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LNG Market DevelopmentPrincipal Drivers
GIE Conference
Athens – HOTEL GRANDE BRETAGNE
3rd November 2005
Paolo CAROPRESOGLE President
COO Business Development – Snam RG
22
Increasing LNG role in global and EU gas consumption
0
100
200
300
400
2003 2005 2010 2015
Global andEuropean LNG Demand(mmtpa)
+10%
Sources: estimates on Wood MacKenzie data
+9%
A Dynamic Demand
708
515
20152003
+2.9% Total European Gas Demand(Bcm)
LNG Demand
Fulfilled by an Increasing
7% 15%LNG share on EU gas consumption
33
Rationales for LNG demand growth
Strategic Rationales
Lower critical mass
Lower & decreasing transportation costs
vs. pipe
Modular expansion
Flexibility in managing destination
44
Lower critical mass:LNG cost declining along the chain
Technical upgrading will affect every phase of the LNG cost chain:
• Economies of scale and technical progress (Liquefaction and Regasification Plants)
•Expansion of the fleet and related efficiency and commercial gains (Shipping)
Note: Standard configurationIncluding Investment Remuneration4.000 km shipping route
Source: World Energy Investment Outlook 2003
55
Gas transport costs: pipeline vs. LNG
Source: MEIDC (Middle East Infrasctructure Development Congress)
Onshore
Swallow waters
Deep waters
LNG - LowLNG -MediumLNG - High
Pipeline
LNG
Tra
nsp
ort
Co
sts
Distance (km)
2,000 4,000 6,000
Competitive LNG/Pipe Markets
LNG Markets
Pipe Markets
Technical progress modifies the trade-off between pipeline and LNG shortening the break-
even distance
Lower & decreasing transportation costs vs pipeBreak-even LNG-pipe shortening
$/mmBTU
1
5
10
66
Flexibility in managing destinationNo pipe-like rigidity “production to
market”
Cartes - PlanisphŠre
Pour r‚cup‚rer le symbole, taper "Alt A"
Montoir
Barcelona+4
Cartagena+4
Huelva+4
Fos 1
Panigaglia
Existing Regasification Plant
Marmara
Revithoussa
Zeebrugge+5
Arzew
Marsa ElBrega
Nigeria
Trinidad
Middle EastExisting Liquefaction Plant
Skikda
Norway
Plant Projects/Expansions
Egypt
Angola
Venezuela
LNG Regasification Project
Sines
Lebanon
Izmir
Offshore Rovigo
8
Le Verdon
Sagunto6,5
Bilbao+3Ferrol
5Brindis
8i
Isle of Grain4-10
Fos 28
LNG infrastructures developmentLNG infrastructures development
Livorno4
Augusta8
SouthHook10-21Dragon
6-10
Source: various public informations
77
Rationales for LNG demand growth:Resulting benefits
Results
Utilisation of remote equity gas
Multiplication of supply sources
From regional to global market
Higher correlation between production
development and demand growth
Strategic Rationales
Lower critical mass
Lower & decreasing transportation costs
vs. pipe
Modular expansion
Flexibility in managing destination
88
Profitability depends on managing consistently the whole chain
99
LNG margins: competition at the up and the bottom ends of the value chain
Exploration & Production
$0,85-$1,05(27%)
Midstream & Logistics
$1,00 $0,95 $0,35(28%) (27%) (10%)
MarketConsumption
$0,15-$0,40(8%)Costs
Medium LowHigh
“Fixed” “Fixed” RegulatedVariableE&P
AgreementsReturns
High High / Medium Medium / Low
Pricing field-level competition
Returns
Source: various public informations
1010
LNG regasification potential shortcomings and constraints
OLD vs.
NEW
Different approaches on regulatory framework between new and old terminals affect the competition of the whole LNG chain
Inconsistent implementation of the EU gas Directives:
COUNTRYvs.
COUNTRY
Different regulatory schemes applied to the countries bordering on the same LNG market basin (i.e. Mediterranean, North Sea,..), affect the competitive position of the terminals involved
UPvs.
DOWNSTREAM
Regulation of tariffs and access conditions for new terminals affect the project management and project financing of the other segments of the LNG chain
1111
LNG regasification agenda
EU LNG “regulated” regassification requires to setting rules to assure:
• Rules consistency between:• Access price vs. regulatory tariff• Granted access on long term basis vs. TPA
OLD vs.
NEW
• Regulatory harmonisation in the same LNG market basin:•Access regulation: tariff competitivity, capacity assignment rules, contract duration;• Business rules: spot management, UIOLI, secondary capacity markets
COUNTRYvs.
COUNTRY
• Regulatory framework allowing:• consistency of contracts duration• industrial risk/reward alignment
UPvs.
DOWNSTREAM
LNG Market DevelopmentPrincipal Drivers
GIE Conference
Athens – HOTEL GRANDE BRETAGNE
3rd November 2005
Paolo CAROPRESOGLE President
COO Business Development – Snam RG