Interview: Jérôme Ferrier - President of the IGU
"Natural gas is better than other fossil fuels"
Due to the 20th Anniversary of the Slovak Gas and Oil Association, Mr. Jérôme Ferrier - President of the International Gas Union - took part in its annual conference. In this interview he presents his view on issues like increasing gas-on-gas competition, the missing global gas market or LNG trading as a tool leading to a convergence of regional gas prices. Ferrier proposes modification to the Emission Trading System and explains the unique position of natural gas within the COP. Moreover, he openly admits that natural gas is not a perfect energy source. It is however the best among other fossil fuels.
|Jérôme Ferrier (right) and Jozef Badida |
(c) Daniela Bartošová
"Actually, I was elected not in 2012 but already in 2008. The continuity process requires the election of the IGU’s President four years in advance of his/her mandate. Why? Simply because he is able to adapt, prepare and learn in the course of the following three years in the position of Vice-President. Not surprisingly, I already know my successor - American David Carroll who is together with the Immediate Past President - Datuk Rahim Hashim part of the IGU’s Council. Therefore, the whole engagement takes not three but nine years.
Concerning my career, I’m an engineer and a gas man. I was involved for a long time within the French and International Oil and Gas Company - TOTAL. However, the share of gas should increase due to our projects in Australia and Russia. During part of my career I worked in Africa and Southern Europe. I took responsibility over subsidiaries active in transmission and storage. Afterwards I moved to Latin America and was in charge of TOTAL’s assets for three years. When I returned to Paris in 2008 that was the opportunity to prepare and present my candidacy...
Besides the position within the IGU, I am also the President of the French Gas Association."
According to the IGU’s report the price formation mechanism has changed significantly in the last seven to eight years. One of the biggest shifts has been noticed in Europe typically featured with oil indexed gas contracts. Nowadays its gas volumes traditionally linked to oil prices have shrunk (from 78 percent in 2005 to 50 percent in 2012) while the share of gas on gas competition has increased (from 15 percent in 2005 to 45 percent in 2012). How would you explain this change?
“There are probably two main reasons visible in the last ten years. The first one is connected with the crisis and opening of the market. It is clear that the gas consumers and buyers need to be more reactive. In the good old days you had incumbents, one per country, and it was easier to anticipate the needs and negotiate over the long-term period. The gas business is highly capital-intensive but unlike the oil sector it is less flexible. When you discovered a field in good conditions fifteen years ago, you normally signed a long-term contract with a rate of return making your investment profitable.
The second reason for the more flexible gas agreements is the share of liquefied natural gas (LNG). It gives us an opportunity to make an arbitrage in the same way as with oil provided that you have enough LNG terminals. Nowadays, this condition is fulfilled and for instance, TOTAL’s LNG supplies originated in Yemen have been reoriented from the USA to Asia.”
Taking into account issues like security of supply, would it be possible and proper for Europe one day to catch up with the North American gas market which is almost completely (99 percent) based on spot trading?
“If you want to reach 100 percent spot market you need (i) a sufficient level of infrastructure - interconnectors, LNG facilities, underground storages, (ii) an almost perfect market without bottlenecks and with the possibility to choose at any moment the origin of your gas and (iii) over-capacity. Although bottlenecks are also present in the US environment, it is still the nearest to these perfect conditions. The key word is autonomy of the US natural gas market. Today they are able to avoid even the Canadian LNG supplies now heading to other parts of the world. Unfortunately, the European gas market doesn’t meet these predispositions...
On the other hand, it is also a question of security. In Europe, we are mostly focused on the security of supply but what about the security of demand? Investors developing fields and bringing huge investments need some kind of certainty. So, at the end of the day, we will have to keep at least part of the long-term agreements.”
Natural gas prices differ significantly across the world. Europe and Asia Pacific recorded the highest average wholesale prices in 2012 ($11.00 and $10.50 per MMBTU). In the same period, North America enjoyed an enviable average price below $3.00 per MMBTU. This regional price differentiation only confirms the non-existence of a global gas market. Do you see LNG as a decisive tool contributing to the creation of a global gas market?
“You are absolutely right; there are three different regional gas markets. Moreover, in Asia we should distinguish between producing countries like Malaysia and Indonesia and highly import-dependent states like Japan and South Korea - Japan pays $17.00 per MMBTU. Personally, I have doubts whether such significant price differences are here to stay. I don’t believe in their total equalisation but at least in some kind of convergence. And LNG could really be this converging instrument. Many companies are investing in LNG infrastructure with the commissioning period in 2015-2017. Therefore we will see an enormous growth of LNG trade in these years.”
However, is it useful for Europe to invest and build new regasification LNG terminals, for example in Krk (Croatia) or Swinoujscie (Poland), if we know that the US LNG carriers will most probably be heading to the more attractive Asian market?
“Yes, it is, because the North-South corridor with those two facilities is a strategic gas line not only for economic but also for political reasons. Its aim is to be comfortable in terms of security of supply and to share the supplies among neighbours. It is another concept and I am relatively confident about those two projects. It could also be a tool to negotiate better conditions with traditional suppliers.”
The EU politicians regard backloading as an instrument helping us to survive the Emission Trading System (ETS). After its endorsement by the European Parliament, the ball is in the court of the Council of the EU. If it is signed off, this measure will most probably encourage a carbon price hike - thus improving the profitability of gas fired power plants but also worsening the competitiveness of some European industries. At least from a short-term point of view. What would you recommend to the Ministers attending the respective EU Council session and why?
“Today Europe is passing through a critical phase and we are obliged to pay attention to the industrials. We need to be pragmatic. I consider the US and probably UK decision to split between power generation and industry correct. Surely, potential higher prices or penalties are unacceptable for industry. We must be supportive. From the other point of view, power generation means final customers like you and me. More ambitious measures could be taken if people want to support policy respecting the environment, accept more renewables and are ready to pay. That is the rule. The electorate has to choose the policy and at the end of the day it has to pay for it.
Therefore my recommendation is YES to backloading and the resuscitation of the ETS, but only with regard to power generation. Energy-intensive industry has to be excluded from the ETS. Some industries, such as ceramics and glass, cannot overcome higher CO2 prices. This division is possible; it is a regulatory, not completely liberal, system. Look how absurd the situation is in Germany, they are on the top of the list in terms of the deployment of renewables and at the same time they build and re-open coal power plants increasing their CO2 emissions...”
The shale gas revolution in the USA has been able to happen due to hydraulic fracking. However, this process generates a lot of environmental concerns among the people. How could ‘fracking’ influence the future of the natural gas industry, provided that social acceptance is becoming crucial for any energy project?
“Frankly speaking, the future of natural gas is not only linked to unconventional gas. Conventional gas reserves reach roughly 130 years.
|It is important to deliver this message – the future of natural gas is not dependent on the production of shale gas, tight gas or coalbed methane|
To return to your question, we do not deny that there are some problems linked to fracking, although the level of sensitivity is varying from state to state. It is also our concern in the IGU, that is why we have created a new committee on Research and Innovation dedicated to these issues. However, it is not only the shale gas production – fracturing but also the matter of leakages or flaring. People don’t talk about them but we are conscious of their existence and we would like to solve them.”
The International Energy Agency (IEA) and IGU anticipate an increased share of natural gas in the global energy mix in coming decades. On the other hand, the 5th Climate Report of the IIPC has recently revealed serious threats concerning global warming caused by CO2 emissions. Don´t you think fighting climate changes could be in contradiction with your positive estimations once we know that the combustion of natural gas also produces carbon?
“Well, natural gas advocated by the IGU is the only energy accepted by the environmentalists. We are frequently invited to conferences to share panels with them. They agree that natural gas represents the cleanest fossil fuel but they also have queries about the mentioned leakages. Therefore, we have to be honest and open.
|We have the future, not as a bridge or destination fuel but as a part of the future|
|Jérôme Ferrier (56): President IGU |
- VP Senior Total Gas & Power
- 10 years with IGU (1987-1997)
- President of subcommittee storage (1991-1997)
- Director of the board of the French Gaz Association (1995-2002)
- Very extensive experience with Total in worldwide natural gas activities
Published with kind permission of Slovgas – Slovak gas journal.