Developing Natural Gas Markets
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Transcript of Developing Natural Gas Markets
DEVELOPING NATURAL GAS MARKETS
Subbu Bettadapura
Research Manager, Energy Practice, Frost & Sullivan
October 2008
2
Table of Contents
DEVELOPING NATURAL GAS MARKETS
Issues and Challenges
Key Drivers
Strategic Options to Develop Natural Gas Markets
Role of Regulators
1
2
3
4
3
21st Century - Age of Natural Gas
"The Asia-Pacific region is projected to become the largest consumer of oil and gas; If the 20th century was the age of oil, then the 21st century is poised to become the age of natural gas"
Chevron Asia Pacific Exploration and Production
5
Proved Gas Reserves (in Trillion Cubic Meters) in the Asia Pacific Region at the end of 2007
TOTAL: 14.46 TCM
Source: BP
Malaysia: 2.48
Indonesia: 3.0
China: 1.88
Bangladesh: 0.39
Australia: 2.52
India: 1.06Myanmar: 0.60
Brunei: 0.34
PNG: 0.44
Pakistan: 0.85
Thailand: 0.33
Vietnam: 0.22
1TCM=35.3TCF
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
RussianFederation
Iran Qatar United ArabEmirates
Nigeria
44.65
27.8 25.6
6.09 5.3
TCM
Issue: Gas Reserves Distribution in the region
6
ISSUES AND CHALLENGES
Source: BP
Issue: Low level of gas consumption in Asia
• Lack of pre-existing gas user culture
• Larger Investments required to build gas transport systems
• Location of resources
• Lack of gas pricing mechanisms
7
ISSUES AND CHALLENGES (2)
Source: BP
0%
20%
40%
60%
80%
100%
Austra
lia
Bangl
ades
h
China
China
Hong
Kong
SARIn
dia
Indo
nesia
Japa
n
Mal
aysia
New Z
ealan
d
Pakist
an
Philipp
ines
Singap
ore
South
Kor
ea
Taiwan
Thaila
nd
Other
Asia
Pac
ific
Total
Asia
Pac
ific
Hydro electric
Nuclear Energy
Coal
Oil
Natural Gas
• Issue: Natural Gas in the Primary Energy Mix – Potential to Grow
2007
8
Power Generation Mix – ASIA, 2007
Source: Frost & Sullivan
Coal Nuclear + Coal + Gas Gas
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Chin
aIn
dia
Philippin
es
Indon
esia
Chines
e Tai
pei
South K
orea
Japan
Mal
aysia
Thaila
nd
Vietn
am
Pakis
tan
Bangla
desh
Singap
ore
Other
Nuclear
Hydro
Natural Gas
Oil
Coal
ISSUES AND CHALLENGES (3)
9
ISSUES AND CHALLENGES (4)
Challenge – High Cost of Developing Infrastructure
• Capital intensive projects requiring huge investments
• Escalating construction cost
• Sizeable market demand required to break even
Pluto Gas ProjectWestern AustraliaWoodside PetroleumProject Cost = $ 11.2 billion
Initial cost estimates = $ 6 billion to $ 10 billionSales Contracts: Kansai Electric and Tokyo Gas
First Gas Delivery: 2010
Platong Gas 2 Development ProjectThailandChevron, Mitsui and PTT E&PProject Cost, Initial estimates = $ 3.1 billionProject Start-up Q1, 2011
10
ISSUES AND CHALLENGES (5)
Policy issues: Establishment of regulatory framework
Mobilization of capital; encouraging domestic and foreign capital
Infrastructure development
Subsidies
Establishing synergies with town gas and other sectors
Industry structure and level of competition
12
NATURAL GAS – MARKET DRIVERS
Government Policies
Energy Security
Infrastructure Development
• Source diversification
• Market Regulation
• Tariffs
• Subsidies
Environmental Impact• Drive for cleaner fuels
• Emission standards
• Growth in Energy Demand
• Reduction of dependence on oil
• Ensuring energy security
• Developing strategic storage locations
• Gas based power generation
• Gas distribution network
• Competitive Scenario
14
STRATEGIC OPTIONS
• Development of Infrastructure – LNG Terminals, Transnational/Cross-country Pipelines, Gas Distribution Network
• Markets develop rapidly once infrastructure is in place
• Develop long-term economic relationships with natural gas producing countries
• Develop demand – Gas based power generation, development of other
markets such as fertilisers
• Gas based power plants act as an anchor for natural gas demand. Other markets grow over this base demand
15
Demand from the power sector is crucial during the initial stages of a LNG
project to make the project viable
Power sector provides a base demand allowing secondary
markets to develop
Secondary Markets Develop (gas for industries/domestic
fuel)
TIME
LN
G
DE
MA
ND
Initial demand from power projects crucial to kick-start the LNG
market
The LNG markets in Japan and South Korea were kick-started by the power sector
Source: Frost & Sullivan
STRATEGIC OPTIONS (2)
16
STRATEGIC OPTIONS (3)
• Promote clean environment scenario
• Enforce stringent norms for meeting emission standards
• Gas based power generation
• Promote use of Natural Gas Vehicles (NGVs), especially for public transportation system
• Create awareness on global warming
• Plan for natural gas introduction in areas with no infrastructure
• Identify emerging energy centers
• Promote gas based technologies in these areas
17
STRATEGIC OPTIONS (4)
• Natural gas expansion plan to be linked with government policies
• Expand natural gas use as raw material and energy source
• Promoting use in industries
• Promoting residential and commercial use. Town gas infrastructure development
• Expand to vehicular segments
• Encourage natural gas technological knowledge in the supply chain
• Production, transportation, processing, distribution
• Vertical integration of gas based services
19
ROLE OF REGULATORS
• Unbundling market activities
and eliminating the monopolistic
structure in the market helps develop transparent and
competitive natural gas markets
• An independent regulatory and
supervisory system is
necessary to develop and
expand the natural gas market
Market
reforms and
liberalization
Unbundle
market activities
Regulation necessary
20
ROLE OF REGULATORS (2)
• Provide a stable, transparent & reliable regulatory regime
• Development of policies and infrastructure to foster market growth
• Ensure competition
• Competition is necessary for market development – Independent regulatory authority is required to ensure level playing field for all competitors
• Improve efficiency thereby lower costs
• Ensure security of supply
21
ROLE OF REGULATORS (3)
• Licensing
• Licenses for import, export, transmission, storage, distribution, etc
• Market Surveillance
• Regulate tariffs – ensure reasonable prices
• Regulate third party access to the system
• Monitor performance and service standards of gas companies
• Protect consumer rights
• Evaluation of subsidy policies
22
ROLE OF REGULATORS (4)
• Monitor cross-border trade
• Co-operation with other regional regulating agencies
• Regulate foreign investment