RUNNING ON EMPTY Implications of declining natural gas reserves and - PowerPoint PPT Presentation

RUNNING ON EMPTY Implications of declining natural gas reserves and other key trends on the Thai power sector A new multi-client study September 2017

● Introduction to the Multi-Client Study ● Running on Empty : Impacts of Thai gas supply decline ● Prospects for Thailand’s energy future ● Study details and team capabilities ● Appendix 2

THAILAND IS ENTERING ITS THIRD AND FINAL GAS INDUSTRY PHASE Combined with other factors this could transform the Thai power sector Thailand Natural Gas Supply by Source Phase 1 Phase 1 Phase 2 Phase 3 Domestic gas drives industrial growth (mmscfd) Phase 2 6,000 Imports offset waning resources Phase 3 LNG becomes primary source of gas 4,000 2,000 Drastically increased LNG exposure combined with technology, global energy dynamics, and regulations bring - unprecedented threats and opportunities to the Thai power 1986 1996 2006 2016 2026 2036 sector and its participants Domestic Malaysia Thai JDA Myanmar Imported LNG Source: Thailand 2015 power development plan and gas model Key questions ● ● Can Thailand meet its PDP targets? What will be the outcome of a wide range of ● What will imported LNG dependency mean? important regulatory issues? ● ● How will this impact the power sector? What global forces will impact Thailand? ● ● What are the implications? What impact will technology have? ● ● Will LNG costs drive an RE boom? Will retail tariffs have to change? ● ● What would that look like? Can Thailand pass LNG risk to consumers? ● ● What does this transformed market mean to What areas might deliver profitable growth? ● generators? What are the consequences for players? 3

CASCADING IMPACTS WILL AFFECT ALL INDUSTRY PARTICIPANTS The study will provide insights to players across the value chain ● A new set of preferred technologies, development risks, and Developers regulations will determine who succeeds Plant ● Rapidly evolving energy market dynamics and regulatory owners risks may affect plant economics and competitiveness Gas ● Growing LNG demand, multiple buyers and opening of suppliers transmission and distribution will offer new opportunities ● The transformation of the energy landscape will create new Investors risks – and opportunities – for existing and future assets ● A new set of market & regulatory risks will affect project Lenders bankability and energy sector investment attractiveness ● Future regulatory, legal, and operational considerations will Others create a myriad of winners and losers 4

RUNNING ON EMPTY : IN-DEPTH ANALYSIS TAILORED FOR THAILAND Structured package of deep analysis with powerful conclusions ● Qualitative analysis Multi-client structure enables the creation of a large, powerful body of analysis and conclusions that is Comprehensive overview and analysis of all major accessible to a broad range of market participants factors driving Thai energy sector including markets, players, regulations, technology, and global trends ● Provides an integrated package of unique insights, tools, and decision support that participants in the Quantitative analysis Thai energy industry can use to manage change Data-rich analysis using tested market models ● Ideal team with years of experience in the Thai gas, • Thai natural gas supply and demand model power, and renewable energy sectors and two • Pöyry BID3 Thai power sector model existing market models Actionable outputs and conclusions ● Delivered in a set of workshops, reports, and datasets The study will provide a carefully designed set of organized in three modules results, outputs, scenarios, and conclusions targeted to needs of participants Module 1 Module 2 Module 3 Thai gas deficit Impact on Thai power sector Results and conclusions October 1 - 31 November 1 - 30 December 1 - January 31 5

● Introduction to the Multi-Client Study ● Running on Empty : Impacts of Thai gas supply decline ● Prospects for Thailand’s energy future ● Study details and team capabilities ● Appendix 6

DECLINING GAS RESERVES ARE A REALITY Thailand Natural Gas Reserves vs. Production Our proprietary gas supply and demand model Proved 1P (tcf) Probable 2P (tcf) indicates that government forecasts for LNG Probable 3P (tcf) Production p.a. RHS (tcf) imports may be underestimated 50 2.0 10 40 8 8 6 10 7 1.5 6 ● 7 Government forecasts imply optimistic, arguably 30 5 3 1.0 3 23 24 unrealistic assumptions related to decline rates 22 23 24 22 22 3 20 21 19 17 16 and resource replacement 13 0.5 10 13 12 12 11 11 11 11 10 9 8 8 ● Reserves are not being replaced – Thailand’s 7 - - 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1P reserve life index stands at just 6.6 years and has declined by half over the last decade Development Wells Drilled ● Peak production occurred in 2014; Thailand’s 2P reserve life is collapsing No of development wells drilled Reserve replacement ratio gas (1P proved) - RHS ● The number of development wells drilled 1,000 4.0 796 855 increased 55% between 2013-2015 to 3.0 800 maintain production volumes – it is costing 2.0 519 578 553 1.0 Thailand more to produce less gas 600 502 463 417 393 432 0.0 359 339 ● 400 Thailand will no longer be able to rely on piped -1.0 226 258 -2.0 natural gas as a cornerstone fuel, this will create 155 200 -3.0 unprecedented dependency on imported LNG 0 -4.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 7

LOOMING DEPENDENCY ON IMPORTED LNG TO BE TRANSFORMATIVE Thailand Natural Gas Supply Plan The future of Thailand’s entire gas supply framework is uncertain. This includes asset (mmscfd) P1 P2 Myanmar ownership; risk sharing; gas pricing; volume Imported LNG Total 2015 Total 2016 7,000 Total 2017 commitments; and contract terms 6,000 5,653 5,062 5,000 4,344 ● To date, the cost burden of Thailand’s imported 4,000 LNG has been masked by weak commodity prices 3,000 and low volumes. But global LNG markets are in 2,000 flux and the current favorable conditions may not 1,000 be permanent 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 ● As Thailand’s LNG weighting increases, the government will lose its ability to manage natural Future LNG and gas-fired power price ranges gas pricing – exposing consumers for the first time directly to international market prices Gas-fired power at LNG high (RHS) Gas-fired power at LNG low (RHS) LNG high LNG low ● A range of different options to manage gas supply, 15 10 Indicative including market liberalization are underway and 12 8 expanding ● Competition is mounting for billions of dollars worth 9 6 of investments for LNG infrastructure. A battle 6 4 between major players is already underway 3 2 ● New entrants continue to explore gas and LNG 0 0 related opportunities 2018 2019 2020 2021 2022 2023 2024 2025 2026 8

POWER SECTOR HAS LIMITED ALTERNATIVES TO GAS Ambitious plans to minimize gas reliance suffer • PDP aims to improve efficiency Energy from: resource availability; policy structure and from the 1.0x GDP historic technological constraints average to 0.6x from 2016-2036 Efficiency • This would reduce power demand • The 2015 PDP calls for a reduction in gas by 89,672 GWh by 2036 consumption from 60% to 37% by 2036 • All non-gas options currently have barriers due to • With LNG one of two marginal scale or cost sources of new power RE • Intermittency caps growth – • Viable energy storage would be transformative storage crucial • Improvements to efficiency are achievable but the PDP target appear unrealistic • Solid Lao progress and deep PDP2015: Projected Power Source by Fuel Hydro plans, but risks of diminishing (% MW) quality Imports 100% • Ability to develop projects in 14% 16% 18% 19% 21% Myanmar unknown 13% 75% 15% 13% 20% 13% 23% 13% 14% 13% 50% • Practical low cost baseload power 14% • Significant public opposition, has 60% 56% 55% 25% 47% Coal 38% led to decades of project delays • Unlikely to realistically be an easy 0% 2015 2020 2025 2030 2036 option for additional capacity Gas Coal Hydro RE Nuclear Diesel/fuel oil 9

POLICY BACKDROP COMPOUNDS RISKS, SPANS VALUE CHAIN The range of regulatory issues facing Thailand presents a “Gordian knot”, the resolution of which will be fundamental to the future industry structure Changes to upstream fiscal policy ▪ o Auction delay for new fields Upstream o Expiration and re-awarding of existing concession o Policy issues: PTT role; NOC; PSC regime introduction gas ▪ Policy for imported piped gas o Myanmar: past technical issues; future political issues Changes to existing policies ▪ o Third party access (TPA) Midstream o PTT pipeline ownership, EGAT FSRU Emergence of new polices ▪ gas o Pool pricing face possible restructuring o LNG risk and cost pass-through, GSA renegotiation Direction and strength of Thai RE programs ▪ o Regulations and prices Power Thai IPP concession plans ▪ Open electricity distribution network ▪ sector o Net metering, retail liberalization, energy storage ▪ Energy technology advances 10