gas utilization - cmt myanmar oil and gas summit
TRANSCRIPT
Myanmar Gas Utilization - CMT Myanmar Oil and Gas Summit Policy, demand, supply and pricing/Neil Semple September 2013
The Lantau Group
Agenda / Content
Introduction
“Gas shortage?”
Structure at present in Myanmar and suggested liberalization
Suggested upstream changes
Recoverable resources – really that large already?
Myanmar compared to Thailand supply and demand for gas
Sub-sectors - transport and fertilizer
How other countries have done and not done it
Key takeaways
1
The Lantau Group
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3
The Lantau Group
Suggestions for Myanmar on getting gas to market
4
• Separate regulator from sector players
• Improve data dissemination
• Let the price mechanism work – if not now, then in five or ten years reality will catch up
• Offer subsidies directly to less advantaged via handouts
• Regulator will control gas assets
• But allow the private sector to invest and own and operate the assets
• Third party access is best implemented earlier rather than later
Key Take-ways on Gas Utilization
The Lantau Group
Agenda / Content
Introduction
“Gas shortage?”
Structure at present in Myanmar and suggested liberalization
Suggested upstream changes
Recoverable resources – really that large already?
Myanmar compared to Thailand supply and demand for gas
Sub-sectors - transport and fertilizer
How other countries have done and not done it
Key takeaways
5
The Lantau Group
‘”There’s a gas supply shortage”
• Across many parts of the developing world
and in Asia there is often the cry “shortage of
gas”.
• But more often than not it is due to a
breakdown in the pricing signals, or
sometimes due to the incumbent monopoly
blocking gas transportation.
• Or else a strong adverse reaction by the local
government to lift local prices to encourage
production.
• Often we see dis-continuous price / cost
curves all across Southeast Asia, with the
exception of Singapore.
– But they are slowly disappearing.
• So how to avoid going up the same dead end
alley and hampering gas utilization in
Myanmar?
6
Supply
Co
st/
Pri
ce (
US
D m
mb
tu)
Domestic
Supply Curve
LNG Supply
Rent Foregone
Value
Potential
Domestic
Supply Curve
Demand
The Lantau Group
Agenda / Content
Introduction
“Gas shortage?”
Structure at present in Myanmar and suggested liberalization
Suggested upstream changes
Recoverable resources – really that large already?
Myanmar compared to Thailand supply and demand for gas
Sub-sectors - transport and fertilizer
How other countries have done and not done it
Key takeaways
7
The Lantau Group
Present and suggested simplified future structure
• Mixture of referee and player
– Myanmar Oil and Gas Enterprise
• Special status as National Oil Company but still best
to be at arm’s length from the regulator.
• Directly under President’s Office or else Ministry of
Finance, or Ministry of State-owned Enterprises (if
there was one)?
– Hive off pipeline business and introduce third
party access with postage stamp tariff.
– Myanmar Petrochemical Enterprise and Myanmar
Petroleum Products Enterprise
• Already selling off assets.
• Should be at arm’s length from the regulator-to-be.
• Either transfer to another Ministry or else invite in
foreign partners, or sell off assets.
8
Ministry of
Energy
Energy
Planning
Dept
MPPE
MPE
MOGE
Ministry of
Energy
Energy
Planning
Dept
Energy
Regulator
(One stop
shop)
• Add in Regulator to Ministry of Energy
– Would have upstream, midstream and
downstream specialists, some of whom would
transfer over from MOGE, MOEP.
– Would need Energy Industry Act or some other
enabling legislation.
– Capacity building at Regulator would probably be
needed.
The Lantau Group
Agenda / Content
Introduction
“Gas shortage?”
Structure at present in Myanmar and suggested liberalization
Suggested upstream changes
Recoverable resources – really that large already?
Myanmar compared to Thailand supply and demand for gas
Sub-sectors - transport and fertilizer
How other countries have done and not done it
Key takeaways
9
The Lantau Group
Upstream – correct incentives needed, especially for remote onshore
10
• The last set of fiscal terms were not particularly friendly
towards on shore remote areas.
• Need to get companies drilling and especially in deeper likely
high pressure areas onshore.
• Traditional 3+2+2 years is probably not enough time for
onshore remote areas.
• Finding gas onshore will lower the need for gas transmission
build-out.
• Centralize data within MOE from seismic surveys.
• Make this available to all once any area is relinquished.
• Make all seismic available after five years have elapsed as in
Australia, New Zealand and Norway.
Pricing seems broadly aligned with market prices at the moment
with domestic portion of Yadana, Shwe and Zawtika gas at 90% of
ex-platform export prices. But a move to let domestic prices equal
“world” prices in other words referenced to LNG markers might
come later. And LNG prices are changing to have greater linkage
into low cost Henry Hub and National Balancing Point instead of
oil.
The Myanmar Ministry of Energy announced an invitation for bids
for the Myanmar Offshore Blocks First Bidding Round in April
2013. A total of 30 offshore areas were offered, 11 Shallow Water
Blocks and 19 Deep Water Blocks.
Source: Myanmar Ministry of Energy
The Lantau Group
Agenda / Content
Introduction
“Gas shortage?”
Structure at present in Myanmar and suggested liberalization
Suggested upstream changes
Recoverable resources – really that large already?
Myanmar compared to Thailand supply and demand for gas
Sub-sectors - transport and fertilizer
How other countries have done and not done it
Key takeaways
11
The Lantau Group
Recoverable gas resources really this large?
• Most of the proven remaining gas is
contracted to Thailand and China. But some
requirement for domestic sales.
• Yadana is supposed to ramp up to supply 200
mmcfd to Yangon for the domestic market.
• Shwe 50 mmcfd rising to 100 mmcfd for the
domestic market.
• Zawtika 30 mmcfd rising to 60 (or 100?)
mmcfd to the domestic market
• Probable and Possible uncontracted would
amount to 4,000 mmcfd over 30 years, which
perhaps indicates some level of optimism in
probable and possible recoverable resources
– if not then no need for second bidding round
to rush to find gas.
12
Near term and long term gas supplies Recoverable gas resources
0
5
10
15
20
25
30
35
40
45
50
Yadana Yetagun Zawtika Shwe M3, M4,M11
Offshore
Tcf
Proven Remaining Probable and Possible
Source: Myanmar Oil and Gas Enterprise
The Lantau Group
Agenda / Content
Introduction
“Gas shortage?”
Structure at present in Myanmar and suggested liberalization
Suggested upstream changes
Recoverable resources – really that large already?
Myanmar compared to Thailand supply and demand for gas
Sub-sectors - transport and fertilizer
How other countries have done and not done it
Key takeaways
13
The Lantau Group
The scale of the problem ahead – Myanmar compared to Thailand gas supply
14
0
1,000
2,000
3,000
4,000
5,000
6,000
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
mm
cfd
North_Contracted Northeast_Contracted
Gulf of Thailand_Contracted Myanmar_Contracted
Northeast_Uncontracted Gulf of Thailand_Uncontracted
Myanmar_Uncontracted Northeast_Yet-to-find
Gulf of Thailand_Yet-to-find LNG_Spot
LNG_Qatar LNG_Uncontracted
0
1,000
2,000
3,000
4,000
5,000
6,0002
01
0
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
mm
cfd
Onshore Yadana Shwe Zawtika
Source: blend of IEA, EIA and Myanmar Ministry of Energy
The Lantau Group
Scale of the problem – Myanmar gas demand compared to Thailand
15
0
1,000
2,000
3,000
4,000
5,000
6,000
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
mm
cfd
C2+ Industry NGV Power
Source: blend of IEA, EIA and Myanmar Ministry of Energy
0
1,000
2,000
3,000
4,000
5,000
6,0002
01
0
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
mm
cfd
C2+ Industry NGV Power
The Lantau Group
Myanmar - first pass on gas demand supply
16
0
50
100
150
200
250
300
350
400
450
500
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
mm
cfd
C2+ Industry NGV Power
0
50
100
150
200
250
300
350
400
450
500
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
mm
cfd
Onshore Yadana Shwe Zawtika
Demand Supply
Source: blend of IEA, EIA and Myanmar Ministry of Energy Source: blend of IEA, EIA and Myanmar Ministry of Energy
The Lantau Group
Agenda / Content
Introduction
“Gas shortage?”
Structure at present in Myanmar and suggested liberalization
Suggested upstream changes
Recoverable resources – really that large already?
Myanmar compared to Thailand supply and demand for gas
Sub-sectors - transport and fertilizer
How other countries have done and not done it
Key takeaways
17
The Lantau Group
Gas in transport – no need for subsidies if competing fuels at ‘world’ prices
18
0
5
10
15
20
25
30
35
Petrol Savings CNGEquipment
Gas
USD
mm
btu
High Level NGV Conversion Economics
Petrol
Real Levelised Retail Petrol USD/mmbtu 30.0
Calorific Value of Petrol btu/litre 33,000
Real Levelised Petrol USD/litre 1.0
NGV
Levelised NGV USD/mmbtu 19.0
Calorific Value of NGV btu/kilogramme 50,000
Levelised NGV USD/kilogram me 1.0
Fuel Saving
Petrol less NGV USD/mmbtu 11.0
Petrol less NGV USD/litre 0.4
Breakeven Calculation
Fuel Use in Kilometres/litre 14
Saving USD/kilometre 0.03
Average Cost to Convert Car to NGV (USD) 1,500
Breakeven kilometres 58,000
Source : TLG
Source: Myanmar Oil and Gas Enterprise
The Lantau Group
Fertilizer – best to import from countries with low gas prices
19
Ammonia plants, produce 90 percent of the fertilizer used
worldwide, and none have broken ground in the U.S. in more than
20 years.
But in the next three to five years, that could change. Fourteen
ammonia plants proposed in the U.S., with nearly 12 million tonnes
of new capacity expected.
Several older plants are also being re-commissioned and
upgraded.
This boom is driven by low prices for natural gas, the main
ingredient in ammonia production.
Urea prices never recovered to anywhere near 2008 levels,
whereas oil and to a extent LNG have recovered to some extent.
0
100
200
300
400
500
600
700
800
900
Au
g-0
8
Dec
-08
Ap
r-0
9
Au
g-0
9
Dec
-09
Ap
r-1
0
Au
g-1
0
Dec
-10
Ap
r-1
1
Au
g-1
1
Dec
-11
Ap
r-1
2
Au
g-1
2
Dec
-12
Ap
r-1
3
Au
g-1
3
USD
to
nn
e
Urea price
Source: World Bank
The Lantau Group
Agenda / Content
Introduction
“Gas shortage?”
Structure at present in Myanmar and suggested liberalization
Suggested upstream changes
Recoverable resources – really that large already?
Myanmar compared to Thailand supply and demand for gas
Sub-sectors - transport and fertilizer
How other countries have done and not done it
Key takeaways
20
The Lantau Group
Indonesia - PLN’s revenues and subsidies
PLN Revenues from sales and subsidy • The huge fuel subsidy to PLN under the Public
Service Obligation keeps PLN in the black at
the bottom line.
• A direct formal subsidy mechanism like this
would be one option for Ministry of Electric
Power and hence the knock on effect would be
greater ability to pay for higher priced gas.
• We do not see it as a wise use of billions of
USD per year.
• Best to set power at prices that allow the
generator and distributor to make money and
offer handouts direct to disadvantaged sectors.
21
PLN Revenues from sales and subsidy
USD bn
IDR tn 2008 2009 2010 2011 2012
Revenues
from Pow er 84 90 102 112 126.7
Subsidy 78 54 58 93 103.3
USD bn 2008 2009 2010 2011 2012
Revenues
from Pow er 9.3 8.2 11.3 13.2 11.5
Subsidy 8.7 4.9 6.4 10.9 9.4
FX 9,000.00 11,000.00 9,000.00 8,500.00 11,000.00
0
5
10
15
20
25
30
20
08
20
09
20
10
20
11
20
12
USD
bn
Revenues from Power Subsidy
Source: PLN
The Lantau Group
Indonesia - gas prices and supply
• Energy and Mineral Resources Minister Jero
Wacik in May 2012 substantially raised
numerous upstream gas prices.
• He said that the new higher prices were
expected to become a reference, which will
help the oil and gas upstream firms to review
the economies of their oil and gas prospects
and their already found reserves.
• Based on the new price, it is expected that
those previously considered as not economic
will be potential for development. “That
means the sustainability of gas supply will be
more secured,” he added.
• In addition government revenues will be lifted
by hundreds of millions of dollars per year.
• Downstream prices broadly followed suit
shortly after.
22
0.0
2.0
4.0
6.0
8.0
10.0
12.0
20
02
20
04
20
07
20
10
20
11
20
13
0.0
2.0
4.0
6.0
8.0
10.0
12.0
20
04
20
07
20
08
20
10
20
12
20
13
USD
mm
btu
Java delivered gas contract prices to power
Java delivered gas contract prices to industry
Source: Indonesia Ministry of Energy and Mineral Resources, and TLG estimates
The Lantau Group
Indonesia – product subsidies hard habit to break
23
Source: New York Times
USD 21 bn on fuel subsidies and USD 9.4bn to the state power
company. Which is roughly 20% of national budget and in danger
of pushing the national deficit over 3%.
The government spends more on subsidies than it does on social
programs and capital expenditures.
Energy and Mineral Resources Minister announcement in June
2013 that the government has increased the prices of subsidized
premium gasoline from Rp 4,500 to Rp 6,500 per liter (USD 0.60)
and diesel fuel from Rp 4,000 to Rp 5,500 per liter (USD 0.5).
Coupled with this is a hand out program to those actually in need
that live close to the poverty line. But some complain that those
funds do not reach them.
Is facing down the mob part of Myanmar’s energy plan?
The Lantau Group
Malaysia - subsidy habits are hard to break
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
2010 2011 2012 2013 2014 2015 2016
Gas Price MYR mmbtu Gas Price USD mmbtu
(Stalled?) Plan to Move to ‘Market’ Prices
for Domestic Gas in Malaysia
• We would say this is more akin to a move to a cost pass through mechanism such as has functioned quite well in Thailand for many years.
• Petronas at the very least wants recover what it pays for upstream for gas, and any transportation, by charging an average price to the end users to whom it on sells the gas.
• So as we understand it at present this is not a move such that the marginal price, in this case LNG, sets the price for all other gas supplies.
• Back in the early 2000s Petronas with upstream gas prices of the order of USD2 mmbtu was providing an annual gas subsidy of about USD300m a year but as fuel oil and hence gas prices have risen this subsidy between 1997 and 2011 amounted to USD43bn. This has risen to close to USD3bn in 2012.
• Petronas needs funds to develop deep, high pressure, high C02 fields offshore Peninsular Malaysia. It will spend close to USD5bn on the North Malay Basin initiative.
24
The Lantau Group
China – new city gate gas pricing methodology
• PNaturalGas = Discount Factor# x (WFuel Oil x PFuelOil x HNaturalGas* + WLPG x PLPG x HNaturalGas* ) x (1 x VAT)
HFuelOil* HLPG*
• W = Weighting of fuel oil is 40% and LPG is 60%
• # = Discount factor set at 90% for Shanghai
• * = Heating values for fuel oil, LPG and natural gas are 10,000kcal/kg, 12,000kcal/kg and 8,000kcal/m3
• H= Heating value
• P= Prices in Shanghai for fuel oil and LPG
City Gas Prices for incremental gas differ by provinces by subtracting gas transmission costs from the Shanghai
City Gas Price. But it looks to us like there is some also element of fine tuning due to political influences.
25
The Lantau Group
China – new policy on city gate prices
US$/mmbtu
10.1-10.5
10.6-11.0
11.1-11.5
11.6-12.0
12.1-12.5
12.6-13.0
13.1-13.5
13.6-14.0
14.1-14.5
14.6-15.0
10.3
10.8
11.2
11.2
11.6
11.9
12.5
12.5 12.6
12.8
12.8
13.1
13.1
13.7
14.0
14.0
14.0
14.2
14.0
14.0
14.1
14.1
14.2
14.9
14.5
14.0
14.9
14.9
14.9
East Siberia – China West Siberia to
China
Note: City gate prices for
incremental gas supplies under the
new pricing mechanism,
USD/mmbtu
26
The Lantau Group
India – domestic gas pricing policy break-through
27
Natural
Gas
Close to 30 percent of India’s gas needs are met by
imports compared to zero in 2000. Of course gas demand
has risen threefold since then, but the level of imported of
LNG has been more than would have been the case if
higher domestic gas prices were allowed. Licensing
rounds such as New Exploration Licensing Policy did not
get a large response from foreign companies.
New
pricing
policy
June 2013 - Rangarajan Committee recommendations
on Production Sharing Contract (PSC) mechanism in
petroleum industry
• First, the netback price of Indian LNG term imports
(excluding spot imports) at the wellhead of the exporting
countries will be estimated.
• The second method of searching for a competitive price
for India will be to take the weighted average of pricing
prevailing at trading points of transactions – therefore,
the hubs or balancing points of the major markets of
continents. For this, (a) the hub price at the Henry Hub
in the US (for North America), (b) the price at the
National Balancing Point of the UK (for Europe), and (c)
the netback price at the sources of supply for Japan will
be taken.
• Finally, the simple average of the prices arrived at
through the aforementioned two methods will be taken.
Such an overall average of global prices, derived on the
basis of netback and hub/balancing point principles, will
be taken as the economically appropriate estimate of
the arm’s length competitive prices applicable for India.
August 2013 - “ONGC set for spending
spree”
India’s Oil & Natural Gas Corporation
plans to spend over USD$3 billion over
the next few years off the country’s west
coast. ONGC is trying to reverse declining
production which it will be incentivised to do
by higher sales prices.
September 2013 - “Partners win approval for D6 plan of development” India’s Reliance Industries and its partners have won approval for a USD3.2 billion development plan for the D6 deep-water block in the gas-rich Krishna Godavari basin. The field development plan forecasts gas production of 450 to 500 mmcfd for a period of over ten years. These were discoveries waiting for declaration of commerciality for a long time.
The Lantau Group
Vietnam – no domestic non-associated gas contract signed since last decade
• The most extreme example of the vicious
cycle of gas supply constraints.
• There have been several gas sales
agreements with PSC holders and PVN on
associated gas, but the PSC holder makes
the money on the oil.
• Several IOCs have exited Vietnam as some
kind of glass ceiling in pricing or ‘thinking’ was
reached on domestic gas. BP exited and
ConocoPhillips from their blocks 5/2 and 5/3.
• Chevron was on the cusp of an agreement for
B&52 block gas in late 2012 but has since
scaled back staff as negotiations stalled.
• Lack of implementation of a fuel pass-through
mechanism at Electricity Vietnam may make
PVN reluctant to sign up for USD 10 mmbtu
gas.
28
Supply
Co
st/
Pri
ce (
US
D M
MB
tu)
Domestic
Supply
Curve
Non associated
gas & LNG
Supply
Foregone
Value PVN
Rent
Demand
The Lantau Group
Thailand - energy sector structure
• Other decision making bodies are the:
– National Energy Policy Council
– Committee on Energy Policy Administration
– Load Forecast Sub-Committee
29
Ministry of Energy
Energy Policy
and Planning
Office
PTT*
Energy
Regulatory
Commission
Department of
Mineral Fuels
PTT E&P and
other private
sector E&P
companies
Electricity
Generating
Authority of
Thailand* & IPPs
Provincial and
Metropolitan
Electricity
Authorities*
Dept. of Energy
Development
and Efficiency
Note * - most shares or equity held by Ministry of Finance
The Lantau Group
Thailand – where things broadly work quite well
Gas price formula framework provides some upside incentive
Fuel pass through mechanism to power tariffs
• This passes on unavoidable changes in costs of fuel to the end users.
• The National Energy Policy Committee chaired by the Prime Minister approves changes once every
four months……usually.
30
The Lantau Group
Agenda / Content
Introduction
“Gas shortage?”
Structure at present in Myanmar and suggested liberalization
Suggested upstream changes
Recoverable resources – really that large already?
Myanmar compared to Thailand supply and demand for gas
Sub-sectors - transport and fertilizer
How other countries have done and not done it
Key takeaways
31
The Lantau Group
Suggestions for Myanmar on getting gas to market
32
• Separate regulator from sector players.
• Improve data dissemination.
• Let the price mechanism work – if not now, then in five or ten years reality will catch up.
• Offer subsidies directly to less advantaged via handouts.
• Regulator will control gas assets.
• But allow the private sector to invest and own and operate the assets.
• Third party access is best implemented earlier rather than later.
Key Take-ways on Gas Utilization
The Lantau Group
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