11 th Asia Natural Gas Markets

Transcription

1 11 th Asia Natural Gas Markets THE DEMAND FOR LNG FROM ASIA S POWER MARKET Tony Regan TRI-ZEN International Pte Ltd Singapore

2 CONTENTS The call from power an overview of the likely evolution of demand for LNG from the Asian power sector: Global overview; gas and power, growth trends Asian overview, gas and power growth trends Energy investment Reality check Gas to power 2004 v 2015 The new reality LNG supply demand Conclusion

3 GLOBAL GAS SUPPLY/DEMAND BY REGION 2003 Global gas consumption 2003 Global gas production 2003 Middle East 9% Africa 3% Asia Pacific 13% North America 30% Middle East 10% Africa 5% Asia Pacific 12% North America 29% Europe (incl. Eurasia) 41% S & Central America 4% Europe (incl. Eurasia) 40% S & Central America 4% Source: BP & EIU

4 GLOBAL GAS SUPPLY/DEMAND BY REGION 2007 ESTIMATE Global gas consumption 2007 est Global gas production 2007 est Middle East 9% Africa 2% Asia Pacific 14% North America 28% Middle East 12% Africa 6% Asia Pacific 12% North America 26% Europe (incl. Eurasia) 42% S & Central America 5% Europe (incl. Eurasia) 39% S & Central America 5% Source: BP & EIU

5 GLOBAL GAS CONSUMPTION (Tcf) Middle East, 8.3 Asia, 11.6 North America, 27.4 Middle East, 12.6 Asia, 18.1 North America, 34.8 Europe/Eurasia, 38.9 Central and South America, 3.6 Africa, 2.4 Europe/Eurasia, Tcf Tcf Central and South America, 5.6 Africa, 4.1 Source: DOE EIA JUNE 2005

6 GLOBAL GAS AND ELECTRICITY DEMAND Electricty consumption Global gas demand 30, , , Bn KWh 15,000 Tcf , , Global Asia Global Asia Power demand growing fast in Asia Gas growth is less as coal dominates Asia s power sector Asia expected to have a 35% share of global power, 17% of global gas demand will be in Asia Source EIA

7 FUEL SHARE OF ELECTRICITY GENERATION 10 0 % % % 40% % % Source: EIA Oil Natural Gas Coal Nuclear Renew ables

8 ASIAN GAS AND POWER DEMAND Asian power consumption Asian gas demand 30, , , Bn KWh 15,000 Tcf , , Source: EIA DOE July 2005

9 ASIA PACIFIC GAS SUPPLY DEMAND BALANCE Asia Pacific Gas Supply/Demand Bcm Increasing Deficit (Bcm): Bcm Bcm Gas production Gas consumption Source: BP & EIU

10 ASIAN GAS DEMAND FORECAST 2015 v 2004 Bcm A ustralia China India Indo nesia Japan M alaysia P akistan P hilippines Singapo re So uth Korea Taiwan Thailand Vietnam

11 ASIAN POWER DEMAND FORECAST 2015 v 2004 Twh A ustralia China India Indo nesia Japan M alaysia P akistan P hilippines Singapo re So uth Korea Taiwan Thailand Vietnam

12 ENERGY INVESTMENT PER YEAR The power sector will absorb 62% of global energy investment in the period (IEA World Energy Outlook) The largest investors will be China and India where over 80% of energy investment will go into power. China average annual investment in gas: US$ 2.2 bn US$ 3.2 bn US$ 4.6 bn

13 ASIA GAS & POWER A SUMMERY Huge expansion of power generation capacity will lead to increased gas growth: % inc Electricity demand (TWh) 5,489 9, Gas demand (Bcm) Gas to power (Bcm) Gas takes a larger share of primary energy and of power generation

14 REALITY CHECK Many forecasts are highly suspect as they do not reflect the impact of $50 bbl+ oil: IEA reports are still based on 2003 actuals. China most figures quoted relate to the last Five Year Plan. Inputs to that date from the late 1990 s Japan most forecasts were drawn up assuming Japan will remain in the doldrums with GDP and gas growth of less that 1% per annum- the new reality Japanese utilities are forecasting that consumer demand will increase by 5% in 2006 (EIU Feb 2006) Gas is no longer the preferred fuel for power generation looks expensive, particularly China. Gas demand running ahead of supply (supply +infrastructure) expect gas prices to firm further, particularly as in some Asian countries the pull from city gas is even stronger than for power (in particular, Korea)

15 REALITY CHECK FUEL COST 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 42% 43% 39% 35% 14% 13% 10% 4% LNG Oil Coal Nuclear/Hydro Gen Mix Fuel cost Coal/nuclear & hydro are 82% of the generating mix but 45% of the fuel cost LNG 14% of the generation mix but 42% of the fuel cost KEPCO FY 2005

16 REALITY CHECK - GAS PRICES (US$/mBtu, average) US Henry Hub EU (cif) UK Nat. Balancing Point Japanese LNG Sources: BP, Natural Gas Week, Economist Intelligence Unit. Japanese LNG contract prices have increased by over 40% since 2003 In 2004, the cost of LNG increased more than 50% making it the most expensive fuel choice (EIA on Taiwan) US LNG imports are expected to go from 12 mill tonnes in 2005 to 105 mill tonnes in 2015 (Wood Mackenzie). Expect further upward pressure on prices - $10 mmbtu contract prices?

17 REALITY CHECK RESURGENCE OF COAL The new reality: Major power generators advise that current global orders for electricity turbines are 40% coal and 25-30% gas compared with 60% gas during the period (EIU Feb 2006) Prices for internationally traded coal have increased considerably Newcastle Coal Price Index (US$ mt) but several of the major Asian power consumers have access to large reserves of cheap indigenous coal. In particular, India, China and Indonesia. New technology (Pulverised, fluidised, gasified coal) addressing many environmental reservations Power lobby in China has reservations about gas whilst being very pro coal. Hoping to reduce environmental and logistics problems by heavy investment in clean coal technology. China Huaneng Group hope to build the first zero emission coal fired power plant Coal bed methane extraction could supply 14 Bcm of gas in China (China Coal Info Assoc), coking ovens produce 76 Bcm a year in China 20 Bcm could be recovered

18 REALITY CHECK - NUCLEAR Concern about gas shortages in Europe and USA has reopened the nuclear debate. Expansion of nuclear capacity became a key note point for discussion at the G8 summit in St Petersburg with barely a whimper of resistance. Several countries including UK, Germany and US are officially reconsidering nuclear policy. US offering tax credits for nuclear plants Vendors are suggesting 18-44% cost reduction for next generation nuclear plants. Generating cost for nuclear could be close to coal by 2015 (6 cents/kwh v 5.7 cents KWh for coal. (EIA model for plants in USA) In NE Asia there are already 88 nuclear plants in operation, 12 under construction and plans for a further 29 by Asia has always been more supportive of nuclear and renewed interest could lead to early commissioning of plants currently stalled/go slow in Korea, Taiwan, Japan and India China planning for add 30 new nuclear reactors over the next 15 years to add to the nine it already has at two nuclear plants. Korea planning to add 26.5 GW by 2015 to take nuclear s share of electricity generation to 47%

19 REALITY CHECK - SUPPLY The conventional wisdom is that gas production may have peaked in Indonesia and Malaysia and that India and China have modest potential to grow their reserves. This is being challenged: $50+ oil has lead to a substantial increase in Exploration and Production activity: China gas production increased by 22% to 49.9 Bcm in % since 2000 China- March Sinopec announce a large gas discovery in Sichuan Reserves of 250 Bcm with production at 4 Bcm by 2008 and 8 Bcm by 2010 China International E&P companies bringing expertise to onshore fields (Shell & Total) India several gas finds, in particular, 14 Tcf by Reliance Gulf of Thailand being developed Joint Development Agreements (Myanmar/Thailand, Malaysia/Thailand, Thailand/Vietnam, Malaysia/Vietnam) has stimulated E&P activity. Much of Asia still lightly explored. New seismic and drilling technology expected to lead to substantial increase in commercial reserves South China Sea probably next area for attention if territorial disputes can be resolved and joint development agreements concluded. The inducement a very optimistic Chinese study suggests gas resources as high as 200O Tcf in the entire South China Sea. The Spratly Islands may have reserves sufficient to support production of about 2 Tcf per annum.

20 REALITY CHECK PIPELINE GAS Until recently, most forecasters discounted the possibility of major cross border movements of gas by pipeline. Seemed politically too difficult with plans for gas from Russia to China and Korea, Iran to Pakistan & India, stalled after over 10 years of discussion. Substantial supplies of pipeline gas now look a possibility: Russia/China have signed an MOU to supply Bcm per annum from East Siberia and Bcm from West Siberia. These are higher figures than discussed earlier and exceed China s forecast deficit until about 2017 Korea expected to benefit by an extension of the East Siberian line from China to Korea Sinopec and Rosneft have signed a JV agreement to develop Sakhalin III (gas reserves of 315 Bcm) The Iran-Pakistan-India pipeline (44 Bcm) has progressed from technical discussions to commercial negotiations. (Still politically sensitive) India discussing pipeline gas from Myanmar Bangladesh and Turkmenistan have the potential to supply substantial quantities by pipeline. Turkmenistan has offered China 30 Bcm of gas from 2009 Thus over 150 Bcm of pipeline gas is being offered into Asia to meet a total demand that is forecast to grow by about 280 Bcm by 2015.

21 GAS TO POWER IN ASIA 2015 v Australia China India Indonesia Japan Malaysia Pakistan Philippines Singapore South Korea Taiwan Thailand Vietnam Bcm

22 THE NEW REALITY The world is moving slowly from a hydrocarbon era towards a hydrogen era and during the probably long transition period previously unconventional energy sources will eventually make a significant contribution. Oil prices are expected to remain high (over $30 bbl) and this has stimulated considerable new investment in wind, solar, wave energy, coal to gas & liquids, coal bed methane extraction, gas to liquids. This has also increased confidence in the availability of renewable power sources such as hydro, wind, solar. Most of this new capacity will be used for power generation. However, all of this nibbles away at gas use (1-5% changes) rather than having a dramatic effect (20-50% change). Of greater impact in the Asia gas market will be the availability of pipeline natural gas from Russia and Central Asia. This will stimulate the development of Asian gas markets but could reduce the call on LNG

23 PROJECTED LNG IMPORTS NO PIPELINES Japan Korea Taiwan India China USWC Ot hers Source: ABARE June

24 PROSPECTS FOR LNG DEVELOPMENT - SUPPLY Current & potential LNG capacity - Australasia Mill tonnes Brunei Malaysia Arun Badek Bontang 1 Tangguh Donggi NWS T1-3 NWS T4 Darwin LNG NWS T 5 Greater Sunrise Gorgon Pilbra Pluto Browse

25 PROSPECTS FOR LNG DEVELOPMENT MIDDLE EAST SUPPLY Mill tonnes Das Island Adgas 1 Das Island Adgas 2 OLNG Qalhat Qalhat LNG Qatargas 1 T1-3 Qatargas 1 expansion Qatargas 2 T1 Qatargas 2 T2 Qatargas 3 T1 Qatargas 4 TI RasGas 1 Ras Laff an RasGas 2 Ras Laff an RasGas 2 T3 RasGas 2 T4 RasGas 2 T-5 RasGas 2 T6 RasGas 2 T7 Bal Haf LNG

26 PROSPECTS FOR LNG DEVELOPMENT SUPPLY / DEMAND BALANCE 2011 Supply (mill tonnes) Middle East 109 Australia/South East Asia 116 Total 225 Demand (mill tonnes) Asia Pacific 130 BUT: Substantial quantities of Middle East LNG go west and all recent contracts have been for western destinations Asian production cannot meet Asian demand

27 POSSIBLE IMPACT OF PIPELINE GAS SUPPLY ON LNG DEMAND Currently forecast LNG demand projections Mill tonnes China Korea India Potential pipeline supply from 2012/13 Russia (mill tonnes) Iran (mill tonnes) 10 Potential LNG demand Potential LNG demand Possible, but unlikely as both China and India are likely to continue to take LNG for flexibility and supply security

28 LNG DEMAND POSSIBLE IMPACT OF PIPELINE GAS Lower call on LNG if pipeline gas available Japan Korea Taiwan India China USWC Others

29 CONCLUSION Market is in transition with two potentially very large gas markets (China and India) just starting to emerge Current forecasts are probably unrealistic as they tend to be conservative, made in a lower price era and have therefore not fully absorbed the potential of new non traditional supplies that have become economically viable in a high price era. Gas to power demand in Asia expected to double over next ten years to about 430 Bcm in 2015 Gas to power faces competition from renewables but losses to renewables could be made up by growth in city gas. LNG demand expected to increase from 89 mill tonnes in 2004 to about 160 mill tonnes in 2015 Possible pipeline gas supplies could reduce LNG demand in 2015 by between 30 and 60 mill tonnes Increased domestic production may impact LNG demand Liberalisation of markets will probably favour gas. All figures are conservative. A liberalised China, Korea and India could see gas demand grow much faster

30 Thank you Tony Regan, Principal Consultant TRI-ZEN International Singapore and Shanghai Jakarta Hanoi Bangkok Mumbai Los Angeles Vancouver Melbourne Perth A business consulting company providing advisory services to the upstream and downstream energy, power, oil and gas industries in Asia Pacific.