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  • 1. Petroleum Project Economics Econ210D Presentation 9 Product Pricing and Netback analysis Week 9
  • 2.
    • Oil prices are a function of:
    • Location,
    • Quality
    • Demand
    • Supply
    Crude Oil Pricing Product Pricing and Netback analysis Week 9
  • 3.
    • Crude oil quality is a function of API gravity and sulfur content.
    • Heavy crudes have a low API gravity (below 20)
    • Light crudes have a high API gravity (35+)
    • Sweet crude has a low sulfur content.
    • Sour crude has a high sulfur content .
    Crude Oil Quality Product Pricing and Netback analysis Week 9
  • 4. D D Price ($) $10 $6 12 8 Quantity The Consumer Demand Curve Product Pricing and Netback analysis Week 9
  • 5. D D A B $10 $5 P 12 6 O Quantity of Cinema Tickets A Contraction of Demand Product Pricing and Netback analysis Week 9
  • 6. P D D X Y $60,000 $100,000 4 8 O Quantity of Cars in ‘000s An Extension of Demand Product Pricing and Netback analysis Week 9
  • 7. P ($) D 1 D 1 Quantity D 2 D 2 O 10 6 20 48 40 65 An Increase in Demand Product Pricing and Netback analysis Week 9
  • 8. P ($) D 1 D 1 Quantity D 2 D 2 O 12 8 20 10 28 18 A Decrease in Demand Product Pricing and Netback analysis Week 9
  • 9. S S Price ($) $10 $4 12 8 Quantity The Supply Curve Product Pricing and Netback analysis Week 9
  • 10. S S A B $10 $5 P 20 45 O Quantity of Cinema Tickets An Extension of Supply Product Pricing and Netback analysis Week 9
  • 11. P S S X Y $55,000 $100,000 10 5 O Quantity of Cars in ‘000s A Contraction of Supply Product Pricing and Netback analysis Week 9
  • 12. P ($) S 1 S 1 Quantity S 2 S 2 O 20 50 40 85 70 120 An Increase in Supply Product Pricing and Netback analysis Week 9
  • 13. P ($) S 2 S 2 Quantity S 1 S 1 O 10 20 20 40 35 60 A Decrease in Supply Product Pricing and Netback analysis Week 9
  • 14. Quantity P ($) S S D D E P E Q E Market Equilibrium Product Pricing and Netback analysis Week 9
  • 15. Quantity P ($) S S D D E P E P H Q D Q S Surplus Market Disequilibrium: Surplus Product Pricing and Netback analysis Week 9
  • 16. Quantity P ($) S S D D E P E P L Q S Q D Shortage Market Disequilibrium: Shortage Product Pricing and Netback analysis Week 9
  • 17. S Q S Q 1 D 1 D 1 D 2 D 2 Q 2 E 2 E 1 P 1 P 2 P Q’ Surplus Decrease in Demand Product Pricing and Netback analysis Week 9
  • 18. D P D Q P 1 S 1 S 1 S 2 S 2 P 2 E 1 Q 1 Q 2 E 2 Q’ Decrease in Supply Shortage Product Pricing and Netback analysis Week 9
  • 19. P D Q D S 1 S 1 Q 1 P 1 Q 2 S 2 S 2 P 2 E 1 E 2 Q’ Increase in Supply Surplus Product Pricing and Netback analysis Week 9
  • 20. S Q S D 1 D 1 Q 1 D 2 D 2 Q 2 E 1 E 2 P 1 P 2 P Q’ Shortage Increase in Demand Product Pricing and Netback analysis Week 9
  • 21. S 1 S 1 S 2 S 2 D 1 D 1 D 2 D 2 E 1 E 2 Quantity Q 1 Q 2 P P 2 P 1 Large Increase in Demand and Small Increase in Supply Product Pricing and Netback analysis Week 9
  • 22. S 1 S 1 S 2 S 2 D 1 D 1 D 2 D 2 E 1 E 2 Quantity Q 1 Q 2 P P 1 P 2 Small Increase in Demand and Large Increase in Supply Product Pricing and Netback analysis Week 9
  • 23. S 1 S 1 S 2 S 2 D 1 D 1 D 2 D 2 E 1 E 2 Quantity Q 1 Q 2 P’ P Equal Increase in Demand and Supply Product Pricing and Netback analysis Week 9
  • 24. Natural Gas Pricing Dynamics in Trinidad and Tobago
    • Natural gas price received from NGC by operators at the well head
    • Natural gas price charged by NGC
    • Natural gas price received by LNG (FOB prices)
    Product Pricing and Netback analysis Week 9
  • 25. Natural Gas Price Received by Operators at Well Head
    • The main producers of natural gas in Trinidad and Tobago are BPTT, BG and Repsol.
    • Other natural gas producers include, EOG and BHP Billiton.
    Product Pricing and Netback analysis Week 9
  • 26. Natural Gas Price Received by Operators at Well Head
    • All natural gas produced domestically is either purchased by NGC for the purpose of resale to the natural gas consumers such as the ammonia, methanol and some of the LNG plants or supplied directly to the other LNG plants.
    Product Pricing and Netback analysis Week 9
  • 27. Natural Gas Price Received by Operators at Well Head
    • The prices received by the operators are based on:
    • Fixed long term contracts
    • Net back prices. Net back prices at the well head are based on the price of the natural gas at its destination less all cost involved in transporting to its destination.
    Product Pricing and Netback analysis Week 9
  • 28. Natural Gas Price Charged by NGC
    • Domestic Pricing - The accounts for the relatively cheap natural gas which is sold by NGC to selected consumers such Powergen/TTEC and small manufactures which use the gas a source of energy in the production processes.
    • Netback Pricing – the price of natural gas sold by NGC to the larger downstream users such as methanol, ammonia and LNG use this system.
    Product Pricing and Netback analysis Week 9
  • 29. Netback Prices to Downstream Users
    • Netback prices are determined by adjusting the final price for the downstream products to obtain a price for the natural gas feedstock. These adjustments are based on:
    • The conversion costs of natural gas to downstream feedstock
    • Transportation costs of natural gas from the buyer to the seller
    Product Pricing and Netback analysis Week 9
  • 30. Netback Prices to Downstream Users
    • Prices of downstream products are cyclical and sometimes unpredictable in nature.
    • This price system means that when the prices of downstream products are high the price of natural gas would correspondingly be high.
    • Also when the price of downstream products are low the price of natural gas would be low as well.
    • The objective of netback pricing is to provide a commercially viable incentive to operate the conversion plants irrespective of the price of the downstream product.
    Product Pricing and Netback analysis Week 9
  • 31. Natural Gas Price Received by LNG (FOB Prices)
    • Liquefied natural gas (LNG) at the Atlantic LNG facility in Trinidad is exported under long-term contracts and on the spot market.
    Product Pricing and Netback analysis Week 9
  • 32. Netback Prices to Downstream Users
    • Methanol and Ammonia - the net back price to these downstream producers’ works like a sliding scale where the price paid for natural gas is higher when the commodity prices are higher and lower in depressed market conditions.
    • LNG – This net back price is based on the destination of the LNG shipment. Table 1 in the following slide shows the main destinations of LNG and the associated price.
    Product Pricing and Netback analysis Week 9
  • 33. Natural Gas Price Received by LNG (FOB Prices)
    • Table 1 : Spot markets prices in different regions
    Product Pricing and Netback analysis Week 9 Region Pricing System Asia-Pacific In this region LNG prices are typically indexed in crude oil prices USA In the USA the relevant price is the Henry Hub price which is market. This means it is determined primarily by supply and demand, plus a geographical differential. Europe In Europe the price of LNG is indexed to the price of natural gas brought in by pipeline gas as well as the price of crude oil and coal.
  • 34. Natural Gas Price Received by LNG (FOB Prices)
    • When sold at the spot markets, the price received by the LNG producer is a FOB net back price.
    • This is derived by deducting freight costs from the spot price.
    • These freight costs include the costs incurred from the use of pipelines, re-gasification, and waterborne transportation costs (boil off and vessels rates)
    Product Pricing and Netback analysis Week 9