development of markets · xls: book1\sheet1. 6. potential opportunities for adding value to...

$: Development of Markets · XLS: Book1\Sheet1. 6. Potential opportunities for adding value to associated gas in order to develop its markets. Processing Facility Processing. Facility$
Development of MarketsDr. Larry SongBruce Burke

Beijing, China 30 October – 1 November 2007

Methane to Markets Partnership Expo

2

AgendaAgendaAgenda

Overview of associated gas flaring and venting

Associated gas monetization options

Market development requirements

Case studies• West African Gas Pipeline for power generation• CNG for urban clean fuels • Gas to chemicals

Investment climate

Conclusions

3Source: The New York Times (2007)Source: The New York Times (2007)

4

Associated gas – an energy source that is too valuable to be wasted Associated gas Associated gas –– an energy source that is too valuable to be wasted an energy source that is too valuable to be wasted

Large supply of low-cost natural gas gives the Middle East

a substantial competitive advantage

North America$6.4

South America$2

Western Europe$7.3

Russia$1.3

North East Asia$6.5

South East Asia$2

Middle East$0.75

West Africa$0.50

North Africa$1.00

Major Markets

Exporter of Methane Derivatives

Direction of Methane Derivatives Trade Flow

GLOBAL NATURAL GAS COSTS (Q2 2006, US$ per mm BTU)

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Top gas flaring / venting countriesTop gas flaring / venting countriesTop gas flaring / venting countries

Source: U.S. National Oceanic and Atmospheric Administration, FiSource: U.S. National Oceanic and Atmospheric Administration, Final Report to the World Bank (2007)nal Report to the World Bank (2007)

Significant improvement has been achieved over the past 20 years

Gas Flared / Vented (2006)

0

5

10

15

20

25

30

Russia Nigeria Iran Kazakhstan Iraq Algeria Libya Angola Saudi Arabia China

bcm

XLS: Book1\ Sheet 1

6

Potential opportunities for adding value to associated gas in Potential opportunities for adding value to associated gas in order to develop its marketsorder to develop its markets

Processing

Facility

Processing

Facility

Associated Gas

Methane

NGL’s for

Petrochemicals

Exports (LNG/CNG/Pipeline)

Liquid Fuels (GTL/MTBE/DME/Others)

Ammonia (Fertilizers/Others)

Methanol (Formaldehyde/Acetyls/Others)

Methanol (MTO/MTP)

Energy UsesEnergy Uses

Chemical UsesChemical Uses

This presentation will focus on gas-to-power, CNG as urban fuel and gas-to-chemical markets

Local FuelPower

Local FuelPower

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Associated Gas

Monetization Options

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Pipelines are the most mature and developed form of gas transportation

Gas pipeline projects are highly capital intensive

Generally pipelines are more economic than LNG below 2000 km

Significant fixed cost component

Economics are highly volume dependent (economies of scale)

Successful pipeline development requires:

• Sustainable market size

• Competitive pricing of gas

Pipelines are typically used to distribute gas for distances Pipelines are typically used to distribute gas for distances within 2000 kmwithin 2000 km

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CNG - compressed natural gasCNG CNG -- compressed natural gascompressed natural gas

Compressed gas – 100 to 170 bar & -17 to 5 deg C

Being used as bus/taxi fuel in major cities but uses existing gas supplies

Particularly attractive concept as gas can be loaded onto a vessel directly from the field or processing plant and delivered to off grid power plants and industrial users

Low infrastructure costs - no need for specialized liquefaction or regasification terminals

Logistics flexibility – can use barges, vessels or trucks

More cost effective than LNG or pipelines for modest gas volumes (3 to 15 million Nm3/d)

Would enable monetization of small stranded reserves (< 60 bcm)

Scalability good – just add more vessels

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GAS CONSUMPTION FOR ELECTRICITY GENERATION

Gas-to-powerGasGas--toto--powerpower

0

100

200

300

400

500

600

700

800

900

1975 1980 1985 1990 1995 2000

Billio

n Cu

bic M

etre

s

Gas consumption for electricity generation is continuing to increase steadily

Combined Cycle Gas Turbines are increasingly the technology of choice for electricity generation

Capital and operating costs are lower than alternative fuels

Development flexibility

Environmentally friendly

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Market Development Requirements

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Issues to be addressed in order to develop gas markets and promote their growth Issues to be addressed in order to develop gas markets and Issues to be addressed in order to develop gas markets and promote their growthpromote their growth

Economic incentives to support the investments needed in producing, capturing, transporting, and utilizing methane

Policy, legal and regulatory framework• Property rights of methane

• Tariffs

• Multi-country collaboration and regional integration, if cross border

Access to pipeline transportation

Access to power grid

Access to distribution channel of product value chain

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Case Studies

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WAGP – Associated Gas to Power

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GHANA TOGO

BENIN NIGERIA

Tem aRegulating & Metering Station

Takoradi Regulating & Metering Station

Mainline560 km x 18”/20”

CotonouRegulating & Metering Station

Lom eRegulating & Metering Station

Onshore Pipeline 56 km x 30”

Existing ELP Pipeline

Alagbado Tee

Lagos BeachCompressor Station








Alagbado Tee









Alagbado Tee









Alagbado Tee


WAGP – a cross-border pipeline that transports associated gas from Nigeria to its three neighboring countries for power generation WAGP WAGP –– a crossa cross--border pipeline that transports associated gas from Nigeria border pipeline that transports associated gas from Nigeria to its three to its three neighboringneighboring countries for power generationcountries for power generation

The pipeline will be operational shortly

TOGO

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N-Gas

GasSupply

Agreement

GasSupply

Agreement

NNPC/SPDCJV

NNPC/ChevronJV

IPP

Host Government

ConcessionAgreement

Gas SalesAgreement

Power DistributionCompany

Power PurchaseAgreement

EPC ContractPlant Supplier

NGC

GasTransportation

Agreement

WAPCo

GasTransportation

Agreement

Gas-to-power chain involves government, international agencies, financial institutes, oil companies and power distributors, etc GasGas--toto--power chain involves government, international agencies, power chain involves government, international agencies, financial institutes, oil companies and power distributors, etcfinancial institutes, oil companies and power distributors, etc

The complexity of the gas-to-power chain, and multiple cross-border agreements, required extensive negotiations

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WAGP’s tariff structure was tailored to ensure project successWAGPWAGP’’ss tariff structure was tailored to ensure project successtariff structure was tailored to ensure project success

RELATION OF REAL TARIFFS TO RESERVED CAPACITY (reserved capacity in MMBtu/day (RH axis))

RELATION OF REAL TARIFFS TO RESERVED CAPACITY (reserved capacity in MMBtu/day (RH axis))

0.0

0.5

1.0

1.5

2.0

2.5

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026050,000100,000150,000200,000250,000300,000350,000400,000450,000500,000

Fdn Reserved Capacity Std Reserved Capacity Real Std TariffReal Fdn Tariff Real Ind Dev Tariff

Sponsors early on tabled a scheme to:• Take market growth risk• But with a floor rate of return• All stakeholders benefit as

pipeline fills• Foundation customers

compensated for risk• Special tariff for industry

Economic efficiency requirement added to judge Pipeline Development Plan options – Weighted Average Tariff

Excess profits limited by tariff formula and pipeline capacity

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Lessons learned from WAGP for gas-to-power market development Lessons learned from WAGP for gasLessons learned from WAGP for gas--toto--power market power market developmentdevelopment

Major success• USAID-funded technical assistance to the governments of Ghana, Benin,

Togo and Nigeria resulted in over $600 million of private sector investment

• The pipeline will take formerly flared or vented gas from Nigeria and transport it to Benin, Togo and Ghana for power generation, replacing heavy fuel oil

• The use of flared/vented gas significantly reduces greenhouse gas emissions

• The WAGP is expected to result in a reduction of greenhouse gas emissions of 100 million tons (CO2 equivalent) over twenty years

• Novel tariff model creates win-win environment for economic efficiency• Strong political support and regional integration• Strong vote of confidence by project sponsors, participants and World

Bank• Will add stability to country power grids, supporting creation of a

regional power market structure

West Africa Gas Pipeline – delivering reliable energy supplies to West Africa

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CNG for Urban Clean Fuels

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Natural gas, including associated gas, was pipelined to Mumbai and New Delhi for use as CNG for transport and city gas Natural gas, including associated gas, was pipelined to Mumbai Natural gas, including associated gas, was pipelined to Mumbai and New Delhi for use as CNG for transport and city gasand New Delhi for use as CNG for transport and city gas

Ahmedabad Bija ipur

Kakinada

Uran

Delhi

Myanmar-Bangladesh-Ind ia

Iran-Pakistan-India

Turkmenistan-A fghanistan-Pakistan-India

CNG & City Gas

Hazira

CNG & City Gas(Gujarat)

EnnoreMangalore

Cochin

Dahej

CNG &City Gas

Onshore pipe line s Offshore pipe line s

Planned Ka kinada-Uran Existing LN G Terminal Planned LNG Ter mina l

HBJ & Spur l ines

Poten tial impor t pipe line

Onshore pipe line s Offshore pipe line s

Planned Ka kinada-Uran Existing LN G Terminal Planned LNG Ter mina l

HBJ & Spur l ines

Poten tial impor t pipe line

Mumbai

Key Market Drivers

Environmental

Fuel substitution

Energy security

Energy conservation

Job creation

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Lessons learned from Mumbai and New Delhi market development for urban clean fuel Lessons learned from Mumbai and New Delhi market Lessons learned from Mumbai and New Delhi market development for urban clean fueldevelopment for urban clean fuel

Combination of judicial intervention, incentives and pricing is critical

Advanced planning and co-ordination between various agencies is essential

A firm plan for introduction of clean fuel should be laid down explicitly specifying the vehicle categories to be targeted

Infrastructure at the gas supply level and vehicles and equipment should be in place• Adequate number of CNG stations should be in place ensuring proper spread and

taking into account the vehicle mix and needs

• Conversion kits, equipment, spares, etc. should be available

Safety norms should be in place

Strong inspection and maintenance regime should be in place

Vehicle conversions should be undertaken by trained/approved workshops

Availability of adequate CNG vehicles and CNG refuelling stations must be in place

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Gas to Chemicals

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Ammonia and other commodity chemicals are ideal for converting associated gas to high value market products Ammonia and other commodity chemicals are ideal for Ammonia and other commodity chemicals are ideal for converting associated gas to high value market productsconverting associated gas to high value market products

PROJECTED GLOBAL PRODUCTION BY REGION(2010, percent)

N. America9%

W. Europe7%

Middle East9%

Other30%

Asia-Pacific45%

Final product is easier to transport to market

Projected growth higher in Asia though still below GDP

Large market size means around 4 new plants required per year

41 million tons per year of new capacity is expected to be required by 2020

Indian production facilities have historically been based on naphtha as a feedstock but some are switching to gas

Middle East investments will leverage low natural gas costs, integrated ammonia units and low delivered costs to Asia

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Urea made from ammonia can be easily shipped to consumer markets Urea made from ammonia can be easily shipped to consumer Urea made from ammonia can be easily shipped to consumer marketsmarkets

PROJECTED INTER-REGIONAL NET TRADE(2010, thousand tons per year)

-6000

-4000

-2000

0

2000

4000

6000

N.America

W.Europe

MiddleEast

Other Asia-Pacific

thou

sand

tons

per

yea

r

Net Exports Net Imports

Middle East and other gas rich regions in Latin America, Russia/Eastern Europe and Caribbean will provide surplus urea as exports to large Asian and North American deficits• China will continue as the

world’s largest producing country though India is projected to be in deficit

• Middle Eastern trade flows will target large volumes into India and smaller volumes into Pakistan and smaller South Asian markets

• Latin American and Caribbean exports will go to North America

Middle East will become the world’s urea supplier

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Investment Climate

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Good investment climate is essential in order to attract investors and to pay back infrastructure development cost for utilizing wasted gas Good investment climate is essential in order to attract investoGood investment climate is essential in order to attract investors and to rs and to pay back infrastructure development cost for utilizing wasted gapay back infrastructure development cost for utilizing wasted gass

Advantages of private sector participation• Less capital constrained

• Have right level of skills and experiences

• More efficient and can implement projects faster

Regulatory framework for private sector participation• Rules and regulations pertaining to safety, environment, land use, etc.

must be in place

• Fiscal incentives to reduce upfront cost

– Tax concessions

– Depreciation allowances

– Advantageous pricing structure

– Subsidized loans and/or other financing opportunities

• Regulatory stability and sustainability

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Potential private sector participation optionsPotential private sector participation optionsPotential private sector participation options

BOTs (Build, Operate and Transfer)

BOOTs (Build, Operate, Own and Transfer)

Annuity scheme

Special purpose vehicles

Management contracts

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Conclusions

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Market development for associated gasMarket development for associated gasMarket development for associated gas

There are multiple options for developing associating gas for local and world markets

Projects tend to be large and high capital, although some smaller options have been successful

Policy and regulatory framework are critical for successful market development

Economic incentives are often needed initially, but projects need to be economically viable to be sustainable

Government has to help create right investment climate to attract private sector participation

development of markets · xls: book1\sheet1. 6. potential opportunities for adding value to...

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