Integrated gas and electricity markets in Asia …some issues and observations
19
Integrated gas and electricity markets in Asia …some issues and observations Mike Thomas October 2008
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Integrated gas and electricity markets in Asia …some issues and observations. Mike Thomas October 2008. Objective. Characterise the landscape, in broad terms, in which gas and electricity markets in Asia, would need to operate - PowerPoint PPT Presentation
Transcript of Integrated gas and electricity markets in Asia …some issues and observations
Integrated gas and electricity markets in Asia…some issues and observations
Mike ThomasOctober 2008
2 Private and Confidential
Objective
• Characterise the landscape, in broad terms, in which gas and electricity markets in Asia, would need to operate
• Look at the issue from the perspective of security of energy supply (Malaysia)
• Look at the issue from the perspective of investor (Singapore)
3 Private and Confidential
Landscape
• Asia is diverse, economically, culturally, politically and geographically
• Independent, economic regulation is not common
• Infrastructure and economic development rather than investment optimisation
• Primary fuel resources are regionally abundant but generally concentrated
• End-user pricing is often regulated independently of costs and allocated risks
• Fuel supply security has been, and will remain, a major driver
Markets-based approaches have pre-requisites for success, many of which are not yet present
4 Private and Confidential
China’s challenge – relocating energy
Source: SP Info Network, BP, CRA’s research
Sichuan Basin10Tcf
East China Sea Basin
Junggar Basin 2Tcf
Qaidam Basin 3Tcf
Ordos Basin 2TcfTarim Basin 13Tcf
Major power consumption area
Major hydropower resources
Major wind field area
Major coalfield area
Major oil & gas fields
Bohai Bay Basin 5Tcf
Yinggehai Basin 6Tcf
Songliao Basin 2Tcf
Power flow direction
- 82% of coal deposits in north & southwest, 67% hydropower in southwest
- Over 70% energy consumption in central & coastal regions
- Mismatch of major load center & fuel resource locations
- Rely on major fuel delivery & power transmission networks
- Power flow WE, NS
5 Private and Confidential
China’s power generation-reference scenario (IEA, 2006)
dated
6 Private and Confidential
Elsewhere, in Asia, however, the story is very different
• Gas
– Australia (LNG)
– Indonesia (LNG and via pipe to Singapore
– Malaysia (LNG and via pipe to Singapore)
• Coal
– Australia
– Indonesia
– Vietnam
• Gas
– Japan (AP LNG)
– Singapore (ex Indonesia and Malaysia)
– S. Korea (AP LNG)
– Taiwan (AP LNG)
• Coal
– Japan
– Malaysia
– Philippines
– Singapore
– S. Korea
– Taiwan
Import Gas or Steam Coal for Power
Export Gas and Steam Coal for Power
The many depend on the few…
7 Private and Confidential
Gas is the major fuel source in three notable countries
• These countries are interconnected, electrically and via gas pipelines, but energy exchanges are contractual and predominately uni-directional
– Singapore buys gas from Indonesia and Malaysia
– Malaysia and Thailand jointly develop certain reserves in a Joint Development Area (JDA)
• Gas is a minority power sector fuel source (<30%) elsewhere in Asia
0%10%20%30%40%50%60%70%80%90%
100%
Malaysia Singapore Thailand
Oil
Biomass
Hydro
Coal
Gas
8 Private and Confidential
Thailand / Malaysia / Singapore / Indonesia
• Malaysia is a net gas and oil exporter, but via Sabah, not Peninsular Malaysia
– Peninsular-dedicated supplies are depleting / New reserves are smaller, more expensive
– Growth in non-power sector demand has forced a cap on gas to the power sector
– Imported coal is currently the main alternative fuel resource
• Singapore has no energy resources
– Imports gas via pipelines from Malaysia and Indonesia
– Malaysian source is depleting
– Energy resource security is a vital economic development consideration
– Plans to commission an LNG terminal in 2012 to enable LNG imports to supplement contracted piped gas supplies
– Proposals to build coal-fired capacity have been raised
9 Private and Confidential
Both power sectors are at a crossroads
• With limited domestic gas available, Malaysia can:
– Import coal
– Import LNG (from itself or globally)
– Develop massive interconnection to Sarawak and develop large scale hydro resources
– Develop nuclear power
• Singapore has an electricity market, but needs to ensure fuel supply security
– LNG terminal offers supply sourcing flexibility/storage
– Supplements connections with Malaysia/Thailand and Indonesia
– Support LNG uptake by imposing PNG import moratorium
– Completing with privatisation of gencos
10 Private and Confidential
The steam coal export market is highly concentrated
Actual (A); Projected (P)(millions of short tons) 2005A 2006A 2007P 2008P
Australia 123.1 124.8 127.4 128.6
China 73.2 64.9 59.5 55.1
Indonesia 127.7 181.8 180.9 183.4
Vietnam 14.1 25.9 21.6 17.4
Approximate Regional Steam Coal Exports 338.1 397.4 389.5 384.5
Percent Australia 36% 31% 33% 33%
Percent Indonesia 38% 46% 46% 48%
Percent Australia + Indonesia 74% 77% 79% 81%
Sources: Annual Energy Outlook 2008, Scenario aeo2008, d030208f, April 2008, DOE/EIA-0383(2008)
Plenty of coal in the ground, but not many countries to buy it from…
11 Private and Confidential
Pricing
Coal Import Prices in US Dollars/tonne
0.00
20.00
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1987 1990 1993 1996 1999 2002 2005 2008
US
D/t
on
ne
Northwest Europe marker priceJapan steam coal import cif price
US Central Appalachian coal spot price index globalCoal RB Index (South Africa)
globalCoal NEWC Index (Australia)JPU
Platts Markers K1 (5900 GAR) (Indon)Platts Markers K2 (5000 GAR) (Indon)
Coal prices have moved similarly to other fossil fuels
12 Private and Confidential
With depleting peninsular reserves, Malaysia could utilise LNG
• Malaysia is a major Asia Pacific exporter of LNG, and so could always supply to itself
• But at what opportunity cost?
13 Private and Confidential
Singapore is an emerging champion of LNG importation
LNG Parity Pricing?PNG ONLY
???Constrained imported gas;
Increasing oil-basedgeneration
LNG available totop-up importedgas volumes and
support new entry
LNG+PNG
Commissioning of LNG terminal
End of existing imported gas contracts
TIME
2012Now
14 Private and Confidential
Impact of oil pricing on electricity asset value in Singapore (2)
Company Net Revenue: Gross Revenue - Fuel Cost - O&M ($m)
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$m
PowerSeraya SenokoPower TuasPowerWith limited gas, increasing demand requires more oil-fired generation. Gas-fired combined cycle units capture rent
LNG later displaces higher cost oil generation
LNG
High OilCase
Pro
fitab
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15 Private and Confidential
Impact of oil pricing on electricity asset value in Singapore (1)
Company Net Revenue: Gross Revenue - Fuel Cost - O&M ($m)
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PowerSeraya SenokoPower TuasPowerIf oil prices are lower, then pre-LNG rents vanish!
Low OilCase
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LNG
16 Private and Confidential
Focusing on spreads….even if crude oil prices stay the same, spreads on crude products change
Company Net Revenue: Gross Revenue - Fuel Cost - O&M ($m)
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HSFO p
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17 Private and Confidential
Company Net Revenue: Gross Revenue - Fuel Cost - O&M ($m)
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PowerSeraya SenokoPower TuasPower
Focusing on spreads…HSFO
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Versi
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18 Private and Confidential
Summary
• China has the potential to benefit most from an integrated electricity and gas market, but has other challenges first…
• Uneven resource endowments elsewhere in Asia is beginning to spur interest in creative solutions
• LNG has selective, but important, prospective application in the power sector in Asia, particularly as smaller gas resources deplete
• The asset valuation and wealth transfer implications of gas/electricity integration are complex and easily overlooked
• Thailand/Malaysia/Singapore/Indonesia is an ideal corridor for gas/electricity sector development and trading, but net benefits are not yet sufficiently clear
19 Private and Confidential
Mike ThomasVice President
CRA International1902 A Tower Two Lippo Centre89 QueenswayAdmiralty, Hong Kong+852 9226 [email protected]
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