Middle East Natural Gas Outlook Opportunities and Challenges
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Transcript of Middle East Natural Gas Outlook Opportunities and Challenges
Middle East Natural Gas OutlookOpportunities and Challenges
7th Doha Natural GasConference & Exhibition
March 9 - 12, 2009
Michael Corke
Purvin & Gertz - Dubai
2
Topics
Gas Utilization Today
Gas Demand Potential
Supply-Side Issues
Gas Valuation and Pricing
Strategies for Success
3
Middle East Primary Energy Supply
Petroleum and natural gas account for 98% of primary energy supply
Natural gas growing at 6.7% CAGR 1997-2007 and gaining market share from oil
6.7% CAGR doubles consumption in 11 years
Natural gas growth will be constrained by supply
0
100
200
300
400
500
600
700
800
1997 2002 2007
Other
Natural Gas
Petroleum
Primary Energy Supply, million toe
Source: International Energy Agency & Purvin & Gertz Analysis
5.1% p.a
4.7% p.a
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Reflecting supply and infrastructure limits, gas use varies widely through the region
Natural Gas as a % of TPES in the Middle East
32
34
36
38
40
42
44
46
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
(%)
Natural Gas
Natural Gas as a % of TPES in Middle East countries - 2007
0
10
20
30
40
50
60
70
80
90
Mid
dle E
ast
Iraq
Syria
Jord
anKSA
KuwaitIra
n
Oman UAE
Bahrain
Qatar
(%)
Natural Gas
6.7% p.a
Source: International Energy Agency & Purvin & Gertz Analysis
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Natural gas penetration data show where unsatisfied demand exists
2007 Natural Gas Consumption
Historical Natural Gas Share of TPES
MTOE % of TPES 2002 1997
Iran 91.4 51 47 42
Iraq 2.9 10 6 10
Kuwait 10.1 39 35 46
Qatar 16.2 81 83 82
KSA 52.9 35 34 31
UAE 35.4 72 74 73
Region 237.0 44 40 37
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Considerable potential exists for energy efficiency gains in the Middle East
Primary Energy per Capita
0
5
10
15
20
25
TOE per Capita
Primary Energy per $'000 GDP
0
0.2
0.4
0.6
0.8
1
1.2
TOE per $'000 GDP
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Regional natural gas reserves appear sufficient to support demand growth but …
Remaining reserves have increased substantially despite rising production
Total reserves likely to be much higher than proven reserves
Access to reserves may not be straightforward: 20-25% is associated gas Some sour and with high
development costs Some earmarked for export
Some inter-country tensions
Middle Eastern Proven Gas Reserves
0
10
20
30
40
50
60
70
80
90
100
1997 1999 2001 2003 2005 2007
TCM
Iran Qatar Other
Source: BP Statistical Review of World Energy
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The region is not a single market
Pipeline projects have been slow to develop: E.g. Qatar > Bahrain, Kuwait E.g. Iran > Bahrain, Kuwait, UAE Conflicting and changing price ideas Reserve uncertainty Regional costs often high
Inter-country tensions can frustrate projects Countries compete for inward investment:
Long-term wealth and employment creation Natural gas, ethane availability & pricing key factors
Competition from gas export projects
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Outlook: natural gas growth to be constrained by efficiency gains and supply constraints
Primary Energy OutlookBusiness as Usual + Efficiency Gains Scenario
0
100
200
300
400
500
600
700
800
900
1000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
MTOE
Other
Natural Gas
Petroleum
Natural gas CAGR 1.8% vs petroleum 2.1% (transport sector driving petroleum demand)
Source: Purvin & Gertz scenario
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Topics
Gas Utilization Today
Gas Demand Potential
Supply-Side Issues
Gas Valuation and Pricing
Strategies for Success
11
Since 2003 prices for LNG in export markets have increased dramatically
Higher oil prices and oil linkages in Asian LNG pricing formulae have pulled LNG prices higher
Now starting to follow oil prices downwards
S-curve provisions that historically reduced volatility have mostly been removed
Netbacks to the Middle East have followed the same pattern 10
30
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70
90
110
130
150
2003 2004 2005 2006 2007 2008
0
2
4
6
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10
12
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18JCC Price
LNG Delivered to Japan
$/barrel $/mmbtu
Source: Purvin & Gertz analysis
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Traditional Continental European pipeline gas price formulae also follow oil prices
International and inland gasoil / fuel oil prices are used as oil price indices
Time lags cause a counter-seasonal gas price pattern
UK spot prices also tracking oil prices as a result of pipeline links to Continent
US (not shown) the third major potential market
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40
60
80
100
120
140
2003 2004 2005 2006 2007 2008
0
2
4
6
8
10
12
14Dated Brent Price
Average German Pipeline Gas Price
$ / barrel $ / mmbtu
Source: Purvin & Gertz analysis
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LNG netbacks higher since 2003, but still below AG oil products parity in most periods
Comparative Fuel Values, FOB Arabian Gulf
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5
10
15
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25
30
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct
$/mmbtu
Average LNG Netback to Qatar
Gasoil FOB AG
Fuel Oil FOB AG
2003 2004 2005 2006 2007 2008
Source: Purvin & Gertz analysis
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Conclusion: where possible new gas should be sold locally rather than exported as LNG
Price advantage for local sales at thermal parity with oil products vs LNG netbacks 2003-2008 $2/mmbtu vs HFO, $7/mmbtu vs GO 2006-2008 $4/mmbtu vs HFO, $10/mmbtu vs GO
This simple price comparison excludes Infrastructure investment and operating costs Technology-related fuel efficiency differences such as gas
CCGT advantage in power generation Potential additional revenue ~ $2 billion/year for the
equivalent of a 7.8 mtpa LNG train basis 2006-2008 prices
Potential sales security benefits Geographical diversification Fundamentally supported oil-based price indexation
15
Other issues for Middle East gas sellers
Linkages between oil and gas prices in mature gas-consuming regions are tenuous, are being questioned
Excessive LNG prices are unsustainable: sales are susceptible to competition: From pipeline and indigenous gas as seen recently in the US In the longer term from coal and nuclear
Oil and gas market price volatility is likely to continue: Impact of too much information and financial speculation Markets don’t send timely signals in capital intensive
industries: this will not change Conservation of gas resources for future generations? Oil-rich regional gas buyers may value petroleum fuels
at their costs of production rather than market value Ethane pricing must remain internationally competitive
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Coal likely to constrain long-term gas prices
The power sector seen as driving 2/3 of global gas demand growth
Underlying competition between coal producers likely to keep prices low
NIMBY factor and carbon costs can favour gas
Use of indigenous coal in China, India, FSU inevitable
Coal use in Middle East a real option
0
5
10
15
20
25
2003 2005 2007
Low Sulfur Fuel Oil CIF NWE
Average German Pipeline GasPriceEurope Steam Coal Import Price
$ / mmbtu
Source: Purvin & Gertz analysis
17
Middle East natural gas outlook
Supply and demand growth, but slower than historical Higher regional gas prices:
Justified by alternative fuel prices, LNG netbacks Will support development of higher-cost reserves Will support regional gas trade and infrastructure Beneficial impact on energy efficiency:
• Environmentally desirable• Higher prices cost-neutral if balanced by grants
New pipeline, local LNG and ethane recovery projects Increased flexibility to handle associated gas
production and seasonal demand shifts: Underground storage investments Synergy between local and North Atlantic gas demand pattern
Natural Gas resource conservation?
18
About this Presentation
This presentation has been prepared for the benefit of the conference attendee. Any party in possession of this presentation may not rely upon its conclusions without the consent of Purvin & Gertz. Possession of the presentation does not carry with it the right of publication.
Purvin & Gertz conducted this analysis and prepared this presentation utilizing reasonable care and skill in applying methods of analysis consistent with normal industry practice. All results are based on information available at the time of review. Changes in factors upon which the review is based could affect the results. Forecasts are inherently uncertain because of events or combinations of events that cannot reasonably be foreseen including the actions of government, individuals, third parties and competitors. NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE SHALL APPLY.
2007 ICIS Middle East Base Oils Conference - Dubai 19
Michael CorkeSenior Vice President
Purvin & Gertz, Inc. Dubai
T. +971 4 4370 388M. +971 50 515 0197F. +971 4 4370 390
www.purvingertz.com