Soft Infrastructure – bridging the gap
Soft Infrastructure – bridging the gap
11th Petro India, 11th December 2012,
New Delhi
Brian Dodson
Chief Commercial Officer – BP Gas India
© BP 2012
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BP’s gas portfolio – global scale and reach
Gas resources
LNG production/supply
LNG market access
BP’s Market and trading hubs
UPSTREAM
LIQUEFACTION
SHIPPING
TERMINAL
GAS SALES
3
© BP 2012
Regional Cooperation for Accessing and Developing
Hydrocarbon Resources
Plenary III - Soft infrastructure – bridging the gap…
1.
Imperative of Transparent Policy Framework
2.
Geo Political & Security Issues
3.
Open Deregulated Liberalised, but wisely regulated Domestic Market
4.
Trade Agreements
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Energy in 2011 – Disruption & Continuity
Gas Resource / Deliverability
• Shale Gas grows in US, displaces coal in power
Long
Short moving to Long
• US Coal displaced to world market, EU imports coal
Short
Flows
• EU consumption fall & coal imports displace LNG to Asia
Shale as a potential shock
…….Japan’s Nuclear energy short is covered
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Source: includes data from Oxford Economics and Platts
© BP 2012
BP Statistical Review of World Energy 2012
China & Japan
201
1
“Energy Short” ..competing for
energy
Portfolio approach
• Energy Types (Oil, Gas, Coal
etc.)
• Energy sources (Domestic,
International)
• Energy Infrastructure (Pipe, LNG)
[China] .”..government ..gas prices to narrow
the gap between domestic supplies and LNG1
..government aims to deregulate gas prices to
narrow the gap between domestic supplies and
the cost of imported LNG….encourage domestic
development. 03/12/12
Price mechanism enables
• Security of supplies on a
sustainable basis
• Domestic production
Source: includes data from Cedigaz, GIGNL, CISStats, Poten, Waterbourne
1 Platts 3/12/2012
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BP Statistical Review of World Energy 2012
© BP 2012
Theme 1 Administered Pricing (slide 6 of 6)
USA: Regulation of wellhead prices at low levels led to low reserves additions
10
9
8
Reserve Additons (Tcf)
Post 1974 to 1978 ceiling on gas prices
led to reduced drilling and fall in
reserves
Wellhead Price ($ nominal per MMBtu)
1989 – Introduction of Natural Gas Well
head Decontrol Act. All well head
regulations removed from January 1, 1993
40
30
20
7
$ per
MMBtu
USA
6
10
5
0
4
3
Fuel Use Act
Shale Gas
begins
Tcf
(10)
2
Increasing
reserve additions
1
0
(20)
(30)
Source: US Energy Information Administration
• From 1974 to 1978 there was a ceiling on gas prices which resulted in reduced drilling
and a supply shortages & blackouts.
• Post introduction of Natural Gas Policy Act (NGPA) in 1978 drilling activities increased
due to increase in ceiling of well head prices however the simultaneous introduction of
the Power and Industrial Fuel Use Act (1978) undermined demand for gas
Copyright © 2012 IHS Inc.
Acknowledgement: I.H.S CERA “India Gas Price Formation” – An objective assessment, reflecting the independent view of I.H.S CERA 27 July 2012
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Theme 1 Administered Pricing (slide 1 of 6)
Argentina:
• 2008 liberal Gas + programme had limited success
• Reduced production and decline in E&P activity
1994
Privatization
of YPF
1999
Repsol
acquires YPF
Argentina
2001
Economic Crisis
2007
Repsol reduces
share at YPF
YPF Nationalized again
Negatives: Higher State Intervention + Price Controls +
Export Taxes
State
Monopoly
Liberalization
Policy Flip-flops
1990–2001
1985–1989
Reversion??
2011–12
Positives: Price Incentives + Provincial Bid Rounds
2010–11
2008
2006
Provincial control Gas+ & Petroleum+ Shale Gas &
Oil discoveries
Programs
over E&P
•
•
•
•
End of Petroleum+
Pressure on oil companies to
reduce prices
Restrictions on capital
outflows
Annulments of E&P
concessions
Domestic Gas Production
160
140
MMcfd
120
Unregulated Market/
Liberalization
1990-2001
State Monopoly
1985-1989
100
Beginning of
Price Controls
2002
80
60
40
20
0
1985
1990
1995
2000
2005
2010
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Copyright © 2012 IHS Inc.
Source: IHS CERA.
Acknowledgement: I.H.S CERA “India Gas Price Formation” – An objective assessment, reflecting the independent view of I.H.S CERA 27 July 2012
Argentina policy choice: Import or Domestic Production
Argentina will allow wellhead natural gas
prices to rise substantially2
(Reuters 28 Nov 2012)
“Argentina will allow wellhead natural gas prices to
rise substantially from current levels as the energyhungry South American country seeks to attract
foreign investment into new fields, President Cristina
Fernandez said on Wednesday”
“Let’s invest here in Argentina and
produce our own gas” 2
(Reuters 28 Nov 2012)
“The option was quite simple: instead of spending
$3.5 billion overseas, let’s invest here in Argentina
and produce our own gas, we have more than
sufficient”, affirmed the Argentine leader.
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“Worlds third largest shale gas
resource” 774 Tcf Technically
recoverable1
• Circa 500 years of current
Argentina demand
• Circa 350 years of current India
gas demand
1Source:
2
EIA website
Reuters 28 Nov 2012
© BP 2012
Policy framework considerations
Some policy objectives
Meet challenge of
energy short, through;
• Portfolio (Energy and
infrastructure)
• E&P (domestic
production)
• Price Mechanism:
eliminate dual pricing
structure
Some specific Initiatives
• Regulation (to foster
and develop)
Critical
Enabler
Market
Determined
Pricing
Mechanism
•
Fairness
•
Efficiency
•
Transparency
• Non-discriminatory
transmission and
distribution access
• Easing infrastructure
permitting process
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© BP 2012
What a market determined price mechanism offers..
• Transparent, verifiable, dynamic – free from arbitrary
interference…..allow consumers and producers to take long-term
investment and conservation decisions
• Related to market and therefore to alternatives – allows customers
to make choices and assures gas price remains competitive with
alternatives
• Ensures investment at the right time in production and exploration,
due to relationship (over time) with cost
• Provides security of supply – maintains linkage with real market
prices, avoids price shocks
• Ensures efficient consumption
• Consistent with NELP and PSC requirements to maximise value
• Self corrects, based on supply/demand and alternatives
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Sundararajan Committee “Policy initiatives”
- 1995 Indian Govternment study “Hydrocarbon Perspectives: 2010”
1To
ensure energy security as well as sustainable
economic growth, it would be necessary to initiate
suitable policy measures, which would lead to:
•
Enhancement of the efforts for extended recovery
of oil in the existing fields, acceleration of
exploration efforts in India………
•
Creation of incremental refining capacities and
marketing infrastructure.
•
Promotion of foreign and domestic investments
in the hydrocarbon sector
•
Market
Determined
Pricing
Mechanism
effective January 1996
2
Enhancement of exports…..from the limited point of
view of this study, that domestic prices of oil and
gas should be in line with international prices.
1. Policy initiatives section 1.3
2. Introduction of Market Related Prices Section 1.5.4
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