Nat Gas Presentation

8/3/2019 Nat Gas Presentation

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THE PHILIPPINETHE PHILIPPINE

NATURAL GASNATURAL GASINDUSTRY:INDUSTRY:

VVision,ision, SStrategy andtrategy and PPolicyolicy

THE PHILIPPINETHE PHILIPPINE

NATURAL GASNATURAL GASINDUSTRY:INDUSTRY:

VVision,ision, SStrategy andtrategy and PPolicyolicy

A Briefing for theA Briefing for theProponents of House Bill No. 4754Proponents of House Bill No. 4754

A Briefing for theA Briefing for theProponents of House Bill No. 4754Proponents of House Bill No. 4754

Supported by theSupported by the

Partnership for Reforms inPartnership for Reforms in

the Energythe Energy--EnvironmentEnvironment

Sector ManagementSector Management

(PREESM), a joint DOE(PREESM), a joint DOE--

USAID ProgramUSAID Program

Supported by theSupported by the

Partnership for Reforms inPartnership for Reforms in

the Energythe Energy--EnvironmentEnvironment

Sector ManagementSector Management

(PREESM), a joint DOE(PREESM), a joint DOE--

USAID ProgramUSAID Program

Prime Contractor:Prime Contractor:

Academy for EducationalAcademy for Educational

DevelopmentDevelopment

Prime Contractor:Prime Contractor:

Academy for EducationalAcademy for Educational

DevelopmentDevelopment

February 5, 2003Quezon City, Philippines

February 5, 2003Quezon City, Philippines


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yy Importance of Nat Gas IndustryImportance of Nat Gas Industry

yy Industry StatusIndustry Status

yy Regulatory ConceptsRegulatory Concepts

yy Proposed FrameworkProposed Framework

yy Potential issues on HB 4754Potential issues on HB 4754

Briefing OutlineBriefing Outline


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yy Security of SupplySecurity of Supply

y Energy Self Sufficiency

y Eco Social Benefits

y Foreign Exchange Savings of $ 4.5 B

Why Should We Care?


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STATUSSTATUS


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Birth of the Gas IndustryUpstream Sector

San Antonio Gas

Field, 2.7 BCF

Malampaya GasField, 3.7 TCF


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Birth of the Gas IndustryMalampaya Gas-to-Power Project

Draw. No.: P97-1541

PowerStations

AlternativeFuel

24" Dry gaspipeline

2 x 16 CRA wet gas

9 Development wells1 Contingency well

Batangas

Subseamanifold

Ups tre am Do wns tream

Condensate

storage

Condensate

export

- 820 m

- 43 m

30 km 504 km

- 0 m

3rd flowline(2021)

Gas dehydrationGas dewpointingCondensate s tabilisationExport compres sion

Sulphur RecoveryH2S removalMeteringSupply base

Catenary AnchoredLeg Mooring (CALM)buoy for tankerloading of condensate

PLATFORM

Manila

Tabangao Refin eryBatangas

Ilijan(NPC)

Santa Rita

Malampaya

S an Lorenzo

9 Development wells


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Birth of the Gas IndustryDownstream Sector

Tabangao

Ilijan Power PlantKEILCO, 1200 MW

Operating June 2002

Onshore Gas Plant

SC 38 Consortium

Operating Oct 2001

San Lorenzo PowerPlantFirst Gas Corp, 560 MW

Operating October 2002

Sta. Rita PowerPlant

First Gas Corp. 1,000 MWOperating Jan 2002

504 km.

24-inch Pipeline

SC 38 Consortium

Gas Pipelines and 2700Gas Pipelines and 2700--MWGas Fired Power PlantsMWGas Fired Power Plants


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Birth of the Gas IndustryDownstream Sector

PNOC CNGPNOC CNG--Refilling Station and NGVsRefilling Station and NGVs


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Natural Gas Production and Consumption ofAsian Countries*

Source of Data: BP Amoco Statistical Review

0

500

1000

1500

2000

2500

3000

Banglad

eshBr

unei China

India

Indo

nesia

Japan

Mala

ysia

Paki

stan

Philip

pines

Sing

apore

SouthKo

reaTaiwan

Thailand

Billion

cu

bicfeet

Production Bcf Consumption Bcf

*Phil- 2002 data; all other countries- 2000


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Development and GrowthDevelopment and Growth


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Development and GrowthPolicies and Objectives

PoliciesPolicies ObjectivesObjectives

Ensure compliance withPhilippine environmental lawsand regulations andinternational safety standards

Competitive naturalgas prices vis--visother fuels

Increased utilization of

natural gas as fuel in powerand non-power sectors

Increased share of naturalgas in the energy mix

Adoption of state-of-the-art technology, developmentof experts and increasedemployment

Enhanced economic

benefits to consumers

Promote competition by liberalizingentry into the industry andadopting pro-competitive and fairtrade measures

Promote natural gas as anenvironment-friendly, secure,stable and economicallyefficient source of energy


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Development and GrowthNatural Gas Share in Energy Mix (In %)

20012001 20072007 20122012

GDP growth p.a.GDP growth p.a. 3.23.2 5.25.2 5.25.2

OilOil 45.345.3 38.638.6 39.639.6

CoalCoal 9.29.2 9.79.7 5.35.3

IndigenousIndigenous 45.545.5 5151 44.444.4Gas 0.60.6 7.07.0 6.06.0

Other REOther RE 3131 27.927.9 2424

Local CoalLocal Coal 1.51.5 1.91.9 44

HydroHydro 4.94.9 4.14.1 3.13.1

GeothermalGeothermal 7.27.2 7.77.7 5.85.8

Local OilLocal Oil 0.10.1 2.42.4 1.41.4

Others (unidentified)Others (unidentified) 0.70.7 10.710.7


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Development and GrowthGas Resources

Discovered

3,841 BCF

Undiscovered

24,690 BCFDiscovered

Undiscovered

Total Resources: 28,531 BCF (Mean)


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Found in 16 sedi

mentary basinswith an area of over 700,000 sq.

km.

Ilocos

Cagayan

Central Luzon

West Luzon

Southeast LuzonBicol Shelf

Mindoro - Cuyo

Northwest Palawan

Southwest Palawan

East Palawan

Reed BankWest Masbate / Iloilo

Visayan

Cotabato

Agusan - Davao

Sulu Sea

Development and GrowthLocation of Petroleum Resources


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Projected Demand and Possible Importationof Natural Gas

0

50

100

150

200

250

300

350

400

BCF

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Year

Possibleimportation

Projecteddemand


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Development and GrowthProposed Gas Pipeline Infrastructure

?

?

Malampaya

Assumed Pipeline Route

BatMan 2

BatMan 1

BatCave


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Development and GrowthPotential Gas-Fired Power Plants

Ilijan

1200 MW

(2002)

Santa Rita

1000 MW (2002)

San Lorenzo

560 MW (2002)

Sucat

300 MW (2008)

600 MW (2009)

Limay

620 MW (2008)

Conversion

Malaya

600 MW (2010)

ConversionAdditionalGreenfield

Capacity

Requirement

in Luzon

300 MW (2010)

1,200 MW (2011)

600 MW (2012)


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EDSA

Monumento

Source: FS on CNGDevelopment for PublicUtilityVehicles in Metro Manila

N

20 Festival Mall / Metropolis

19 Alabang Town Center3 SM North Edsa

2 Commonwealth Center

4 Araneta Center

18 SM Southmall

17 Fiesta Mall (Duty Free)

14 Rockwell

15 Greenbelt Mall

16 Ayala Center

13 Coastal Mall

12 Harrison Plaza

11 SM Manila

10 Robinsons Place

6 SM Megamall

7 Shangri-la Plaza

8 EDSA Central

9 Tutuban Mall

5 Greenhills Mall

1 Gotesco Mall

Existing Shopping Malls

1

2

3

4

56

78

Fort

Bonifacio

9

10

11

12

13

14

1516

17

18

1920

Development and GrowthPotential Commercial Gas Markets


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Development and GrowthProposed CNG Infrastructure

Proposed Sucat toFort Bonifacio Gas

Pipeline

Proposed EDSA Gas

Pipeline

Manila Gas Corp.

Pipeline

Batman 1

EDSA

Monumento

Stations (L):

1 EDSA Monumento

2 For t Bonifacio

Metro Manila Bus Routes

Large Refilling Stations2

Refilling Station in 2005

Refilling Station in 2003

Fort Bonifacio


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GAS INDUSTRY REGULATIONGAS INDUSTRY REGULATION

Basic ConceptsBasic Concepts

Industry StructureIndustry Structure

Stages of Gas Market DevelopmentStages of Gas Market Development

International ExperienceInternational Experience


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What isnatural gas?

Source: Australian Gas Association

Natural Gas Industry Fundamentals


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Natural gas was formed from the remains ofplants and animals which lived on the Earth many

millions of years ago. Over time the remains werecovered by layers of sand, rock and ice. Heatand pressure eventually changed them intofossils. The gaseous form of these fossils isnatural gas



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To reach natural gas we have to drill through layers of rock

Natural gas

SandstoneShale

Oil

Granite

Coal, oil and gas are hydrocarbons (compounds madeup mostly of hydrogen and carbon).




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1

2

3

4

5

Transmission pipelines

Transmission pipelines

Distribution and reticulation pipelines

How does natural gas get to town?

1 drilling rig2 extraction unit to clean gas

3 compressor station to maintainpressure in the pipeline

4 facility where an odour (or smell)is added

5 town - factories, houses,hospitals and hotels etc




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How is natural gas used?

powergeneration

heating

manufacturingcooling

cooking

Household use

waterheating

fuel for carsfuel for buses

and trucksSource: Australian Gas Association


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Why is natural gas better for theenvironment?

Natural gas is a clean and efficient fuel.

Natural gas can help reduce emissions thatcontribute to the greenhouse effect, becauseit burns more cleanly than other fossil fuels.

For example, when used to make electricity,natural gas only produces around half thegreenhouse emissions of other fossil fuels.




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DistributionTransmissionProduction

Wholesalecontracts

The gas transport chain The gas marketing chain

Retailtariffs

Wholesale contracts

Wholesalecontracts

Residential andcommercial customers

Industrial and powergeneration customers

Aggregators/

Suppliers

DownstreamUpstream

The Natural Gas Industry Chain



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Rationale for Gas Industry RegulationRationale for Gas Industry Regulation

Natural

monopoly

Natural

monopoly

Gas industry

characteristics

Gas industry

characteristics

Role of

Regulation

Role of

RegulationObjectiveObjective

Prevent abuse of

market power

Prevent abuse of

market power

Competition and

Efficiency

Competition and

Efficiency

Large sunkcosts

Large sunkcosts

Minimizerisks

Minimizerisks

EncourageinvestmentsEncourage

investments

Publicgood

Publicgood

Protect publicinterest

Protect publicinterest

Security andaffordability of

gas supply

Security andaffordability of

gas supply


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Ownership- State/Private sector role Vertical integration/cross-ownership Stage of Gas Market Development

Structure

Entry Regulation Price Regulation Access Regime Public Service Obligations Promotion of Competition

Law- and Policy/Rule-making Economic Regulator Competition Authorities Arbitration/Dispute Resolution

What to

regulate

What to

regulate

How to

regulate

How to

regulate Approaches

Who to

regulate

Who to

regulate

Institution/

Authority

Concepts and International ExperienceKey Elements of Gas Regulatory Regime


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Stages of Gas Market Development

Market Creation Market Development Mature Market

Undeveloped

gas reserves,

small market

More supply

options; rapid

demand growth

Abundant supplies

and demand

saturation

Limited

infrastructure

Heavy investments

in infrastructure

Developed

infrastructure

Integrated

Structure;

monopoly-

monopsonyoperations

Producers sell some

gas directly to

buyers; third party

access and largemarket competition

Unbundled supply

chain; gas spot

market; Retail

competition

Heavy

regulation or

state

Regulation manages

competition; assists

entry of new players

Minimal government

intervention to

sustain competition


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PRODUCERS/IMPORTERS

TRANSMISSIONCOMPANY

DISTRIBUTIONCOMPANY

ENDUSERS

Stage: Gas Market Creation

Structure: Vertically Integrated Monopoly

Gas Transportation

Gas Supply Transaction



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PRODUCERS/IMPORTERS

TRANSMISSIONCOMPANY

DISTRIBUTIONCOMPANY

Residential

TRADERS ANDSUPPLIERS

Commercial

Industrial

PowerPlants

Stage: Gas Market DevelopmentStructure: Open Access And Wholesale Competition


Gas Transportation



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Stage: Mature MarketStructure: Unbundled Industry and Retail Competition

Residential

SPOTMARKET

TRADERS ANDSUPPLIERS

Commercial

Industrial

PowerPlants

PRODUCERS/IMPORTERS

TRANSMISSION

COMPANY

DISTRIBUTION

COMPANY


Gas Transportation



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Gas Market Development in Selected CountriesGas Market Development in Selected Countries

PHIL IND THAI MAL MEX AR G US UK

Proven

Reserves(TCF)*

3 72 12 82 30 26 167 27

R/P Ratio (Years)1 32 19 52 24 20 9 7

% NGas in

Energy

Mix*

4.6

(2002)

28 30 47 25 55 26 38

Pipeline

Km*

526 4,469 377

(1998)

1,753 12,000 >100,000 1.84

MM

278,650

1 Ratio of year-end reserves to annual production

Source of basic data: WB, BP Amoco, APERC

Mature MarketMarket Creation Market Development

* 2000 data* 2000 data


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0

100

200

300

400

500

600

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

Inm

illiont

ons

ofo

ilequivalent

Production Prodn + Imports Consumption

Heavy

Regulation Managed Competition Deregulation

Partial wellhead

price deregulation

Evolution of Regulatory Reforms in Mature GasMarkets United States

Voluntary

open access

Total wellhead

price decontrol

Mandatory open

access,

Unbundling,

Capacity release,

wholesale price

decontrol

Retailcompetition in

some states

Source: F. M. Andres,

unpublished thesis


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0

10

20

30

40

50

60

70

80

90

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

Inmilliontonsofoil

equivalen

Consumption Prodn + Imports Production

Nationalization Managed Competition

Evolution of Regulatory Reforms in MatureGas Markets - United Kingdom

BG

privatization,large marketcompetition

BGcreation

Retailmarketcompetition

BGunbundling

Competition

TPA toBG

pipelines


unpublished thesis


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0

5

10

15

20

25

30

35

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

Inmilliontonsofoilequivale

Production Prodn + Imports Consumption

Wellhead

price

deregulation

Capacity

release

market

YPF

divestment

Evolution of Regulatory Reforms inMature Markets - Argentina

Managed

CompetitionNationalization


unpublished thesis

Compe

tition

Gas del Estado

restructuring and

privatization ,

open access,

YPF privatization


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US and UK experience are experiments

piecemeal approach to deregulation/liberalization

Latter reformers (e.g., Argentina, Victoria) took a

more proactive, quicker path to gas reform No single entity should have excessive market

power for competition to work

Regulation needs complementary measures to

work e. g., TPA and unbundling

Electricity market deregulation hastens gas market

competition but drives reintegration

Lessons Learned fromInternationalLessons Learned fromInternationalExperienceExperience


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POLICY AND REGULATORYFRAMEWORKPOL

ICY AND REGULATORYFRAMEWORK

Existing Legal and PolicyExisting Legal and PolicyFrameworkFramework

DOE Gas CircularDOE Gas Circular

Existing Legal and PolicyExisting Legal and PolicyFrameworkFramework

DOE Gas CircularDOE Gas Circular


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DOEDOE CharterCharter

EE..OO.. NoNo.. 6666

DOEDOE GasGas CircularCircular InterimInterim RulesRules andandRegulationsRegulations

PhilippinePhilippine EnergyEnergy PlanPlan 20032003--20122012

Existing Policy and Regulatory FrameworkExisting Policy and Regulatory FrameworkRecent DevelopmentsRecent Developments


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Interim DOE Gas CircularPolicy Declaration

Promote Natural Gas as an efficient andPromote Natural Gas as an efficient andeconomical source of energyeconomical source of energy

Facilitate private sector participationFacilitate private sector participation

Promote competition by liberalizing entryPromote competition by liberalizing entryand adopting proand adopting pro--competition/fair tradecompetition/fair trade

measuresmeasures

Ensure compliance with international safetyEnsure compliance with international safetystandards and relevant Philippine laws andstandards and relevant Philippine laws and

regulationsregulations


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Industry StructureIndustry Structure

Downstream Natural Gas Industry: TransmissionDownstream Natural Gas Industry: Transmission(T), Distribution (D) and Supply (S)(T), Distribution (D) and Supply (S)

Vertical integration allowedVertical integration allowed

Entry RegulationEntry Regulation

Franchise and other legislative authorizationsFranchise and other legislative authorizations

required to operate T& D as public utilityrequired to operate T& D as public utilityPermits required for T, D and SPermits required for T, D and S

OwnOwn--use permit allowed for enduse permit allowed for end--user facilitiesuser facilities

Interim DOE Gas CircularKey Provisions


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Access LiberalizationAccess Liberalization

Third Party Access to T, D and related facilities requiredThird Party Access to T, D and related facilities required

Deferment allowed on new facilitiesDeferment allowed on new facilities

Access conditions negotiatedAccess conditions negotiated

Price regulationPrice regulation

Prices of T, D, and S deregulated for competitivePrices of T, D, and S deregulated for competitivemarkets.markets.

ERC to regulate prices charged by distribution utilitiesERC to regulate prices charged by distribution utilities

Promotion of CompetitionPromotion of Competition

DOE to enforce measures to restore competitionDOE to enforce measures to restore competition

Interim DOE Gas CircularKey Provisions


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Proposed Natural Gas BillProposed Natural Gas Bill


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Natural Gas BillTWG Meetings and Participants

MeetingsMeetings

11 meetings since September 200211 meetings since September 2002

ParticipantsParticipants

Committee on Energy SecretariatCommittee on Energy Secretariat

GovernmentGovernment DOE, ERC, DOF, DENR, NEDA,DOE, ERC, DOF, DENR, NEDA,PNOC, PNOCPNOC, PNOC--EC. PNOCEC. PNOC--EDCEDC

IndustryIndustry SPEX, FGHC, PAP, BP Amoco, GN Power,SPEX, FGHC, PAP, BP Amoco, GN Power,ChevronChevron--Texaco, Caltex, PriceTexaco, Caltex, Price--WaterhouseWaterhouse

NGONGO Freedom from Debt CoalitionFreedom from Debt Coalition


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MajorIssues

yyRegulatory AgenciesRegulatory Agencies

yyFranchise

Franchise

yyPrice RegulationPrice Regulation

yyTPATPA

yyPromotion of CompetitionPromotion of Competition


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Natural Gas BillKey Recommendations of the TWG

Industry structureIndustry structure

Downstream gas industry: T, D and SDownstream gas industry: T, D and S

Vertical integration allowedVertical integration allowed

Entry regulationEntry regulation

F

ranchise to operate T & D as public utilityF

ranchise to operate T & D as public utilityPermit required to operate T, D & SPermit required to operate T, D & S

OwnOwn--use permit allowed for enduse permit allowed for end--user facilitiesuser facilities


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Natural Gas BillKey Recommendations

Access LiberalizationAccess Liberalization

TPA mandatory for T, D and related facilitiesTPA mandatory for T, D and related facilities

Deferm

ent allowed on new facilitiesDeferm

ent allowed on new facilitiesAccess conditions negotiatedAccess conditions negotiated

Price RegulationPrice Regulation

Prices for captive markets regulatedPrices for captive markets regulated

MarketMarket--based prices for contestable marketsbased prices for contestable markets


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Regulatory AgenciesRegulatory AgenciesDivision of price and nonDivision of price and non--price functions between DOE and ERCprice functions between DOE and ERC

or single regulatory agencyor single regulatory agency

FranchiseFranchise

Whether Service Contractors need a franchise to engage in T &Whether Service Contractors need a franchise to engage in T &DD

PNOC Charter in lieu of a franchisePNOC Charter in lieu of a franchise

Price RegulationPrice Regulation

Classifying markets as contestable or captive for pricingClassifying markets as contestable or captive for pricingpurposespurposes

Natural Gas BillIssues to be resolved


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Third Party AccessThird Party Access

Whether to require T, D utilities capacity expansionWhether to require T, D utilities capacity expansionto accommodate third party usersto accommodate third party users

Negotiated versus regulated access chargesNegotiated versus regulated access charges

Promotion of CompetitionPromotion of Competition

What competition measures to be imposedWhat competition measures to be imposedWhether to identify measures in the legislation orWhether to identify measures in the legislation or

empower regulator to determineempower regulator to determine

Natural Gas BillIssues to be resolved


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THANK

YOU!

THANK

YOU!

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