"THE PHILIPPINE NATURAL GAS INDUSTRY THE PHILIPPINE NATURAL GAS - PDF - PDF"
THE PHILIPPINE NATURAL GAS INDUSTRY: Vision, Strategy and Policy Vision, Strategy Policy Supported by the Supported by the Partnership for Reforms in Partnership for Reforms in the Energy-Environment the Energy-Environment Sector Management Sector Management (PREESM), a joint DOE(PREESM), a joint DOEUSAID Program USAID Program A Briefing for the A Briefing for the Proponents of House Bill No. 4754 Proponents of House Bill No. 4754 Prime Contractor: Prime Contractor: Academy for Educational Academy for Educational Development Development February 5, 2003 February 5, 2003 Quezon City, Philippines Quezon City, Philippines Briefing Outline • • • • • Importance of Nat Gas Industry Industry Status Regulatory Concepts Proposed Framework Potential issues on HB 4754 Why Should We Care? • Security of Supply • Energy Self Sufficiency • Eco Social Benefits • Foreign Exchange Savings of $ 4.5 B STATUS Birth of the Gas Industry Upstream Sector San Antonio Gas Field, 2.7 BCF Malampaya Gas Field, 3.7 TCF Birth of the Gas Industry Malampaya Gas-to-Power Project 30 km Up s tre a m Gas dehydration Gas dewpointing Condens ate s tabilisation Expo rt compr sion es Catenary Anchored Leg M ooring (CALM) buoy for tanker loading o f co ndensate Sulphur Recover y H2S removal M etering Supply bas e 504 km Do wn s tre a m - 0m Batangas Power Stations Alternative Fuel M a n li a - 43 m 3rd flo wline (2021) Condens ate storage Condensate export 24" Dry gas pipeline S an L o re n z o S a n ta R it a T a b a n g a o Re fi n e ry B a ta n g a s Ili ja n (N P C ) Subs ea manifold - 820 m 9 9 Development wells Develo pment wells 1 Contingency well 2 x 16” CRA wet gas M alam p aya P LA T FOR M D raw N o : P97-1541 Birth of the Gas Industry Downstream Sector Gas Pipelines and 2700-MW Gas Fired Power Plants San Lorenzo Power Plant First Gas Corp, 560 MW Operating October 2002 Sta. Rita Power Plant First Gas Corp. 1,000 MW Operating Jan 2002 Onshore Gas Plant SC 38 Consortium Operating Oct 2001 Tabangao 504 km. 24-inch Pipeline SC 38 Consortium Ilijan Power Plant KEILCO, 1200 MW Operating June 2002 Birth of the Gas Industry Downstream Sector PNOC CNG-Refilling Station and NGVs Natural Gas Production and Consumption of Asian Countries* 3000 2500 Billion cubic feet 2000 1500 1000 500 0 Ja pa n M al ay si a Pa ki st Ph an ili pp in es Si ng ap So or e ut h K or ea Ta iw an Th ai la nd Consumption Bcf na i gl ad e Ch i Ba n Production Bcf In do ne Br u In di a ne si a sh *Phil- 2002 data; all other countries- 2000 Source of Data: BP Amoco Statistical Review Development and Growth Development and Growth Policies and Objectives Policies Promote natural gas as an environment-friendly, secure, stable and economically efficient source of energy Objectives Competitive natural gas prices vis-à-vis other fuels Increased utilization of natural gas as fuel in power and non-power sectors Increased share of natural gas in the energy mix Adoption of state-of-theart technology, development of experts and increased employment Enhanced economic benefits to consumers Promote competition by liberalizing entry into the industry and adopting pro-competitive and fair trade measures Ensure compliance with Philippine environmental laws and regulations and international safety standards Development and Growth Natural Gas Share in Energy Mix (In %) 2001 2007 2012 GDP growth p.a. Oil Coal Indigenous Gas Other RE Local Coal Hydro Geothermal Local Oil Others (unidentified) 3.2 45.3 9.2 45.5 0.6 31 1.5 4.9 7.2 0.1 5.2 38.6 9.7 51 7.0 27.9 1.9 4.1 7.7 2.4 0.7 5.2 39.6 5.3 44.4 6.0 24 4 3.1 5.8 1.4 10.7 Development and Growth Gas Resources Total Resources: 28,531 BCF (Mean) Undiscovered 24,690 BCF Discovered Undiscovered Discovered 3,841 BCF Development and Growth Location of Petroleum Resources Found in 16 sedimentary basins with an area of over 700,000 sq. km. Ilocos Cagayan Central Luzon West Luzon Southeast Luzon Bicol Shelf Mindoro - Cuyo Northwest Palawan Southwest Palawan East Palawan Reed Bank West Masbate / Iloilo Visayan Cotabato Agusan - Davao Sulu Sea Projected Demand and Possible Importation of Natural Gas 400 350 300 250 BCF 200 150 100 50 0 20 09 20 03 20 04 20 10 20 11 20 05 20 06 20 07 20 08 20 12 Possible importation Projected demand Year Development and Growth Proposed Gas Pipeline Infrastructure BatMan 2 ? ? BatCave BatMan 1 Malampaya Assumed Pipeline Route Development and Growth Potential Gas-Fired Power Plants Limay 620 MW (2008) Conversion Sucat 300 MW (2008) 600 MW (2009) Additional Greenfield Capacity Requirement in Luzon 300 MW (2010) 1,200 MW (2011) 600 MW (2012) Santa Rita 1000 MW (2002) San Lorenzo 560 MW (2002) Malaya 600 MW (2010) Conversion Ilijan 1200 MW (2002) Development and Growth Potential Commercial Gas Markets 1 2 3 4 5 Gotesco Mall Commonwealth Center SM North Edsa Araneta Center Greenhills Mall EDSA Monumento N 2 1 5 3 4 6 7 8 17 Fiesta Mall (Duty Free) 18 SM Southmall 19 Alabang Town Center 20 Festival Mall / Metropolis 6 SM Megamall 7 Shangri-la Plaza 8 EDSA Central 9 Tutuban Mall 10 Robinson’s Place 11 SM Manila 12 Harrison Plaza 13 Coastal Mall 14 Rockwell 15 Greenbelt Mall 16 Ayala Center 13 17 18 9 11 10 12 14 Fort 16 Bonifacio 15 20 19 Existing Shopping Malls Source: FS on CNG Development for Public Utility Vehicles in Metro Manila Development and Growth Proposed CNG Infrastructure EDSA Monumento Refilling Station in 2005 Refilling Station in 2003 Manila Gas Corp. Pipeline Fort Bonifacio Proposed EDSA Gas Pipeline Proposed Sucat to Fort Bonifacio Gas Pipeline Batman 1 Large Refilling Stations2 Metro Manila Bus Routes Stations (L): 1 EDSA Monumento 2 Fort Bonifacio GAS INDUSTRY REGULATION • • • • Basic Concepts Industry Structure Stages of Gas Market Development International Experience Natural Gas Industry Fundamentals What is natural gas? Source: Australian Gas Association Natural Gas Industry Fundamentals Source: Australian Gas Association Natural gas was formed from the remains of plants and animals which lived on the Earth many millions of years ago. Over time the remains were covered by layers of sand, rock and ice. Heat and pressure eventually changed them into fossils. The gaseous form of these fossils is natural gas Natural Gas Industry Fundamentals To reach natural gas we have to drill through layers of rock. Sandstone Shale Natural gas Oil Granite Coal, oil and gas are hydrocarbons (compounds made up mostly of hydrogen and carbon). Source: Australian Gas Association Natural Gas Industry Fundamentals How does natural gas get to town? 1 1 drilling rig 2 extraction unit to clean gas 3 compressor station to maintain pressure in the pipeline 4 facility where an odour (or smell) is added 5 town - factories, houses, hospitals and hotels etc Transmission pipelines 3 Transmission pipelines 2 5 4 Distribution and reticulation pipelines Source: Australian Gas Association How is natural gas used? Household use cooling manufacturing water heating cooking power generation fuel for cars heating Source: Australian Gas Association fuel for buses and trucks Natural Gas Industry Fundamentals Why is natural gas better for the environment? Natural gas is a clean and efficient fuel. Natural gas can help reduce emissions that contribute to the greenhouse effect, because it burns more cleanly than other fossil fuels. For example, when used to make electricity, natural gas only produces around half the greenhouse emissions of other fossil fuels. Source: Australian Gas Association The Natural Gas Industry Chain Upstream Downstream Production Transmission Distribution Wholesale contracts Wholesale contracts Wholesale contracts Aggregators/ Suppliers Retail tariffs Residential and commercial customers The gas transport chain The gas marketing chain Industrial and power generation customers Source: Australian Gas Association Rationale for Gas Industry Regulation Gas industry Gas industry characteristics characteristics Natural Natural monopoly monopoly Large sunk Large sunk costs costs Role of Role of Regulation Regulation Prevent abuse of Prevent abuse of market power market power Minimize Minimize risks risks Objective Objective Competition and Competition and Efficiency Efficiency Encourage Encourage investments investments Public Public good good Protect public Protect public interest interest Security and Security and affordability of affordability of gas supply gas supply Concepts and International Experience Key Elements of Gas Regulatory Regime What to What to regulate regulate Structure • Ownership- State/Private sector role • Vertical integration/cross-ownership • Stage of Gas Market Development How to How to regulate regulate Approaches • • • • • Entry Regulation Price Regulation Access Regime Public Service Obligations Promotion of Competition Who to Who to regulate regulate Institution/ Authority • Law- and Policy/Rule-making • Economic Regulator • Competition Authorities • Arbitration/Dispute Resolution Stages of Gas Market Development Market Creation Market Development Mature Market Undeveloped gas reserves, small market Limited infrastructure Integrated Structure; monopolymonopsony operations Heavy regulation or state ti i ti More supply options; rapid demand growth Heavy investments in infrastructure Producers sell some gas directly to buyers; third party access and large market competition Abundant supplies and demand saturation Developed infrastructure Unbundled supply chain; gas spot market; Retail competition Regulation manages Minimal government competition; assists intervention to entry of new players sustain competition Stages of Gas Market Development Stage: Gas Market Creation Structure: Vertically Integrated Monopoly PRODUCERS/ TRANSMISSION DISTRIBUTION IMPORTERS COMPANY COMPANY END USERS Gas Transportation Gas Supply Transaction Stages of Gas Market Development Stage: Gas Market Development Structure: Open Access And Wholesale Competition PRODUCERS/ IMPORTERS TRANSMISSION COMPANY DISTRIBUTION COMPANY Residential Commercial Industrial TRADERS AND SUPPLIERS Gas Transportation Gas Supply Transaction Power Plants Stages of Gas Market Development Stage: Mature Market Structure: Unbundled Industry and Retail Competition Residential PRODUCERS/ IMPORTERS TRANSMISSION COMPANY DISTRIBUTION COMPANY Commercial Industrial SPOT MARKET TRADERS AND SUPPLIERS Power Plants Gas Transportation Gas Supply Transaction Gas Market Development in Selected Countries Market Creation Market Development Mature Market PHIL Proven Reserves (TCF)* 3 IND 72 THAI MAL 12 82 MEX 30 ARG 26 US 167 UK 27 32 19 52 24 20 9 R/P Ratio (Years)1 % NGas in 4.6 28 30 47 25 55 26 Energy (2002) Mix* Pipeline 526 4,469 377 1,753 12,000 >100,000 1.84 (1998) MM Km* 1 7 38 278,650 Ratio of year-end reserves to annual production Source of basic data: WB, BP Amoco, APERC * 2000 data Evolution of Regulatory Reforms in Mature Gas Markets – United States 600 In million tons of oil equivalent 500 400 300 200 100 0 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 Voluntary open access Mandatory open access, Unbundling, Capacity release, wholesale price decontrol Retail competition in some states Partial wellhead price deregulation Total wellhead price decontrol Heavy Regulation Managed Competition Deregulation Production Prodn + Imports Consumption Source: F. M. Andres, unpublished thesis Evolution of Regulatory Reforms in Mature Gas Markets - United Kingdom 90 80 In m n to s o o eq ivalen illio n f il u t 70 60 50 40 30 20 10 TPA to BG pipelines BG creation BG privatization, large market competition Retail market competition BG unbundling Nationalization 0 Managed Competition 19 90 19 82 19 86 19 92 19 84 19 88 Competition 19 98 19 96 19 72 19 76 19 74 19 78 Consumption Prodn + Imports Production Source: F. M. Andres, unpublished thesis 19 94 19 70 19 80 Evolution of Regulatory Reforms in Mature Markets - Argentina 35 30 Inm nto so o e u a n illio n f il q iv le 25 Gas del Estado restructuring and privatization , open access, YPF privatization Wellhead price deregulation 20 15 Capacity release market YPF divestment 10 5 Nationalization 0 Managed Competition 19 91 19 87 19 89 19 93 19 85 19 95 19 97 Compe tition 19 75 19 77 19 73 19 81 19 71 Production Prodn + Imports 19 83 19 79 Consumption Source: F. M. Andres, unpublished thesis Lessons Learned from International Experience 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 POLICY AND REGULATORY FRAMEWORK • Existing Legal and Policy Framework • DOE Gas Circular Existing Policy and Regulatory Framework Recent Developments • DOE Charter • E.O. No. 66 • DOE Gas Circular Regulations – Interim Rules and • Philippine Energy Plan 2003-2012 Interim DOE Gas Circular Policy Declaration • Promote Natural Gas as an efficient and economical source of energy • Facilitate private sector participation • Promote competition by liberalizing entry and adopting pro-competition/fair trade measures • Ensure compliance with international safety standards and relevant Philippine laws and regulations Interim DOE Gas Circular Key Provisions Industry Structure Downstream Natural Gas Industry: Transmission (T), Distribution (D) and Supply (S) Vertical integration allowed Entry Regulation Franchise and other legislative authorizations required to operate T& D as public utility Permits required for T, D and S Own-use permit allowed for end-user facilities Interim DOE Gas Circular Key Provisions Access Liberalization Third Party Access to T, D and related facilities required Deferment allowed on new facilities Access conditions negotiated Price regulation Prices of T, D, and S deregulated for competitive markets. ERC to regulate prices charged by distribution utilities Promotion of Competition DOE to enforce measures to restore competition Proposed Natural Gas Bill Natural Gas Bill TWG Meetings and Participants Meetings 11 meetings since September 2002 Participants Committee on Energy Secretariat Government – DOE, ERC, DOF, DENR, NEDA, PNOC, PNOC-EC. PNOC-EDC Industry – SPEX, FGHC, PAP, BP Amoco, GN Power, Chevron-Texaco, Caltex, Price-Waterhouse NGO – Freedom from Debt Coalition Major Issues •Regulatory Agencies •Franchise •Price Regulation •TPA •Promotion of Competition Natural Gas Bill Key Recommendations of the TWG Industry structure Downstream gas industry: T, D and S Vertical integration allowed Entry regulation Franchise to operate T & D as public utility Permit required to operate T, D & S Own-use permit allowed for end-user facilities Natural Gas Bill Key Recommendations Access Liberalization TPA mandatory for T, D and related facilities Deferment allowed on new facilities Access conditions negotiated Price Regulation Prices for captive markets regulated Market-based prices for contestable markets Natural Gas Bill Issues to be resolved Regulatory Agencies Division of price and non-price functions between DOE and ERC or single regulatory agency Franchise Whether Service Contractors need a franchise to engage in T & D PNOC Charter in lieu of a franchise Price Regulation Classifying markets as contestable or captive for pricing purposes Natural Gas Bill Issues to be resolved Third Party Access Whether to require T, D utilities capacity expansion to accommodate third party users Negotiated versus regulated access charges Promotion of Competition What competition measures to be imposed Whether to identify measures in the legislation or empower regulator to determine THANK YOU! www.doe.gov.ph