Availability & Pricing of Gas

Nitin Zamre
Head – Oil & Gas
 Agenda

 Availability of Gas
 Impact of regulation and pricing on availability
 Sources of Gas
 Domestic
 LNG
 Transnational Pipeline
 Policy/Regulation
 Key issues
 way forward

2
 Availability – Impact of Regulation and Pricing

 Creation of choice of supply for gas buyers

 Non discriminatory’ Access to transportation capacity- critical in

creating choice for both buyers and sellers

 Unbundling of transmission & marketing functions – Removing conflict

 Transportation tariff determination – Transparent mechanism

 Creation of requisite pipeline infrastructure – Access to the markets

 Pricing – market determined – correct pricing signals for investment in

upstream (both domestic as well as imports)

3
 Sources of gas

 Domestic
 Existing fields
 Marginal fields
 New offshore - KG Basin & others
 LNG
 Qatar
 Iran
 Australia
 Others-??
 Transnational Pipe Line
 Iran
 Myanmar
 Bangladesh-??

4
 Domestic gas resource - Potential

Production from Existing Fields

100 Decline in existing

field
80
M M c m /d a y

60

40

20

0
2006 2010 2015 2020

ONGC PMT GSPC-Niko Cairn Energy

Source:LTGP-DGH

5
 ….in Future

Can we produce more domestic gas?

6
 Developed Gas Markets
16

14

12 USA
UK
10

Developed
2
markets have supported low R/P ratio over
0
1986 1988 1990 1992
long1996periods
1994 1998 2000 2002 2004

Developed Markets -Reserves vs Production

UK
6000 USA 600

Production (Bcm)
5000 500
Reserves (Bcm)

4000 400
3000 300
2000 200
1000 100
0 0
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: BP statistical review 7

 Exporters
140

120
Malaysia
100
Egypt
Indonesia
80

60

Netherlands
40

Exporting
20 countries
Canada
forced to maintain high R/P ratios to
0 support long term contracts especially LNG
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Exporters - Reserves vs Prodcution
Malaysia
3500 Indonesia 80

3000 70

Production (Bcm )
Reserves (Bcm )

60
2500
50
2000
40
1500
30
1000
20
500 10
0 0
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: BP statistical review 8

 Do we need a
Developing Markets more
140

120
aggressive
Bangladesh
depletion policy
100

80
Pakistan
60
?
40

20
India

0
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Sustained reduction
Developing Market in R/P ratio
- Reserves vs Prodcution

1000 India Pakistan B'desh 35

900
30
800

Production (Bcm)
700 25
Reserves (Bcm)

600 20
500
400 15

300 10
200
5
100
0 0
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: BP statistical review 9

 … we can produce more domestic gas!

 By reducing R/P ratio from existing 31 years to 20 years,

reserves can support a production rate of about 130 mmscmd for
next 20 years from only the existing fields

 But may need resolving many issues at policy level

10
 NELP has shown positive results…
 20 basins out of 26 considered for exploration.
 6 basins - Category I basins.
 4 basins - Category II basins.
 10 other basins -Category III basins.

 Spectacular successes during the last 5 years

 24 new discoveries – 17 by Pvt/JVs
 7 by NOCs

 Recent activities has resulted in up-gradation

 Mahanadi-NEC basin promoted to Cat.II.
 Vindhyan basin promoted to Cat.III
 Rajasthan & East Coast Deep Water offshore,
NELP VI on the cards to be promoted to Cat. I.
11
 Prospects for new Discoveries
- Reserve Accretion

BCM
4000

3000

2000

1000

0
2004 2005 2010 2020

Ultimate Recoverable Reserves

Possible Reserves
Speculative Reserves
In-Place Gas reserves

Source:CRISIL Analysis

Could accretion of 100 Bcm/y to 2010 and then 50 Bcm/y to 2020 be expected??

12
 Marginal Gas Fields
 ONGC has 96 marginal fields amounting to 203.6 MMT of in-place oil and 120.5 BCM of
gas

 8 per cent of the total gas in-place fields operated by ONGC

 On the offshore front a total number of 53 fields of Western Offshore Basin are being
considered for monetization

 11 fields are being considered for in-house development by ONGC .

 Out of the remaining fields, 19 fields with an expected reserve of 29 BCM have been
decided to be offered under service contracts

Need for a policy for development of marginal fields

13
 Asia - LNG Price Volatility

Asia LNG prices

8

5
$/MMBtu

1998 1999 2000 2001 2002 2003 2004 2005

Korea Japan Taiwan India

Source: Gasstrategiesonline.com
14
 US - LNG Price Volatility

US LNG and Henry Hub Prices

10
9
8

7
6
$/MMBtu

4
3

2
1

0
1998 1999 2000 2001 2002 2003 2004 2005

US Henry hub

Source: Gasstrategiesonline.com
15
 European - LNG Price Volatility

European LNG Prices

8

5
$/MMBtu

0
1998 1999 2000 2001 2002 2003 2004 2005

Belgium(Algeria) Turkey(Algeria) Turkey(Nigeria) Spain(Trinidad) Spain(Algeria) France(Algeria)

Source: Gasstrategiesonline.com
16
 LNG Liquefaction Capacity – Likely?
MTPA
600

500

400

300

200

100

0
2005 2010 2015 2020 2025

Alge ria Egyp t Libya Equa toria l Guin e a Nige ria Norwa y
Trinida d Ang ola Ve ne zu e la Rus s ia (We s t) Aus tra lia Brune i
Ind one s ia Ma la ys ia Rus s ia Ea s t US A P e ru Abu Dh a bi
Oma n Qa ta r Ira n Ye me n

Source: Gasstrategiesonline.com
17
 LNG Regasification Capacity - Forecast
India to import around 20
800 MTPA??
700

600

500
MTPA

400

300

200

100

0
2005 2010 2015

Source: Gasstrategiesonline.com

Will Indian market be attractive for LNG Suppliers?

18
 Transnational Pipeline Imports
 Transnational pipelines
 Gas from Iran-possible routes
 Pipeline through Pakistan-Political talks ?
 Geo – Political Challenges
 Gas from Myanmar
 Land Pipeline to West Bengal Huge
 Concerns about reserves for domestic markets
Uncertaintie

Under-Sea pipeline
19
 Gas at what price?
Gas Prices
6

4.84
4.26
4.02 4.01
4 3.67
3.51
$/MMBtu

4.84
2 4.02 3.67 3.5 3.27
2.79

0
FO P a r it y (IP P @ FO P a rit y (EP P @ P MT Ira n-LNG MOU P e t r one t LNG P e t rona s - NTP C
Crude - $35/ BBl) Cr ude - $35/ BBl) Bid

Basic P rice (CIF) Regasification Cost Duties and Taxes .

Source:CRISIL Analysis
Government has successfully not put any price
control on new gas!
20
 LNG to remain the marginal supplier

 Gas to Gas competition unlikely to emerge by 2010

 LNG would continue to dictate the prices in the market?

 Prices would continue to be driven by:

 Alternate fuel parity

 Affordability of the end use sectors

 Netbacks from other LNG markets

21
 Key Issues
 Regulatory issues
 What is the depletion policy? Can it help extract more domestic
reserves?
 Can we bring gas from our marginal fields to the market?
 Will the requisite transportation network be set up? Who will set
up common infrastructure? – clear rules needed
 Will the supplier have ‘non-discriminatory’ access to
infrastructure? – needed urgently - increase ‘choices’
 Separation of ‘marketing’ & ‘pipeline’ businesses – remove
‘conflict’
 Can the additional supply obtain market prices? - clarity needed
on pricing for additional volumes from existing fields
 Clarity on powers to the regulator - will he regulate prices?
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 Key Issues
 Market issues
 Clear long term policies for consuming sectors – power,
fertilizer
 Price discovery mechanisms – through long term contracts
only?
 Long term sustainability - what are the Affordable prices for
consumers?
 Financial issues
 Credit risk – Gas sector credit quality only ‘as good as’
consuming sectors
 Concerns over credit quality of power, fertilizer sectors
 Stability of regulation – how do lenders get comfort?

23
 Way forward
 Regulatory Issues - Government to
 Expedite Petroleum Regulatory Bill
 Bring clarity in powers of regulator and define rules of the game
 Increase choices for buyers & sellers
 Markets Issues – Government to
 Expedite reforms in consuming sectors
 Clearly define long term policies – in gas as well as consuming
sectors
 Financial Issues
 Implementation of reforms to improve credit quality in consuming
sectors
 Stability of regulatory provisions/policies for long term call on
investments
24
Thank You

Contact Details:
Phone: +91 (22) 5644 1801- 09
Fax: +91 (22) 5644 1830
www.crisil.com
 Gas prices
7

4
US$/mmbtu

0
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Japan European Union cif UK USA Canada

26