the economics of transit oil & gas pipelines
TRANSCRIPT
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THE ECONOMICS OF TRANSIT OIL &GAS PIPELINES
Dr. Ekpen J. Omonbude
EMC Energy Market Consultants (UK) Ltd.
NAEE/IAEE Inaugural Conference
ABUJA
April, 2008
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Outline
Relevance of Transit Pipelines
Transit Pipeline Economics: Technical
Factors, Infrastructure Requirements
Transit Pipeline Economics: EconomicFactors
Transit Pipeline Economics: Implications
Transit Pipeline Economics: PossibleSolutions
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Relevance of Transit Pipeline Economics
0 100 200 300 400 500 600 700 800
1981
1991
2001
2005
2006
bcm
Pipeline LNG
Mainly landlockedReserves
Source: BP/Cedigaz
Growth in Cross-border Gas Trade
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0 2000 4000 6000 Miles
$4.00
$3.00
$2.00
$1.00
$/MMBTU
56 Onshore Gas
pipeline (3,100)Two 4 MMT LNGTrains
$0.00
$/BBLOE
$20.00
$10.00
Onshore CrudeLine
Crude Oil Tanker
Relevance of Transit Pipeline Economics
Cost of AlternativeTransportation Methods
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Relevance of Transit Pipeline Economics
Different Players, differing
interests
Lack of an overarching legal
regime
Academic & Industrial
analysis
Problem of rent sharing
Potential for Dispute
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Relevance of Transit Pipeline Economics
Exporter Transit Country Importer
Economic Rent
The RentQuestion
Transit Pipeline
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Transit Pipeline Economics: Technical Factors
Cost plays vital role across value chain
Achieving economic balance between capitalcosts & assoc. costs of pumping/compression
vs. annual operating costs
Load factor: inverse relationship with unittransport cost
Average daily throughput over a year X 100Max throughput on any day in same year 1
Infrastructure Requirements
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Transit Pipeline Economics: Technical Factors
Pipeline Sizing
Confidence that additional volumes will appear+ confidence in load factor levels
Relevant fiscal regime features
Investor Strategy
Policy stand-point of relevant authorities
Other technical factorsEntry specs of pipeline system
Cost of reducing quality (drag reducing agentimpact)
Infrastructure Requirements
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Transit Pipeline Economics: Economic Factors
Pipelines as Natural Monopolies
Huge technical economies of scale imply highcapital costs + low operating costs
Preferable for 1 pipeline between 2 points than
2 or more of same capacity
Economics of Transit
Regulatory aspects
Types & sizes of markets involved
Rent sharingPolitical & diplomatic relations
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Transit Pipeline Economics: Implications
The Transit Fee
Differing views on definition2 key issues in determining rent
Value of project
Cost of project
Role of transit country
It is primarily a bargaining problem
How can shifts in bargaining powers to a cross-border pipeline be managed with positiveimpact on potential disputes & security ofsupply?
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Transit Pipeline Economics: Possible Solution
Motive behind thePipelines
Off-taking by transitcountry
Contribution to theeconomy from transit fee
Alternative PipelineRoute
Political/Diplomatic
Relations
Domestic MarketRelevance
Participation in CostSharing
StrategicInvestment/ FDI
ComplementingPipelines
InternationalInstitutions
Strategic Alliances
TheBargainingOutcome
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