Nat Gas Presentation

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 IndustryMalampaya 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 GrowthGas 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 ExperienceKey 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 CircularPolicy 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 CircularKey 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 CircularKey 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 BillTWG 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 BillKey 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 BillKey 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