The South Asian Energy Challenge Implications for Pakistan.pdf

7/28/2019 The South Asian Energy Challenge Implications for Pakistan.pdf

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Martin TrachselVice President Midd le East Gu lf,

Shell International Gas & Power Ltd

February 2007

The South Asian EnergyChallenge:

Implications for Pakistan


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Disclaimer statement

This presentation contains forward-looking statements concerning the financial condition, results of operations and businesses ofRoyal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements.Forward-looking statements are statements of future expectations that are based on managements current expectations and

assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differmaterially from those expressed or implied in these statements. Forward-looking statements include, among other things, statementsconcerning the potential exposure of Royal Dutch Shell to market risks and statements expressing managements expectations,beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms andphrases such as anticipate, believe, could, estimate, expect, intend, may, plan, objectives, outlook, probably,project, will, seek, target, risks, goals, should and similar terms and phrases. There are a number of factors that couldaffect the future operations of Royal Dutch Shell and could cause those results to differ materially from those expressed in theforward-looking statements included in this Report, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b)changes in demand for the Groups products; (c) currency fluctuations; (d) drilling and production results; (e) reserve estimates; (f)loss of market and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitablepotential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doingbusiness in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developmentsincluding potential litigation and regulatory effects arising from recategorisation of reserves; (k) economic and financial marketconditions in various countries and regions; (l) political risks, project delay or advancement, approvals and cost estimates; and (m)changes in trading conditions. All forward-looking statements contained in this presentation are expressly qualified in their entirety bythe cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-lookingstatements. Each forward-looking statement speaks only as of the date of this presentation. Neither Royal Dutch Shell nor any of itssubsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, futureevents or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the

forward-looking statements contained in this document.

The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, todisclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to beeconomically and legally producible under existing economic and operating conditions. We use certain terms in this presentation,such as oil in place" that the SEC's guidelines strictly prohibit us from including in filings with the SEC. U.S. Investors are urged toconsider closely the disclosure in our Form 20-F, File No 1-32575 and disclosure in our Forms 6-K file No, 1-32575, available on theSEC website www.sec.gov. You can also obtain these forms from the SEC by calling 1-800-SEC-0330.


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Presentation Outline

1. The Regional picture Demand, Supply, Challenges

2. Focus on Pakistan

Energy & Gas demand-supply gap

Outlook on various options pipeline, LNG, coal gasification

Observations on imported gas pricing

Key messages for Pakistan


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0

4

8

12

16

1971 2002 2010 2020 2030

Other renewable

Hydro

Nuclear

Biomass & waste

Coal

Gas

Oil

orld Energy Demand 1971 - 2030

ource: The International Energy Agency


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Regional Demand for Energy to increase

significantly by mid next decade

Sources: World Energy Outlook 2006, Source: Pakistan Energy Outlook 2006 (PIP)

0

500

1000

1500

2000

2500

3000

3500

4000

2004 2015

Mto

China India Pakistan

Increase of 4% pa


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hy Natural Gas? The Fuel of the 21st Century

atura l Gas c ould over take oi l as the glob al number one fuel of c ho ice by 2025

mln boe/d

0

25

50

75

100

125

150

OilGas

1980 1990 2000 2010 2020 2030

Natural Gas as the fuel of the twenty-fir

century with increasingly diverse supplydriven by emerging technologies andthe development of broader gas market

Clean

Abundant

Cost com pet it i ve


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Sign if icant reserves in geog raphical proxim ity; however,

l imited suppl iers and sign i f icant challenges

- Political uncertainty

- Domestic needs

971Iran

- Political uncertainty

- Existing commitments?

71Turkmenistan

- Production largely destined forGazprom network

65Kazakhstan

- Current moratorium on the North Field

- Significant competition for Qatari

supplies

911Qatar

IssuesReserves (tcf)Country

Source: The US Energy Information Administration (EIA)

Countries with Gas Export potential/intent


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Regional Gas Picture 2015 significant demand,

uncertain supplies

C H I N A

Y E M E N

UZBEKISTAN

AZERBAIJAN

I R A N

I R A Q

AFGHANISTAN

P A K I S T A N

I N D I A

NEPAL

QATAR

U.A.E.

O M A N

TURKMENISTAN

KYRGYZSTAN

TAJIKISTAN

K A Z A K H S T A N

Gas reserves (Tcf)

Required import (Tcf)

1 Tcf p

Sources: WoodMac, Shell

100 Tc


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Regional Picture - Conclusions

Regional energy and gas demand are set to increasesignificantly by 2015.

Significant reserves exist within geographical proximity ofdemand centers. However, significant challenges existincluding:

investment needed to turn reserves into production. competition from Russia/ME for pipeline imports.

competition from America/Europe/Asia for LNG imports.

competition from within the supplier countries (domestic needs,reinjection etc.)

Markets likely to be dictated by supplier aspirations, atleast in the medium term.


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Presentation Outline

1. The Regional picture Demand, Supply, Challenges

2. Focus on Pakistan

Energy & Gas demand-supply gap

Outlook on various options pipeline, LNG, coal gasification

Observations on imported gas pricing



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Hydel

11%

Nuclear

1%

Renew

1%

Oil

32%

Gas

47%

Coal

8%

2010 (66 Mtoe)

Hydel

11%

Nuclear

1%

Oil

29%

Gas

51%

Coal

8%

2005 (57 Mtoe)

Hydel

14%

Nuclear

2%

Renew

1%

Oil

25%

Gas

47%Coal

11%

2020 (99 Mtoe)

Gas dependence for energy to continue despite

ambitious growth aspirations for alternates

ce: Pakistan Energy Outlook 2006 (PIP)


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ignificant need for gas imports during next decade

Energy demand is increasing sharply, particularly for electricity.

Major gas fields are very mature and supplies will decline from 2010.

Source: Pakistan Energy Outlook 2006 (PIP)

0

10

20

30

40

50

60

70

2007 2008 2 00 9 2 01 0 2 01 1 2012 2 01 3 2014 2 01 5 2016 2017 2 01 8 2019 2 02 0 2021 2022 2023 2 02 4 2 02 5

m

p

Demand

Gap exceeding 25

mtpa (3 bcfd+) by endnext decade

Domestic supplies

LNG Import Pipeline


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Pakistan is an attractive gas export market

Close to Middle East supply sources

Well-located to act as regional energy corridor

A mature gas network

Large demand with high growth potential

Well placed for both pipeline and LNG imports

..And fo r Shell, the added confidence of

>100 years o f operations in country


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Pipeline import options exist but are challenging

Three opportunities: Iran-Pakistan-India (IPI), Turkmenistan-Afghanistan-

Pakistan (TAP) and Qatar-Pakistan.

IPI - structurally most cost efficient, progress made; however, politicalncertainties.

TAP Broad international support. Issues - Reserves? Security?

Qatar-Pakistan technically feasible, political benign; Qatars priority?

hells view

Major issues are political, not technical or economic

Upstream production and pipeline supply is technically feasible from eitheIran or Qatar (Turkmenistan to be proven)

Pipeline imports can be economically viable (with or without India)

Inter-governmental framework required as a first step


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LNG Global trends: From unconventional to

conventional

1990 2010

Asia Pacific focus

Niche technology, risky

Capital intensive

Long term contracts

Oil linkage

Inefficient

Source: CERA 2005, Shell analysis

Global business

Security of supply

Cost competitive

Increasing spot/flexibility

Various price linkages

Improving optimisation

> 230 mt

(~13%)

65 mt

(4% global gas)

EuropeAsia

Americas


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NG - Current Demand/Supply Trends

1. Demand significantly exceeding supply until 2011-12:

Expansion in all markets (US, Asia, Europe, India, China) customerspurchase in summer and keep floating storage to avoid winter spikes

All plants under construction are sold-out

2. Volume for terminals who wish to start in 2007-11 will have to be divertedfrom elsewhere, require re-supply or be acquired from the spot market which is leading to an interconnected market

3. Suppliers have choices and look for highest price, whether from existing

customers or new terminals


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Gas Export Pricing Principles link to alternates

mm

u

Cost ofSupply

Cost of AlternateFuels for Pakistan

Value fromalternatemarkets forsuppliers

Typicalnegotiat io

range


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Recent trends in pricing

Pipeline pricing appears to be increasingly linked to exporting countrys

alternates (eg. LNG). LNG market is expected to be short in the 2008-12 timeframe.

Demand surge led by USA and Asia means customers will need tocompete for limited supplies and pay world prices.

LNG prices remain strongly linked with Oil prices or Henry Hub.

Recent LNG spot deals have been in the range of $8-13/mmbtu; termdeal pricing has also increased significantly.

Impo rted Gas to Pakis tan l ikely to be sign if icantlymore expensive than exist ing p rice


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Coal is the worlds most abundant fossil fuel, and features

strongly in most economies Various technologies are available to utilize coal

Sustainable utilization requires advanced clean technologythat comes with a price

Shell has the worlds leading coal gasification technologythat converts coal into synthesis gas for multipleapplications

The adoption of such technology is still in its infancy stagebut with increasing interest and pace

Thar coal offers opportunities; however, significantchallenges remain for its commercial utilization due to itsremote location

Coal Gasification


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Pricing : Gas prices are increasingly becoming global in nature.

Pakistan needs to pay world prices for gas imports (LNG & pipeline).

Regulation Regulatory clarity needed for tenure of long term take-or-pay gas

contracts.

Competition Significant competition exists from competing markets (America,Europe, Far East) as suppliers have options to monetize gas invarious forms.

Pakistan would therefore need to offer more than world prices to get ashare of limited supplies.

Timing Pakistan needs to move quickly to ensure imported gas early next

decade as long project development lead times (LNG 4-5 years;pipeline 6-8 years).

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The South Asian Energy Challenge Implications for Pakistan.pdf