The LNG economy environmental panacea or tariff disaster? Tom Parkinson 27 September 211
Agenda SE Asia supply/demand LNG regasification prospects Impact on average gas prices Impact on marginal gas prices Conclusions 1
Agenda SE Asia gas supply/demand LNG regasification prospects Impact on average gas prices Impact on marginal gas prices Conclusions 2
Petajoules (PJ) Gas production in SE Asia appears to be keeping pace with consumption 9 8 Production 7 6 5 4 Consumption 3 2 1 21 22 23 24 25 26 27 28 29 Source: OECD, World Natural Gas Statistics 3
Consumption (PJ) Malaysia, Indonesia, and Thailand are the major regional consumers 7 6 5 4 3 2 1 Brunei Myanmar Philippines Vietnam Singapore Thailand Indonesia Malaysia 21 22 23 24 25 26 27 28 29 Source: OECD, World Natural Gas Statistics 4
Production (PJ) These three countries are also the largest regional producers 9 8 7 6 5 4 3 2 1 Brunei Myanmar Philippines Vietnam Singapore Thailand Indonesia Malaysia 21 22 23 24 25 26 27 28 29 Source: OECD, World Natural Gas Statistics 5
Consumption (PJ) Thailand and Singapore are already net consumers 35 3 25 2 Malaysia 15 Singapore Thailand Indonesia 1 Philippines Vietnam 5 Myanmar Brunei 5 1 15 2 25 3 35 Production (PJ) Source: OECD, World Natural Gas Statistics 6
Petajoules (PJ) PetroVietnam Gas Corporation projects a growing supply gap Gas Supply Base Case Demand High Case Demand 1 8 6 Supply Gap 4 2 21 211 212 213 214 215 216 217 218 219 22 Source: PetroVietnam, Vietnam Gas Industry & LNG Report, November 21 7
Petajoules (PJ) Similarly, Peninsular Malaysia faces a supply gap JDA West Natuna B Existing Domestic New Domestic Gas Demand 2 16 12 Supply Gap 8 4 27 29 211 213 215 217 219 221 223 225 227 Source: Tenaga National Berhad, Gas Requirement for Power Sector in Peninsular Malaysia, 28 8
Petajoules (PJ) Even Indonesia will struggle to maintain its current production levels Contracted Export Potential Domestic Demand Projected Supply 12 Contracted Domestic Demand Existing Supply Potential Supply 1 8 6 4 2 21 211 212 213 214 215 216 217 218 219 22 Source: bpmigas, Indonesian Crude Oil and Gas Market, June 21 9
Agenda SE Asia gas supply/demand LNG regasification prospects Impact on average gas prices Impact on marginal gas prices Conclusions 1
LNG regasification is filling the production gap Liquefaction Regasification Operating Constructing Planned Rayong Bataan Batangas Possible Vung Tao Arun Brunei Satu/Dua/Tiga Medan Singapore Nusantara Semarang Bontang Donggi- Senoro Tangguh 11 Source: TLG compilation from various online sources Abadi
SE Asia regasification projects Project Location Online Date Capacity (MTPA) Map Ta Phut Rayong, Thailand 211 5 (to 1) Nusantara FSRU Jakarta, Indonesia 212 3 Singapore Singapore 213 3 (to 6) East-Central Java FSRU Semarang, Indonesia 213 3 Medan FSRU Medan, Indonesia 212 2 Vietnam Vung Tao, Vietnam 215 1 (to 3-6) Bataan Bataan, Philippines?? Batangas Batangas, Philippines?? Source: TLG compilation from various online sources 12
Capacity (MTPA) Regional regasification capacity could exceed 25 MTPA by 22 3 25 2 15 Vung Tao Semarang Singapore Jakarta Medan Rayong 1 5 211 212 213 214 215 216 217 218 219 22 Source: TLG compilation from various online sources This regas capacity is roughly equivalent to Thailand s current consumption 13
Agenda SE Asia gas supply/demand LNG regasification prospects Impact on average gas prices Impact on marginal gas prices Conclusions 14
Delivered Gas Price ($/GJ) Legacy gas prices are increasing throughout the region 15 14 12 1 8 6 4 2 Malaysia Thailand Indonesia (Average) Indonesia (Marginal) Philippines Singapore 2 21 22 23 24 25 26 27 28 29 21 Source: TLG compilation from various online sources and associated analysis 211
LNG Price ($/GJ) In SE Asia, LNG prices are pegged to oil prices via an S-curve 16 14 12 1 8 6 4 2 2 4 6 8 1 12 Oil Price ($/bbl) Source: Andy Flower, Key Trends in LNG Markets in Asia, May 211 16
Delivered Gas Price ($/GJ) Delivered LNG prices are well above delivered cost of legacy gas 18 16 14 12 1 8 6 4 2 LNG (Thailand @ $1/bbl oil) Indonesia Malaysia Thailand Phiippines Singapore Source: TLG compilation from various online sources and associated analysis 17
Gas pooling mitigates impact of LNG prices Thailand example Legacy Gas Gas Separation Pool 1 Excess IPPs and SPPs EGAT Single Buyer Pool 2 EGAT Generation LNG 18
Gas Price ($/GJ) Nonetheless, average Pool 2 prices could grow at triple the rate of inflation 25 2 LNG 15 Pool 2 1 5 Legacy 211 213 215 217 219 221 223 225 Source: TLG analysis 19
Agenda SE Asia gas supply/demand LNG regasification prospects Impact on average gas prices Impact on marginal gas prices Conclusions 2
Despite pooling, marginal cost of generation is set by LNG price Legacy Gas Gas Separation Pool 1 Excess IPPs and SPPs EGAT Single Buyer Pool 2 EGAT Generation LNG + 7.35 GJ + 1 MWh 21
Real Levelised Cost ($/MWh) Pooling can distort incremental investment decision-making 14 12 1 8 6 4 2 Fuel O&M Capital Coal Gas (Legacy) Gas (Pool 2) Gas (LNG) Source: TLG analysis 22
Carbon Emission (tonnes/mwh) Real Levelised Cost ($/MWh) Implicit carbon price is set by marginal investment economics 1. 16.8 14 12.6.4.2 1 8 6 4 2 Carbon Price = $144/tonne. Coal Gas Coal Gas 23 Source: TLG analysis Substitution of gas for coal in SE Asia implies a very high carbon price
Average 211 Gas Price ($/GJ) Lower gas prices would make carbon offsets less expensive in US and Europe 18 16 14 12 1 8 6 4 2 US (Henry Hub) UK (NBP) SE Asia (LNG) Source: Bloomberg, TLG analysis 24
Agenda SE Asia gas supply/demand LNG regasification prospects Impact on average gas prices Impact on marginal gas prices Conclusions 25
Conclusions SE Asia is facing a supply gap, even in countries with surplus gas LNG liquefaction / regasification can meet rising gas demands Pooling arrangements can mitigate the effect of LNG prices nonetheless, average gas prices will increase sharply Pool pricing can mask the underlying marginal costs and thereby distort consumption and investment decision-making Implicit carbon prices in SE Asia will be set by the gap between coal and gas generation economics based on LNG prices Lower gas prices in the US and Europe may dictate lower carbon values. 26
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