Gas Supply Outlook. NZ Downstream John Kidd Head of NZ Research

Transcription

1 Gas Supply Outlook NZ Downstream 2013 John Kidd Head of NZ Research

2 Disclaimer All research in this publication has been prepared and issued by Edison Investment Research Limited. All information used in the publication of this research has been compiled from sources that are believed to be reliable, however we do not guarantee its accuracy or completeness. Opinions contained in this research represent those of the research department of Edison Investment Research Limited at the time of publication. This is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities. Research is provided for information purposes only and should not be construed as an offer or solicitation for investment. This research is non-objective. Edison Investment Research Limited does not conduct investment business and as such does not hold any positions in the securities mentioned in this publication. However, its respective directors, officers, employees and contractors may have a position in any or related securities. Edison Investment Research Limited or its affiliates and contractors may perform services or solicit business from any of the companies mentioned in this publication. The value of securities mentioned can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this publication. Past performance is not necessarily a guide to future performance. Forward-looking information or statements contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. The information contained in this publication is general only. It does not constitute personalised financial advice and has not taken your particular situation or goals into account. As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison Investment Research Limited, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this publication and do not guarantee the returns on investments in the products discussed in this publication.

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4 Outline 1. Shifting the lens upstream 2. Methanol, electricity and gas in NZ 3. Activity outlook & catalysts 4. Market outlook New Zealand Petroleum Sector Yearbook Prospectus

5 Outline 1. Shifting the lens upstream 2. Methanol, electricity and gas in NZ 3. Activity outlook & catalysts 4. Market outlook New Zealand Petroleum Sector Yearbook Prospectus

6 Upstream meaning what exactly? In a word: fuel NZ Primary Energy Supply PJ Waste heat Coal (net) Other renewable Hydro Geothermal Gas Oil Renewables share of PES (RHS) Oil & gas share of PES (RHS) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% % Source: Edison Investment Research

7 Kapuni

8 Maui-A

9 Pohokura

10 McKee-Mangahewa

11 NZ gas field truths & myths New Zealand does not have any gas fields Maui, Kapuni, Pohokura, Kupe all are gas-condensate fields The difference is subtle, but for explorer economics, critical E&P priority lies with oil, not gas That said, gas management is critical to NZ field economics. It is primarily gas which is underpinning the sector s current investment cycle. Oil and gas reserves are not absolute set-in-stone actuals, but relative point-intime estimates 2P reserves = 2P RERR = Remaining Economically Recoverable Reserves - Above-ground market context has a major bearing on below-ground RERR Surrey Tui Maari Moturoa Cheal Ngatoro Kupe Pohokura Maui Kowhai Rimu/Kauri McKee Turangi Kapuni Mangahewa Producing field wellstreams 100% 100% 100% 78% 22% 63% 37% 54% 46% 39% 61% 22% 78% 20% 80% 19% 81% 16% 84% 15% 85% 14% 86% 14% 86% 12% 88% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2P Oil % 2P Gas % Source: Edison Investment Research

12 Unconventional hydrocarbons: geological vs commercial setting PRODUCTION HORIZON Present Average 10mD Good Conventional INCREASING: Production costs, price, activation indexes, research, time 0.1mD DECREASING: Poor Tight oil/gas CSG Unconventional Delivery speed, pore throat apertures. Shale oil/gas Hydrates Future Bottom of resource pyramid not known Source: Edison investment Research, adapted from USGS

13 Source: Edison investment Research Unconventional hydrocarbons: practical

14 Unconventional truisms shale as it is used in most contexts is as a generic (rather than specific) term unconventional petroleum varietals lie on a continuum, not as discrete oil & gas subsets permeability is the key below-ground determinant drilling & well completion are the key above-ground enablers once revealed, commercialisation becomes largely an engineering (not exploration) challenge many differences in economic fundamentals between conventional & unconventional: - drilling & completion costs - physical footprint - production rates, plateaus and declines - access to Infrastructure there is no understating the significance of unconventional oil and gas in changing the global energy equation peak oil exposed for its lack of account for the role of technology in supporting supply curves

15 Turning the world s most mature oil & gas sector on its head Mapped shale plays in Lower 48 states Source: EIA

16 The technology in action Barnett shale vertical vs horizontal drilling 2000 vs 2010 Source: USGS

17 The technology in action US dry natural gas production history & outlook tcf Source: EIA

18 McKee Kapuni Waihapa/Ngaere Ngatoro Tariki/Ahuroa Mangahewa Rimu Kauri Cheal, Surrey Kupe, Kowhai. Moturoa Pohokura, Turangi Maui NZ supply-side very much conventional but changing 2P gas supply-side increments Net gas production PJ 4,500 4,000 3,500 PJ McKee+Mangahewa TJ/day 700 Kupe 600 Pohokura 500 3, ,500 2, Maui-A 300 1,500 Kapuni 200 1, Remaining Produced Source: Edison Investment Research Source: Edison Investment Research

19 R&P steady, with forward risk clearly to the upside NZ 2P reserves & years covered NZ reserves up 182PJ (+10%) on 2005 trough, from 1817PJ to 2001PJ. R&P steady in both absolute & relative terms production weighed down by electricity market conditions (2011: -15.4%), with little sign of price softness abating quickly. Compounded with recent and ongoing capacity overbuild, outlook for high-capacity thermal is weak. Strong basis for optimism towards further R&P growth from new & established fields Operators countering with their own options: - reinjection - peaking plant PJ 3,500 3,000 2,500 2,000 1,500 1, PJ Years P RERR 2P R/P coverage (RHS) NZ 2P RERR movements PJ +26.5PJ -49.4PJ -4.9PJ PJ +52.2PJ 22.5PJ 2.3PJ PJ +13.4PJ +86.1PJ +12.3PJ -65.6PJ -21.9PJ Maui Kapuni Pohokura Kupe Mangahewa Turangi Kowhai Source: Edison Investment Research By field sum PJ avg PJ pa

20 Outline 1. Shifting the lens upstream 2. Methanol, electricity and gas in NZ 3. Activity outlook & catalysts 4. Market outlook New Zealand Petroleum Sector Yearbook Prospectus

21 Buy-side thinning-out, but ramping back up PJ Wholesale gas deployment Strong trend away from direct gas use following gas market outcomes Generation gas sector in retreat, with little near-term prospect of significant recovery. With new-build geothermal displacing gas in highcapacity space, trend appears more structural rather than cyclical. CCGT utilisation reducing with kit maturity, increasingly operating in mid-merit role, with gas peaking in low/mid merit space. Huntly-3 retired Huntly-5 and Otahuhu-B major refits completed Q412 Petrochemical sector particularly Methanex now making the market MW New electricity capacity build ,207MW ~241MW pa MW ~102MW pa MW ~86MW pa MW ~135MW pa MW ~65MW pa MW ~176MW pa MW ~144MW pa Residential & CNG Petrochemicals & non-energy Industrial & commercial Electricity generation 7% 6% 5% 4% 3% 2% I&C market stagnating Retail market also stagnating, disorganised % 0% -1% -2% -3% Hydro Geothermal Waste Heat Oil / diesel Wind Biofuels Gas % change in elec demand (RHS) Source: Edison Investment Research

22 CCGT being squeezed from the merit order Case in point: Contact Energy With attrition of I,C&R base and decline in wholesale business, gas demand increasingly leveraged to near-term electricity market conditions Recent capacity overbuild and demand softness has seen Contact run its CCGTs increasingly in mid-merit roles Unit Contact Energy generating plant capacity factors FY06 FY07 FY08 FY09 FY10 FY11 1H12 Otahuhu-B 80.3% 81.3% 85.6% 49.5% 54.1% 61.0% 55.3% Taranaki CCGT 85.4% 61.8% 61.9% 59.9% 46.6% 40.1% 56.2% Te Rapa 76.2% 79.7% 84.8% 82.0% 78.0% 75.3% 90.6% Taranaki Peakers n.a. n.a. n.a. n.a. n.a. 5.3% 16.1% Source: Edison Investment Research Average Daily Capacity Factors % Otahuhu-B 380MW 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY05 FY06 FY08 FY09 FY10 FY11 1H12 TCC 380MW 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY05 FY06 FY08 FY09 FY10 FY11 1H12 Te Rapa 45MW 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY05 FY06 FY08 FY09 FY10 FY11 1H12 Source: Edison Investment Research

23 Methanex: the gassy elephant in the gassy room 10-year GSA with Todd confirmed to underpin development of Mangahewa field build to 25-30PJ pa of above-ground 45PJ pa gas plant capacity 450PJ 2P being targeted currently running at >95% capacity at 55TJ/day Further gas confirmed Nov-2012 equating to about 2.5mt over the next five years flat-line inference 18-20PJ pa Methanex also known to be buyer in both primary and secondary wholesale gas market Pohokura and Maui ROFR gas marketing processes likely as key catalysts for Waitara Valley FID Source: Methanex Mauku-1 (drilling underway) also important to longer-term supply book

24 Methanex: switching all the lights back on Meth-1 restarted July 2012: capacity increment 850ktpa 1.5mtpa $100m turnaround gas-in equivalent of ~32PJ pa ktpa 3,000 Methanex NZ production & gas profile Meth-1 & Meth-2 idled Meth 2 restarted Meth 1 restarted PJ pa 100 Meth-2 turnaround FID Jan 2013, with distillation debottleneck will lift Motunui site capacity to 1.7 mtpa $75m turnaround gas-in equivalent of ~68PJ pa Waitara Valley FID Mar 2013 for 530ktpa $80m turnaround for restart + Motunui distillation debottlenecking gas-in equivalent of ~19PJ pa total production capacity 2.2mtpa for gas-in equivalent ~90PJ pa 2,500 2,000 1,500 1, Waitara Valley Motunui Aggregate implied gas demand (RHS) Source: Edison Investment Research

25 Restarts serve to exacerbate gas market concentration Much recent emphasis on the role and importance of Tiwai Point in electricity market, but contrasting market concentration between electricity and gas buy-sides makes for stark reading Electricity market concentration Gas market concentration NZAS 13% I&C 54% Methanex 41% I&C 56% Residential 33% Residential 3% Source: Edison Investment Research

26 Outline 1. Shifting the lens upstream 2. Methanol, electricity and gas in NZ 3. Activity outlook & catalysts 4. Market outlook New Zealand Petroleum Sector Yearbook Prospectus

27 Offshore Taranaki firm well slate PEP Deepwater Taranaki 1 x exploration well Anadarko Hyundai Hysco Global Resource Holdings Randall Thompson Noble Bob Douglas PEP Tui 1 x appraisal well (Pateke-4H) 1 x exploration well (Oi) AWE Mitsui NZOG Pan Pacific Kan Tan IV Kan Tan IV PML Maui 1 x exploration well (AD Ihi) 6-7 x appraisal sidetracks Shell Todd OMV Archer Emerald PEP Matuku 1 x exploration well OMV NZOG Octanex Kan Tan IV PEP Te Whatu 1 x exploration well (Whio) OMV Todd Horizon Cue Kan Tan IV PMP Maari-Manaia 1 x exploration well (Maari F-Sands) 2 x appraisal wells (Maari Sth & Manaia-2) 1-2 x further development wells (?) 1 x water injector well OMV Todd Horizon Cue Ensco-107 Ensco-107 / Kan Tan IV Ensco-107 Ensco-107 Ensco-107 Source: Edison Investment Research

28 Onshore Taranaki firm well slate 2013 PEP x Matuku-1 exploration well Kea Methanex Odinn PMP x Kowhai development well Greymouth Tiger PMP x Mangahewa development wells Todd Ensign-931 PEP x Heatseeker exploration well Todd Ensign-931 PMP Cheal / Cardiff 1 x exploration well TAG Oil Ensign-931 PML Kapuni 2 x exploration/appraisal well Shell Todd Chaunqing-43 Source: Edison Investment Research

29 Frontier basin firm well slate Onshore East Coast Basin 2 x exploration wells TAG Oil Nova-1 PEP Carrack-Caravel 1 x exploration well Anadarko Origin Noble Bob Douglas Source: Edison Investment Research

30 Onshore Taranaki infrastructure development Onaero Turangi pipeline tie-in of Onaero discovery with Turangi PS McKee plant expansion gas plant expansion 25PJ pa 45PJ pa LPG plant expansion 27ktpa 40ktpa McKee peaker 2 x 50MW Ngatoro-G Ngatoro-A / Kaimiro pipeline tie-in of Ngatoro-G discovery with Ngatoro/Kaimiro PS Ahuroa Waihapa bypass gas pipeline support Ahuroa gas storage operations $9m Cheal plant expansion plant expansion 2,000boepd 6,000boped gas export pipeline Source: Edison Investment Research

31 Outline 1. Shifting the lens upstream 2. Methanol, electricity and gas in NZ 3. Activity outlook & catalysts 4. Market outlook New Zealand Petroleum Sector Yearbook Prospectus

32 Outlook: Back to the future Market themes stack nicely against outlook presented at NZ Downstream 2012, many of which are still current

33 12-24 months: long market, Methanex to dominate demand-side Market to remain long on existing gas Methanex a key beneficiary: active procurer of both primary and resold gas, and now contracting long-term gas gas liquidity sufficient to support both plants at high capacity until at least Meth-2 turnaround significant implications for gas merit order access to gas swing competition in some market segments New near-term CCGT FID highly unlikely: recent-year generation overbuild likely to continue to weigh on wholesale prices and thermal utilisations cost curves clearly favour geothermal in baseload space incremental long-term gas not there to bank a $500m CCGT investment case SOE mixed ownership could weigh on appetite to advance big, marginal projects generation gas growth likely only at the margins Supply-side to firm on back of new capacity, both greenfield and near-field. Wholesale prices to soften.

34 2-4 years: life after Maui an increasing supply-side issue Market still long, caveated by Methanex and Maui s remaining life. Methanex Meth-2 turnaround more likely than not, FID early Unconventional North Island gas to prove itself or not. Unconventional South Island gas to prove itself or not. New CCGT build still unlikely, for the same reasons.

35 5+ years: next generation gas Conventional near-field: Pohokura, Kupe. Conventional exploration success > subsistence. South Island big gas comes into play, assuming exploration mandate and success. Likelihood of new CCGT build still only modest, with geothermal still more likely to be preferred as security margins reduce and prices rise. A significant gas find could provide a catalyst, particularly if and when Huntly units 1-4 are progressively withdrawn.

36 Takeaway themes Unconventional oil and gas has already changed the global energy equation NZ is primarily a gas-condensate province Focus to date has been on conventional, but unconventional plays are being actively advanced Above-ground risk in NZ is considered low, with discrete exceptions Below-ground risk is falling, particularly onshore Exploration activity already confirmed for the next months means 2013/14 has the potential to be looked back upon as a defining year in the future of the NZ energy sector, both upstream and downstream Commercial success in Canterbury Basin or GSB could prove to be transformational for NZ (let alone South Island) energy markets Demand-side gas completely dominated by Methanex, inferring an array of possible price and non-price implications and outcomes Can the NZ upstream sector finally graduate from fringe to mainstream?

37 New Zealand Petroleum Sector Yearbook New Zealand Petroleum Sector Yearbook Most detailed independent commercial analysis and forecast piece to date on the NZ oil & gas sector An outside-in analysis and resource to support understanding, position taking and decision making Access via corporate subscription Three components: 1. Analytical digest and outlook - >300 pages, 130 figures, 100 tables - five major sections - detailed data tables, annexes 2. Player profiles - >100 pages - qualitiative & quantitative profiles of 50 most significant players in NZ oil & gas sector New Zealand Petroleum Sector Yearbook Prospectus 3. Briefings, updates - workshop briefing(s) - through-the-year updates - supplementary material & resources

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