THE PHILIPPINE NATURAL GAS INDUSTRY: Vision, Strategy and Policy : THE PHILIPPINE NATURAL GAS INDUSTRY: Vision, Strategy and Policy A Briefing for the
Proponents of House Bill No. 4754 Prime Contractor: Academy for Educational Development February 5, 2003
Quezon City, Philippines
Slide2 : Importance of Nat Gas Industry
Industry Status
Regulatory Concepts
Proposed Framework
Potential issues on HB 4754
Briefing Outline
Why Should We Care? : Security of Supply
Energy Self Sufficiency
Eco Social Benefits
Foreign Exchange Savings of $ 4.5 B Why Should We Care?
STATUS : STATUS
Birth of the Gas Industry Upstream Sector : Birth of the Gas Industry Upstream Sector
Birth of the Gas Industry Malampaya Gas-to-Power Project : Birth of the Gas Industry Malampaya Gas-to-Power Project
Birth of the Gas Industry Downstream Sector : Birth of the Gas Industry Downstream Sector Gas Pipelines and 2700-MW Gas Fired Power Plants
Birth of the Gas Industry Downstream Sector : Birth of the Gas Industry Downstream Sector PNOC CNG-Refilling Station and NGVs
Natural Gas Production and Consumption of Asian Countries* : Natural Gas Production and Consumption of Asian Countries* Source of Data: BP Amoco Statistical Review *Phil- 2002 data; all other countries- 2000
Development and Growth : Development and Growth
Development and Growth Policies and Objectives : Development and Growth Policies and Objectives Policies Objectives Ensure compliance with Philippine environmental laws and regulations and international safety standards 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-the-
art 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 Promote natural gas as an environment-friendly, secure, stable and economically efficient source of energy
Slide12 : Development and Growth Natural Gas Share in Energy Mix (In %)
Development and Growth Gas Resources : Development and Growth Gas Resources
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 Development and Growth Location of Petroleum Resources
Projected Demand and Possible Importation of Natural Gas : Projected Demand and Possible Importation of Natural Gas
Development and Growth Proposed Gas Pipeline Infrastructure : Development and Growth Proposed Gas Pipeline Infrastructure ? ? BatMan 2 BatMan 1 BatCave
Slide17 : Development and Growth Potential Gas-Fired Power Plants
Slide18 :
EDSA Monumento Source: FS on CNG Development for Public Utility Vehicles in Metro Manila N 20 Festival Mall / Metropolis 19 Alabang Town Center 3 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 Robinson’s 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 5 6 7 8 Fort Bonifacio 9 10 11 12 13 14 15 16 17 18 19 20 Development and Growth Potential Commercial Gas Markets
Slide19 : Development and Growth Proposed CNG Infrastructure
GAS INDUSTRY REGULATION : GAS INDUSTRY REGULATION Basic Concepts
Industry Structure
Stages of Gas Market Development
International Experience
Slide21 : What is natural gas? Source: Australian Gas Association Natural Gas Industry Fundamentals
Slide22 : Natural Gas Industry Fundamentals 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 Source: Australian Gas Association
Slide23 : To reach natural gas we have to drill through layers of rock. Coal, oil and gas are hydrocarbons (compounds made up mostly of hydrogen and carbon). Natural Gas Industry Fundamentals Source: Australian Gas Association
Slide24 : How does natural gas get to town? 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 Natural Gas Industry Fundamentals Source: Australian Gas Association
Slide25 : How is natural gas used? power generation heating manufacturing cooling cooking Household use water heating fuel for cars fuel for buses and trucks Source: Australian Gas Association
Slide26 : 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.
Natural Gas Industry Fundamentals Source: Australian Gas Association
The Natural Gas Industry Chain : The Natural Gas Industry Chain Source: Australian Gas Association
Slide28 : Rationale for Gas Industry Regulation Natural monopoly Gas industry characteristics Role of Regulation Objective Prevent abuse of market power Competition and Efficiency Large sunk costs Minimize risks Encourage investments Public good Protect public interest Security and affordability of gas supply
Concepts and International Experience Key Elements of Gas Regulatory Regime :
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 How to regulate Approaches Who to regulate Institution/
Authority Concepts and International Experience Key Elements of Gas Regulatory Regime
Stages of Gas Market Development : Stages of Gas Market Development
Slide31 : PRODUCERS/
IMPORTERS TRANSMISSION
COMPANY DISTRIBUTION
COMPANY END
USERS Stage: Gas Market Creation
Structure: Vertically Integrated Monopoly Gas Transportation Gas Supply Transaction Stages of Gas Market Development
Slide32 : PRODUCERS/
IMPORTERS TRANSMISSION
COMPANY DISTRIBUTION
COMPANY Residential TRADERS AND
SUPPLIERS Commercial Industrial Power
Plants Stage: Gas Market Development
Structure: Open Access And Wholesale Competition Gas Supply Transaction Gas Transportation Stages of Gas Market Development
Slide33 : Stage: Mature Market
Structure: Unbundled Industry and Retail Competition Residential SPOT
MARKET TRADERS AND
SUPPLIERS Commercial Industrial Power
Plants Gas Supply Transaction Gas Transportation Stages of Gas Market Development
Gas Market Development in Selected Countries : Gas Market Development in Selected Countries * 2000 data
Evolution of Regulatory Reforms in Mature Gas Markets – United States : Heavy Regulation Managed Competition Deregulation Partial wellhead price deregulation Evolution of Regulatory Reforms in Mature Gas Markets – United States Voluntary open access Total wellhead price decontrol Mandatory open access, Unbundling,
Capacity release, wholesale price decontrol Retail competition in some states Source: F. M. Andres, unpublished thesis
Slide36 : Nationalization Managed Competition Evolution of Regulatory Reforms in Mature Gas Markets - United Kingdom BG privatization, large market competition BG creation Retail market competition BG unbundling Competition TPA to BG pipelines Source: F. M. Andres, unpublished thesis
Evolution of Regulatory Reforms in Mature Markets - Argentina : Wellhead price deregulation Capacity release market YPF divestment Evolution of Regulatory Reforms in Mature Markets - Argentina Managed Competition Nationalization Source: F. M. Andres, unpublished thesis Competition Gas del Estado restructuring and privatization ,
open access, YPF privatization
Slide38 : 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 from International Experience
POLICY AND REGULATORY FRAMEWORK : POLICY AND REGULATORY FRAMEWORK Existing Legal and Policy Framework
DOE Gas Circular
Slide40 : DOE Charter
E.O. No. 66
DOE Gas Circular – Interim Rules and Regulations
Philippine Energy Plan 2003-2012 Existing Policy and Regulatory Framework Recent Developments
Interim DOE Gas Circular Policy Declaration : 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
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 Interim DOE Gas Circular Key Provisions
Proposed Natural Gas Bill : Proposed Natural Gas Bill
Natural Gas Bill TWG Meetings and Participants : 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 : Major Issues Regulatory Agencies
Franchise
Price Regulation
TPA
Promotion of Competition
Natural Gas Bill Key Recommendations of the TWG : 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 : 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
Slide49 : 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
Slide50 : 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 Natural Gas Bill Issues to be resolved
Slide51 : THANK YOU! www.doe.gov.ph