The Rise of Gas to Power in Asia and the Impact of the Power Industry on LNG   April 11 th , 2007 Subramanya Bettadapura I...
<ul><li>Growing Importance of Natural Gas and LNG to the Power Industry in Asia </li></ul><ul><li>Challenges and Issues in...
Power Generation Mix – ASIA, 2006 Growing Importance of NG and LNG  Source: Frost & Sullivan Coal  Nuclear  +  Coal  +  Ga...
Countries to Diversify Fuel Mix Growing Importance of NG and LNG  Pipelines to transport NG  Increased domestic exploratio...
Growing Importance of NG and LNG  Conversion of oil fired plants to gas fired Countries to diversify fuel mix Considering ...
Growing Importance of NG and LNG  Countries to diversify fuel mix Level of Increase of natural gas in mix depends on nucle...
<ul><li>Demand from the power sector is crucial during the initial stages of a LNG project to make the project viable </li...
<ul><li>Drivers for LNG/NG in the Power Industry </li></ul>Improvements in Gas Turbines efficiency <ul><li>Cost of natural...
Challenges and Issues in the Gas to Power Process Major Challenges <ul><li>Securing Natural Gas/LNG supplies </li></ul><ul...
Securing Natural Gas/LNG supplies Challenges  <ul><li>With increasing demand for LNG in the region, importing countries fa...
<ul><li>The question - whether countries will be able to complete all their planned infrastructure development projects? <...
Relative Competitiveness of Coal and Gas for Power Generation Issues  <ul><li>The affordable price of gas-fired power gene...
Contracting and Payment Issues in Developing Markets Issues  <ul><li>LNG contracts are long term contracts (around 20 to 2...
Issues  <ul><li>Issues arise when an exporting country is unable to meet its committed deliveries </li></ul><ul><li>The ex...
<ul><li>Integration of Natural Gas and Electricity Markets </li></ul>Relationship between Natural Gas and Electricity Mark...
Vertically  Integrated Mixed  Structure Unbundled Not Privatized Privatization  Underway Significant Privatization  Fully ...
<ul><li>Introduction of IPPs into the generation sector. IPPs provide the much needed investment into the power generation...
<ul><li>Exporting Countries </li></ul><ul><li>Vertically Integrated State Run Monopolies manage the Gas industry among the...
<ul><li>Considerable gas sector reforms seen in the importing countries for encouraging wholesale competition. For greater...
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The Rise of Gas to Power in Asia and the Impact of the Power Industry on LNG

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Frost & Sullivan analysis of the rise of gas to power in Asia and the impact of the power Industry on LNG.

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  • By 2020, the total installed capacity of gas generation in China to be about 60GW. Nuclear installed capacity around 40GW at that time
  • Chinese Taipei to phase out Nuclear power plants by 2040. To increase Natural gas and renewables in the generation mix
  • Growth of LNG markets in Japan and South Korea. In 3 years, demand starts from residential, commercial and industrial sectors. By 7 th year, the demand increases. By 10 to 15 years, residential and commercial demand are almost equal to the demand from power sector. Climate also plays an important role. Colder countries need gas for heating also. Growth of fertilizer companies
  • Natural gas for short distance. LNG for long distance
  • Burma – Bangladesh- India Pipeline. Myanmar-China Pipeline, Pipelines to Philippines, Indonesia Pipelines
  • The PPAs with grid companies should ideally include 20-25 year take-or-pay power purchase agreements; Minimum annual power purchase-sell quantity matching that of the minimum gas consumption quantity pledged by the power plant.
  • Bangladesh, India and Pakistan working out mechanism to make the price of gas attractive for E&amp;P companies
  • The Rise of Gas to Power in Asia and the Impact of the Power Industry on LNG

    1. 1. The Rise of Gas to Power in Asia and the Impact of the Power Industry on LNG April 11 th , 2007 Subramanya Bettadapura Industry Manager, Energy Practice, Frost & Sullivan © 2007 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan. Photo Courtesy: C. Bergesen
    2. 2. <ul><li>Growing Importance of Natural Gas and LNG to the Power Industry in Asia </li></ul><ul><li>Challenges and Issues in the Gas to Power Process </li></ul><ul><li>Gas and Power Liberalizations in Asia and their impact on the industry </li></ul>Table of Contents
    3. 3. Power Generation Mix – ASIA, 2006 Growing Importance of NG and LNG Source: Frost & Sullivan Coal Nuclear + Coal + Gas Gas
    4. 4. Countries to Diversify Fuel Mix Growing Importance of NG and LNG Pipelines to transport NG Increased domestic exploration for NG Concerns over gas supply for domestic requirements and meeting export commitments Improving LNG import infrastructure. Increased domestic exploration and production of NG Outlook: Coal to dominate with Natural gas increasing its share in the generation mix Source: Frost & Sullivan Nuclear Power generation to Increase Natural Gas to increase share in the generation mix CHINA INDIA INDONESIA PHILIPPINES Natural Gas Natural Gas Coal Continued reliance on Coal Oil for power Gen to decrease Exploring Nuclear Option Coal Hydro Projects
    5. 5. Growing Importance of NG and LNG Conversion of oil fired plants to gas fired Countries to diversify fuel mix Considering LNG import facilities New LNG import policy Increased domestic exploration and production of NG Domestic use versus Export of NG Source: Frost & Sullivan THAILAND SINGAPORE MALAYSIA Increasing Coal in the generation mix Coal Continued reliance on natural gas Renewables Continued reliance on natural gas VIETNAM Coal Natural gas BANGLADESH Continued reliance on natural gas Exploring Coal Options PAKISTAN Continued reliance on natural gas Oil for power Gen to decrease Exploring Nuclear Options Exploring Nuclear Options
    6. 6. Growing Importance of NG and LNG Countries to diversify fuel mix Level of Increase of natural gas in mix depends on nuclear increase <ul><li>Outlook for Asia (2008-2020) </li></ul><ul><li>Natural gas emerges as the fuel of choice for power generation </li></ul><ul><li>Coal to remain dominant as the leading fuel for power generation </li></ul><ul><li>Renewables to play a larger role in power generation </li></ul>Source: Frost & Sullivan Japan Korea Increase Nuclear Chinese Taipei Increase Natural Gas Increase natural gas Increase Renewables Increase coal Decrease Coal Phase out Nuclear
    7. 7. <ul><li>Demand from the power sector is crucial during the initial stages of a LNG project to make the project viable </li></ul>Relationship between the Power Industry and the LNG Industry Power and LNG Industries The LNG markets in Japan and South Korea were kick-started by the power sector Source: Frost & Sullivan Power sector provides a base demand allowing secondary markets to develop Secondary Markets Develop (gas for industries/domestic fuel) TIME LNG DEMAND Initial demand from power projects crucial to kick-start the LNG market
    8. 8. <ul><li>Drivers for LNG/NG in the Power Industry </li></ul>Improvements in Gas Turbines efficiency <ul><li>Cost of natural gas pipelines increases substantially with distance </li></ul><ul><li>In comparison, cost of LNG does not increase substantially with distance (small incremental increase in costs for transportation and storage with respect to distance) </li></ul><ul><li>Initial investment costs extremely high for LNG </li></ul>Liquefaction costs reducing Environmental Concerns Combined Cycle Power Plant >55% Simple Cycle, Aero-derivative > 40% Growing Popularity of Combined Cycle Power Plant Designs Natural Gas is a cleaner burning fuel compared to coal translating to reduced emissions. Environmental Impact is a major driver for Natural Gas Cost Factor LNG suited for longer distances / Pipelines for shorter distances (cross-border transactions) 1 2 3 LNG Versus NG Power and LNG Industries
    9. 9. Challenges and Issues in the Gas to Power Process Major Challenges <ul><li>Securing Natural Gas/LNG supplies </li></ul><ul><li>Infrastructure Development in importing countries for gas import and distribution </li></ul><ul><li>Attracting Investments for Natural Gas/LNG and Power Projects </li></ul><ul><li>Relative Competitiveness of Coal and Gas for Power Generation </li></ul><ul><li>Progress of Power Industry Reforms </li></ul><ul><li>Current Structure of Gas Industry in Asian countries </li></ul><ul><li>Contracting and Payment Issues in Developing Markets </li></ul><ul><li>Delivery Commitments by Exporting Countries </li></ul>Major Issues Challenges and Issues Source: Frost & Sullivan
    10. 10. Securing Natural Gas/LNG supplies Challenges <ul><li>With increasing demand for LNG in the region, importing countries face the challenge of securing long-term supplies – This situation is expected to ease in the Asian region after 2012 </li></ul><ul><li>LNG supply in Asia has traditionally been on the basis of long-term supply contracts and the spot market is expensive – so buyers tend to depend on long term contracts for supplies </li></ul><ul><li>The traditional LNG markets in Asia – Japan, South Korea and Chinese Taipei now have to contend with emerging markets of China and India for supplies from the region. </li></ul><ul><li>Buyers are now looking towards Australia, Russia and the Middle East to meet the demand </li></ul>Even with the entry of suppliers such as Russia, Qatar and Iran into the Asian markets, the Asian markets are likely to remain a Sellers’ Market till 2012 Concerns about Gas Supply Security is a major road block for gas based power projects in India
    11. 11. <ul><li>The question - whether countries will be able to complete all their planned infrastructure development projects? </li></ul><ul><li>Significant potential exists for increased development of natural gas and LNG distribution in the region. </li></ul><ul><li>China and India have nascent gas industries. These countries currently lack sufficient infrastructure to import and distribute LNG/NG. Both these countries have plans to build LNG/NG infrastructure over the next 5 to 10 years. </li></ul><ul><li>Thailand and Singapore are contemplating LNG terminals </li></ul><ul><li>South East Asia’s pipelines grids are much less extensive than pipeline grids in North America and Europe thereby limiting regional commercial cross-border trade of gas </li></ul><ul><li>The completion of all the phases of the ASEAN gas pipeline should facilitate increased cross-border trade of natural gas </li></ul><ul><li>The development of infrastructure is extremely important for the growth of the natural gas/LNG industry </li></ul>Infrastructure Development Challenges Attracting Investments for Natural Gas/LNG and Power Projects <ul><li>Indonesia, Vietnam, China, India, Myanmar and Bangladesh have unexplored territories that need huge investments for continuing exploration </li></ul><ul><li>These countries have been successful in varying degrees to attract capital for natural gas/LNG and Power projects </li></ul>
    12. 12. Relative Competitiveness of Coal and Gas for Power Generation Issues <ul><li>The affordable price of gas-fired power generation varies significantly by region and the pricing structure for coal </li></ul><ul><li>When price of coal for power is controlled to remain below market levels (China and India), it creates a substantial cost differential between coal for power and gas for power </li></ul><ul><li>A study undertaken by the Central Electricity Authority in India concluded that for base-load operations, domestically supplied gas-fired plants located along an existing pipeline is the cheapest generation option at all distances. Domestic-coal fired plants at pithead are the second cheapest option while domestic coal-fired plants located close to demand-centres are ranked third </li></ul><ul><li>Without any government policy support, gas-fired power generation will lack competitiveness against its main competitor in the domestic power market, coal-fired power in the developing markets of China and India </li></ul>Even though Coal dependent nations will continue to rely on coal, a large part of the increasing power demand will be met by Natural Gas in these nations The pollution and the environmental impact of using coal has led China to announce an energy policy that requires coal powered plants with capacity under 50 megawatts to close by 2010
    13. 13. Contracting and Payment Issues in Developing Markets Issues <ul><li>LNG contracts are long term contracts (around 20 to 25 years duration) and are of the “Take or Pay” nature. The buyer (Power Plants) must honor a minimum “Take or Pay” quantity every year. This exposes the buyer to considerable risk for any disruption in the supply chain </li></ul><ul><li>The power plants have to sign PPAs with the grid companies. The power plants must match the PPA with the LNG “Take or Pay” contract </li></ul>Source: Frost & Sullivan LNG Supplier Gas Power Plant Grid Co Coal Power Plant Hydro Power Plant Industrial Consumer Domestic Consumers Gas Power Plant has to compete with other power producers in the open market necessitating policy support Non-payment by Grid Co will put the Gas Power Plant at financial risk NG Strict “Take or Pay” contract ensures payment for LNG supplier Payment Electricity Electricity Electricity Electricity Payment Payment Payment Payment Grid Co Payment Electricity Electricity
    14. 14. Issues <ul><li>Issues arise when an exporting country is unable to meet its committed deliveries </li></ul><ul><li>The exporting country is forced to divert supplies from alternative producing sites or buy LNG shipments from other exporters to meet its shortfall </li></ul><ul><li>Indonesia remains challenged to meet both its growing domestic needs and its commitments to LNG supply contracts </li></ul><ul><li>Unless new reserves are found and new discoveries developed, the Indonesian government will have a tough task balancing increasing domestic demand and meeting export commitments </li></ul>Delivery Commitments by Exporting Countries
    15. 15. <ul><li>Integration of Natural Gas and Electricity Markets </li></ul>Relationship between Natural Gas and Electricity Markets Gas and Power Liberalization Large share of Power Generation is from Gas and Power Generation is the largest segment for Gas Demand Natural gas prices will also be increasingly influenced by electricity markets Electricity prices will be influenced by those of natural gas As the electricity and natural gas industries become more integrated, reliability and operational issues in one will have greater impact on the supply and demand in the other resulting in extreme and volatile energy prices at times Electricity Market Gas Market Competitive reform of power markets cannot be successful without competitive reform of gas markets, and vice versa. Reforms aimed at encouraging greater competition in power markets will have a greater impact if there are also gas market reforms that make it possible to buy gas from the cheapest supplier Source: Frost & Sullivan
    16. 16. Vertically Integrated Mixed Structure Unbundled Not Privatized Privatization Underway Significant Privatization Fully Private China India Sing Malay Indo Japan Korea Key: Sing-Singapore; Indo-Indonesia; Malay-Malaysia; Phil-Philippines; Viet-Vietnam; Thai-Thailand; Tai – Chinese Taipei Phil Thai Tai Viet Gas and Power Liberalization Power Sector Reform Status in Asia Source: Frost & Sullivan
    17. 17. <ul><li>Introduction of IPPs into the generation sector. IPPs provide the much needed investment into the power generation sector </li></ul><ul><li>Unbundling state-run electricity monoliths, many of which were on the verge of bankruptcy has seen an improvement in their financial position </li></ul><ul><li>Introduction of competition into the electricity market </li></ul><ul><li>Major concern is the slow pace of reforms and the barriers to privatization </li></ul><ul><li>In a competitive market scenario, all power generation projects, including hydro and nuclear ones, will have to compete in the electricity market </li></ul><ul><li>In the Gas to Power Context: </li></ul><ul><li>Private sector generators have shown preference for gas based power plants </li></ul><ul><li>Financially well-off utilities are able to meet payment commitments to the power producers </li></ul><ul><li>Subsidized power tariff and controlled price of fuel (coal or gas) to power limits the fuel choice of power generators and also has a negative impact on the gas upstream industry </li></ul>Impact of Power Sector Reforms in Asia Gas and Power Liberalization
    18. 18. <ul><li>Exporting Countries </li></ul><ul><li>Vertically Integrated State Run Monopolies manage the Gas industry among the Gas exporting Nations in Asia (Brunei, Indonesia, Malaysia and Myanmar) </li></ul><ul><li>Of the four gas exporting Asian nations, only Indonesia has opened up its gas market to wholesale competition. The state-owned integrated monopoly, Pertamina, no longer has to be included in production sharing contracts. The various gas companies operating in Indonesia will be free to operate as independent producers or consortia. </li></ul><ul><li>Importing Countries </li></ul><ul><li>Wholesale Competition with Single Buyers (gas utilities): South Korea, Chinese Taipei, Singapore and Thailand </li></ul><ul><li>Wholesale Competition with Dual Buyers (gas utilities and electric utilities): Japan </li></ul><ul><li>Emerging Markets – China and India </li></ul><ul><li>In India, production, transmission and distribution are partially privatized. The state-run companies supply gas to end-users at the government determined price and the private sector companies supply gas at the market price </li></ul><ul><li>China has three major state-run companies dominating production and transmission. Distribution is dominated by local monopolies. Wholesale competition is likely to develop as China imports more gas in the near future </li></ul>Gas Sector Reforms in Asia Gas and Power Liberalization Comprehensive legal and regulatory gas sector framework needed in new fast growing markets of China and India
    19. 19. <ul><li>Considerable gas sector reforms seen in the importing countries for encouraging wholesale competition. For greater impact however, reforms need to be undertaken by the exporting countries </li></ul><ul><li>Impact of reforms in Gas Exporting Nations </li></ul><ul><li>Reduced Prices of natural gas thereby increasing demand. The presence of many competing producers in a market tends to reduce prices </li></ul><ul><li>Boost regional and international trade </li></ul><ul><li>Deregulation of gas prices may lead to greater price volatility when there are changes in supply and demand. However, experience from deregulated markets indicate that prices return to normal after a brief period of volatility </li></ul><ul><li>Impact of reforms in Gas Importing Nations </li></ul><ul><li>Lower gas prices to end consumers due to increased efficiencies </li></ul><ul><li>Lower transportation costs </li></ul>Impact of Gas Sector Reforms in Asia Gas and Power Liberalization
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