LPG Supply & Demand Alan J. Pratt - Texaco

Transcription

1 LPG Supply & Demand Alan J. Pratt - Texaco Position Paper The session will cover general topics on LPG supply; demand; pricing; LPG freight pools and their effect on the large gas carrier newbuilding market; large gas carrier freight rate levels over the past 5 years and the effect on seaborne LPG business; future natural gas demand with emphasis on the rapidly increasing number of gasfired power projects; the relationship between governmental fiscal policies and project financing; new LPG production projects; environmental factors and future developments. LPG Supply and Demand Including Saudi LPG export cutbacks and information about the use of gas liquids for petrochemical feedstock. Some factors affecting LPG demand. LPG pricing a brief discussion on the trend away from using Saudi Contract Price (CP) as a base for CFR prices. The Chinese LPG import market and the attitude of importers concerning the preservation of profit margins. The knock-on effect of Chinese pricing and import policies on LPG traders strategies. LPG freight rates and the effect of freight pooling arrangements. Very Large Gas Carrier (VLGC) newbuildings and pool rates. VLGC freight rates over the past 5 years for Arabian Gulf (AG) to Japan. The Dash for Gas increases in demand for power generation. The recovery of LPG from wet gas fields to improve project economics. Fiscal policy requirements to enable large gas projects to be funded. New LPG production projects a brief summary of selected projects with dates and quantities. Environmental effect putting out the flares. The realization by businesses that being green does not have a negative effect on the balance sheet and that the opposite is fast becoming the norm. Developing countries want to secure reliable, cost-effective, power systems that do not cause unacceptable air pollution. The World Bank and other lenders are requiring eco-friendly development of infrastructure projects. The anti-nuclear lobby has removed the possibility of additional nuclear power plants in many countries. Gas-fired plant is the obvious choice in many cases for speedy power plant completion. What will the future bring? When will Iraq start LPG seaborne exports? The use of LPG and/or natural gas as a source of hydrogen for conversion to electrical power in fuel cells. Recently, the size of the gas and power utility business worldwide was put at almost twice that of oil at $1.3 trillion.

2 LPG SUPPLY AND DEMAND GASTECH - HOUSTON NOVEMBER 2000

3 DISCUSSION TOPICS LPG Supply LPG Demand Saudi CP related pricing Freight rates Arabian Gulf/Japan Natural gas demand NGL extraction New LPG production Environmental effect Future developments

4 LPG SUPPLY Saudi export cutbacks in 2001 (4.0MM mt/yr) should be reduced by 1.2MM mt/yr when expanded Berri Plant starts in 2003 Use of LPG as feedstock increases when lighter feeds are necessary to meet ethylene demand or when insufficient ethane is available Propane may still be used for ethylene feedstock in S. Arabia even when ethane avails are increased by Berri start up in order to meet world propylene demand

5 LPG DEMAND Chinese demand cut by higher domestic crude runs imports reduced by 0.6MM mt in 2000 Competition from gas will cut R/C demand High natural gas prices in USA causes some ethane rejection which requires use of alternative NGL feedstock for ethylene production Increasing use of LPG for auto fuel will increase demand in urban areas

6 LPG PRICING Growing perception that CP is not a good marker for setting LPG prices Long-term development of LPG sales is hurt by price volatility or weak relationship to crude Conversion to LNG/pipeline gas is mainly irreversible Price volatility leads to importers buying spot at fixed price to protect margins. No margin means no imports demand falls In turn, their suppliers have less need of term contract supplies or shipping

7 FREIGHT RATES Effect of high freight costs on LPG usage West-East arbitrage is less with high freight Higher ton/miles would allow freight rates to be set by supply/demand and not via ship pooling Current rush to build VLGC s is underpinned by Bergesen pool rates. Newbuildings would be cut if rates were not being supported Pool rates can be undermined by players seeking time charters with independent owners

8 Source - Clarksons London

9 NATURAL GAS DEMAND Gas demand is expected to double by 2010 Dash to gas-fired power should increase LPG recovery as oil/gas producers develop wet fields first to improve project economics Gas-fired plant is quicker & cheaper to build so it is fuel of choice for energy-short economies Financing requires acceptable & consistent fiscal regimes to attract foreign capital to stranded gas projects

10 NEW LPG PRODUCTION Australia MM mt/yr Kwinana Timor Gap MM mt/yr - Bayu Undan Iran MMmt/yr Kazakhstan (Tengiz) 2000/1 1.0MM mt/yr Qatar MM mt/yr Venezuela MMmt/yr West Africa - 2 to 5MM mt/yr of LPG by 2005

11 ENVIRONMENTAL EFFECT Oil/Gas Projects to eliminate flaring will recover LPG when possible flaring penalties will accelerate the rate of LPG recovery Environmental pressures increase use of bottled LPG in developing countries aided by World Bank loans to eco-friendly projects Reduction in smokestack emissions & antinuclear lobby favors gas-fired power generation Businesses embracing greener energy sources

12 FUTURE DEVELOPMENTS Fuel cells will become an increasing part of the overall energy supply portfolio once costs are sufficiently reduced When will Iraq return to LPG export business? Rapid increase in use of gaseous fuels is here to stay prices will stay stronger than before LNG will take a larger share of power fuel supply market Worldwide gas and power economy is almost double that of oil at $1.3 trillion