GAS PRICES AND PRICING
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Transcript of GAS PRICES AND PRICING
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GAS PRICES AND PRICING
Peter Ross, Wimbledon Energy Slide
Peter Ross, Managing Director, Wimbledon Energy, UK
ASIAN GAS BUYERS SUMMIT
MUMBAI
March 25 2003
IBC Gulf Conferences FICCI
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GAS PRICING
Peter Ross, Wimbledon Energy Slide
“How prices are determined is often a mixture of voodoo and bingo.”
London Business School, Assistant Professor of Marketing 2002
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GAS PRICING
Peter Ross, Wimbledon Energy Slide
“The LNG market is becoming more and more a liquid market with short period supply contract and a netback pricing instead of a long contract with defined pricing formula."”
Abdullah Al-Attiyeh, Minister of Energy & Industry, Qatar 29 October 2002 at IBC Conference MEGAS 8, Tehran.
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GAS PRICING
Peter Ross, Wimbledon Energy Slide
"We want to buy LNG preferably on a fixed price basis ... we want the supply of fuel to have minimum linkage with the movement of the international crude oil price.”
Mr. Jain, Chairman, National Thermal Power May 2002
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CRUDE OIL INDEXATION
Peter Ross, Wimbledon Energy Slide
Paper, Futures
and other Derivatives
15 Day IPE M + 1
CFD
BFO
Other crudes priced by reference DB +/-
Now
Physical Not to Scale
"BRENT"
Nymex 2001: “two thirds of world production c. 50 mmbbls/day are priced directly or indirectly against
Dated Brent”
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CRUDE OIL - JCC
Peter Ross, Wimbledon Energy Slide
The average of 17 crude oils imported into Japan
History
Relevance now?
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CRUDE OIL - JCC
Peter Ross, Wimbledon Energy Slide
Japanese consumer still pays too much for energy
And
Still a very rich consumer economy
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CRUDE OIL - JCC
Peter Ross, Wimbledon Energy Slide
“Hold close to nurse
for fear of something worse”
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RasGas SELLING TO PETRONET
Peter Ross, Wimbledon Energy Slide
Volume building 2.5 mty to 5 mty LNG
25 years
MBQ (take or pay) basis Price indexed to JCC
3 Indian company marketing team
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INDIAN MARKET FOR GAS
Peter Ross, Wimbledon Energy Slide
Power + fertiliser 80%
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INDIAN MARKET FOR GAS
Peter Ross, Wimbledon Energy Slide
Fuel – naphtha Replace with pipeline gas
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INDIAN MARKET FOR GAS
Peter Ross, Wimbledon Energy Slide
Pricing naphtha Crude oil * 1.2 current / historic assumption ?
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INDIAN MARKET FOR ELECTRICITY
Peter Ross, Wimbledon Energy Slide
Relationship to crude oil ? Relationship to naphtha ? Future relationship ?
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INDIAN MARKET FOR ELECTRICITY
Peter Ross, Wimbledon Energy Slide
End-user ability to pay? State electricity boards? NTPC declined LNG proposal as too expensive - preferred their own tender Compare fertiliser companies as a market
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QATAR AS PRODUCER
Peter Ross, Wimbledon Energy Slide
Drill and produce gas
Sell gas, LNG and condensate
Use ethane
Build liquefaction, jetties, etc
Use gas for power
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QATAR AS PRODUCER
Peter Ross, Wimbledon Energy Slide
Raise finance
Load LNG ships
Use boil-off
Diesel?
Unload
Receive USD
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QATAR AS PRODUCER
Peter Ross, Wimbledon Energy Slide
LNG price
Relevance of crude oil?
Relevance of JCC?
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QATAR AS PRODUCER
Peter Ross, Wimbledon Energy Slide
Gas price for projects in Qatar
is not related to
JCC;
or to Crude oil
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OMAN AS PRODUCER
Peter Ross, Wimbledon Energy Slide
Gas into fertiliser plant
For export to India
Price is $0.80
Not JCC
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INDIA - GAS PRICE AT CONSUMER GATE
Peter Ross, Wimbledon Energy Slide
LNG price DES excludes
Regas facilities andVery high customs duty on LNG capital goods
Very high Import taxPipeline transport
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INDIA - GAS PRICE AT CONSUMER GATE
Peter Ross, Wimbledon Energy Slide
Consumer can afford maximum $3.50 at gate
Suggests LNG max DES $2.50
Most need a lower price
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INDIA - GAS PRICE AT CONSUMER GATE
Peter Ross, Wimbledon Energy Slide
Domestic production approx. $2 to $3.5 delivered
Can be complex / subsidised
Can be localised e.g. NE Region
1997 target: parity fuel oil in 4 years
Rs 2,850 / m3 (2002) + tax + transport
40% Fuel Oil parity 2002 estimate
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INDIA - GAS PRICE AT CONSUMER GATE
Peter Ross, Wimbledon Energy Slide
Gas Consumer targets include
NTPCLNG $2.50 to $3.00 Enabling 2.5c to 3.0 c/kWh
Also = Dhabhol viability estimate
“Stability”Naphtha minus 20%
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INDIA - PRICE FOR IMPORTED GAS
Peter Ross, Wimbledon Energy Slide
August 2002 sign main price terms
BaseJCC = $18 LNG des = $2.28
Seller proposes
FloorJCC = $16LNG des = $2.03
Cap JCC = $24LNG des = $3.04
And finalise fully termed GSPA asap ........
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INDIA - PRICE FOR IMPORTED GAS
Peter Ross, Wimbledon Energy Slide
November 2002
Seller: OK,
Cap reduced to JCC = $21 to $22
Provided GSPA signed very soon OrRevert to previous pricing
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INDIA - PRICE FOR IMPORTED LNG
Peter Ross, Wimbledon Energy Slide
February 2003
No sales at all announced
To Indian consumers
By LNG Buyer
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INDIA - PRICE FOR IMPORTED LNG
Peter Ross, Wimbledon Energy Slide
• Negotiating position of seller
• Consumers price expectation now
• Gas discovery in India
• LNG Buyer’s terminal
• Pipeline
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INDIA - PRICE FOR IMPORTED LNG
Peter Ross, Wimbledon Energy Slide
Who can afford to move?
Indian consumer?
Qatari seller of gas and associated liquids?
Indian government?
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INDIAN GOVERNMENT ROLE
Peter Ross, Wimbledon Energy Slide
Low LNG import price – good for
Clean efficient industryBalance of paymentsIndian tax base versus end-user
Other countries phasing out import taxKorea – no tax on LNG import for power
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LNG PRICING INDXATION
Peter Ross, Wimbledon Energy Slide
Includes
Mixed basket
Coal indexed
etc
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LNG PRICING
Peter Ross, Wimbledon Energy Slide
We’ve seen
• Oman remove the floor
• Tepco and Tokyo Gas concede
volume and shipping flexibility
• Customer responsive
• Trinidad to USA / Netback
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LNG PRICING - GENERAL
Peter Ross, Wimbledon Energy Slide
MORE FLEXIBLE TERMS
More flexibility for Buyer on offtake
More downward quantity toleranceExtended catch-up or make-up after an undertakeLinked relaxation of the MBQ obligation
Duration Shorter to medium contract durations 5 to 10 years, to complement existing longer term 20to 25 year contracts
as demand growsdiversification of risks and timing, price, contract termsbetter average terms, and more flexibilityportfolio of long term, medium term, spot supplies
Option to extend contract on notice
Volume Option to reduce the contract volume on notice
Price Move from crude oil indexation to a more market related and risk diversifying mixed basketof indices e.g. oil products, electricity, coal
Shipping Option to switch from cif to fob for some / all volume on noticeCargo diversion rights
Service Meeting irregular demandMeeting summer air-conditioning peak demandFlexible supply – requirements based, without need to make-up
Price may reflect the degree of service required by the Buyer, but volume, shipping and durationflexibilities have been secured at competitive price.
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LNG PRICING
Peter Ross, Wimbledon Energy Slide
Now much more competitive
Limited market for LNG
Inflexible deliverability
Price is coming down
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GAS PRICING
Peter Ross, Wimbledon Energy Slide
• Equatorial Guinea
• Big gas find
• Rapid development
• Price of gas 25 cents into plant
• Profit from royalty and NPI on plant
• LNG and GTL for next development
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GAS PRICING
Peter Ross, Wimbledon Energy Slide
Move bulk at low price
Collect rent mid and down stream
Add value; service; associated liquids
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GAS PRICING
Peter Ross, Wimbledon Energy Slide
Possible:
Market related LNG versus traditional pricing -flexibility
Gas long market erodes MBQs – classic
Increased infrastructure = competition = erosion of MBQs
GTL priced against oil products netback – “no gas price”
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GAS PRICING
Peter Ross, Wimbledon Energy Slide
• Gas increasingly as a commodity
• Market gas long?
• Failure to monetise – competition
• Take your profit where?
• Market segmentation
• Risk diversification
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GAS PRICING
Peter Ross, Wimbledon Energy Slide
OR
STORE IT IN THE GROUND
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GAS PRICING
Peter Ross, Wimbledon Energy Slide
“Why should people in Europe suffer for the price of my gas because of what’s happening in Venezuela ?”
Egyptian Oil Minister, Mr. Sameh Fahmy, February 2003.
Proposing new gas price-fixing formula, ending link
between gas prices and crude oil prices.
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The next big success story
Our Indian hosts?
Peter Ross, Wimbledon Energy Slide
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THE END
Peter Ross, Wimbledon Energy Slide