"by Anouk Honore"

The Problem

Predicting the future is always problematic and a complex matter, forecasting the future shape of Europe’s gas markets over the next ten to twenty years for Europe’s decision makers, some would say is an almost impossible task!
For instance, forecasting future gas demand is full of unknowns, including the shape of prices, the impact of improvements in energy efficiency, the timing of Europe’s economic recovery to when rival coal and nuclear power plants will come on stream, since such capacity investment will have a negative impact on gas demand.

On the supply side, similar imponderables exist for European forecasters.

What is this book about?

The writer attempts to answer two very difficult questions. The first is why gas demand predictions are invariably incorrect and the second is whether the future of gas balances in Europe will continue to be constrained.

This book is divided into three sections, the first examining the underlying demand trends in the European gas market. The second part reviews and comments on the challenges that face natural gas supply and the last part investigates the issues facing the gas market in matching demand with supply.


What is certainly unique about this book is that it focuses on actual demand for gas, I agree with the author too many forecasts fail because they don’t look at the hard evidence on the ground, for instance, are investors actually building the power stations that will consume the predicted gas required, once completed in say five years’ time.


What were some of the problems identified?

In the first part of this book, one comes to realise what a complex difficult task it is for forecasters to make useful predictions. It does not help that despite in theory, Europe is supposed to be a single energy market for gas; it is more accurate to say it consists of several regional markets, which experience disparities in behaviour. Nor does it help that gas demand in the residential, commercial and industrial sector is maturing, it is only in Europe’s power generation sector that gas demand continues to grow a pace.

In the second part of the book, the writer raises the important point that availability of gas supplies is just as vital as capacity. The recent series of Russian Ukrainian gas disputes is a classic example between the issue of capacity and actual access to supplies. It is not surprising that Moscow has backed Nordstream, so as to bypass the Ukraine gas network in deliveries to Europe. However, it has taken over a decade for Nordstream’s backers to initiate construction of this pipeline project. It is not surprising given the long time lines involved the market has been favouring LNG schemes over new pipeline projects.

The Third part examines what the market scenarios could be by 2020; the writer suggests that Europe will need to look for additional gas supplies from elsewhere from 2014 onwards, perhaps from European unconventional gas development. However, the future provides many important challenges for the forecaster, including the timing of the EU's economic recovery, the impact of European energy policies, the timing of completion of new coal and nuclear power stations.

What are the main recommendations?

In conclusion, the author has made a bold attempt to research the underlying trends that affect the complex issues that affect the current state of Europe’s gas market. This work should provide an adequate basis for further research for market analysts reporting on this very intricate subject. No doubt, future forecasters using this book should be able to produce more realistic prognostications in the future.

Notes:

Published by the Oxford University Press for OIES

£50.00 Hardback, 978-0-19-922653-5, 438 + xlix pages, 234 x 156mm

To order please email margaret.ko@oxfordenergy.org

57 Woodstock Road, Oxford OX2 6FA UK

Telephone: 44 (0)1865 311377 Fax: 44 (0)1865 310527

e-mail: information@oxfordenergy.org

http://www.oxfordenergy.org

Anouk Honore joined the Oxford Institute for Energy Studies in 2004. She is a Senior Research

Fellow in the Natural Gas Research Programme. Her research at the OIES focuses on the European region, particularly market fundamentals (supply and demand) and power generation.

Before joining the Institute, she worked at the International Energy Agency on natural gas policies in the Member and non-Member countries. Dr Honore holds a PhD in Economics from Universite Paris-Sud 11.57