Dr Rod Crompton, Regulator, Nersa
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Transcript of Dr Rod Crompton, Regulator, Nersa
Infrastructure issues in the Petroleum Sector
Dr Rod Crompton
National EnergyRegulator of South Africa
2 November 2011
1
2
PERSONAL OPINIONS
Outline
• Background to economic regulation
• Introduction to NERSA
• Regulating market entry
• The construction boom & challenges• The construction boom & challenges
• Prices and tariffs
• Funding big energy infrastructure
• Storage tariffs
• Security of Supply & Strategic stocks
• Biofuels compulsory blending?3
Background to economic Background to economic regulation
4
Text book
• Rationale for regulation based on “natural monopolies” i.e. market failure, & avoiding unnecessary duplication
• Prevent monopolistic price gouging
5
Reality
• Multiple objectives in regulatory
laws, sometimes competing; e.g.
– promote competition.– promote competition.
– orderly development
– public interest
– security of supply (implies strategic element)
6
Introduction to NERSA
• Commenced November 2005
• Modelled on modern transparent economic regulatoreconomic regulator
• Public hearings
• Written decisions and reasons for decision
Regulated sectors
Electricity Petroleum Gas
Gen. Trm Distr Pipelines Storage Trm Distr
Dominant Eskom Eskom Munics Transnet Six oil SASOL SASOLDominant
market
share
Eskom Eskom Munics
/Eskom
Transnet Six oil
cos
SASOL SASOL
Regulation Full Full Full/co
ntested
Full/set Full/app
rove
Light
monitor
&
approve
Light
monitor
&
approve
3 Industries
• 3 different Acts
• Electricity and petroleum treated as established industries established industries
• Gas treated as an infant industry – less onerous regulation
What do economic regulators do?
• Make impartial, difficult, economic trade-off decisions in “the public
11
trade-off decisions in “the public interest” (not defined)
– licence “the players” (market entry)
– set conditions of licence and police them
– set and approve tariffs
Regulating Market EntryRegulating Market EntryHow should we admit new pipeline
capacity?
12
Market access
1. Petroleum Pipelines Act: Must have a licence
2. Objective of Act: Promote (introduce) competition
(without privatisation – unique?)
3. Act silent on competing applications
13
3. Act silent on competing applications
4. Process in order received
1. First mover advantage
2. Unsubstantial rejected
5. Weigh the merits
The construction boom &
challenges
14
Pipeline Construction approved
Petroleum Pipeline Construction Licenses Granted YEAR Approved
Area Rm
Petroline RSA (Pty) Ltd 2007 Maputo to Kendal 4,200
Transnet Ltd. 2007 Durban to inland 23 400
15
Transnet Ltd. 2007 Durban to inland 23 400
Sasol Oil (Pty) Ltd. 2011 Secunda to Natref <2,000
Engen Petroleum Ltd. 2010 Durban <1,000
SAPREF 2011 Durban <1,000
TOTAL <32,000
Storage Construction approved (1)
Petroleum Storage Construction
Licenses Granted
Year
Approved
Area Rm
Chevron (additional 3 tanks) 2006 Alrode 20 – 25
Chevron (additional 3 tanks) 2007 Waltloo 20 – 35
Chevron (additional fourth (one) tank) 2007 Alrode 2 – 5
Engen (additional 3 tanks) 2007 Cape Town 20 – 40
Engen (additional tank) 2007 Upington 2 – 7
ACSA (new 6 tanks) 2008 KSIA Durban 60 – 100
Engen (further additional 3 tanks) 2009 Cape Town 2 – 7
ACSA (additional 3 tanks) 2009
ORTIA
Johannesburg 80 – 140
Sasol Oil (additional 10 tanks) 2009 Alrode <1 500
Storage Construction approved (2)
Petroleum Storage Construction
Licenses Granted
Year Approved Area Rm
Engen (additional 5 tanks) 2010 Langlaagte (JHB) 40 - 80
VOPAK SA Developments (new 38
tanks) 2010
Jamesson Park
(Gauteng) <1 500
Shell (additional 4 tanks) 2010 Alrode <500
FFS Refinery (additional tank) 2010
Cape Town
Harbour 2 – 5
BPSA, Shell Engen & Total (new four
arms) 2010
Island View
Berths 6 80 - 120
Sunrise Energy (new 6 tanks LPG) 2011 Cape Town <1 000
17
Loading Construction approved
Petroleum Loading Facilities Licences Granted YEAR Approved
Area Rm
18
BPSA, Shell Engen & Total (new four arms) 2010
Island View Berths 6 50-150
Sunrise Energy (new 6 tanks LPG) 2011 Cape Town 350-750
TOTAL (Rm) 5,228 to 5,964
Construction applications under consideration
Applicant Area
Oil Tanking Grinrod Calulo (new 18
tanks & loading facilities) Coega IDZ
Total SA (additional tank) Waltloo
19
Total SA (additional tank) Waltloo
Total SA (additional tank) Polokwane
Total SA (additional tank) Ohrigstad
BPSA (additional tank) Waltloo
BPSA (new 4 tanks) Rand Airport
Storage Capex approved
1000
1200
1400
CAPEX Rm
Sunrise
VOPAK
Shell
0
200
400
600
800
2006 2007 2008 2009 2010 2011
CAPEX Rm Shell
FFS
Saosol Oil
ACSA
Engen
Chevron
20
Sasol
Challenges
• Delays
• Costs
For example
Licensed construction
• Petroline: 12” Maputo to Kendal – scheduled completion Q3 2009. – licence deadline March 2010– not built within allotted 3 years – EIA delays– 2010 – extended to 3 yrs after EIA ROD– Not started, market opportunity missed– Not started, market opportunity missed
• Transnet: 24” Durban to Gauteng + other– scheduled completion Q3 2010 – latest Q4 2012– cost escalations:
• 2007: R 11 bn• 2009: R 12.6 bn• 2010: R 15.4 bn• 2010 R 23.4 bn• next ???? 22
Statutory options for late delivery
Option1. Extend construction
period
Consequence1. Capacity constraints.
Upsets orderly development of capacity?
2. Don’t extend construction period
3. Impose fine for breach of licence condition
2. Construction halts? Liquidation? Shortages?
3. Construction halts? Liquidation? Shortages?
23
Statutory remedies for cost over runs
Option
1. “Prudent” - allow over run into tariffs
Consequence1. Higher tariffs
2. “Imprudent” -disallow over run from tariffs
2. Lower tariffs. Liquidation? Shortages?
Options for risk allocation
Options• Licensing (current legal
requirement)
• Deregulate market
access & let the market
Risk bearer1. Consumers
2. Investors & consumers
for late delivery & cost over runs
access & let the market
decide?
• Competitive bidding
rounds for additional
capacity. (locked in
tariff. Locked in
premium. Construction
Co. collusion?)
3. Fairer to all?
Prices and tariffs
26
April 2011Petrol ULP 93 (c/l)
Basic Fuels Price 546
Incremental Inland Transport Recovery Cost 3
Wholesale Margin 54
Petroleum Products Levy 0
%
International component + refining margin 56
Petrol price structure
Petroleum Products Levy 0
Transport Cost 23
Delivery Cost 11
Retail Margin 81
Demand side management levy 0
RAF 80
Customs &excise 4
Fuel tax 178
Retail price 980
Taxes & Levies 27
Administered prices 18
100
27
Cost drivers:
•Accident rate
•Admin costs
Small business
Job creation 26c/l
120
140
160
180
200
cen
ts/l
itre
Taxes & administered components of petrol price
28
0
20
40
60
80
100
120
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
cen
ts/l
itre
Fuel Tax RAF Transport
Wholesale margin Retail Margin Delivery Cost (road)
Administered components of petrol price
60
70
80
90
29
0
10
20
30
40
50
60
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
cen
ts/l
itre
Transport Wholesale margin Retail Margin Delivery Cost (road)
Issues
1. SA needs new pipelines
2. How to finance?
3. Transnet Pipelines: >quadruple asset base without equity injectionbase without equity injection
4. Only remaining financing option is tariffs
5. Debt service cover ratio
6. Security of supply levy: 7.5c/l for 3 years = R4.5 bn
30
83%
128%
83%
60%60%
80%
100%
120%
140%
Licence application
?
Transnet: funding by Tariffs
31
15%
51%
7.7%
-11%
12%
60%
-20%
0%
20%
40%
60%
08/09 09/10 10/11 11/12 12/13
Licence application
Tariff applications*
NERSA decisions*
* Allowable Revenue
Pipeline tariff impact on Gauteng petrol price
40
50
60
ce
nts
pe
r li
tre
24” Trunklineinto
Forecasts →
32
-
10
20
30
20
07
/08
20
08
/09
20
09
/10
20
10
/11
20
11
/12
20
12
/13
20
13
/14
20
14
/15
20
15
/16
20
16
/17
ce
nts
pe
r li
tre
into operation
Full NMPP
Project
completed
Storage tariffsStorage tariffs
33
150
200
250Tariffs (c/litre) 65 Engen Storage facilities
0
50
100
150
0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 45 000Total Capacity of facility (m3)
140 000
160 000
180 000
200 000
200 Refined Products Storage facility sizes (m3)
0
20 000
40 000
60 000
80 000
100 000
120 000
35
Security of Supply &Security of Supply &Strategic Stocks
36
Government Policy & strategic issues
• Government required a bigger than commercial pipeline for security of supply reasons
• Security of supply insurance policies have to be paid for (in the tariffs) for (in the tariffs)
• but if only some tariffs (SOEs) are burdened with this obligation how have fair competition?
• Government security of supply injection: R4.5 bn via a 7.5c/l national levy on fuel for 3 years
• Compare costs with cost of interruption in supply 37
Nersa Estimates
12 000
14 000
16 000
18 000
20 000
millio
n l
ite
r /
an
nu
m
NMPP pipeline capacity
DJP pipeline capacity
Inland Jet Fuel supply
Road and rail requirement is indicated by the area between the demand lines and the bars
NMPP commences operation 1 January 2012. The whole project wil l be completed by 1 April 2014 i.e. NMPP reaches full
capacity at 1 Apri l 2014. This is as per Transnet's presentation to NERSA on 7 December 2010.
0
2 000
4 000
6 000
8 000
10 000
12 000
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
millio
n l
ite
r /
an
nu
m
Inland Jet Fuel supply
Inland IP supply
Inland Diesel supply
Inland Petrol supply
Inland Fuel demand
Inland Fuel demand incl. exports
38Note: Data availability an issue
No. of road tankers from
Durban to Gauteng
2009 2010 2011
Estimated impact of pipeline constraints on roads
Gauteng
Per annum 16 931 24 497 42 351
Per day 47 68 117
Per hour 2 3 5
Minutes between trucks
31 21 12
39
Strategic Stocks
• Currently held as crude at Saldanha Bay
• Draft regulations 23 September 2010
– switch to refined products
– almost equivalent to doubling refined products – almost equivalent to doubling refined products
storage capacity (capex?)
– key vulnerability (supply of inland market) will
require additional measures
• Regulations still coming?
40
Biofuels compulsory blending?Biofuels compulsory blending?
41
• Blending currently voluntary
• Draft regulations 16 September 2011:
– Compulsory blending bioethanol in petrol and
biodiesel in dieselbiodiesel in diesel
• Biofuels require subsidies – fuel levy?
• Affect pipeline operations? Increase tariffs?
• Impact on storage costs?
42
Thank you
43www.nersa.org.za