Asia-Pacific Gas Market Developments Long Term and Short Term Predictions Sarah Fairhurst - O&M and Lifecycle Management Strategies for CCGT Power

Transcription

1 Asia-Pacific Gas Market Developments Long Term and Short Term Predictions Sarah Fairhurst - O&M and Lifecycle Management Strategies for CCGT Power Plants, 29 November 2013

2 The long title of this talk is: Evaluating how the current commercial climate has impacted and is impacting the energy market The competitive economy the struggle between European, American and Asian markets where does Asia fit? Energy supply and demand movements Assessing the security and reliability of gas supplies The future outlook for CCGT power plants and new investment in gas fired power generation in today s evolving market But in short, what I am actually going to talk about is: What is happening in the Asian gas market, why is it important, and how is it going to affect CCGT development in the next few years? 1

3 Per capital energy consumption (tonne of oil equivalent per person) Developing countries in Asia will need much more energy to drive their continuous economic growth Large energy growth potential in Asian developing countries if their economies continue to grow Canada United States China Malaysia Thailand Taiwan South Korea Italy Germany France Japan United Kingdom 1.00 Vietnam Indonesia 0.00 India Philippines GDP per Capita (1000 USD/person) 2 Source: BP statistics and World Bank

4 energy demand growth (Million tonnes of oil equivalent) Asia is expected to account for about 70 percent of net energy demand growth in , of which power sector taking up more than half of the share 5, energy demand growth 4,500 4,000 3,500 3,000 2,500 2,000 1,500 Non-Power Power Total 1, North America S & C America Europe & Eurasia Middle East Africa Asia Pacific 3 Source: BP Energy Outlook 2030 published in 2013

5 Likelihood But: Will that growth directly translate into growth in CCGT capacity, or something else? Gas is not just the fuel for your equipment, it s also the driver of market demand for gas-fired plant Likelihood of each technology being lowest Long-Run Marginal Cost (LRMC) at different capacity factors 100% 90% 80% 70% 60% 50% 40% 30% 20% F-class CCGT CFB subcritical coal 10% OCGT (2x9FA) 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Annual capacity factor This is an example from Philippine analysis using current LNG and coal prices Captures uncertainty from historical volatility of: Fuel prices Overnight capital costs WACC The gas price is a key input to this analysis: and defines both the likelihood of a CCGT being economic and also how much it right run if built 4

6 For high CCGT demand, the lower the gas price, the better Slightly simplistic, also need to take into account both the availability and price of competing fuels such as nuclear, coal and renewables In markets such as Europe, drivers of low emission and low carbon generation also tend to favour gas: In Asia these drivers are rare and limited only to a few developed markets And it also highlights the type of capacity factors that might be needed consider flexible plants because mid-merit and flexible operations are key when gas prices are high 5

7 The Asia, European and US gas markets show significant divergence USD/MMBtu Asia LNG price assuming slope NBP Henry Hub 6 Source: NYMEX, UK DECC, TLG

8 The divergence in gas prices globally is not news in the industry Even before the global financial crisis, gas prices in Europe, USA and Asia were not linked because flows between the markets did not exist Recent developments have just widened the gap between the markets: Shale gas in the USA has driven the US gas prices down and delinked from other markets The Fukoshima incident in Japan drove up Asian demand for LNG, driving up Asian gas prices But LNG now has resulted in more potential linkages between previously unlinked pipeline markets Shale gas and Japan are therefore the two most interesting features of the current global gas market and are key drivers of future supply, demand and pricing, so let s review each in turn 7

9 Why is Japan so important? In summary because: Huge impact on the diversions market Increase in volumes last two years mostly from short-term LNG Going after US LNG export capacity which is delinked from oil Faces almost unheard of fuel procurement uncertainty Premium on flexibility The following slides discuss each of these 8

10 mmtpa Trend in short term cargoes driven by Fukoshima The recent rise in short term cargoes has been driven by the need by Japan for LNG and the decline in demand for LNG in Europe. This was to a large extent forced on the industry but does highlight what we believe will be a growing trend. This is driven on the supply side by US LNG which is call on the very large pool of US gas. And on the demand side by uncertainty on the level of demand by buyers Short term Long term So what is the future of Japanese demand? 9

11 Will some of Japan s nuclear units restart? If so, how many and when? The nuclear reactors that have applied to restart so far are all on the west coast and total 10.6GW Tomari Takahama Ohi Ikata Sendai In addition TEPCO has aired the possibility that it would like to restart its Kashiwazaki- Kariwa facility which is also on the West coast However, there remains considerable local opposition to nuclear and each station will need support from the local population if it wants to restart Source:earthyissues.com 10

12 mmtpa The more nuclear restarts, the less LNG imports require the future is very uncertain 0-2 Nuclear capacity and change in LNG demand GW Half of Japan s post Fukushima fuel response has come from LNG and a quarter from fuel oil and a quarter from crude oil Japan has turned LNG into a flexible fuel source like oil For every ~10 GW of nuclear restarts LNG import requirements fall by about 4 mmtpa But how much and when? This uncertainty requires flexibility in LNG purchasing but also flexibility in operations 11

13 TWh In Japan, the competition for CCGT comes not just from nuclear: renewables uptake is another story Power generation by fuel type 1,200 1,000 Avoiding higher oil and LNG import costs makes renewables more attractive Japan has proceeded aggressively having attracted 3.5 GW of solar power to date There are various plans afoot to raise renewables to close to 25 percent of generation by While these have extra value due to environmental and a fuel displacement economics they also require flexible system support Nuclear Coal Gas Oil Biomass Wind Geothermal Solar Hydro 12

14 In summary, Japan remains highly uncertain so flexibility is now a key driver The amount of nuclear restarting, the timing of that restart and the uptake of renewables are all uncertain The uncertainty in Japan affects Japanese buyers but it also affects Asian buyers: Japanese buyers are looking for more flexibility to deal with the uncertainty Asian buyers are looking to flexibility to manage the uncertainty of price risks given uncertain Japanese demand 13

15 US LNG: The Flexibility Enabler Gas from the USA could significantly change the Asian gas landscape Significant supplies have been found and many projects are keen to export to Asia The structure of the US gas market is much more flexible than the Asian LNG market meaning a seachange in the way LNG is sourced and purchased may be coming The structure of the US gas market is inherently more flexible than other markets Large number of basins and vast pipeline network means that there are many sources of supply for LNG terminals 14

16 The many LNG export projects planned in the US and Canada could further disrupt global LNG pricing, depending on timing and demand Valdez LNG by Alaska Gasline Port Authority and others 18 mmtpa Alaska Douglas Channel Energy Partnership proposed a 0.9 mmtpa Pieridae Energy 10 mmtpa Kitimat LNG Chevron, Apache 10 mmtpa Canada Prince Rupert BG - 14 mmtpa project West Coast Canada ExxonMobil - 10 mmtpa project, expansion to 30 mmtpa 15 Existing terminals with proposed liquefaction Greenfield proposed liquefaction LNG Canada Shell, KOGAS, Mitsubishi, CNPC and Petrochina 12 mmtpa Jordan Cove by Jordon Cove Energy 8.7 mmtpa Gulf Coast LNG by Gulf Coast LNG Exports 23 mmtpa Freeport by Freeport LNG and Macquarie Energy 9 mmtpa; Expand by another 10 mmtpa by using FLNG US Sabine Pass T1-4 by Cheniere 18 mmtpa, with T5-6 adding another 9 mmtpa Cove Point by Dominion Cove Point 7.8 mmtpa Lake Charles by BG & Southern Union 15 mmtpa Cameron by Sempra 12.4 mmtpa Pacific Northwest - Petronas and Inpex - 12 mmtpa

17 Brent and Henry Hub forecast Key commodities Brent futures indicate a fall in real terms to 2020 due to a rise in oil production and exports from the USA. But we forecast a recovery from 2020 onwards. Henry Hub slowly makes a recovery to a level to justify investment in non-liquids shale gas, that will be needed to supply local and export markets. These two somewhat divergent trends have an impact on LNG price scenarios Brent USD Barrel Henry Hub USD MMBtu 16

18 Real USD MMBtu US LNG is cheaper than oil-linked LNG, but not perhaps as cheap as often thought High Case This reflects the premium that we believe reliable safe established sellers such as Qatar and Australia will aim to achieve: a slope of near 15 linked to Brent. Australia also needs this kind of price formula to justify investment in new LNG plant. Mid Case This is set by suppliers such as East Africa who will be new to the game will have to price themselves into the market. We assume a 13.5 slope half linked to Brent and the other half to Henry Hub. Low Case High Mid Low This is Gulf Coast USA Henry Hub times 1.15 and liquefaction of USD 3 mmbtu. For shipping we have assumed half goes via Panama and half goes east. This Low Case rises through to the middle of next decade as Henry Hub recovers even as Brent falls

19 US LNG it s not about the price as much as it is about the flexibility. A NEW MODEL US LNG buyers contract for liquefaction capacity. When they want LNG they buy it at Henry Hub prices. Then they can take it anywhere they want resell or for own use. Tap can be turned on and off at will. The LNG price is not linked to oil. AROUND FOR THE LONG TERM US domestic demand for natural gas is close to 24 Tcf/year and the nation has recoverable resources of some 2,200 Tcf, according to EIA data. NOT EASILY REPLICATED This contrasts with the Western Canadian LNG projects which are more typical in that they specify a source of gas, will build dedicated new long pipelines to get the gas to the coast, and develop liquefaction plants and then sell the LNG. Projects have some buyer participation but at the moment are led by traditional LNG majors and aspirants. Pricing might be oil linked or linked to AECO (Canadian version of Henry Hub). 18

20 Liquefaction capacity, mmtpa Australia developing traditional LNG for Asia, with US LNG coming a few years later LNG liquefaction projects under construction/reached FID, Arzew GL3Z PNG LNG Donngi-Senoro QC LNG T1 Gorgon T1-3 QC LNG T2 AP LNG T1 GLNG T1 Petronas FLNG1 AP LNG T2 GLNG T2 Wheatstone T1-2 MLNG T9 and Petronas FLNG2 Sabin Pass T1-2 Ichthys T1-2 Prelude FLNG Sabine Pass T3-4 The near term LNG capacity will be mainly from Atlantic basin, which used to export LNG to Europe and US. With the low demand in Europe and no demand in US, most of the new Atlantic LNG is expected to be directed to Asia Angola T1 Skikda GL2K Large amount of new committed LNG volumes from Australia will start to enter the market from 2015 onwards. 0 Source: TLG analysis Australia USA Others US LNG will start to export to Asia from

21 Liquefaction capacity, mtpa The flexible and swing segment of the Asian LNG market reaches nearly 30% of new capacity by 2017 LNG liquefaction projects under construction/reached FID, Portfolio players (such as BG, BP, Shell and Total etc) have contracted 18.1 mmtpa of LNG from the committed LNG capacity, which have no firm destination mmtpa of LNG is also uncommitted for the committed LNG liquefaction capacity Likely increase the flexibility and dynamics of LNG trading in the future All these could lead to more flexible LNG trading in the future 0 Committed to Japan, Korea and Taiwan Committed to China and India Committed to others Portfolio players* Uncommitted Total Note: Portfolio players share exclude the volumes that are committed to buyers in a specific project Source: TLG analysis 20

22 Out of the total of about 200 mmtpa of capacity applied to the DOE, 46 mmtpa has been approved for export to non-fta countries Group Project Requested volume, bcfd Non-FTA approved Non-FTA pending, filed w ith FERC Non-FTA pending, prefiled w ith FERC Non-FTA pending, no FERC pre-filing Only applied for FTA license DOE application FERC application Capacity, mmtpa FTA approved Non-FTA application submitted Non-FTA approved / DOE order Pre-filling completed Filing completed Filing approved Terminal total Sabine Pass Freeport Lake Charles Dominion Cove Point Freeport Cameron Jordan Cove Point Oregon LNG Corpus Christi Excelerate Southern Gulf LNG Sabine Pass 5-6 Total Sabine Pass 5-6 Centrica Sabine Pass 5-6 Uncommitted 0.9 pending CE FLNG Gulf Coast Golden Pass Pangea Main Pass Venture 0.7 pending Waller Magnolia Gasfin Group total

23 The North America LNG projects in are poised to amplify the disruptive influences of Japan (demand uncertainty) and Australia, East Africa (new supply) LNG Liquefaction Capacity, mmtpa Under Construction or reach FID ( ) Likely projects ( ) Other announced projects Australia US Canada US LNG exports will be free on board and so be more flexible on destination restrictions and allowing re-exports and diversions. Canadian LNG exports will be more like traditional LNG projects with developers investing from upstream, pipelines and liquefaction plant. Africa Other countries Buyers have bought 30% in the Mozambique LNG (2x10 mtpa) project Total The large volume of potential flexible Henry Hub-linked LNG from US and maybe Canada could have disruptive force in long term LNG trading, new contract negotiation and re-negotiation of existing contracts. 22

24 THE FUTURE OUTLOOK 23

25 With uncertainties in future fuel mix, regulation and domestic gas production, most Asia countries are looking at LNG China and India: Domestic unconventional gas production Scale of imports of piped gas Possible entry of new domestic LNG buyers Rate of push for more gas in power generation JKT: Rate of nuclear restarts in power generation Liberalization of gas sectors which allow more players to procure LNG There are many inherent uncertainties in the buyers domestic gas sector, which could incentive the buyers to negotiate for more volume flexible and shorter term LNG contracts LNG Demand uncertainties. In countries that have significant domestic gas production such as China and India, LNG demand in the long term would depend on how successful their unconventional gas production will be, and also by piped gas imports. ASEAN: Need for LNG in power generation Domestic gas production could be incentivised Regional Hub LNG trading Liberalization of the gas sector in the domestic buyers market. It is possible that some buyers will have a more liberalized gas and power sectors in the medium and long term, which allow more domestic players to procure LNG. Thus, the risks of overcontraction could be high for the current incumbent LNG buyers committed to a 20 or 25 years long term contract with little volume flexibility. 24

26 Cost/Price (USD mmbtu) But in many cases there is still domestic gas in the ground that would happily leap to market if it could access the Asian LNG price.. Rent Domestic Supply Curve Foregone Value Potential Domestic Supply Curve Supply LNG Supply Thailand Example Demand Across many parts of the developing world and in Asia there is often the cry shortage of gas. But, more often than not, it is due to a breakdown in the pricing signals, or sometimes due to the incumbent monopoly blocking gas transportation. Or else a strong adverse reaction by the local government to lift local prices to encourage production. Often we see dis-continuous price / cost curves all across Southeast Asia, with the exception of Singapore. How quickly will they disappear? 25

27 mmtpa Huge volume uncertainties for which emerging LNG supply infrastructure capability is poised to assist LNG demand by country Thailand could probably delay the steep rise in LNG imports by offering a higher price for domestic piped gas. Philippines might start importing limited quantities by 2020 which would be affected by seasonality and rate of coal build which would require flexibility in supplies. Malaysia demand could be hampered by delays in domestic gas pricing reform. New supplies of LNG to Singapore might undercut the price of contracted supplies All of which adds up to uncertainty which will require flexibility. Thailand Indonesia Philippines Malaysia Singapore Vietnam 26

28 New markets for LNG can even take higher LNG prices if necessary the key is flexibility and lower volumes Indonesia There is about 2,000 MW of effective dieselfired power plants outside the island of Java. These consumer the diesel equivalent of over 3 mmtpa of LNG If only the infrastructure could serve them, the savings against diesel would likely pay for smaller scale and break-bulking type operations Philippines The Philippines has 3,000 MW of on-grid diesel and fuel oil power stations Furthermore, off-grid and micro-grid capacity exists given the isolated nature of some regions These oil-fired plants consume the equivalent of nearly 1 mmtpa of LNG. LUZON L U Z O N V I S A Y A S MINDANAO M I N D A N A O 27

29 China is learning quickly about the price of gas but it has a long way to go to develop the full required infrastructure and arrangements needed West Siberia to China East Siberia China US$/MMBtu Note: City gate prices for incremental gas supplies under the new pricing mechanism, USD/MMBtu

30 Bcma China s power sector is not poised to be a big gas player until power sector reforms take place we still see this as years away (it s a big job) Natural gas demand by sector Demand could accelerate further especially from power generation. If power pricing is reformed to give mid-merit gas fired power a price that makes them profitable then demand for gas should rise A further push could come from policy response to lessen pollution in cities coupled with carbon pricing Bcma mmtpa Commercial Industry Residential Others Transport Power Generation Export to Hong Kong 29

31 Where does this leave the Asian gas market? Post Fukushima Japan has been a sledgehammer on the LNG market High demand has pushed up the Asian LNG price, meaning competition with coal in the baseload sector is tough Huge value on flexibility Buying power to gain access to US LNG and now with the incentive US LNG is entering a new phase in terms of potential impact on Asia Not as cheap as might be expected But very flexible Flexibility is becoming much more important and valuable throughout Asia China and India are still behind, but SE Asia is poised to reap benefits if regulatory and policy settings will allow 30

32 The good news is CCGT plant can operate in many segments of this market If LNG prices do fall significantly, CCGT s can compete with coal as baseload plant in some markets If LNG prices remain high, CCGT s remain economic in the mid-merit segment of the electricity demand curve Mid-merit and peaking uses could still displace oil in many places in Asia Manufacturers and operators need to have a strategy that encompasses different global LNG price scenarios: targeting flexibility at high prices with the option for low cost baseload if prices fall Selling CCGT equipment in these markets means understanding the markets and ensuring that customers understand the features of your equipment that add most value: understanding gas markets and economics can help you to do this. 31

33 Thank you For more information please contact us: Power Utilities Energy Insight By Direct Communications Rigour By phone (office) Value By mail Tower 1, Metroplaza 223 Hing Fong Road, Kwai Fong, Hong Kong Online 32