Transcript Document
Middle East Natural Gas Outlook
Opportunities and Challenges
7th Doha Natural Gas
Conference & Exhibition
March 9 - 12, 2009
Michael Corke
Purvin & Gertz - Dubai
Topics
Gas Utilization Today
Gas Demand Potential
Supply-Side Issues
Gas Valuation and Pricing
Strategies for Success
2
Middle East Primary Energy Supply
Primary Energy Supply, million toe
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
800
Other
700
Natural Gas
4.7% p.a
Petroleum
600
500
5.1% p.a
400
300
200
100
0
1997
2002
Source: International Energy Agency &
Purvin & Gertz Analysis
3
2007
Reflecting supply and infrastructure limits,
gas use varies widely through the region
Natural Gas as a % of TPES in the
Middle East
(% )
(% )
90
46
Natural Gas
44
80
Natural Gas
70
6.7% p.a
42
Natural Gas as a % of TPES in
Middle East countries - 2007
60
40
50
38
40
30
36
20
34
10
32
4
UA
Ba E
hr
ai
n
Q
at
ar
KS
A
Ku
w
ai
t
Ira
n
O
m
an
le
id
d
M
Source: International Energy Agency &
Purvin & Gertz Analysis
Ea
st
Ira
q
Sy
ria
Jo
rd
an
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
19
97
0
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
237.0
44
40
37
Region
5
Considerable potential exists for energy
efficiency gains in the Middle East
Primary Energy per Capita
Primary Energy per $'000 GDP
25
1.2
TOE per $'000 GDP
TOE per Capita
1
20
0.8
15
0.6
10
0.4
5
0.2
EU
ar
Qa
t
UA
E
ai
t
Ku
w
KS
A
Ir a
st
Ea
M
id
ar
Qa
t
UA
E
ai
t
Ku
w
KS
A
n
Ir a
st
Ea
M
id
EU
6
n
0
0
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
TCM
100
90
Middle Eastern Proven Gas
Reserves
Iran
Qatar
Other
80
70
60
50
40
30
development costs
Some earmarked for export
20
Some inter-country
tensions
10
0
1997
1999
2001
2003
2005
Source: BP Statistical Review of World Energy
7
2007
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
8
Outlook: natural gas growth to be constrained
by efficiency gains and supply constraints
Primary Energy Outlook
Business as Usual + Efficiency Gains Scenario
MTOE
1000
900
Natural gas CAGR 1.8% vs petroleum 2.1%
(transport sector driving petroleum demand)
800
700
600
Other
Natural Gas
Petroleum
500
400
300
200
100
0
2008
2009
2010
2011
2012
2013
2014
Source: Purvin & Gertz scenario
9
2015
2016
2017
Topics
Gas Utilization Today
Gas Demand Potential
Supply-Side Issues
Gas Valuation and Pricing
Strategies for Success
10
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
150
$/barrel
$/mmbtu
18
JCC Price
130
16
LNG Delivered to Japan
14
110
12
90
10
70
8
6
50
4
30
2
10
0
2003
2004
2005
2006
Source: Purvin & Gertz analysis
11
2007
2008
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
$ / barrel
$ / mmbtu
140
14
Dated Brent Price
Average German Pipeline Gas Price
120
100
10
80
8
60
6
40
4
20
2
0
0
2003
2004
2005
2006
Source: Purvin & Gertz analysis
12
12
2007
2008
LNG netbacks higher since 2003, but still
below AG oil products parity in most periods
$/mmbtu
30
Comparative Fuel Values, FOB Arabian Gulf
Average LNG Netback to Qatar
Gasoil FOB AG
25
Fuel Oil FOB AG
20
15
10
5
0
Jan Apr Jul Oct Jan Apr
2003
2004
Source: Purvin & Gertz analysis
Jul
Oct Jan Apr
2005
Jul
Oct Jan Apr
2006
13
Jul
Oct
Jan Apr
2007
Jul
Oct Jan Apr
2008
Jul
Oct
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
14
Other issues for Middle East gas sellers
Linkages between oil and gas prices in mature gasconsuming 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
15
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
$ / mmbtu
25
Low Sulfur Fuel Oil CIF NWE
Average German Pipeline Gas
Price
Europe Steam Coal Import Price
20
15
10
5
0
2003
2005
Source: Purvin & Gertz analysis
16
2007
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?
17
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.
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www.purvingertz.com
Michael Corke
Senior Vice President
Purvin & Gertz, Inc. Dubai
T. +971 4 4370 388
M. +971 50 515 0197
F. +971 4 4370 390
[email protected]
2007 ICIS Middle East Base Oils Conference - Dubai
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