Natural Gas Value Chain, Opportunities, and Challenges - Lebanon

NATURAL GAS VALUE CHAIN,OPPORTUNITIES, AND CHALLENGESPioneer Development Project: Experiences and Lessons

Order of Engineer – Tripoli, Lebanon

Ihab Ouaida – May 20, 2017

IHAB OUAIDA

2009/ Lebanon:Graduated as an Electrical Engineer

2009/ UAE:Joined Petrofac International

2010/ Kazakhstan:Executed “Kashagan Experimental Field Development Project”The World’s 3rd Biggest Oil and Gas Project

2013/ Italy:GE Oil and Gas UniversityOil and Gas Leadership Program – Batch 2013

2013/ Nigeria:Executed “Forcados Yokri Integrated Project” Offshore, Shallow Water

2015/ Germany/ UAE:Executed “Borwin 3 Project”The World’s Biggest Offshore HVDC Platform Ever Built“Renewable Energy – Wind”

2016/ Kuwait:Executed “Lower Fars Heavy Oil Project”The Biggest Heavy Oil Project In the Middle East


• Preamble• What is Natural Gas

• Oil Vs Natural Gas

• Natural Gas Value Chain• Exploration & Seismic

• Drilling

• Processing

• Transportation

• Case Studies: Offshore Field Development• Girasol – Angola

• Leviathan – Occupied Territory of Palestine

• Natural Gas Opportunities

• Natural Gas Challenges


AGENDA

PREAMBLE WHAT IS NATURAL GAS?

A Naturally Occurring HydrocarbonPrimarily Methane (CH4) & Commonly including higher alkanes

Schematic Geology of Natural Gas Resources




A Non-Renewable Source of Energy

Proven Conventional Reserves: 208,400 GM3 = 188 GtoeMarketed Production: 3,276 Gm3 = 2.9 Gtoe

Natural Gas Around the World




A Non-Renewable Source of Energy

Fossil Fuel used as: A Source for Heating/ Cooking/ Electricity Generation Gasoline/ Diesel or Jet Fuel

Through Gas to Liquid Processing “GTL” Chemical Feedstock

Natural Gas Uses

Gas PipelineLiquefied Natural Gas “LNG”

Gas to Liquid “GTL”FertilizerPetrochemicals


Oil Vs. Natural Gas

- Short and Flexible Chain - Long and Rigid (Pipelines) Chain… But Things are Changing

PREAMBLE OIL VS. NATURAL GAS

1000 times less Energy than Oil

per cubic meter!

Oil is “Liquid”!Easy to Handle through interruptible and flexible chain

Gas is “Gaseous”!Difficult to Handle and requires practicallyNon-interruptible and rigid Chain


Oil Vs. Natural Gas

- Short and Flexible - Long and Rigid (Pipelines)… But Things are Changing

- Geopolitically Independent - Geopolitically Dependent… But Things are Changing



Oil Vs. Natural Gas



- International Market - Local/ Regional Market(Fixed Price) (Indexation)

… But Things are Changing


Crude Oil Vs. Natural Gas (BTU Equivalent)


Significantly Cheaper than Oil on an Energy Equivalent Basis

Oil Vs. Natural Gas



- International Market - Local/ Regional Market(Fixed Price) (Indexation)

… But Things are Changing

- High Environmental Impact - The Cleanest Burning Fossil Fuel“60% Less Emission of CO2”


Is Natural Gas the Bridge Fuel?


NATURAL GAS VALUE CHAIN


NATURAL GAS VALUE CHAIN EXPLORATION/ SEISMIC


Seismic Interpretation:More of an Art than a Science!

Seismic Market Size: Approx. $14bn (2$bn Equipment)

Contractor: Acquisition/ Processing/ InterpretationTop Ten Firms hold 85% of the Market CGC Veritas (France): 25% Marker Share WesternGevo (USA): 24% Market Share Petroleum GeoServices (Norway):9% Market Share Halliburton (USA): 6% Market Share TGS Nopec (Norway): 5% Market Share Geokinetics (USA): 5% Market Share Fugro (Holland):5% Market Share ION (USA) China Oil Field Services(China): 2% Market Share Oyo Geospace (USA): 2%

Equipment:One Company holds >50% of the Market Sercel (Owned by CGG): 54% Market Share

NATURAL GAS VALUE CHAIN DRILLING


Drilling Market Size: $66bn • Onshore Drilling Market Size: $24 bn• Offshore Drilling Market Size: 42 bn

Offshore Drilling Market

Transocean (USA): 22.4% Marker Share SeaDrill (Norway): 9.5% Market Share Diamond Offshore (USA): 7.6% Market Share Noble Drilling (USA): 6.3% Market Share Ensco International (UK): 4% Market Share Pride International (USA): 3,4% Market Share COSL (China): 3.2% Market Share

NATURAL GAS VALUE CHAIN PROCESSING


Separate Liquid and Gases for efficient transportation and distribution

Remove Unwanted Materials such as Hydrogen Sulfide (H2S) and Water

Meet Specification set by buyers

More LPG Better Economics

More H2S/ CO2/ Nitrogen More Processing Costs More Production Costs

NATURAL GAS VALUE CHAIN TRANSPORTATION


Gas Pipeline



Gas Pipeline

Liquefied Natural Gas“LNG”



“Oil Vs. Gas”

Transportation Costs

NATURAL GAS VALUE CHAIN STORAGE


NATURAL GAS VALUE CHAIN CASE STUDY


FPSO

$900M

UFL

$500M

SPS

$300M

Drilling

$600M

Total Field Development Costs:

$2.3 Billions

Apr 1996: Well DiscoveryApr 1997: Drilling of Appraisal WellJun 1997: Conceptual StudiesJul 1998: Project SanctionDec 2001: First Oil

2 Millions: Barrel of Oil Storage200,000: BOPD Oil Treatment25,000: Tons Topside Weight75: MW Electric Power

Girassol Field – TotalAngola

NATURAL GAS VALUE CHAIN CASE STUDY


Total Field Development Costs:

$3.75 Billions

Apr 2010: Well DiscoveryJan 2011: Drilling of Appraisal WellJun 2017: Drill of Production WellDec 2019: First Gas

Project Pay-back in 10 Years!

1.2M: BCF/d 04: Wells600: MMcf/d Subsea Tie-back113: KM of Pipeline, connected

to a Fixed Platform

Leviathan Field – NobleOccupied Territory, Palestine

NATURAL GAS OPPORTUNITIES

A Sizable Regional/ International Gas Deficit.


Does Europe Need more Gas? YES More Gas Project, Predominantly LNG, are needed.


A Sizable Regional Gas Deficit.

Chose your Scheme:

Production Sharing Agreement Vs.

Concession AgreementVs.

Risk Service Contract

Concession Contract:State assigns its mining rights to explore and exploit underground

resources to IOCIOC Undertakes and finances the exploration at its own risk.

If the exploration is successful, it decides on the development and Production Scheme:Owns the ProductionOwns the Facility FinancesPays Royalties and Taxes to the State

Production Sharing Contract:State Keeps its mining rights or delegate its right to NOC that contracts

an IOC to exploit its reserves.IOC Undertakes and finances the exploration at its own risk.

After FID is made, it undertakes and finances developmentIs reimbursed for its expenses by a share of production “Cost Oil”

NOC Owns the facilities and may take part in the development

Risk Service Contract:IOC Carries out Exploration at its own risk and on behalf of NOC

Refunded and remunerated in the event of productionCarries out the operation “Under NOC Control”

NOC Owns the ProductionOwns the Facility Financed

FUNDEMENTAL DIFFERENCE between PSC and RSC is that remuneration is paid in CASH and not in KIND.




Chose your Scheme:




State Revenue


Signing Bonus

• Bonus Provided at the Contract Signature

• Exploration Permits awarded through Auctions (Competitive Bidding)

Surface Rental

• Rent proportional to the Exploration Permit Surface

• Rent proportional to the Concession Area Surface

Royalties

• Percentage of the Value paid in Cash or in Kind

• Like a Turnover Tax Independent of Profits

Income Tax

•The Contractor pays a tax determined according to Applicable Law

• The Tax is included in the State Share of Profit Oil

Tax on Oil Profit

•Similar to the Income Tax, but Directly linked to Profits



Chose your Scheme:




State Revenue

New Technologies… Maximizing Returns “FLNG” – Floating Liquefied Natural Gas




Chose your Scheme:




State Revenue

New Technologies… Maximizing Returns “FLNG” – Floating Liquefied Natural Gas “GTL” – Gas to Liquid


Shell: Converting Gas to a Liquid Fuel for a $19bn Investment in Qatar

NATURAL GAS CHALLENGES

State Interest Vs International Oil Companies’ InterestAn OFTEN Conflicting Interest!!

State Interest

• Maximize Income while Allowing Investors to Draw a Return

• Maximize Local Content/ Economy Development

• Acquire Expertise by Know-how and Technology Transfer

IOC’s Interest

• Make Profit and Remunerate a Risk Capital

• Maximize Profit by accessing International Market

• Valorize its Research Programs and Know-how by Providing its Best Techniques




Maintaining a MARKET SHARE to Sustain Business




Maintaining a MARKET SHARE to Guarantee Business

TIME is of Essence





TIME is of Essence

Global Environmental PoliciesKyoto Protocol “Carbon Tax”

Some Haven’t Even Started!





TIME is of Essence


Safety First


Natural Gas Disasters




TIME is of Essence


Safety First

Technical Difficulties Deep/ Ultra Deep Water Development


Gas Discoveries in Lebanon are in Deep/ Ultra Deep Water




TIME is of Essence


Safety First

Technical Difficulties Deep/ Ultra Deep Water Development Gas Processing and Handling


NATURAL GAS VALUE CHAIN,OPPORTUNITIES, AND CHALLENGES


THANK YOU!

Notes prepared in Coordination with Mr. Hussein Ruhayel

Pioneer Development Project: Experiences and Lessons

Order of Engineer – Tripoli, Lebanon

Natural Gas Value Chain, Opportunities, and Challenges - Lebanon

Engineering

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