Value Chain Analysis of Australian Gas Market

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Economic Value Chain Analysis of the Australian Gas Industry Nhu Che, Thuy Pham, Quentin Grafton & Matt Unicom Bureau of Resources & Energy Economics (BREE) AARES 56 th Annual Conference 8-10 February, Fremantle, Western Australia

description

value chain for gas

Transcript of Value Chain Analysis of Australian Gas Market

Page 1: Value Chain Analysis of Australian Gas Market

Economic Value Chain Analysis of the

Australian Gas Industry

Nhu Che, Thuy Pham, Quentin Grafton & Matt Unicom Bureau of Resources & Energy Economics (BREE)

AARES 56th Annual Conference8-10 February, Fremantle, Western Australia

Page 2: Value Chain Analysis of Australian Gas Market

Outline

• Background of the Australian gas industry

• Key steps in developing a gas value chain model

• Key activities & flow of transformation of a gas value

chain model

• Value chain model with consideration of rapid

development of coal seam gas (CSG)

• Illustrated sources for market analysis: gas resources

in Australia, supply, demand, price etc

• Remarks

Page 3: Value Chain Analysis of Australian Gas Market

Australia’s gas resource

• Total conventional gas and coal seam gas is about

3400 bil cubic metres (bcm) (or 130,000 PJ)

• Australia’s reserve shares about 2% of the world

• Reserve life: 73 years (the world: 63 years)

• Western market: accounts for 2/3 production in

Australia); >80% total export of Australia

• Eastern market: accounts 31% of Australia’s

production; strong development of coal seam gas

• Northern market

Page 4: Value Chain Analysis of Australian Gas Market

Australia’s gas resource (PJ)

20000

40000

60000

80000

100000

120000

140000

1982 1986 1990 1994 1998 2002 2006 2010

conventional gas

coal seam gas

PJ

Source: BREE

Page 5: Value Chain Analysis of Australian Gas Market

The Australian gas industry

• In 2010–11, Australia’s total natural gas production

was about 53.4 Gm3, which increased by 9 per cent

compared with 2009–10.

• Nearly half of production is exported in form of

LNG.

• In 2010–11, Australia exported about 20 Mt of LNG,

(8.4% of the world) valued at about $10.8 billion.

• The major markets for LNG exports are Japan, China,

Korea and India.

Page 6: Value Chain Analysis of Australian Gas Market

Key steps in developing a value chain model

• Identify and map a flow diagram that captures key cross-link interactions in supply and demand that form the value chain.

• Identify and quantify stochastic characteristics of resource deposits and other uncertainties such as changes in prices, exchange rates and market conditions.

• Develop an economic model of the value chain analysis that captures stochastic, spatial and non-linear interactions through supply and value chains, and the cost and revenue components of each key linkage in the chain.

• Design data and computer programs to characterise and analyse the value chain.

Page 7: Value Chain Analysis of Australian Gas Market

Flow diagram of oil and gas value chain process

Page 8: Value Chain Analysis of Australian Gas Market

Flow of transformation

Value: appraisal

Locate:

potential

resources

Establish:

open new

areas for

exploration

Exploration:

field &

facility

development

Operation Transport

& refining Markets:

domestic

& export

markets

-Desk study

-Aerial survey

-Seismic survey

-Mapping of

resources &

environment

-Social-

economic

feasibility

-Environmental

analysis

-Government

issues licences

-Approve field

development

-Exploratory

drillings

-Appraisal

drillings

-Field/facility

development

-Oil & gas

are produced

- Production

process

-Oil & gas are

transported

to refinery

-Refined

products are

transported

-Market

analysis of

demand,

supply,

prices,

exchange rate

Flow of transformation

Key activities

Page 9: Value Chain Analysis of Australian Gas Market

Key value chain functions of

planned BREE model

• Production transformation functions for each chain, identifying key inputs and outputs.

• Cost transformation functions for each chain, identifying input prices and including other cost factors such as policy impacts.

• Revenue transformation functions for each chain, identifying output prices, exchange rates, market conditions and market uncertainties.

• Value-added transformation functions for each chain.

• The objective function of the aggregated profit function of all chains, considering regional development and other social-economic factors.

Page 10: Value Chain Analysis of Australian Gas Market

Financial value chain of oil & gas in the US

Production

Exploration

Value added= $36.70

Cost of inputs = $47.30

Transport

Refining

Distribution

Marketing

Pump tax

$2.97 +$17.78 +$1.00 +$1.90 +$0.80 +$19.15 +$3.70

$13.36 + 14.89 + $1.96 + $4.80 + $1.33 + $0.36 + $0.00

Gross margin = cost of inputs +value added = $84.00

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Production & costs transformation functions

(convention gas)

F1(y1) = F1(x1) Locate

F2(y2) = F2(y1, x2, ζ2) Valuate

F3(y3) = F2(y2, x3, ζ3) Establish

F4(y4) = F4(y3, x4, ζ2, ζ3, s) Mine

F5(y5) = F5(y4, x5, s) Transport

F6(y6) = F6(y5, x6) Beneficiate

F7(y7) = F7(y6d, x7, s) Domestic markets

F8(y8) = F8(y6e, x8, s) Export markets

F9(y9) = F9(y7, y8, x9) Divest

F1-F9 is the production function of locate, valuate, establish, min, transport,

beneficiate, domestic market and export market, respectively;

x1-x9 is the set of inputs required for production of each chain from F1-F9;

y1-y9 is the set of outputs of F1-F9;

ζ2 and ζ3 present the probability of resource deposit and uncertainty of extraction

condition;

s is the spatial factor, which takes into account the location of mining business;

Output supply equals to the sum of output supply to the domestic and the export

market, or y6= y6d + y6e .

C1(c1) = C1(x1, px1) Locate

C2(c2) = C2(x2, px2) Valuate

C3(c3) = C3(x3, px3) Establish

C4(c4) = C4(x4, px4, ζ2, ζ3, s) Mine

C5(c5) = C5(x5, px5, s) Transport

C6(c6) = C6(x6, px6) Beneficiate

C7(c7) = C7(x7, px7, s) Domestic markets

C8(c8) = C8(x8, px8, s) Export markets

C9(c9) = C9(x9, px9) Divest

where C1-C9 is the cost function of locate, valuate, establish, min, transport,

beneficiate, domestic market and export market, respectively;

c1-c9 is the set of production cost of each chain from F1-F9;

px1- px9 is the set of input price of production for each chain from F1-F9.

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Revenue transformation functions

R1(r1) = R1(y1, py1) Locate

R2(r2) = R2(y2, py2) Valuate

R3(r3) = R3(y3, py3) Establish

R4(r4) = R4(y4, py4, g4) Mine

R5(r5) = R5(y5, py5) Transport

R6(r6) = R6(y6, py6) Beneficiate

R7(r7) = R7(y7, py7, ζ7) Domestic markets

R8(r8) = R8(y8, py8, e, ζ8) Export markets

R9(r9) = R9(y9, py9,g9) Divest

where R1-R9 is revenue function of locate, valuate, establish, min, transport,

beneficiate, domestic market and export market, respectively;

pyi is the set of output prices for output yi, (i=1-9);

e is the exchange rates;

ζ7 and ζ8 present uncertainty of domestic and export markets;

g4 and g9 indicates the impacts of government regulations (such as for environment,

regional development etc on mining operation and divest

VA1(va1) = r1-c1 Locate

VA2(va2) = r2-(r1+c2) Valuate

VA3(va3) = r3-(r2+c3) Establish

VA4(va4) = r4-(r3+c4) Mine

VA5(va5) = r5-(r4+c5) Transport

VA6(va6) = r6-(r5+c6) Beneficiate

VA7(va7) = r7-(r6+c7) Domestic markets

VA8(va8) = r8-(r7+c8) Export markets

VA9(va9) = r9-(r8+c9) Divest

9

1

9

1

9i

i

i

i crvaVA

Total value added

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Illustrated sources for

Market analysis: demand, supply & price

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Australia’s gas demand (GL)

10 000

15 000

20 000

25 000

30 000

35 0001

98

9-9

0

19

90

-91

19

91

-92

19

92

-93

19

93

-94

19

94

-95

19

95

-96

19

96

-97

19

97

-98

19

98

-99

19

99

-00

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

Source: BREE

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Gas share of energy end use in Australia (%)

16

17

18

19

20

21

22

23

1989

-90

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

Source: BREE

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Gas demand by region &

IEA scenario projection (bcm)

1980 2009 2020 2035

OECD 959 1518 1705 1841

Non-OECD 557 1558 2183 2909

World 1516 3076 3888 4750

Share of non-OECD 37% 51% 56% 61%

IEA, World Energy Outlook 2011

Page 17: Value Chain Analysis of Australian Gas Market

OECD’s gas demand

84,724

104,724

124,724

144,724

164,724

184,724

204,724

Millio

n C

ub

ic M

ete

rs

2005 - 2010 Range 2009 2010 2011

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Australian gas export

Source: BREE

0

2

4

6

8

10

12

0

5

10

15

20

25

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

Volume Value (right axis)

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Principal markets for Australia’s oil & gas export

0

2000

4000

6000

8000

10000

12000

1 2 3 4 5 6 7 8 9

10

11

Japan China Korea

Page 20: Value Chain Analysis of Australian Gas Market

Gas imported in Asia-Pacific

• In 2011 Japan shared about 51% of total gas imported

in Asia-Pacific

• Asia-Pacific shares about half of total world’ LNG

import

• The average growth rate of Japan’s gas imported

during 1990-2011 is about 3% per year

Page 21: Value Chain Analysis of Australian Gas Market

Unit price of Australian LNG export

(A$ mil/Mt)

0

100

200

300

400

500

600

700

800

Source: BREE

Page 22: Value Chain Analysis of Australian Gas Market

Australia’s gas supply

Western market

• The most important market (2/3 production in Australia) (1359 PJ)

• All of the gas produced is natural gas with the majority offshore

• Accounts for >80% total export (the North West Shelf Project)

• The Carnarvon Basin is the most important supply source

Eastern market

• Accounts 31% of Australia’s production (622 PJ)

• About 2/3 of gas production is natural gas; 1/3 is coal seam gas (CSG)

production

• Strong increase of CSG production, from 44 PJ in 2004-05 to 200 PJ in

2009-10

Northern market

• The smallest supply (1.5 % of Australia’s production); domestic market

Page 23: Value Chain Analysis of Australian Gas Market

Gas production of Australia

Source: BREE

0

10

20

30

40

50

6020

00-0

1

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

Gm3

Page 24: Value Chain Analysis of Australian Gas Market

Productivity index of the Australian mining

industry (Fisher index)

Page 25: Value Chain Analysis of Australian Gas Market

Coal seam gas resources in Australia

Unit Australia World

CSG resources PJ 168 600 a 10240000 b tcf 153 a 9047 b Share of world % 1.6 100 CSG production PJ 139 2700 tcf 0.1 2.3 Share of world % 5.1 100 CSG share of total gas production % 8.4 5.0

a Total identified CSG resources b Total CSG resources in place c Estimate includes United States, Canada and Australia only.

Source: IEA 2009a; IEA 2009c; Geoscience Australia.

Page 26: Value Chain Analysis of Australian Gas Market

Coal seam gas production in Australia

• Over the past five years, CSG exploration has increased

substantially, providing 11% of total gas production

• 20,000 - 40,000 wells could be drilled in the next 20 years

• CSG accounts for 90% gas supply in QLD; export markets

since 2014

• CSG seems will be a key future source of gas for Australian

markets

• Controversy of sustainable development of CSG: the issues

of water use and environment

• About 7500 gigalitres of water would be extracted over 50

years (1/3 of the average annual flow of the Murray-Darling

river system) (the National Water Commission)

Page 27: Value Chain Analysis of Australian Gas Market

Remarks

• The important role of the industry: gross value, export

revenue, employment, energy sources etc

• It is important to include the environmental issue in the cost

function. E.g., the case of CSG development over the next

decades

• The draft Energy White Paper: the important role of gas & the

need for supporting the transition to lower-emissions forms of

technology.

– Australia’s per capita greenhouse gas emissions is the

highest in OECD & among the highest in the world

(Garnaut Review).

– Australia will soon have a carbon pricing mechanism in

operation toward cleaner energy sources.

Page 28: Value Chain Analysis of Australian Gas Market