Transcript Slide 1

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Middle East Gas Revolution and
West-East LNG Flows: Investment Challenges
Presentation at
7th Doha Natural Gas Conference
By
Dr. Fereidun Fesharaki, Chairman
Shahriar Fesharaki, Vice Chairman
FACTS Global Energy
March 9-12, 2009
Doha, Qatar
Middle East Gas Industry-Snapshot
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Key Issues:
• Surging Gas Demand
• Emergence of New Large Gas Importers in the Region
• High Costs in New Gas Projects and Low Gas Prices in the Domestic Market
• Gas Supply Issues (Qatari Gas Moratorium and/or Political Issues
Surrounding Important Players such as Iran and Iraq)
• Natural Decline in the Middle East’s Oil Production and the Importance of
Enhanced Oil Recovery Methods such as Gas Re-injection
• LNG Exports vs Regional Market
• New Benchmarks for Intra-regional Gas Buyers
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Overview on Middle East Gas Reserves
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• In 2008, approximately 42% of the world’s total gas reserves were located in the
Middle East.
• Bahrain, Oman, and Syria have limited gas reserves compared with others in the
region and due to increasing domestic demand, they are expected to import
significant gas volumes in the future.
World Gas Reserves (2008)
Middle East Gas Reserves (2008)
UAE
8.2%
UAE
3.4%
Saudi Arabia
4.1%
Saudi Arabia
9.9%
Kuwait
2.4%
Others
37.2%
Qatar
14.4%
Iraq
4.3%
Qatar
34.6%
Iran
15.8%
Others
2.6%
Iran
38.0%
Russia
25.1%
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Role of Natural Gas in Middle East Energy Demand
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2000
2007
Total: 360 mmtoe
Total: 524 mmtoe
Others
1%
Others
1%
Oil
53%
Oil
57%
Gas
42%
Gas
46%
2012
2020
Total: 765 mmtoe
Total: 1,101 mmtoe
Others
1%
Others
1%
Oil
47%
Oil
49%
Gas
50%
Gas
52%
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Middle East Gas Consumption (2000-2020)
bscf/d
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80
70
60
Bahrain
UAE
Saudi Arabia
Others
Kuwait
Qatar
Iran
50
40
30
20
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2012 2015 2020
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Role of Natural Gas in Middle East Power Generation
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Natural gas as a cheap
and clean fuel plays an
important role in power
generation for Middle
East countries.
Fuel Mix in Middle East Power Generation (2007)
100%
2%
8%
11%
18%
90%
24%
20%
80%
50%
70%
38%
74%
60%
The UAE has become a
net gas importer since
late 2007 by virtue of its
rocketing gas demand for
power
generation
(imports
from
the
Dolphin Project).
50%
100%
100%
98%
54%
100%
82%
40%
72%
30%
51%
50%
20%
26%
10%
22%
0%
Bahrain Qatar
UAE
Oman
Hydro
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Iran
Syria
Oil
Saudi Kuwait
Arabia
Gas
Iraq
Yemen
Increasing Gas Consumption in Middle East Industrial Sector
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Substantial gas consumption in industrial projects is expected in the coming
years, especially for gas-based petrochemical projects in Qatar, Iran, and
Saudi Arabia:
• Qatar: 15% AAGR through 2020 (petrochemical projects, GTL and aluminum plants,
and other industrial projects).
• Iran: 7% AAGR through 2020 (petrochemical projects, especially in Assaluyeh and
Bandar Imam).
• Saudi Arabia: 5% AAGR through 2020 (petrochemical and other industrial
projects).
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The Region Needs Massive Gas Re-injection (1)
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bscf/d
Middle East Gas Re-Injection (2000-2020)
20
18
Oman
Qatar
Others
Yemen
UAE
Iran
16
14
12
10
8
6
4
2
0
2000
2002
2004
2006
2008
8
2010
2012
2015
2020
The Region Needs Massive Gas Re-injection (2)
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Key Issues:
•
Iran has the largest gas re-injection volumes within the region and will start the
largest enhanced oil recovery (EOR) project in the world this year (re-injection of
3.6 bscf/d gas into the Agha Jari oil field).
•
In Iran, some engineers believe current plans are insufficient for the actual reinjection needs. They indicate that Iran’s oil reservoirs may need up to 20 bscf/d in
the next decade.
•
The UAE is re-injecting approximately 1.7 bscf/d of gas into oil fields to maintain
oil production levels. It is expected that gas re-injection will increase by nearly 8%
annually through 2020.
•
The recovery factor of re-injected gas is usually 60-80% of initial volumes and this
means gas re-injection could be a form of large gas storage for the future.
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Investment Needs For Gas Re-injection (3)
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Challenges:
•
Availability of gas for re-injection
purposes, especially for some
Middle East countries such as
Bahrain and/or Oman, is a
challenging issue as the countries
have been faced with depletion of
gas reserves and increasing gas
demand in their domestic markets.
•
Re-injection
projects
require
additional infrastructure and this
may
require
significant
investments for the Middle East
countries.
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Cheap Gas Prices = Huge Demand
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Iran's Domestic Gas Prices (2007)
Sector
Commercial
Residential (Average Price)
Industrial Consumers
Other Petrochemical Projects
Transportation
Petrochemical Projects (Urea and Ammonia)
Refineries
Powerplants
US Cents/MMBtu
97.3
62.7
61.7
42.8
31.1
23.4
21.4
19.2
Gas Prices in Middle East Countries
Countries
US$/MMBtu
0.45
0.50
0.75
0.80
0.85
1-1.5
0.75-1.0
Iran
Qatar (Industrial Sector)
Saudia Arabia
Kuwait
Oman*
UAE
Bahrain
* Agreed price for major industrial projects at Sohar and Salalah regions.
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Challenges in Middle East Gas Projects (1)
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• High costs are still an important challenging issue in upstream and downstream gas
projects.
• Significant increases in investment costs, coupled by the global financial crunch has
resulted in the financing of projects to be more difficult as compared to the past.
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Challenges in Middle East Gas Projects (2)
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Upstream Projects
Pipelines
Gas Processing Plants
• Massive Increase in Drilling Costs (Compared to 2003)
• Massive Cost Increase in Equipment
• 80-100% Increase in Construction Costs for Gas Pipelines
(Offshore and Onshore Pipelines)
• 100-120% Increase (Compared to 2003) in Construction
Costs for New Gas Processing Plants
More Expensive Gas Prices in Middle East Import Projects
More Pressure on Governments to Set Higher Prices for Their Domestic Consumers
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Middle East Gas—Feast or Famine?
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Iran export volumes will be much smaller than Qatar.
•
•
•
•
Large domestic grid—price $0.45/MMBtu
Massive gas re-injection of some 10 bscf/d
Substantial political opposition to gas exports
Political challenges for international investment in LNG projects
Qatar is now the largest LNG exporter in the world.
• We cannot assume infinite supplies
• About 77 million tonnes are already committed
• For now, no new sales are contemplated
Yemen, Oman, and Abu
Dhabi are out of supply.
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Outlook for Middle East Gas Exports
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• It is expected that total gas exports from
the Middle East region will increase
from 6.7 bscf/d in 2007 to 14.0 bscf/d in
2010 and 25.0 bscf/d in 2020.
• Iran is expected to have much smaller
export volumes (20-36 mtpa of LNG and
small volumes of pipeline gas) but Iran’s
LNG exports are unlikely to materialize
before 2015.
30
25
Yemen
UAE
Qatar
Iraq
Oman
Iran
20
bscf/d
• Qatar is expected to play the main role
in Middle East gas exports from 20092020.
Middle East Gas Exports* (2007-2020)
15
10
5
0
2007
2010
2012
2015
2020
* Including regional pipeline trades.
• Yemen will start LNG exports in 2009.
• Iraq has serious prospects for LNG exports from associated gas (5-10 mtpa). Also
potential for pipeline exports (depending on its political stability).
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Are Dramatic Changes in Gas Pricing Expected Within the Intra-Regional Gas Trades?
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• Gas prices for new export projects in the region indicate higher prices for regional importers.
• Recently, the Dolphin Project asked Sharjah and Ras Al Khaimah to pay US$4.75-$5.00/MMBtu
for interruptible deals.
• Dolphin Phase 2 will likely be priced much higher than Phase I volumes.
• Dubai signed a LNG deal with Qatar and will pay market prices.
• Kuwait officially announced they are willing to pay LNG prices in line with the international
market.
• In late 2008, Iran accepted to pay roughly US$10/MMBtu for gas imports from Turkmenistan.
• Currently, Iran is not eager to export gas to Middle East countries like the UAE, Oman, Kuwait,
and Bahrain at existing regional prices.
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A “New Marker Price” for Gas Imports in the Region
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• Iran and Qatar are two important gas suppliers who can play key roles in
pipeline trades within the region.
• Regional buyers need to understand that regional suppliers have alternative
markets, whether it is LNG exports to the East and West or even pipeline exports
to Europe, and therefore need to benchmark their price expectations off these
markets.
• Delivered prices for regional pipeline exports could be a friendly price and keep
potential suppliers such as Iran and Qatar somewhat neutral in choosing
between LNG and pipeline exports.
• The idea of a fixed price mechanism will not continue in the region in the long
term and the new price based on market realities may be an oil-linked price,
which is between the Dolphin resale price and new alternative prices for LNG.
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LNG Exports From The Middle East
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• Oman, Yemen, and Abu Dhabi are essentially fully committed for a
total of 22 million tonnes (mt).
• Qatar has committed 77 mtpa of exports and at this point there is
little likelihood of a significant increase in new exports any time soon.
• Iran’s LNG export projects are stalled. There may be a lifetime
maximum of 20-36 mtpa and any LNG exports from Iran will be post2015.
• Iraq remains a wildcard and has potential though developments
depend on political stability.
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Qatari Volumes Targeting US and North European Markets
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• Qatargas II, III, IV, and RasGas III (6
trains, 46.8 mtpa capacity) were
initially all targeted to western
markets (US, UK, and Belgium).
• Some
volumes
have
been
redirected to eastern markets in
Japan, China, and Dubai.
Some 38 mtpa still targeting western markets but can be diverted
to alternative destinations.
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Potential Diversions Highly Sensitive to China and India Assumptions
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Potential Scenario of LNG Supply from the Asia-Pacific Region
and "Possible" Diversions from Western Markets to Asia
mtpa
120
Potential Divertible Volumes from Asia Pacific Producers
Potential Scenario of Uncontracted Supply from Planned Liquefaction Projects
100
Uncontracted Supply from Plants Under Construction
Uncontracted Supply from Plants in Operation
Uncontracted Demand from Asian Established Markets
80
Uncontracted Demand from All Asian Markets
60
40
Potential Additional Diversions
for India, China, and Emerging
Asian Markets
Diversions for Asian
Established Markets
(Japan, Korea, Taiwan)
20
0
2007
2008
2009
2010
2011
2012
2013
20
2014
2015
2016
2017
2018
2019
2020
Conclusion
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• The substitution of natural gas in the Middle East domestic market, especially in the
power and/or residential sectors could lead to significant benefits for Middle East
countries.
• Gas re-injection will be an important component of gas utilization for the region and
could be a form of gas storage in the future. Gas re-injection into the oil fields can
provide higher returns in some Middle East countries such as Iran and the UAE as
compared with gas exports.
• The domestic market is growing fast and it will likely have an influence on Middle East
gas exports. It is unlikely that the region experiences a massive LNG expansion in the
future.
• A price increase is likely in the region especially for large domestic markets (Iran, Saudi
Arabia, and Qatar) but its impact on growing demand is expected to be limited.
• Regional import prices need a new benchmark as potential suppliers such as Iran and
Qatar are not eager to sell gas at previous cheap prices (US$1-1.5/MMBtu). Sellers will
be looking at netback values of LNG as an indicator of wellhead value for regional
exports.
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www.FGEnergy.com
Thank you
Dr. Fereidun Fesharaki
Chairman
FACTS Global Energy
Mr. Shahriar Fesharaki
Vice Chairman
FACTS Global Energy
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