Widodo W. Purwanto, *Hanan Nugroho

Departemen Teknik KimiaUniversitas Indonesia

*Bappenas

Natural Gas Price & Tariff

Lecture-3

There is no “World Prices” for gas … yet

Market maturity

Regional differences

Different outlets

Risks

In development

Regional

No captive market

Market risk

Mature

International

Captive markets

Exploration risks

Oil and gas are DIFFERENT commodities

Price theory

Gas pricing: Basic principles

Fixed Prices

Cost-Plus

Pt = Po[a(Gt/Go) + b(Ft/Fo)]

Price Components

The basic price, which splits the risks between the two parties: sellers and buyers

Indexation provision, which assures gas competitiveness and helps to integrate the changes occurring in the energy market, without having to renegotiate the contract

Example: Ruhrgas’ NWCE Additive

Formula P = Po + 0.6 x f1 x k1 (KEL–KELo) + 0.4 x f2 x k2 (HSL–HSLo)

Where

Po = base price for German pfennings per kWh (pf/kWh)

KEL= price of gasoil in Deutsche Mark per metre tonne (DM/Tonne), net of all taxes and duties in German inland market

HSL = Price of Heavy fuel oil with maximum 1% sulphur in DM/Tonne net of all taxes and duties in German inland market

f = “delivery point” adjustment factors,

k = energy conversion factors,

Methodology: calculation on price averages over a period of 3 to 12 months

Pricing formulae: Other parameters

Long term pricing: partial indexation to coal used in some power generators’ purchase contracts (Italy’s Enel)Spot and short term sales (one day to one year): Fixed prices for gas, determine by market conditions at the moment the deal is signedPrice Review Clause: provided for renegotiating the price formulae if market conditions are substantially modified (for instance, the NWCE formulae was transformed into a modified “S-Curve” formula).

Recent trends in Gas Pricing Formulae in Europe: Spot Price Indexing

IPE prices have started to be used as the basis for price indexing in mid-term pipeline contracts.Statoil sold 5 Bcm/year of gas to British Gas Trading (Centrica), over a 10 year period (2005-2015), indexed to the spot gas price at the NBP.Gasunie Trading & Supply sold 8 Bcm/year of gas to British Gas Trading (Centrica) over a 10-year period (2005-2015) indexed to the spot gas price at NBP. This contract is tailored to match Centrica’s high seasonal demand profile.

Cost component of pipeline gas

Price of crude oil vs. gas

Oil/Gas Price ratio

Comparison of coal/crude oil prices

Perbandingan nilai gas bumi

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LNG - Badak Pipeline - Java Methanol GTL (FTDiesel)

DME

US

$ / M

MB

tu Distribution

Processing

Netback

LNG Prices to Japan

LNG Prices to Japan and JCC

LNG Prices to Japan, Korea and Taiwan

LNG Pricing by Region

LNG Pricing Formulae in Asia (1)1988 – 2004Prices linked 85% to crude oil

10-15% premium over crude at around $18/bbl

Lower premium declines at higher oil prices and no premium above $28-$30/bbl

“S” shaped curve in some contracts

2004+New indices and price mechanisms to reflect changing markets?

LNG Pricing Formulae in Asia (2)

Reference Oil Price: JCC Japanese Custom Cleared average price1988 – 2004Price applies over an agreed range ($11 to $30/bbl), outside that range there is an agreement to “meet and discuss”Such a pricing basis initially developed with Japanese buyers but has been adopted by S. Korea and TaiwanIn Japan the basic formula has been modified by adopting an “S” shaped curveNo “S” curves in S. Korea and Taiwan contracts

LNG Pricing Formulae in Asia (3)

Most contracts for LNG sold on an ex-ship basis use the following pricing formula:

P(LNG) = A x P (Crude Oil) + Bwhere

P(LNG) = price of LNG in cents$/MMBtu

P (Crude Oil) =price of crude oil in $/bbl

B = a constant in cents/MMBtu

In many contracts:

A = 14.85

B = 70 to 90 cents

Basic LNG Pricing Formulae in Asia

Asian “S” Curve Price Formula

LNG Pricing Formulae in AsiaLinkage to crude oil is about 85% In most contracts the average of Japanese Custom Cleared (JCC) crude prices are used, but Indonesia uses the average price of Indonesian crude exports Inclusion of constant results in premium over crude oil parity of about 10-15% at $18/bblPremium erodes as oil price increase and disappears at around $28-30/bbl Most price negotiations focus on the constantThe 14.85 factor is used in many contract is not exclusive (especially in FOB contracts)

Level of price formula varies along fluctuating oil price

Tipikal formula harga LNG

Harga Gas Internasional dan Domestik

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1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

US$/ MMBtu

NG US NG Uni Eropa

LNG Jepang NG PGN

NG PUSRI NG PIM

NG PKC NG PKG

NG PKT

• Harga gas PGN berkisar 1/3 sampai 1/2 dari harga gas internasional• Harga gas domestik untuk pupuk berkisar 1/6 sampai 1/4 dari harga gas

internasional

Perbandingan Harga Gas Bumi dengan

Harga Minyak Bumi

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1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

US$/barel of Crude Oil

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US$/ MMBtu of Natural Gas

Crude Oil

NG US

NG Uni Eropa

LNG Jepang

NG PGN

Pola harga gas di luar negeri mengikuti pola harga minyak bumi, tetapi tidak demikian halnya dengan pola harga gas domestik.

Rasio harga minyak bumi terhadap harga gas bumi

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1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

NG US

NG Uni Eropa

LNG Jepang

NG PGN

Rata-rata rasio harga minyak bumi terhadap gas di: - US sebesar 8,7 - Uni Eropa sebesar 7,6

- Jepang sebesar 6,2 - PGN berkisar 8-18

Korelasi Harga Gas Internasional dengan

Harga Minyak Bumi

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Harga Minyak Bumi (US$/Barrel)

Harga Gas (US$/MMBtu)

NG US Gas Uni Eropa LNG Jepang

Berdasarkan regresi linear tersebut diperoleh persamaan untuk gas bumi di:

- Uni Eropa (3.25)- US (3.26)

- Jepang (3.27)

2474,01229,0 PcoPg

7554,00964,0 PcoPg

7269,10959,0 PcoPg

Different Tariffication Methods for Gas Transportation

Tariffication according to the «distance»: booking capacity along each section of the «tariff route»Tariffication according to «pondered distance» (average distance)Tariffication «Entry-Exit»: booking capacity at entry and exit, without taking into account physical flows between these two pointsTariffication «post-stamp»: a unique tariff applied for injection and withdrawal on the overall territory