards the west. And now they can export currently still around 50% of the crude oil which they have exported before the start of the conflict. But for natural gas, it's completely different. Yeah. A little more. So, yeah. So, yeah. Max Klotz from Ökostrom. I would be curious what is currently actually happening with the Russian gas, all the Russian gas from Jamal Peninsula now since the pipelines are not filled. And so, what is happening now? And what is a scenario in a potential peace scenario, like a timeframe that these quantities are coming back to the market? How can they come back? And how is that already reflected in the forward market? Mm-hmm. I mean, what's happening with the Russian volumes? Some of it is being transported as LNG instead of pipelines. So, on the Jamal Peninsula, there is this Arctic LNG terminal. So, Russia has the possibility to export some of the volumes which before went via pipelines to Europe. Now, they are basically selling it via LNG. So, that's the funny part of it. The Russian LNG volumes in Europe increased over the last years while the pipeline volumes basically went to zero, close to zero. The rest of the volumes, they basically stopped production extracting it because they have no other possibility to get it to a buyer. Russia was basically also planning to increase the LNG export capacities, but actually this is like one of the points where the sanctions helped. It's very difficult for Russia to build LNG terminals without Western companies. They tried with China, but actually it seems like they are lacking on the technological level on that point. When it's coming to the return of Russian pipeline flows, I think this is a purely political question. I think it's depending a lot on the pain which Europe is suffering economically. I mean, it's also something which one of the previous speakers already mentioned saying like, is it really better that we are so depending on the US instead of Russia? As a personal opinion, and please, it's a very personal opinion. I would love to have Russian pipeline flows for Europe to be able to basically arbitrage between those different suppliers. Like, Europe is making itself all, bringing itself into a very weak position. We are always depending on the exporters. If we would have all these importing waste, then we are the one who can determine prices. But once again, it's a very political and moral question which I'm happy to discuss when we are having food. For sure. It can be written books about all those topics, of course. So, good luck in the discussions during lunchtime. Yes. Continue on that. So, thank you very much, Christoph, for your contribution here today. Thank you. Very, very informative and good. Thank you very much. Yeah, thank you, Christoph. And to you, Christian. We are rushing to...