Key Trends & Market Outlook KSIDC Natural Gas Conference December 13, 2010 Kochi Gurpreet Chugh, Head CRISIL Infrastructure Advisory 1.
AGENDA Key Trends and Outlook GAS DEMAND GAS SUPPLIES SUPPLY INFRASTRUCTURE GAS PRICES & AFFORDABILITY 2.
Global Trends Global events of the last two years have set new benchmarks and spawned new thinking Reserves (Reserves increased due to success in previous E&P activity) Global proved reserves of natural gas grew by 2.21 trillion cubic meters driven by increases in Russia, Venezuela and Saudi Arabia. The global R/P ratio increased to 62.8 years Demand (Demand for gas reduced due to global recession) Global Primary energy consumption declined by 1.1% in 2009 (first decline since 1982) on account of global recession Natural Gas consumption fell by 2.1% in 2009 - largest decline on record. Consumption declined in all regions except Asia and ME Declining trend expected to be arrested in 2010 (numbers awaited) Production (global production declined, while US production increased) Global gas production declined for the first time on record due to lower demand US recorded world s largest increase in production (continued expansion of unconventional supplies) surpassing Russia as the world s largest Natural gas producer Prices (Gas Prices in US and Europe fell primarily due to oversupply) Prices have softened since the highs of 2008 US wellhead gas price in the range of 4 4.5 $/ MMBtu in 2010 impact of unconventional gas Source: BP Statistical Review 2010 3.
India - Macro Overview Source: 11 th Plan Planning Commission & Integrated Energy Policy Review Report As per Integrated Energy Policy Review (IEPR) Estimates at GDP growth rate of 8%, the total primary commercial energy will need to grow at 5.2% - 6.1% The elasticity for per capita primary commercial energy supply with respect to per capita GDP estimated from the time series data of India comes to 0.82 since 1990-91 The task of meeting the energy requirement has become more complex due to imminent threat of global warming. Current fluctuations in Oil prices and polluting nature of Oil and coal has made it very difficult to rely substantially on these for energy security. One of the way out is through increased supply of NG/ RLNG. Due to its inherent nature, it can address the issue of increasing pollution level and global warming. As per IEPR a potential of 97 MTOE of LNG imports is envisaged (equivalent to 80 MTPA of LNG) 4. Several factors expected to contribute to the changing fuel mix. Sizeable potential for Gas envisaged under IEPR.
AGENDA Key Trends and Outlook GAS DEMAND GAS SUPPLIES SUPPLY INFRASTRUCTURE GAS PRICES & AFFORDABILITY 5.
Gas Demand Assessment (pan India) 600 Power Fertilizer Industry CGD Total Demand 500 400 M MS CM 300 200 100 0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 Source: CRIS Analysis, Industry sources 1. The total demand in FY15 is estimated to be 300 MMSCMD 2. GDP Growth rate assumed at 8% as per IEPR 3. Infrastructure connectivity as planned 4. Gas Demand to increase considerably with increase in pipeline infrastructure 5. Sizeable demand from Non- Power & Fert sector (such Industrial & CGD) 6. Large untapped market potential for LNG suppliers 6.
Gas Demand Assessment: Changing Mix 2010 2025 6% 11% 24% 46% 29% 41% 24% Power Fertilizer Industry CGD 19% Power Fertilizer Industry CGD Source: CRIS Analysis, Industry sources Increased demand from Non- Power & Fert sector (such Industrial & CGD) non priority sector which will have to compete for gas sourcing 7.
Gas Supplies Estimation (pan India) 300 NOC Private / JVC CBM LNG Total Supply MMSCMD 200 100 0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 All India Supply volumes envisaged at 245 MMSCMD by FY15 Increase from the new discoveries of ONGC in the Southern basins of Cauvery and KG will help in maintaining the existing supply scenario by compensating for the decrease in the Western offshore Total supply from fields of private players to show significant increase in the medium term Long term contracts for the entire RLNG capacity has not been tied up by the various players 8. Source: CRIS Analysis, Industry sources
Gas Demand Supply balance (imbalance?) Supply- Demand All India 500 450 400 Total Demand Total Supply 350 MMSCMD 300 250 200 150 100 50 Mind the Gap! 0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 Source: CRIS Analysis, Industry sources Deficit of 65 MMSCMD envisaged during FY15 9.
Kerala Brief Profile Industry Segment Primary Secondary Tertiary Industry sectors Agriculture & Allied services, Forestry, Fishing, Mining & Quariying Manufacturing, Electricity/Gas and water supply, construction Transport, Tourism, Banking & other services Contribution to GSDP (FY09) at constant prices 12.42% 25.02% 62.56% Kerala is spread over a total area of 38,863 sq. km and is divided into 14 districts GSDP growth rate for the state stood at 6.98%(constant prices) in FY09 Key areas Retail, Tourism and IT sectors Industries - Power, Chemical, Fertilizer, Mineral and Rubber sectors 10.
Kerala Industrial Landscape Existing Industrial Area/zone Eloor Edayar Ambalamugal (Ernakulam) Alappuzha Kollam Veli and Kazhakuttam (Trivandrum) Aroor and Cherthala (Alappuzha) Thrissur Kanjikode Puddussery Walayar (Palakkad) Kannur Kozhikode Industry type Chemicals, Rubber, Electronics, engineering, marine, printing, IT Seafood, Coir Cashew processing, metals and minerals Textiles, rubber, minerals, IT Cold storage, coir, marine Rubber, tiles, engineering, chemicals Steel, Textile and Engineering, Cement Handloom, textiles and wood based Footwear, rubber based, wood based, tiles Industrialized Districts 11. Most of the industrial and commercial establishments concentrated in the coastal zone
Kerala Proposed Industrial Hubs Sno Name of the industrial hub Agency District Upcoming Industrial hubs 1 Textile centre KINFRA Kannur 2 Food processing park KINFRA Pathanamthitta Textile Center Mega Food Park 3 Small industries park KINFRA Pathanamthitta 4 Integrated Textile Park KINFRA (Kanjikode) Palakkad 5 Mega food park KINFRA Wayanad 6 Spices park KINFRA Idukki 7 Knowledge park KINFRA Thrissur & Kozhikode 8 Rubber park KINFRA Pathanamthitta 9 Electronic Hub (Kochi) KSIDC Ernakulam 10 Life Sciences Park KSIDC Thiruvanthapuram 11 General Purpose Park KINFRA Ernakulam Source KINFRA and KSIDC website Knowledge Park Knowledge Park Electronic Hub Integrated Textile Spices Park Food Processing, Rubber & Small Industrial Park Life Sciences Park 12. Efforts are ongoing to develop industrial hubs in non-industrialized districts
Kerala Existing and future gas demand Industrialized Districts Gas consumption sectors Existing gas demand MMSCMD (2010) Power Fertilizers Industrial TOTAL 2.53 1.52 1.53 5.58 Gas demand growth 2015 2020 2025 MMSCMD 26 31 36 13.
LNG Availability Global LNG Trade Movement (BP Stats 2010) Demand of LNG LNG Suppliers Source: BP Stats and CRIS Analysis All Figs in BCM (2007) LNG Importers in in Asia Pacific and ME regions primarily supply LNG to to Asia Pacific Region. Asia Pac regions supplies (99% of of its its LNG to to Asia Pac) and ME supplies 69% of of its its LNG to to Asia Pac 14.
LNG Availability LNG Availability for Asia Pacific Region REGIONS 2007 2008 2010 2020 2030 ASIA (ME + Asia Pacific) LNG LIQUIFICATION CAPACITY 119 124 192 215 215 LNG DEMAND (Asia Pac + ME) 113 117 117 173 197 LNG DEMAND (Europe) (catered by ME) 8 15 20 20 20 TOTAL LNG DEMAND 120 132 137 193 217 LNG WITH TRADERS (From ME & AP LIQUF. Capacity) 5 5 42 63 46 Source: IEEJ and CRIS Analysis 1. The LNG from Asia Pacific and ME region is primarily consumed in the Asia Pacific region, with some quantities to European market 2. In the 2007 and 2008 the Liquefaction capacity and demand were in balance situation, with Liquefaction capacity slightly above the demand from Asian market 3. However the Liquefaction capacity is going to significantly increase by 2010 against the increase in the demand There has been a considerable shift in in LNG supply scenario in in the Asia Pacific region with Liquefaction capacities envisaged to to be more than the demand from the region 15.
LNG Pricing LNG Pricing in Asia Pacific Region Key LNG Consumption points LNG Import & Demand in Asia Pacific Region- By Country Asia- Pacific Figs in MTPA Imports 2008 Demand- 2010 Demand- 2020 Japan 69 66 67 70 South Korea 27 30 39 41 Demand- 2030 Taiwan 9 9 12 14 India 8 8 20 26 China 3 5 21 28 Others 0 0 13 18 Source: IEEJ and CRIS Analysis 1. Japanese and Korean market contribute close 80%+ consumption in Asia Pacific region; the LNG consumption by these markets is expected to dominate in future also 2. These markets have high affordability levels due to absence of domestic natural gas 3. The deals of LNG in Asian market have seen higher indexation to JCC at 16% - 17% 4. India competes against the Japanese and Korean markets for securing the LNG from ME and Australia 5. India market has seen linkages at 12.5% and 14.5% and over near term negotiations can be targeted in the range, further customization on pricing has also been done (lower grading in the initial years) 6. However, In wake of surplus Liquefaction capacity, the LNG prices are expected to soften in Medium Term 16. Over the Medium Term, due to to Liquefaction capacity surplus, the LNG prices are expected to to soften
AGENDA Key Trends and Outlook GAS DEMAND GAS SUPPLIES SUPPLY INFRASTRUCTURE GAS PRICES & AFFORDABILITY 17.
Infrastructure Connectivity- Transmission Pipeline Existing Pipelines Potential Gas Pipelines Name of the P ipeline HVJ-DVPL-GREP Pipeline Dahej Uran, Dabhol- Panvel Pipeline East- West Pipeline Regional Netw ork Status Existing Existing E xistin g E xistin g 18. Significant development in in pipeline infrastructure; Close to to 14000 Kms of of transmission pipeline envisaged to to be operating by FY15.
CGD: More than 200 Cities under Bidding over next 2 years Licenses Awarded GGL - SONIPAT CHANDIGARH GHAZIABAD GGL -Agra GAEL- Faridabad IGL GGL - Lucknow CUGL GGCL- Surat, Ank, Bharuch Sabarmati Gas (GSPC Gas) VMSS Baroda GAEL A bad& Baroda GGL- MEERUT GGL- Kota GGL- MATHURA AGL M.P GGL- Dewas West Bengal MNGL- Pune YANAM MGL- Mumbai BGL KAKINADA BGL HYDERABAD BGL VIJAYWADA TNGCL - TRIPURA RAJMUNDRI UNDER IMPLEMENTATION CGD BIDDING (Round 1 & 2) IMPLEMENTED 19.
CGD: Two More Rounds for bidding coming up Cities under Bidding Round 3 Cities under Bidding Round 4 Jalandhar Ludhiana Kutch East Panipat Guna Shajahanpur Kutch West Bhavnagar Jamnagar Asansol - Durgapur Lonavla - Khopoli Alibaug - Penn Nalgonda Rangareddy - Medak Ernakulam Khammam 20.
Kerala Gas Infrastructure Development Key Infrastructure coming-up in Kerala: i. PLL Kochi- RLNG Terminal 21. ii. iii. Transmission Pipelines Kochi- Koottanadu- Bangalore- Mangalore Pipeline Kochi- Kayamkulam Pipeline Spur pipelines City Gas Distribution Infrastructure Ernakulam District announced under CGD Bidding Round- IV by PNGRB
AGENDA Key Trends and Outlook GAS DEMAND GAS SUPPLIES SUPPLY INFRASTRUCTURE GAS PRICES & AFFORDABILITY 22.
Gas Price and End Consumer Affordability Power The affordability is based on maximum affordable price of gas by a new generating station with Power Sales on PPA and Merchant Based Fertilizer New Fertilizer Units: Based on GOI policy of Urea price linked to IPP. Urea and Crude are highly correlated; Maximum gas cost at IPP supported Urea prices is computed Industry Based on alternate fuel prices (FO); FO (used for industrial consumption); FO forms a large part of energy consumption of process industrial units CGD Based on alternate fuel oil prices (FO) for Industry, HSD for CNG, Commercial and Domestic LPG for Commercial and Domestic Sector 23. Affordability based on alternate fuel cost
Affordability of Consumer Segments- Power Tariff for Long Term Power Sale (Recent Long Term Power Bidding Trends) Case-I bids won in the last 3 years are in the range of Rs. 2.72/ kwh to Rs. 3.29/ kwh Gas Based Power Plants will have to compete against this tariff to be competitive for adding generation capacity through Affordability of Gas Based Power Plants 1 The affordable cost by a power plant is envisaged to be in the range of 7.0 7.5 $/ MMBtu at Power Plant 1. Assumptions; CCGT technology considered Capital cost @ 3.5 Rs.Crs/ MW SHR of plant @ 1750 kcal/ kwh PLF of plant @ 90% NCV of Gas @ 8800 kcal/ SCM 24.
Affordability of Consumer Segments Affordability of Fertilizer, Industrial and CGD Key Assumptions 1. Fertilizer: affordability based on GoI policy of IPP linked urea price Crude at 80 $/ bbl; Fertilizer plant Energy consumption considered at 5.0 GCAL/ MT; RoE at 12% 2. Industry: Crude @ 80 $/ bbl; affordability at alternate fuel parity (Furnace Oil) 3. CGD: Affordability at alternate fuel prices for each category, Residential- Domestic LPG, Commercial- Commercial LPG, Vehicles- HSD, Industrial- FO 25. Power and Fertilizer sector shall remain dependent on Domestic Gas, G Industrial and CGD have higher affordability and RLNG may be an option
Conclusions Infrastructure 1. 1. Development of of Transmission pipelines to to lead better connectivity between Gas sources and consumption points 2. 2. CGD Infrastructure to to increase considerably Gas Demand- Supply Demand to to increase based on better infrastructure connectivity LNG to to contribute significantly new gas supplies Sizeable unmet demand envisaged new sources like Shale or or CBM? End- Consumer Affordability Industrial and CGD sectors to to offer higher affordabilites India and China emerging LNG markets in in South Asia Market LNG prices expected to to soften, considering surplus liquefaction capacity 26.
Key Messages Domestic Supplies from NELP are limited in the foreseeable future, and even then allocation will be done by EGOM LNG will form a very important component of Indian gas supply basket Unconventional gas from shale will this be the game changer like in the US? perhaps next year at this conference we will know better! Buyers need to focus on securing LNG while there is excess capacity in the market China will be the biggest competitor for sourcing the excess LNG available today 27.
CRISIL Risk and Infrastructure Solutions Limited A Subsidiary of CRISIL Limited, a Standard & Poor s company 28. www.crisil.com