Gas Pricing in Southeast Asia
Tom Parkinson
10 September 2014
Overview
The supply/demand gap and gas pricing
Country-specific analysis
Thailand
Indonesia
Malaysia
Vietnam
3
Gas pricing and the supply/demand gap
The Lantau Group
Key Asian producing countries face a natural gas supply/demand gap
7,000
Thailand
2,400
6,000
2,000
Supply Gap
4,000
3,000
1,600
mmcfd
mmcfd
5,000
Supply Gap
400
1,000
0
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
0
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Indonesia
3,500
2,500
Supply Gap
mmcfd
4,000
3,000
Peninsular Malaysia
3,000
5,000
mmcfd
1,200
800
2,000
6,000
Vietnam
2,000
Supply Gap
1,500
2,000
1,000
1,000
0
2011 2013 2015 2017 2019 2021 2023 2025 2027 2029
Source: Various government statistics and TLG analysis
2
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500
0
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
This gap puts upward pressure on the pricing of new domestic resources
Delivered Gas Price ($/mmbtu)
18
16
14
Malaysia
Thailand
Indonesia (Marginal)
Philippines
12
Singapore
10
8
6
4
2
0
Source: TLG compilation from various online sources and associated analysis, mostly ex platform prices before transmission
Note: Indonesia marginal price jumps in 2011 due to domestic LNG at Nusantara Regas
The Lantau Group
And leads to many decisions to import (and export) LNG
Liquefaction
Regasification
Operating
Constructing
Planned
Possible
Bataan
Rayong
Batangas
Pagbilao
Thi Vai
Son My
Rotan
Kanowit
Arun
Lumut
Melaka
Brunei
Satu/Dua/Tiga
Pengerang
Singapore
Bontang
Tangguh
Lampung
DonggiSenoro
Semarang
Nusantara
Source: TLG; www.globalnginfo.com
4
The Lantau Group
Abadi
2014 Data
Imported LNG usually comes in at the market price but local (domestic) gas
is priced differently leading to a kinked gas supply curve
Imported LNG Price
US$/mmbtu
Foregone Value
Domestic Gas
Price
Unseen
Domestic
Supply
Curve
Domestic
Gas
Imported
LNG
Quantity of gas
Domestic gas price regulation creates an artificial shortage of domestic gas
and also creates the illusion that domestic gas is cheaper
The Lantau Group
Overview
The supply/demand gap and gas pricing
Country-specific analysis
Thailand
Indonesia
Malaysia
Vietnam
3
Gas pricing and the supply/demand gap
The Lantau Group
LNG into Map Ta Phut terminal starting in 2011 was priced at double PTTs
historic ex-wellhead gas prices
Ex-Platform Gas Pricing
Contract Price (US$/mmbtu)
20
LNG
16
12
Domestic Gas
At the turn of the decade, a time of low oil prices,
Unocal delivered new supplies to the PTT.
The next significant source of new supplies was from
the MT Joint Development Area in 2005.
The onshore field Sinphuhorm started supplying just
as crude prices started to rise in 2006.
Additional supplies from the Unocal blocks in 2007
coincided with PTTs third offshore pipeline.
Supplies from the Arthit field operated by PTTTP,
which reached market in 2008, came in at an
attractive price.
PTT has brought in spot cargoes since 2011, but
started a long-term LNG supply contract with Qatar
in 2015 at a landed price close to US$16//mmbtu,
assuming Brent at 100 US$/bbl.
The Unocal and the Bongkot concession extensions
were coupled with new investment to lift output,
resulting in higher prices between 2010 to 2012.
We believe the first gas from block M9 in Myanmar
sets the 2014 price for new piped gas.
0
2000
2002
The Lantau Group
2004
2006
2008
2010
2012
2014
PTT pools gas to mitigate the impact of LNG prices
Low-Priced
Legacy
Domestic
Gas
Gas Separation
Pool 1
Excess
PTT Retail sales
to Industry
Myanmar
Imports
EGAT
Single Buyer
Pool 2
LNG
The Lantau Group
IPPs, SPPs and
EGAT
Generation
But pooling cannot change the marginal economics
Gas Separation
Low-Priced
Legacy
Domestic
Gas
Pool 1
Excess
PTT Retail sales
to Industry
Myanmar
Imports
EGAT
Single Buyer
Pool 2
LNG
The Lantau Group
+7.35 GJ
IPPs, SPPs
and EGAT +1 MWh
Generation
Planned third-party access to gas transmission might lift marginal gas prices
The new military government intends to
introduce third-party access to the gas
transmission system and transfer ownership
of the gas transmission system to a company
partly owned by the PTT.
PTT has been asked to draft the code within
the next six months.
If fully implemented, third-party access would
allow gas suppliers to contract directly with
gas users such as power and industry and
create market price signals for new gas-fired
power plants.
These higher marginal prices might stimulate
the domestic gas supply industry to bring
more gas to market, thereby backing out
imported LNG.
Source: PTT
10
The Lantau Group
Overview
The supply/demand gap and gas pricing
Country-specific analysis
Thailand
Indonesia
Malaysia
Vietnam
3
11
Gas pricing and the supply/demand gap
The Lantau Group
New FSRUs introduced oil-linked gas pricing to the domestic market
Gas Linkage to Oil
Nusantara Regas FSRU Java Bay
Nusantara Regas
Source: Nusantara Regas
PGN FSRU Lampung
Nusantara Regas (Pertamina and PGN) lease FSRU and are
the counterparty for LNG from Bontang plant.
11.75 mmtpa supplied by TOTAL over period of 11 years.
Declining from 1.4 mmtpa in 2012 to 0.75 mmtpa in 2022.
Price formula is 11 percent slope of Indonesian Crude Oil price.
So at USD 100 per barrel, this is US$11/mmbtu at the Floating
Storage Regas Unit plus transport.
PGN FSRU Lampung
Leased from Hoegh for 20 years by PGN
Initial volumes from Tangguh of between 3 to 5 cargoes in 2014
then ramping up using Sempras diversion volumes.
By 2019 should be able to access some domestic market
obligation volumes from 3.8 mmtpa Train 3 at Tangguh
Domestic LNG
Source: Hoegh LNG
12
The Lantau Group
Close to double the price of any existing gas supply contract for
piped gas to power.
Domestic prices are increasing to close the gap with LNG prices will these
recent price increases stimulate further supply?
Java last delivered gas contract prices to power
14
LNG
Contract Price (US$/mmbtu)
12
LNG
Minister Wacik said that the new higher
prices were expected to become a reference
to help the oil and gas upstream firms
review the economics of their oil and gas
prospects and their already found reserves.
10
8
6
The LNG price in 2011 refers to the delivery
at ship (DAT) price of LNG from Bontang.
4
2
2013
2012
2011
2011
2010
2010
2008
2007
2006
2006
2004
2004
2002
Source: Indonesia Ministry of Energy and Mineral Resources, and TLG estimates
13
in May 2012, Energy and Mineral Resources
Minister Jero Wacik substantially raised
upstream gas prices. Downstream prices
broadly followed suit.
The Lantau Group
The LNG price in 2014 refers to the first
cargo from Tangguh to the PGN Lampung
terminal in South Sumatra that will partly
supply gas to power in Java via the SouthSumatra-West-Java pipeline system.
Maintaining gas use in the power sector requires massive subsidies
Only by virtue of the huge fuel subsidy to
PLN under the Public Service Obligation can
PLN stay in the black.
PLN Revenues from Sales and Subsidy
30
A direct formal subsidy mechanism like this
would be one option for Ministry of Electric
Power enabling it to pay for higher priced
gas.
US$ billion
25
20
Subsidy
15
PLN would need average retail price of IDR
1,375/kWh or US 12cents/kWh, whereas
price is now IDR 820 kWh.
10
Large increases in tariffs for commerce and
industry were green lighted by Parliament in
early 2014, but elimination of subsidies to
residential uses still needs to be addressed.
Sales to Power
Source: PLN
14
The Lantau Group
2013
2012
2011
2010
2009
2008
Another alternative would be to set power at
the cost of service and offer handouts direct
to disadvantaged sectors.
Overview
The supply/demand gap and gas pricing
Country-specific analysis
Thailand
Indonesia
Malaysia
Vietnam
3
15
Gas pricing and the supply/demand gap
The Lantau Group
Historic ex-platform gas prices (at start of production) are rising, but still
significantly lag the LNG price
Ex-Platform Contract Prices
The linkage for most PSCs offshore
Peninsular Malaysia to the fuel oil price
explains the rise in starting prices for new
supplies this tracked the rise in crude oil
and hence fuel oil.
Contract Price (US$/mmbtu)
20
LNG
16
Price rises have arisen from new gas
supplies signed up from the Gas PSCs in
2007/8, PM313 PSC, Beranti RSC, and
the North Malay Basin development.
12
There are two short term signed LNG
agreements for supplies from Woodside
and GDFSUEZ, which we understand are
priced at close to US$/16 mmbtu,
assuming Brent at US$ 100/bbl.
0
2000
16
2002
The Lantau Group
2004
2006
2008
2010
2012
2014
Even so, Petronas heavily subsidizes gas sales to the power sector
The four main sources of piped gas into
Peninsular Malaysia are:
Ex-Platform Gas Pricing
8
Indonesian gas from Natuna Sea Block B
Offshore Peninsular Malaysia with a 45
percent linkage to Singapore free on board
medium sulphur fuel oil
Gas Price (US$/mmbtu)
MT Joint Development Area shared with
Thailand
Commercial Agreement Area shared with
Vietnam
Delivered Price to TNB
Note that these ex-platform prices do not
include transport charges
The delivered price (for volumes of 1,000
mmcfd) to the power sector equals US$
3.17/mmbtu at current forex rates.
2
1
0
Natuna Sea 45% MSFO
Block B
17
The Lantau Group
MT JDA
PM3 CAA
Malaysian gas pricing reform ties consumer prices to LNG prices and thereby
creates incentives for Petronas to sign new upstream contracts
New Gas Price Mechanism
Ex-Bintulu
FOB
Application
x Discount
factor
Power Sector
15% to power,
10% non-power
Supply of up to 1,000 mmcfd at regulated prices.
Threshold will be reviewed every three years by
PETRONAS starting in 2016.
Supply above this threshold will be at the new
gas pricing mechanism this sends the correct
economic signal to new build (and renegotiated
second life IPPs).
Shipping
Non-Power Sector
Regas
Pipeline
Transmission
18
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Delivered
Price to
Customers
Current contracted volumes at regulated price.
All new contracts will be at the new gas price
mechanism.
If the North Malay Basin development is indicative, it appears that pricing
reform may be successful at inducing development of new gas supply
North Malay Basin Acreage
The North Malay basin is a project led by
PETRONAS and Hess to commercialize gas
from PM301, PM302, PM325 and PM326b.
These blocks contain gas that is deep, high
pressure, and high in C02 and therefore
expensive to produce.
Approximately US$ 5.2bn will be spent to
monetize 1.7 Tcf of gas. Production will ramp up
from 100 mmcfd to 250-300 mmcfd by 2020.
We believe that PETRONAS would not have
embarked on extracting this expensive gas
except for the ongoing gas pricing reform in
Malaysia.
Source: Hess
19
The Lantau Group
This pricing reform has the general aim of
pricing all new supplies of gas (piped or LNG) at
prices linked to the ex-plant LNG price at
PETRONASs Bintulu liquefaction plant in
Sarawak.
Overview
The supply/demand gap and gas pricing
Country-specific analysis
Thailand
Indonesia
Malaysia
Vietnam
3
20
Gas pricing and the supply/demand gap
The Lantau Group
Vietnam is blessed with abundant reserves and resources but harvesting this
potential requires a willingness to pay the cost of development
TCF
Total proved reserves
Cuu Long Basin
3.5
Nam Con Son Basin
6.6
Malay-Tho Chu Basin
4.8
Song Hong Basin
9.6
Total potential resources
24.4
Total reserves and unrisked resources
37.0
Source: PVN, PVGAS
Source: PVN, PVGAS
21
The Lantau Group
12.6
Vietnam gas pricing has been distorted by the oil economics
The only two non-associated gas sales
agreements signed in Vietnam are for 6-1 (Lan Tay
and Lan Do) and from 11-2 (Rong Doi) in 2006.
Ex-Platform Gas Pricing
Contract Price (US$/mmbtu)
Non-Associated Gas
Other blocks with non-associated gas such as 5-2
(Hai Thach) and 5-3 (Moc Tinh) are under
development by PVN (after relinquishment by BP)
at a breakeven price in the range US$5/mmbtu.
Blocks B&52 formerly operated by Chevron would
have required between US$ 8-9/mmbtu at the
platform to break even.
We understand that the block 118 Ca Voi Xanh
discovery of XOM and PVEP would also need
close to US$ 7-8/mmbtu to break even due to
deep water and high CO2.
0
2000
22
Development of associated gas from other blocks
has ranged in price around the US$ 1.001.25/mmbtu.
2002
The Lantau Group
2004
2006
2008
2010
2012
2014
Landed LNG would be on the order of US$
16/mmbtu.
Vietnam has considerable reserves that could compete with coal for baseload
generation
This diagram stacks up uncontracted and
estimates for yet-to-find gas by breakeven
cost.
Delivered Gas Supply Curve (2020)
Breakeven Cost (US$/mmbtu)
10
Breakeven
Price vs. Coal
There is a fairly large amount of gas that
can compete with new imported coal-fired
plant. But there is also a substantial
volumes of gas that would come in above
the tipping delivered price of US$ 8/mmbtu.
0
0
500
1,000
1,500
Cumulative Volume (bbtud)
23
Any gas above US$ 8/mmbtu delivered, or
in the range of US$ 6.25-6.50/mmbtu explatform would be displaced by less
expensive generation from new build
imported coal-fired plants.
The Lantau Group
2,000
Real-world siting constraints on new coal
build would support development of some
of this higher-cost gas.
Chevrons blocks 52/97, 48/95 & B (B&52) represented a major gas find that
was intended to support a cluster of power plants at O Mon
Block B & 52 Gas Project
24
The Lantau Group
Location
Offshore, Vietnam
Investment
~U$4.3 billion
Partners
Chevron Vietnam
Mitsui Oil Exploration (MOECO)
PetroVietnam
PTTEP Kim Long Vietnam Company ltd
Operator
Chevron Vietnam
Capacity
Gas: 600 mmcfd
Condensate: 6000-7000 barrels per day
Phase
Exploration
42.38%
25.62%
23.5%
8.5%
Despite the presence of proved reserves, Chevron and PVN failed to agree on
price after nearly a decade of negotiation
In July 2009, Chevron and three partners signed a basic agreement for front end engineering
and design (FEED) with Vietnam Oil and Gas Group (PetroVietnam).
The EPC for the pipeline from Block B, by subsidiaries of PVN and Vietsovpetro, to the shore
site at O Mon started in late November 2009 ahead of any gas sales agreement.
Chevron has prepared a development plan to produce gas from the block but hasn't started
work over a dispute with Vietnam's national oil firm PetroVietnam about the price of gas.
However, after many years of negotiations, the parties came close to agreeing on gas sale
price in mid-2012 but then stalled again.
We believe Chevron wanted a gas price of between $8 to $10 per million British thermal
units while PVN and the government was unwilling to pay this amount.
Chevron has indicated it will exit the project and has invited other partners to buy its stake.
Existing partners of the project have the first right to buy stakes from others in the project.
This said it was reported that Indias ONGC Videsh Ltd (OVL) and Russias Gazprom
expressed an interest in buying a stake in B&52, but to date no details have been revealed
by the parties.
To add to the competition the Vietnamese government recently gave PetroVietnam the goahead to buy Chevrons stake in the B&52 gas project.
25
The Lantau Group
ExxonMobil have the next big find will they succeed where Chevron failed?
ExxonMobil has drilled three exploration wells in
block 118 which proved up the Ca Voi Xanh
discovery. It is early days, but some analysts
put the breakeven price on the gas in the US$ 78/mmmbtu range.
Block
118
XOM has been in discussions with the relevant
parts of the government to help clear the way for
a large gas-to-power development.
Skeptics ask how XOM can succeed where
Chevron, BP and others have recently struggled.
One part of the answer may be in XOMs
apparent willingness to invest heavily in the
downstream power plants.
While XOM has many power plants for mostly
captive use, it has rarely embraced investing in
power plants in order to sell gas.
Source: Rigzone
26
The Lantau Group
PV Gas also has big plans to develop two LNG terminals
Son My LNG Receiving and Regasification Terminal
Hanoi
Location
Binh Thuan province
Investment
>U$1.3 billion
Capacity
3.6 mmtpa (Phase I)
6-9.6 mmtpa (Phase II)
Operational
2018 (Phase I) 1.8mmtpa
Expansion
2019 receiving first LNG
2020 (Phase I) 3.6mmtpa
2023 (Phase II) 6mmtpa
2026-2030 (Phase II) 9.6mmtpa
Thi Vai LNG Receiving and Regasification Terminal
Ho Chi Minh City
27
The Lantau Group
Location
Ba Ria Vung Tau province
Investment
Est. U$246 million
Capacity
1-2 mmtpa
Operational
Mid-2016- receiving first LNG
Vietnam's latest gas
development plan contains
ambitious plans for LNG
import terminals.
Vietnam's state-run
PetroVietnam Gas Corp
(PV Gas) will be in charge
of constructing the first two
LNG terminals in Vietnam.
Lack of credible off-takers
in the power sector or any
mechanism to pass
through higher gas costs to
customers hampers PV
Gas in negotiations with
sellers.
While these LNG projects have been planned for years, PV Gas cannot seem
to get any traction in developing them
Preparation of a gas master plan addressed the need for LNG terminals.
2007 Outside consultants saw less need for LNG but rather a stronger case for mobilizing domestic resources.
Government doubts about the size of gas reserves in the south halts Nam Con Son II pipeline.
2008 LNG terminals mentioned in gas master plan as an option for the south.
2009
Continued delays with planned coal plant for the south and BPs exit from blocks 05-2 and 05-3 with unexploited
gas reserves gives a lift to the back up potential of LNG terminals
2010
Listing documents of PV Gas included LNG terminals as part of its route to expand its asset base but without
clearly identifying the market for the regasified LNG.
2011
Basic engineering for site locations and economic studies under-taken for two terminals at Son My and Thi Vai,
coupled with basic LNG procurement strategy. Gas master (2011) plan says LNG in the south by 2014
Tokyo Gas enters MOU with PV Gas to assist with terminal design and operation.
2012 ConocoPhillips exits Vietnam including block 15-1 with uncontracted gas reserves.
Foreigners offered a 49 percent stake in Son My terminal, but no takers yet.
2013 International lender study questions need for LNG terminals - uncontracted domestic gas is in the ground.
Gazprom LNG Marketing signs master supply agreement with PV Gas for LNG.
2014 Still no sign of an EPC contract for either terminal.
28
The Lantau Group
Overview
The supply/demand gap and gas pricing
Country-specific analysis
Thailand
Indonesia
Malaysia
Vietnam
3
29
Gas pricing and the supply/demand gap
The Lantau Group
Planning, investment, policy, and operations all need to get the marginal
economics right, or risk expensive bad decisions
Real Levelised Cost ($/MWh)
There is only
more of this
140
120
100
Fuel
O&M
Capital
80
60
40
20
0
Coal
Source: TLG analysis
30
The Lantau Group
There is no
more of this
Gas
(Legacy)
CCGT
Gas
(Pool 2)
Gas
Market
Price
(LNG)
New-build economics at marginal gas prices suggest that gas should run in
mid-merit mode even after accounting for a sizable carbon price
New-Build Economics
Assumptions
350
LNG is prices at US$ 17/mmbtu at
the burner tip
300
CCGT
Coal ST
Coal price is US$ 90/tonne
delivered or US$ 3.6/mmbtu
Average Cost (US$/MWh)
250
CCGT at US$ 800/kW installed
cost; coal at US$ 1600/kW.
200
New build gas-fired plants should
run at 20 percent and coal-fired
plants should run at base load
150
100
50
0
10
20
30
40
50
60
70
Capacity Factor of Power Plant (percent)
31
The Lantau Group
80
90
85
Gas demand, particularly for power, depends on the price and availability of
alternative fuel sources
Peninsular Malaysia sells gas to the
power sector at a price approximately
equal to coal in terms of RM/GJ
MALAYSIA EXAMPLE
Gas/Coal Price Ratio
6
Market
Prices
Todays
Market Prices
COAL IS PREFERRED
As Peninsular Malaysia moves to marketpriced gas, the ratio of gas price to coal
price will increase, changing the
economics of gas-fired power generation
from baseload to peaking duty
Regulated
Prices
1
GAS IS PREFERRED
0
0%
20%
40%
60%
Optimum Gas-Unit Capacity Factor
The market-price of gas (whether
measured as the replacement cost, the
regional LNG price, or the price paid by
the non-power sector) is much higher
80%
100%
Coal becomes the least-cost source of
baseload power supply
Reliance on gas-fired capacity for baseload power is expensive relative to coal
32 The
TheLantau
LantauGroup
Group
Even after accounting for constraints on new coal build, we foresee the gasfired share of generation declining across SE Asia
Gas-Fired Generation
80
Indonesia
Thailand
Malaysia
Vietnam
Indonesia. The trend rises as large
quantities of diesel are displaced by gas/LNG,
then the percentage declines due to on-going
coal-fired new build.
Gas Share of Generation (percent)
70
60
50
Malaysia. The trend is down as gas prices
rise and more coal is built. The broad
trajectory is a gradual move towards marginal
gas prices being linked to LNG prices and
volumes of relatively inexpensive subsidized
legacy gas being cut back.
40
30
20
10
0
2010
33
Thailand. Coal build is hampered by strong
local resistance to coal build and so gas
remains dominant.
The Lantau Group
2014
2018
2022
2026
2030
Vietnam. We constrain the level of coal build
down from the heady numbers in the official
plans, but even so gas as a percentage of the
mix falls over time.
Theres a completely different gas future awaiting for Asia and its time to
make it happen
Coal, nuclear, and renewables will edge out gas as a baseload generation resource
Mid-merit LNG-fired generation will be subject to daily load variation, seasonal
swings, and long-term capacity factor uncertainty
Cannot support high load factor for LNG terminals or inflexible take-or-pay commitments
May not be able to sign bankable long-term supply contracts
LNG terminals will be forced to recover their costs primarily via capacity reservation
charges, rather than throughput charges
Throughput capacity will vary with circumstances sizing of storage will be a key design
variable
Break-bulk shipping and LNG trucking both inherently more flexible will supplant gas
pipelines
LNG aggregators will act as financial intermediaries between LNG liquefaction
projects and downstream customers (e.g., mid-merit CCGTs)
Buying shares in liquefaction projects and taking positions in LNG tankers
Securing LNG storage capacity
34
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Power
Utilities
Energy
For more information please contact us:
Insight
Rigour
Value
Tom Parkinson
[email protected]
Neil Semple
[email protected]
www.lantaugroup.com
The Lantau Group (HK) Limited
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Hong Kong
Tel: +852 2521 5501
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