1.2 regionalization of asian gas demand and

REGIONALIZATON OF ASIAN GAS DEMAND AND SUPPLY
REGIONALISATION DE L’OFFRE ET DE LA DEMANDE
DE GAZ EN ASIE
Fritz R. Voigt
Vice President, Gas
Samuel Silverio
Gas Business Development Manager
David Cochrane
Gas Business Development Advisor
David Reed
Gas Business Development Advisor
Exxon Company, International, U.S.A.
ABSTRACT
Asia is home to 3 billion people, representing 50% of the world’s population. Gas
penetration in Asia currently lags Europe and North America, but an extrapolation of
historical trends suggests potential for significant growth. Discovered gas reserves
throughout Southeast Asia exceed 300 TCF, and substantial undiscovered potential should
allow for continued addition to reserves. This paper addresses the issue of how best to
transport the gas to market at the lowest possible cost.
Pipeline transport may increasingly become the most economic option in Southeast
Asia. Both LNG and pipelines are high capital cost alternatives that have been benefiting
from steady cost reduction. The unit costs of LNG have been reduced by about 30% since
1978. However, reductions in pipeline cost have been far greater at about 60% since
1985, due principally to lower steel cost and improvements in pipelay techniques. As a
result, the economic reach of pipelines has been extended to as much as 4000-5000 miles.
Traditionally, gas pipeline developments bring a single resource to a single market.
With larger fields and less expensive pipelines, regional interconnections could
characterize future S.E. Asian developments. Some past proposals for “circular” pipeline
routes would involve substantial speculative pre-investment and tended to emphasize
market at the expense of resource location. A hub and spoke scheme designed to connect
individual markets to large resources when market conditions dictate could provide a
more economic option to allow interconnection of resources and markets throughout the
region.
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RESUME
L’Asie compte de 3 milliards d’habitants, soit 50% de la population mondiale. La
pénétration du gaz en Asie accuse un certain retard par rapport à l’Europe et à l’Amérique
du Nord mais les tendances historiques nous autorisent à penser que ce marché va
connaître une croissance significative. Les réserves de gaz découvertes en Asie du Sud-Est
excédent 8,500 G m3 et le potentiel considérable des réserves présumées devrait pouvoir
assurer la demande future. Cet article envisage le meilleur moyen de transporter le gaz, à
moindre coût vers ces marchés.
En Asie du Sud-Est, le transport par pipelines est en passe de devenir le moyen le plus
économique. Le GNL et les pipelines nécessitent des investissements importants mais on
assiste à une baisse réguliere des coûts. Le coût unitaire du GNL a baisse de 30% depuis
1978. Toutefois, la baisse des coûts des pipelines a été plus spectaculaire avec une
diminution de 60% depuis 1985, grâce notamment à la baisse des prix de l’acier et aux
progrès des techniques de canalisation. Ceci explique le développement économique des
pipelines don’t le réseau atteint aujourd’hui entre 6400 et 8000 km.
Généralement, le but de la construction d’un gazoduc est de transporter une ressource
unique vers un marché unique. Avec des champs plus larges et des pipelines moins chers,
les interconnections régionales pourraient bien caractériser les développements futurs en
Asie du Sud-Est. Certaines propositions antérieures de tracés de pipelines «circulaires»
impliquaient des préinvestissements spéculatifs importants et avaient tendance à faire
valoir le marché aux dépens du fournisseur. Un noyau central et un système de rayonnage
conçus pour assurer la connexion entre les marchés individuels et les ressources
importantes, lorsque les conditions du marché l’obligent, pourraient représenter une
solution plus avantageuse pour connecter les ressources et les marchés dans toute la
région.
1.2–2
REGIONALIZATON OF ASIAN GAS DEMAND AND SUPPLY
For some time Asia has been identified as a market for significant growth in gas
demand. Large gas markets already exist in Japan and Korea and are emerging in China,
India, Indonesia, Thailand, and Malaysia. Since mid-1997, the values of many key Asian
currencies have declined over 40% versus the U.S. dollar. This has resulted in economic
dislocations which are slowing many of these economies, with further slowdown expected
as this year progresses. Accordingly, many forecasters are predicting no growth for key
parts of Asia in 1998 and slower growth through 2000.
The changing economic environment makes it imperative to reassess the size and
timing of future gas demand growth in Asia. This can be done by examining how
developing countries have emerged from similar situations in the past and the type of nearand long-term impacts experienced in electricity and gas demand growth rates. Inter-fuel
competition issues also need to be addressed.
In addition to changes in energy and gas demand growth, the current crisis may
actually hasten the move toward deregulation and privatization as governments take steps
to improve economies. This would enhance opportunities for private companies,
particularly in the power and gas business, that have typically been highly regulated.
The issue of how to best transport gas to market at the lowest possible price becomes
even more critical in the current environment. Pipeline costs have been declining faster
than LNG costs. As a result, the economic reach of pipelines has been extended to as
much as 4000-5000 miles. Further advances in technology could change the relative
attractiveness of pipelines versus LNG and possibly make other alternatives economic.
A pipeline network in Asia linking the major points of gas supply and demand has been
suggested in several forums. The costs for the initial pipelines and upstream investments
was beyond the practical capability of most governments even before the current crisis. In
this environment, it will be essential for capacity investments to be based on economically
sound projects and mutually beneficial agreements between buyers and sellers of gas in
order to obtain financing from the private sector. Governments need to play a role by
creating a climate in which risks and rewards are shared appropriately between buyer and
seller.
Previous conclusions regarding the timing and structure of the initial pipelines will
need to be re-examined against a different economic and gas demand outlook.
Most Asian economies and energy markets are still in a state of rapid change.
The market outlook and the implications on the Regionalization of Asian Gas will be
re-examined closer to the conference timing and the results presented at the
conference in May 1998. (See LNG 12 Program Committee Chairman’s Note, next
page.)
1.2–3
LNG 12 Program Committee Chairman’s Note
At the time the papers were going to print for the Proceedings, the economic situation in
Asia was extremely uncertain. Consequently, it was felt that a full paper written at that time
would have little relevance at the time of the LNG 12 Conference (May 1998), and the speaker
would have to prepare two complete and different papers: one for the Proceedings and one for
the oral presentation. We felt the imposition of this added effort to be unwarranted.
Thus, what is described here is a “snapshot” of the situation in Asia as the Proceedings
went to print. A full text of the actual presentation will be available at the Conference, and
additional reprints will be available from the author. There are always changes between the full
text in the Proceedings and the oral presentation. In almost all cases the changes are small and
they are welcome because the delegates expect the “latest development” when they attend the
Conference. In this case we felt the uncertainties to be too great; hence we offer the abbreviated
summary.
Your understanding of the situation is gratefully appreciated.
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