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Changing Landscape of LNG Business in the APEC Region
APEC Workshop on APEC Energy FutureUlsan, Korea
22 August 2005
Yonghun Jung, Ph.DVice President
Asia Pacific Energy Research Centre, Tokyo
Table of Contents• An Outlook of Natural Gas
– APEC Energy Demand and Supply Outlook
• Drivers for Natural Gas– Ease of use, clean, and market development
• LNG and PNG– LNG is preferred choice
• LNG Developments– LNG Outlook– Supply and Demand– Flexibility
• Barriers for LNG Developments– Economic, Financial and Regulatory Barriers
Total Primary Energy Supply in APEC (1980-2020)
Source: APERC (2002), “APEC Energy Demand and Supply Outlook 2002”
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
1980 1990 1999 2010 2020
Mtoe
Oil Coal Gas Hydro Nuclear New and Renewables
Oil 2.1% p.a.
Coal 2.1% p.a.
Natural Gas 2.6 % p.a.
Hydro 2.7 % p.a.
Nuclear 1.7 % p.a.
NRE 1.1 % p.a.
TPES growing at an annual rate of 2.1 percent (1999-2020)
Outlook for Natural Gas by Region(1980-2020)
Source: APERC (2002), “APEC Energy Demand and Supply Outlook 2002”
Note: IEA data for Viet Nam is available from 1986 onwards and Russian data is available from 1992 onwards, hence these are respectively included from 1990 and 1999 onwards.
0
500
1000
1500
2000
2500
1980 1990 1999 2010 2020
Mto
e
North America Latin America Northeast AsiaSoutheast Asia Oceania ChinaRussia
1980-1999 1999-2020Russia 2.0%China 4.2% 8.3%Oceania 5.6% 2.6%Southeast Asia 10.7% 3.9%Northeast Asia 7.2% 3.3%Latin America 3.1% 6.3%North America 0.7% 1.8%
Annual Growth Rate of Natural Gas by
Region
Natural Gas: Incremental Growth by Sector and Region
(1999-2020)
0
100
200
300
400
500
600
Powergeneration
Industry Transport Commercial Residential
Mtoe
Oceania
2%
Russia19%
North America34%
LatinAmerica
12%NortheastAsia10%
SoutheastAsia9%
China14%
Source: APERC (2002), “APEC Energy Demand and Supply Outlook 2002”
North America, Russia and China absorb two-thirds
Power sector will drive natural gas demand growth
Why Natural Gas?
• Easy to use• Clean
– Neither SOx, nor NOx– Urbanization
• Mature market– Competitive price– Many sellers and many buyers
Two Modes of Transportation
• LNG (Liquefied Natural Gas) and PNG (Pipeline Natural Gas)
• Determining Factors– Distance, Volume and Destination (Blue Stream Project)
• LNG: Popular and preferred choice– Strong gas demand in ever growing power sector– LNG is growing more rapidly due to the relative cost
reduction, abundant supply, mature technology, and increasingly flexible contract terms and conditions
Transportation Costs by Types of Natural Gas Trade
Source: APERC (2000), “Natural Gas Infrastructure Development in Northeast Asia”
1,000 2,000 3,000 4,000 5,000 10,000
0
1
2
3
4
5
6
7
Sakhalin II
Qatar
AlaskaNatuna Yakutia
Gorgon
Irkutsk
$/MMBTU
Kilometres
LNG
PNG
6,000 7,000 8,000 9,000
Tangguh (Fujian)
ALNG (Guangdong)
US Net Imports of Natural Gas, 1970-2025 (trillion cubic feet)
Source: Energy Information Administration (2003) and (2004), “Annual Energy Outlook 2003” and “Annual Energy Outlook 2004”
Annual Energy Outlook 2003 Annual Energy Outlook 2004
Outlook of LNG for APEC
Expansion of LNG use in new locations (China, the Philippines, USA) is in sight.
Source: APERC (2002), “Energy Demand and Supply Outlook 2002” and
Energy Information Administration (2004), “Annual Energy Outlook 2004”
USA(EIA 04)
Japan(APERC)
Korea(APERC)
China(APERC)
ChineseTaipei(APERC)
Phillipines(APERC)
Total
millon ton 4.2 54.5 17 5.6 81share in total gas 1% 97% 100% 94%
million ton 46.2 62 26 16 9.5 160share in total gas 8% 98% 100% 30% 91%
million ton 86.94 69 37 56 16.7 1.9 268share in total gas 14% 100% 100% 51% 95% 36%
2002
2010
2020
LNG Developments
• Supply– Abundant supply
• Lots of green projects, significant debottlenecking potential, and new suppliers in the horizon
– Significant cost reduction• In all stages of fuel chain including liquefaction, transportation,
and re-gasification
• Demand– Robust growth
• Power sector in China
LNG Supply Cost Reduction
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Low in 1990 High in 1990 Low in 2000 High in 2000
$/MMBtu
Regasification Shipping (LNG tanker) Liquefaction Upstream Development Cost
Source: CEDIGAZ
Technology development and improvement in operation helped
reduce the total supply cost.
0
50
100
150
200
250
300
350
400
450
500
MLNG 1 Qatargas Oman LNG Qatar
$/t/
y
0
500
1000
1500
2000
2500
3000
$/m
3
Liquefaction (Left-handed)
Shipping (Right-handed)
Source: Recreated from the data available at Poten & Partners website
Note: MLNG1: 1983 grass-roots, Qatargas: 1996 grass-roots, Oman LNG: 2000 grass-roots, Qatar: 2000 expansion
Existing and Proposed LNG Receiving Terminals in China and India
Source: Spadine (2004) “LNG comes of age”, a paper presented at the APERC’s mid-year workshop 2004
LNG Supply from Australia
0
5
10
15
20
25
30
35
40
45
50
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Mill
ion
ton
nes
per
an
nu
m
Actual
Possible
NWS train 4
Darwin
NWS train 5 + Gorgon
Sunrise
Browse & Pilbara LNG
Source: Stone (2005), “Australian LNG Supply”, a paper presented at the APEC LNG workshop, March 2005
Flexibility in LNG Contracts
• Shorter duration• Price flexibility
– Evolution of pricing• Cost Plus ? Crude Oil Parity, Petroleum Product Price Indexation ?
Electricity Price Parity ?– Stable price regime
• Price floor/ceiling• Decoupling with crude oil price
• Volume flexibility– DQT/UQT ? 10%~ 20%
• Periodical price review
Monthly Natural Gas Price Movementsin Japan, Korea, Europe and USA (2000-Jan.2005)
Source: APERC Analysis (2005)
0.000
0.005
0.010
0.015
0.020
0.025
0.030
0.035
0.040
Jan
2000
.
4 20
00
7 20
00
10 2
000
Jan
2001
.
4 20
01
7 20
01
10 2
001
Jan
2002
.
4 20
02
7 20
02
10 2
002
Jan
2003
.
4 20
03
7 20
03
10 2
003
Jan
2004
.
4 20
04
7 20
04
10 2
004
Jan
2005
.
$/ 1
000
kcal
DUBAI in Tokyo market WTI (Market of NY) Henry Hub, La.
LNG Import Price to Japan LNG Import Price to Korea LNG Import Price to US
Coal Import Price to Japan
Cold Weather and Infrastructure
Constraint
Commencement of I raq War
Cold Weather and Infrastructure
Constraint
September 11th Terrorist Attack
Correlation between LNG Price and Crude Oil Price (1980-2003)
Source: APERC Analysis (2004) based on data from IEA (2004), “Energy Prices and Taxes” for LNG price, EDMC Database (2002) for Crude Oil Price, and Guangdong data was estimated by Petrostrategies (2002)
Decoupling with crude oil price?
y = 0.1226x + 1.2367
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
10 15 20 25 30 35 40
Crude Oil Price (CIF) $/bbl
LNG
Pric
e (C
IF)
$/M
MB
TU
y = 0.052x + 2.1133
Japan LNG
China (Guangdong) LNG
Other Notable Developments
• Equity participation of buyers in upstream– CNOOC in Tangguh Project– KOGAS in Oman Project– TEPCO and Tokyo Gas in Darwin Project
• Emergence and increase of short-term and spot deals• Technology seems as though entering the mature
stage• Recently passed US energy bill to give the federal
government authority to construct LNG terminals
Nevertheless …
• Economic barriers– Demand security ? affordability in many developing
economies – per capita income• Gas has to compete against coal
– China’s plan for reform for electricity price – indexation to coal price
• High distribution cost – China’s city gas demand
• Financial barriers– High, initial capital cost ? take-or-pay
• Regulatory/Institutional barriers– Siting, zoning regulations
• BANANA (Build Absolutely Nothing Anywhere, Anytime, Near Anybody) in US
– Environmental regulations
China’s LPG Demand for Residential Sector (1974-2002)
0
2
4
6
8
10
12
14
16
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
Mto
e
Total Industry Sector Total Transport Sector
Commercial and Public Services Residential
Final LPG demand in China for 1990-2002 represented annual growth rate of 22%.
Source: APERC Analysis (2005) based on data from IEA (2004), “Energy Balances of Non-OECD Countries”
List of APERC’s Publications on Natural Gas
• Natural Gas Infrastructure Development in Northeast Asia (2000)
• Natural Gas Infrastructure Development in Northeast Asia (2000)
• Natural Gas Infrastructure Development in Southeast Asia (2000)
• APEC Energy Pricing Practices Natural Gas End-use Prices (2001)
• Gas Storage in the APEC Region (2002)• Natural Gas Market Reform in the APEC Region (2003)