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Developing Natural Gas Markets


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Frost & Sullivan anaylsis of the natural gas market.

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Developing Natural Gas Markets

  1. 1. DEVELOPING NATURAL GAS MARKETS Subbu Bettadapura Research Manager, Energy Practice, Frost & Sullivan October 2008
  2. 2. Table of Contents DEVELOPING NATURAL GAS MARKETS Issues and Challenges Key Drivers Strategic Options to Develop Natural Gas Markets Role of Regulators 1 2 3 4
  3. 3. 21 st Century - Age of Natural Gas "The Asia-Pacific region is projected to become the largest consumer of oil and gas; If the 20th century was the age of oil, then the 21st century is poised to become the age of natural gas" Chevron Asia Pacific Exploration and Production
  5. 5. Proved Gas Reserves (in Trillion Cubic Meters) in the Asia Pacific Region at the end of 2007 TOTAL: 14.46 TCM Source: BP 1TCM=35.3TCF 44.65 27.8 25.6 6.09 5.3 TCM <ul><ul><li>Issue: Gas Reserves Distribution in the region </li></ul></ul>Malaysia: 2.48 Indonesia: 3.0 China: 1.88 Bangladesh: 0.39 Australia: 2.52 India: 1.06 Myanmar: 0.60 Brunei: 0.34 PNG: 0.44 Pakistan: 0.85 Thailand: 0.33 Vietnam: 0.22
  6. 6. ISSUES AND CHALLENGES <ul><ul><li>Issue: Low level of gas consumption in Asia </li></ul></ul><ul><ul><li>Lack of pre-existing gas user culture </li></ul></ul><ul><ul><li>Larger Investments required to build gas transport systems </li></ul></ul><ul><ul><li>Location of resources </li></ul></ul><ul><ul><li>Lack of gas pricing mechanisms </li></ul></ul>Source: BP
  7. 7. ISSUES AND CHALLENGES (2) <ul><ul><li>Issue: Natural Gas in the Primary Energy Mix – Potential to Grow </li></ul></ul>Source: BP 2007
  8. 8. Power Generation Mix – ASIA, 2007 Source: Frost & Sullivan Coal Nuclear + Coal + Gas Gas ISSUES AND CHALLENGES (3)
  9. 9. ISSUES AND CHALLENGES (4) <ul><li>Challenge – High Cost of Developing Infrastructure </li></ul><ul><ul><li>Capital intensive projects requiring huge investments </li></ul></ul><ul><ul><li>Escalating construction cost </li></ul></ul><ul><ul><li>Sizeable market demand required to break even </li></ul></ul>Pluto Gas Project Western Australia Woodside Petroleum Project Cost = $ 11.2 billion Initial cost estimates = $ 6 billion to $ 10 billion Sales Contracts: Kansai Electric and Tokyo Gas First Gas Delivery: 2010 Platong Gas 2 Development Project Thailand Chevron, Mitsui and PTT E&P Project Cost, Initial estimates = $ 3.1 billion Project Start-up Q1, 2011
  10. 10. ISSUES AND CHALLENGES (5) <ul><li>Policy issues: </li></ul><ul><ul><li>Establishment of regulatory framework </li></ul></ul><ul><ul><li>Mobilization of capital; encouraging domestic and foreign capital </li></ul></ul><ul><ul><li>Infrastructure development </li></ul></ul><ul><ul><li>Subsidies </li></ul></ul><ul><ul><li>Establishing synergies with town gas and other sectors </li></ul></ul><ul><ul><li>Industry structure and level of competition </li></ul></ul>
  11. 11. 2. KEY DRIVERS
  12. 12. NATURAL GAS – MARKET DRIVERS <ul><ul><li>Source diversification </li></ul></ul><ul><ul><li>Market Regulation </li></ul></ul><ul><ul><li>Tariffs </li></ul></ul><ul><ul><li>Subsidies </li></ul></ul>Government Policies Energy Security Infrastructure Development Environmental Impact <ul><ul><li>Drive for cleaner fuels </li></ul></ul><ul><ul><li>Emission standards </li></ul></ul><ul><ul><li>Growth in Energy Demand </li></ul></ul><ul><ul><li>Reduction of dependence on oil </li></ul></ul><ul><ul><li>Ensuring energy security </li></ul></ul><ul><ul><li>Developing strategic storage locations </li></ul></ul><ul><ul><li>Gas based power generation </li></ul></ul><ul><ul><li>Gas distribution network </li></ul></ul><ul><ul><li>Competitive Scenario </li></ul></ul>
  14. 14. STRATEGIC OPTIONS <ul><li>Development of Infrastructure – LNG Terminals, Transnational/Cross-country Pipelines, Gas Distribution Network </li></ul><ul><ul><li>Markets develop rapidly once infrastructure is in place </li></ul></ul><ul><li>Develop long-term economic relationships with natural gas producing countries </li></ul><ul><li>Develop demand – Gas based power generation, development of other markets such as fertilisers </li></ul><ul><ul><li>Gas based power plants act as an anchor for natural gas demand. Other markets grow over this base demand </li></ul></ul>
  15. 15. <ul><li>Demand from the power sector is crucial during the initial stages of a LNG project to make the project viable </li></ul>STRATEGIC OPTIONS (2) 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
  16. 16. STRATEGIC OPTIONS (3) <ul><li>Promote clean environment scenario </li></ul><ul><ul><li>Enforce stringent norms for meeting emission standards </li></ul></ul><ul><ul><li>Gas based power generation </li></ul></ul><ul><ul><li>Promote use of Natural Gas Vehicles (NGVs), especially for public transportation system </li></ul></ul><ul><ul><li>Create awareness on global warming </li></ul></ul><ul><li>Plan for natural gas introduction in areas with no infrastructure </li></ul><ul><ul><li>Identify emerging energy centers </li></ul></ul><ul><ul><li>Promote gas based technologies in these areas </li></ul></ul>
  17. 17. STRATEGIC OPTIONS (4) <ul><li>Natural gas expansion plan to be linked with government policies </li></ul><ul><ul><li>Expand natural gas use as raw material and energy source </li></ul></ul><ul><ul><ul><li>Promoting use in industries </li></ul></ul></ul><ul><ul><ul><li>Promoting residential and commercial use. Town gas infrastructure development </li></ul></ul></ul><ul><ul><ul><li>Expand to vehicular segments </li></ul></ul></ul><ul><li>Encourage natural gas technological knowledge in the supply chain </li></ul><ul><ul><li>Production, transportation, processing, distribution </li></ul></ul><ul><ul><li>Vertical integration of gas based services </li></ul></ul>
  19. 19. ROLE OF REGULATORS <ul><li>Unbundling market activities and eliminating the monopolistic structure in the market helps develop transparent and competitive natural gas markets </li></ul><ul><li>An independent regulatory and supervisory system is necessary to develop and expand the natural gas market </li></ul>Market reforms and liberalization Unbundle market activities Regulation necessary
  20. 20. ROLE OF REGULATORS (2) <ul><li>Provide a stable, transparent & reliable regulatory regime </li></ul><ul><li>Development of policies and infrastructure to foster market growth </li></ul><ul><li>Ensure competition </li></ul><ul><ul><li>Competition is necessary for market development – Independent regulatory authority is required to ensure level playing field for all competitors </li></ul></ul><ul><li>Improve efficiency thereby lower costs </li></ul><ul><li>Ensure security of supply </li></ul>
  21. 21. ROLE OF REGULATORS (3) <ul><li>Licensing </li></ul><ul><ul><li>Licenses for import, export, transmission, storage, distribution, etc </li></ul></ul><ul><li>Market Surveillance </li></ul><ul><ul><li>Regulate tariffs – ensure reasonable prices </li></ul></ul><ul><ul><li>Regulate third party access to the system </li></ul></ul><ul><ul><li>Monitor performance and service standards of gas companies </li></ul></ul><ul><ul><li>Protect consumer rights </li></ul></ul><ul><li>Evaluation of subsidy policies </li></ul>
  22. 22. ROLE OF REGULATORS (4) <ul><li>Monitor cross-border trade </li></ul><ul><li>Co-operation with other regional regulating agencies </li></ul><ul><li>Regulate foreign investment </li></ul>
  23. 23. <ul><li>FROST & SULLIVAN </li></ul><ul><li>A GLOBAL GROWTH CONSULTING COMPANY </li></ul>