Thailand
Insights from domestic natural gas price negotiations in Asia
Chevron Asia South Limited Oleg Mikhailov Lee Jourdan Nisa Karnchanachari
© Chevron 2008
DOC ID
Summary Insights from Chevron’s experience in recently concluded and on-going gas price negotiations in Asia Reaching a balanced agreement in gas price negotiations (i.e. acceptable return for Upstream investors and affordable gas price for consumers) is critical to the development of Upstream projects and of domestic gas markets Although IOCs and NOCs are usually sitting at the opposite sides of the negotiating table in Natural Gas price negotiations, they share a common interest in growing domestic gas supply The ultimate gas price agreed in negotiations is equally influenced by both demand vs. supply dynamics and the national government regulations of the Natural Gas value chain IOCs and NOCs have an opportunity to present governments with a business case for supporting domestic supply of Natural Gas by a balanced fiscal regime and market deregulation
© Chevron 2008
DOC ID
2
Domestic supply of Natural Gas is a shield from energy prices’ run-up $/MMBtu 14 12 10 8 6 4 2
HSFO - Singapore
LPG - Aramco posted
Coal - Japan CIF
2006 Total gas demand (mmscf/d)
2 0 08
2 0 07
2 0 06
2 0 05
2 0 04
2 0 03
2 0 02
2 0 01
2 0 00
1 9 99
1 9 98
1 9 97
1 9 96
1 9 95
1 9 94
1 9 93
1 9 92
1 9 91
0
Natural Gas - Thailand Pool price
2006 GDP growth
Energy consumption growth (05-06)
Gas demand growth (05-06)
2006 % of gas in the energy mix
CAMBODIA
10.8%
32.0%
0
0
0
CHINA
11.1%
7.4%
5,562.7
20.6%
2.8%
MYANMAR
12.7%
2.8%
163.9
5.6%
11%
THAILAND
5.0%
1.8%
3,248.2
2.3%
37%
VIETNAM
8.2%
6.7%
674.8
12.8%
10.2%
Source: FACTS, IMF, Thailand DMF, team analysis
Demand for domestic Natural Gas is rapidly growing across Asia as countries look for sources of affordable and clean energy. © Chevron 2008
DOC ID
3
IOC-negotiated domestic Natural Gas prices vary significantly in the region Domestic supply
(relative to total energy consumption)
Natural Gas price
(relative to imported LNG)
High
High
Low
Low
Cambodia
China
LNG
Domestic demand
(relative to total energy consumption) High
Low
Myanmar
Thailand
Vietnam
Significant variation of gas price negotiations outcomes across the region is the result of differences in government regulations of the Natural Gas Value Chain © Chevron 2008
DOC ID
4
Availability of domestic Natural Gas reserves
Domestic energy demand growth
Gas Price Availability of fuel alternatives or regional Natural Gas imports
Development costs and technical complexity
Fiscal Terms Export Options
Direct Price regulation
Domestic Demand
Domestic Supply
Government regulations impact domestic supply, demand and gas prices
Market regulation Energy mix policies
Government policies A given mix of government policies and regulations can promote or impede growth of the domestic Natural Gas supply and market © Chevron 2008
DOC ID
5
Thailand: developed gas value chain • Steady growth of gas demand driven by electricity generation (close to 70% gas-fired) and supported by government policies to promote clean energy • Significant domestic reserves are available however technical complexity and development costs are high (few BCF/well in off-shore fields) • Upstream fiscal regime and existing mid-stream infrastructure enables development of compartmentalized reservoirs at gas prices significantly below imported options
THAILAND
Taluang
Baanitong
Kangkoi
Wangnoi NBK Ratchaburi
Bang Pakong
SBK
Mabkha
CAMBODI
Rayong
Tubsakae
Benjamas
Khanom Surat Thani
Tantawan Platong ERAWAN
ERP Pailin
• Recently concluded negotiations for Blocks 1013 Gas Sales Agreement and Production Period Extension generated a balanced agreement with benefits to the Kingdom of Thailand, Upstream investors and PTT
Nampong
Arthit Bongkot
Songkhla
JDA Surat Thani
Power Plants Natural Gas Customers Natural Gas Fields
Well crafted and balanced government policies result in sustainable domestic gas supply at affordable prices. © Chevron 2008
DOC ID
6
China: deregulation is key to growth • Recent growth of gas demand is driven by city and industrial use
CHINA
• Development of nation-wide gas transportation infrastructure is enabling development of significant domestic gas reserves (est. 100TCF) • Government-regulated domestic gas prices only recently reached the level that would provide ROI acceptable to IOCs • Chevron’s partnership with PetroChina to develop the Chuandongbei sour gas field is an example of a win-win deal in which access to technology allowed access to reserves and market
Tarim Basin Ordos Basin Sichuan Basin
BCFD 12
Natural Gas Supply
9
Domestic Production
6
Import
3 0 '00 '01 '02 '03 '04 '05 '06 '15F Source: China Daily; Press searches; government data
Deregulation of gas price and opening of Upstream industry to IOCs will bring desired growth of domestic natural gas industry. © Chevron 2008
DOC ID
7
Vietnam: potential to grow • Domestic demand is projected to grow with several gas-fired power plants slated for development
THAILAND
THAILAND
• Sufficient off-shore gas reserves have been discovered however the development requires the construction of long-distance gas transportation infrastructure
Mabkha
Vietnam
CAMBODIA HCMC
Ba Ria O Mon Phu My
Bach Ho
Ca Mau
Nam Con Son fields
B&52
• Appropriate gas price or incentives are required for development of complex reservoirs in the Gulf of Thailand • Chevron is involved in gas price negotiations with PV for Blocks B and 52 development
© Chevron 2008
Arthit
CAA -PM3
Existing Power Plants Future Power Plants Natural Gas Customers Natural Gas Fields
Growth of the domestic gas supply and market in southern Vietnam is critically dependent on striking a balance between consumers’ expectations and investors’ requirements. DOC ID
8
Cambodia: untapped resource • No domestic gas market at present (no supply) • Off-shore oil and gas reserves discovered with additional significant potential of the CambodiaThailand Overlapping Claims Area (OCA) • Government regulations of oil and gas industry and gas market under development. OCA resolution at slow pace
Area I
Area II
Area III
Area IV
• IOCs and NGOs are working with the Royal Government of Cambodia on establishing the industry framework and OCA resolution
Reaching an agreement on OCA and unlocking the potential of the domestic resource will bring significant rewards to the Kingdom of Cambodia and to oil and gas companies. © Chevron 2008
DOC ID
9
Conclusions
Balanced domestic gas price agreements enable reserves development and promote market growth In gas price negotiations, IOC’s and NOC’s interests are aligned Supportive Upstream fiscal regime and market deregulation are critical to the growth of domestic Natural Gas industries in Asia
© Chevron 2008
DOC ID
10
Chevron Asia South Limited Oleg Mikhailov Lee Jourdan Nisa Karnchanachari
© Chevron 2008
DOC ID
Summary Insights from Chevron’s experience in recently concluded and on-going gas price negotiations in Asia Reaching a balanced agreement in gas price negotiations (i.e. acceptable return for Upstream investors and affordable gas price for consumers) is critical to the development of Upstream projects and of domestic gas markets Although IOCs and NOCs are usually sitting at the opposite sides of the negotiating table in Natural Gas price negotiations, they share a common interest in growing domestic gas supply The ultimate gas price agreed in negotiations is equally influenced by both demand vs. supply dynamics and the national government regulations of the Natural Gas value chain IOCs and NOCs have an opportunity to present governments with a business case for supporting domestic supply of Natural Gas by a balanced fiscal regime and market deregulation
© Chevron 2008
DOC ID
2
Domestic supply of Natural Gas is a shield from energy prices’ run-up $/MMBtu 14 12 10 8 6 4 2
HSFO - Singapore
LPG - Aramco posted
Coal - Japan CIF
2006 Total gas demand (mmscf/d)
2 0 08
2 0 07
2 0 06
2 0 05
2 0 04
2 0 03
2 0 02
2 0 01
2 0 00
1 9 99
1 9 98
1 9 97
1 9 96
1 9 95
1 9 94
1 9 93
1 9 92
1 9 91
0
Natural Gas - Thailand Pool price
2006 GDP growth
Energy consumption growth (05-06)
Gas demand growth (05-06)
2006 % of gas in the energy mix
CAMBODIA
10.8%
32.0%
0
0
0
CHINA
11.1%
7.4%
5,562.7
20.6%
2.8%
MYANMAR
12.7%
2.8%
163.9
5.6%
11%
THAILAND
5.0%
1.8%
3,248.2
2.3%
37%
VIETNAM
8.2%
6.7%
674.8
12.8%
10.2%
Source: FACTS, IMF, Thailand DMF, team analysis
Demand for domestic Natural Gas is rapidly growing across Asia as countries look for sources of affordable and clean energy. © Chevron 2008
DOC ID
3
IOC-negotiated domestic Natural Gas prices vary significantly in the region Domestic supply
(relative to total energy consumption)
Natural Gas price
(relative to imported LNG)
High
High
Low
Low
Cambodia
China
LNG
Domestic demand
(relative to total energy consumption) High
Low
Myanmar
Thailand
Vietnam
Significant variation of gas price negotiations outcomes across the region is the result of differences in government regulations of the Natural Gas Value Chain © Chevron 2008
DOC ID
4
Availability of domestic Natural Gas reserves
Domestic energy demand growth
Gas Price Availability of fuel alternatives or regional Natural Gas imports
Development costs and technical complexity
Fiscal Terms Export Options
Direct Price regulation
Domestic Demand
Domestic Supply
Government regulations impact domestic supply, demand and gas prices
Market regulation Energy mix policies
Government policies A given mix of government policies and regulations can promote or impede growth of the domestic Natural Gas supply and market © Chevron 2008
DOC ID
5
Thailand: developed gas value chain • Steady growth of gas demand driven by electricity generation (close to 70% gas-fired) and supported by government policies to promote clean energy • Significant domestic reserves are available however technical complexity and development costs are high (few BCF/well in off-shore fields) • Upstream fiscal regime and existing mid-stream infrastructure enables development of compartmentalized reservoirs at gas prices significantly below imported options
THAILAND
Taluang
Baanitong
Kangkoi
Wangnoi NBK Ratchaburi
Bang Pakong
SBK
Mabkha
CAMBODI
Rayong
Tubsakae
Benjamas
Khanom Surat Thani
Tantawan Platong ERAWAN
ERP Pailin
• Recently concluded negotiations for Blocks 1013 Gas Sales Agreement and Production Period Extension generated a balanced agreement with benefits to the Kingdom of Thailand, Upstream investors and PTT
Nampong
Arthit Bongkot
Songkhla
JDA Surat Thani
Power Plants Natural Gas Customers Natural Gas Fields
Well crafted and balanced government policies result in sustainable domestic gas supply at affordable prices. © Chevron 2008
DOC ID
6
China: deregulation is key to growth • Recent growth of gas demand is driven by city and industrial use
CHINA
• Development of nation-wide gas transportation infrastructure is enabling development of significant domestic gas reserves (est. 100TCF) • Government-regulated domestic gas prices only recently reached the level that would provide ROI acceptable to IOCs • Chevron’s partnership with PetroChina to develop the Chuandongbei sour gas field is an example of a win-win deal in which access to technology allowed access to reserves and market
Tarim Basin Ordos Basin Sichuan Basin
BCFD 12
Natural Gas Supply
9
Domestic Production
6
Import
3 0 '00 '01 '02 '03 '04 '05 '06 '15F Source: China Daily; Press searches; government data
Deregulation of gas price and opening of Upstream industry to IOCs will bring desired growth of domestic natural gas industry. © Chevron 2008
DOC ID
7
Vietnam: potential to grow • Domestic demand is projected to grow with several gas-fired power plants slated for development
THAILAND
THAILAND
• Sufficient off-shore gas reserves have been discovered however the development requires the construction of long-distance gas transportation infrastructure
Mabkha
Vietnam
CAMBODIA HCMC
Ba Ria O Mon Phu My
Bach Ho
Ca Mau
Nam Con Son fields
B&52
• Appropriate gas price or incentives are required for development of complex reservoirs in the Gulf of Thailand • Chevron is involved in gas price negotiations with PV for Blocks B and 52 development
© Chevron 2008
Arthit
CAA -PM3
Existing Power Plants Future Power Plants Natural Gas Customers Natural Gas Fields
Growth of the domestic gas supply and market in southern Vietnam is critically dependent on striking a balance between consumers’ expectations and investors’ requirements. DOC ID
8
Cambodia: untapped resource • No domestic gas market at present (no supply) • Off-shore oil and gas reserves discovered with additional significant potential of the CambodiaThailand Overlapping Claims Area (OCA) • Government regulations of oil and gas industry and gas market under development. OCA resolution at slow pace
Area I
Area II
Area III
Area IV
• IOCs and NGOs are working with the Royal Government of Cambodia on establishing the industry framework and OCA resolution
Reaching an agreement on OCA and unlocking the potential of the domestic resource will bring significant rewards to the Kingdom of Cambodia and to oil and gas companies. © Chevron 2008
DOC ID
9
Conclusions
Balanced domestic gas price agreements enable reserves development and promote market growth In gas price negotiations, IOC’s and NOC’s interests are aligned Supportive Upstream fiscal regime and market deregulation are critical to the growth of domestic Natural Gas industries in Asia
© Chevron 2008
DOC ID
10
