value chain analysis of australian gas market
DESCRIPTION
value chain for gasTRANSCRIPT
Economic Value Chain Analysis of the
Australian Gas Industry
Nhu Che, Thuy Pham, Quentin Grafton & Matt Unicom Bureau of Resources & Energy Economics (BREE)
AARES 56th Annual Conference8-10 February, Fremantle, Western Australia
Outline
• Background of the Australian gas industry
• Key steps in developing a gas value chain model
• Key activities & flow of transformation of a gas value
chain model
• Value chain model with consideration of rapid
development of coal seam gas (CSG)
• Illustrated sources for market analysis: gas resources
in Australia, supply, demand, price etc
• Remarks
Australia’s gas resource
• Total conventional gas and coal seam gas is about
3400 bil cubic metres (bcm) (or 130,000 PJ)
• Australia’s reserve shares about 2% of the world
• Reserve life: 73 years (the world: 63 years)
• Western market: accounts for 2/3 production in
Australia); >80% total export of Australia
• Eastern market: accounts 31% of Australia’s
production; strong development of coal seam gas
• Northern market
Australia’s gas resource (PJ)
20000
40000
60000
80000
100000
120000
140000
1982 1986 1990 1994 1998 2002 2006 2010
conventional gas
coal seam gas
PJ
Source: BREE
The Australian gas industry
• In 2010–11, Australia’s total natural gas production
was about 53.4 Gm3, which increased by 9 per cent
compared with 2009–10.
• Nearly half of production is exported in form of
LNG.
• In 2010–11, Australia exported about 20 Mt of LNG,
(8.4% of the world) valued at about $10.8 billion.
• The major markets for LNG exports are Japan, China,
Korea and India.
Key steps in developing a value chain model
• Identify and map a flow diagram that captures key cross-link interactions in supply and demand that form the value chain.
• Identify and quantify stochastic characteristics of resource deposits and other uncertainties such as changes in prices, exchange rates and market conditions.
• Develop an economic model of the value chain analysis that captures stochastic, spatial and non-linear interactions through supply and value chains, and the cost and revenue components of each key linkage in the chain.
• Design data and computer programs to characterise and analyse the value chain.
Flow diagram of oil and gas value chain process
Flow of transformation
Value: appraisal
Locate:
potential
resources
Establish:
open new
areas for
exploration
Exploration:
field &
facility
development
Operation Transport
& refining Markets:
domestic
& export
markets
-Desk study
-Aerial survey
-Seismic survey
-Mapping of
resources &
environment
-Social-
economic
feasibility
-Environmental
analysis
-Government
issues licences
-Approve field
development
-Exploratory
drillings
-Appraisal
drillings
-Field/facility
development
-Oil & gas
are produced
- Production
process
-Oil & gas are
transported
to refinery
-Refined
products are
transported
-Market
analysis of
demand,
supply,
prices,
exchange rate
Flow of transformation
Key activities
Key value chain functions of
planned BREE model
• Production transformation functions for each chain, identifying key inputs and outputs.
• Cost transformation functions for each chain, identifying input prices and including other cost factors such as policy impacts.
• Revenue transformation functions for each chain, identifying output prices, exchange rates, market conditions and market uncertainties.
• Value-added transformation functions for each chain.
• The objective function of the aggregated profit function of all chains, considering regional development and other social-economic factors.
Financial value chain of oil & gas in the US
Production
Exploration
Value added= $36.70
Cost of inputs = $47.30
Transport
Refining
Distribution
Marketing
Pump tax
$2.97 +$17.78 +$1.00 +$1.90 +$0.80 +$19.15 +$3.70
$13.36 + 14.89 + $1.96 + $4.80 + $1.33 + $0.36 + $0.00
Gross margin = cost of inputs +value added = $84.00
Production & costs transformation functions
(convention gas)
F1(y1) = F1(x1) Locate
F2(y2) = F2(y1, x2, ζ2) Valuate
F3(y3) = F2(y2, x3, ζ3) Establish
F4(y4) = F4(y3, x4, ζ2, ζ3, s) Mine
F5(y5) = F5(y4, x5, s) Transport
F6(y6) = F6(y5, x6) Beneficiate
F7(y7) = F7(y6d, x7, s) Domestic markets
F8(y8) = F8(y6e, x8, s) Export markets
F9(y9) = F9(y7, y8, x9) Divest
F1-F9 is the production function of locate, valuate, establish, min, transport,
beneficiate, domestic market and export market, respectively;
x1-x9 is the set of inputs required for production of each chain from F1-F9;
y1-y9 is the set of outputs of F1-F9;
ζ2 and ζ3 present the probability of resource deposit and uncertainty of extraction
condition;
s is the spatial factor, which takes into account the location of mining business;
Output supply equals to the sum of output supply to the domestic and the export
market, or y6= y6d + y6e .
C1(c1) = C1(x1, px1) Locate
C2(c2) = C2(x2, px2) Valuate
C3(c3) = C3(x3, px3) Establish
C4(c4) = C4(x4, px4, ζ2, ζ3, s) Mine
C5(c5) = C5(x5, px5, s) Transport
C6(c6) = C6(x6, px6) Beneficiate
C7(c7) = C7(x7, px7, s) Domestic markets
C8(c8) = C8(x8, px8, s) Export markets
C9(c9) = C9(x9, px9) Divest
where C1-C9 is the cost function of locate, valuate, establish, min, transport,
beneficiate, domestic market and export market, respectively;
c1-c9 is the set of production cost of each chain from F1-F9;
px1- px9 is the set of input price of production for each chain from F1-F9.
Revenue transformation functions
R1(r1) = R1(y1, py1) Locate
R2(r2) = R2(y2, py2) Valuate
R3(r3) = R3(y3, py3) Establish
R4(r4) = R4(y4, py4, g4) Mine
R5(r5) = R5(y5, py5) Transport
R6(r6) = R6(y6, py6) Beneficiate
R7(r7) = R7(y7, py7, ζ7) Domestic markets
R8(r8) = R8(y8, py8, e, ζ8) Export markets
R9(r9) = R9(y9, py9,g9) Divest
where R1-R9 is revenue function of locate, valuate, establish, min, transport,
beneficiate, domestic market and export market, respectively;
pyi is the set of output prices for output yi, (i=1-9);
e is the exchange rates;
ζ7 and ζ8 present uncertainty of domestic and export markets;
g4 and g9 indicates the impacts of government regulations (such as for environment,
regional development etc on mining operation and divest
VA1(va1) = r1-c1 Locate
VA2(va2) = r2-(r1+c2) Valuate
VA3(va3) = r3-(r2+c3) Establish
VA4(va4) = r4-(r3+c4) Mine
VA5(va5) = r5-(r4+c5) Transport
VA6(va6) = r6-(r5+c6) Beneficiate
VA7(va7) = r7-(r6+c7) Domestic markets
VA8(va8) = r8-(r7+c8) Export markets
VA9(va9) = r9-(r8+c9) Divest
9
1
9
1
9i
i
i
i crvaVA
Total value added
Illustrated sources for
Market analysis: demand, supply & price
Australia’s gas demand (GL)
10 000
15 000
20 000
25 000
30 000
35 0001
98
9-9
0
19
90
-91
19
91
-92
19
92
-93
19
93
-94
19
94
-95
19
95
-96
19
96
-97
19
97
-98
19
98
-99
19
99
-00
20
00
-01
20
01
-02
20
02
-03
20
03
-04
20
04
-05
20
05
-06
20
06
-07
20
07
-08
20
08
-09
20
09
-10
Source: BREE
Gas share of energy end use in Australia (%)
16
17
18
19
20
21
22
23
1989
-90
1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
Source: BREE
Gas demand by region &
IEA scenario projection (bcm)
1980 2009 2020 2035
OECD 959 1518 1705 1841
Non-OECD 557 1558 2183 2909
World 1516 3076 3888 4750
Share of non-OECD 37% 51% 56% 61%
IEA, World Energy Outlook 2011
OECD’s gas demand
84,724
104,724
124,724
144,724
164,724
184,724
204,724
Millio
n C
ub
ic M
ete
rs
2005 - 2010 Range 2009 2010 2011
Australian gas export
Source: BREE
0
2
4
6
8
10
12
0
5
10
15
20
25
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
Volume Value (right axis)
Principal markets for Australia’s oil & gas export
0
2000
4000
6000
8000
10000
12000
1 2 3 4 5 6 7 8 9
10
11
Japan China Korea
Gas imported in Asia-Pacific
• In 2011 Japan shared about 51% of total gas imported
in Asia-Pacific
• Asia-Pacific shares about half of total world’ LNG
import
• The average growth rate of Japan’s gas imported
during 1990-2011 is about 3% per year
•
Unit price of Australian LNG export
(A$ mil/Mt)
0
100
200
300
400
500
600
700
800
Source: BREE
Australia’s gas supply
Western market
• The most important market (2/3 production in Australia) (1359 PJ)
• All of the gas produced is natural gas with the majority offshore
• Accounts for >80% total export (the North West Shelf Project)
• The Carnarvon Basin is the most important supply source
Eastern market
• Accounts 31% of Australia’s production (622 PJ)
• About 2/3 of gas production is natural gas; 1/3 is coal seam gas (CSG)
production
• Strong increase of CSG production, from 44 PJ in 2004-05 to 200 PJ in
2009-10
Northern market
• The smallest supply (1.5 % of Australia’s production); domestic market
Gas production of Australia
Source: BREE
0
10
20
30
40
50
6020
00-0
1
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
Gm3
Productivity index of the Australian mining
industry (Fisher index)
Coal seam gas resources in Australia
Unit Australia World
CSG resources PJ 168 600 a 10240000 b tcf 153 a 9047 b Share of world % 1.6 100 CSG production PJ 139 2700 tcf 0.1 2.3 Share of world % 5.1 100 CSG share of total gas production % 8.4 5.0
a Total identified CSG resources b Total CSG resources in place c Estimate includes United States, Canada and Australia only.
Source: IEA 2009a; IEA 2009c; Geoscience Australia.
Coal seam gas production in Australia
• Over the past five years, CSG exploration has increased
substantially, providing 11% of total gas production
• 20,000 - 40,000 wells could be drilled in the next 20 years
• CSG accounts for 90% gas supply in QLD; export markets
since 2014
• CSG seems will be a key future source of gas for Australian
markets
• Controversy of sustainable development of CSG: the issues
of water use and environment
• About 7500 gigalitres of water would be extracted over 50
years (1/3 of the average annual flow of the Murray-Darling
river system) (the National Water Commission)
Remarks
• The important role of the industry: gross value, export
revenue, employment, energy sources etc
• It is important to include the environmental issue in the cost
function. E.g., the case of CSG development over the next
decades
• The draft Energy White Paper: the important role of gas & the
need for supporting the transition to lower-emissions forms of
technology.
– Australia’s per capita greenhouse gas emissions is the
highest in OECD & among the highest in the world
(Garnaut Review).
– Australia will soon have a carbon pricing mechanism in
operation toward cleaner energy sources.