gas market presentation 03 12 2009
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Unitisation and a Global Market in Gas
Spark & Flame Conference - Rotterdam
Chris Cook
3 December 2009
Gas needs literally trillions of dollars in investment....
....but where will this come from?
There are two conventional types of investment: Equity and Debt
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Equity – shares with par value (eg £1) in a Joint Stock Limited Liability Company
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....a 19th Century legal dinosaur
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Debt – interest-bearing loans –typically from banks - secured by legal claims
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These result in conflicting claims over the same productive asset
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But there are new furry animals out there....
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Partnership entities – such as the UK Limited Liability Partnership (LLP)
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An LLP is a corporate body with limited liability....
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...and...errrr...that’s it!...
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As far as the Tax Man is concerned it is a Partnership
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It’s an Open Corporate enabling partnership working
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... even without a written agreement
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A Partnership framework enables direct - Peer to Peer - Investment
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Unitisation of gas within a Capital Partnership enables direct P2P investment
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Capital Partnership – direct Peer to Peer investment in productive assets
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2002 - Hilton Capital Partnership ( > £1bn)
Capital Partnership LLP10 UK Hotels
Gross Revenues
Hilton GroupCapital User
Consortium LLP Capital Provider
BankProperty
DeveloperHotel
Specialist
% %
%%%
Productive assets are held by a “Custodian”..
AssetsAssets CustodianCustodianOwnership
…Investors put in Financial Capital in money, or money’s worth…
AssetsAssets
Investors
CustodianOwnership
Financial Capital
…Managers provide Human Capital of time, expertise and experience....
AssetsAssets
Investors
CustodianOwnership
HumanCapital
Financial Capital
Managers
..Users pay for the use of Capital
AssetsAssets
Investors
Payment
% %
Custodian
Use
Managers
Users
Generic Capital Partnership Framework
AssetsAssets
Investors
Payment
% %
Custodian
Use
Managers
Users
Capital Partnership reinvents Equity
Equity Shares - % age shares in revenues or production...
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…..which may be transferred, but never redeemed, since there must always be 100%
Units – redeemable in payment for production eg natural gas, Kilo Watt Hours
Units have a value in exchange
Anyone who understands Air Miles...
….or proprietary currencies
….will understand Units
Units - the Value Proposition
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Producers - sell Units to investors and consumers
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… at a discount to the physical market price
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… obtaining an interest-free loan
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… locking in a sale price
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… but no longer participating in price increases ….or decreases
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Investors – hold a direct investment in energy with no return
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....similar to an investment in gold...
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...except that while gold may be pretty...
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....it’s not as useful as gas or other energy
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Consumers - lock in the price of future consumption
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Units are a simple but radical new hybrid
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Units lock in price like a futures contract…
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…but there is no right to delivery; no expiry date, and no gearing
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Units are similar to an Exchange Traded Fund within a partnership framework….
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….with the added attraction that they are redeemable in payment for energy
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Issue – Liquidity: Investor sellers of Units may not find Investor buyers
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No Problem! Consumers will buy if the Unit price falls below physical gas market price
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...because they would profit by buying Units and redeeming them against
consumption
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Issue – Security: will a Unit be honoured when presented in payment?
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No Problem! Sellers and Buyers are members of a Gas Clearing Union
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Conventionally, sellers may give buyers interest-free credit –or time to pay
Seller BuyerBuyer
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Credit
Value
Banks act as credit intermediaries, to provide trust through implicit guarantee
Seller
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BankBank Buyer
Or sellers enter into forward purchase bilaterally or over the counter
Seller BuyerBuyer
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Forward Sale
Clearing Houses act as risk intermediaries, to provide trust through implicit guarantee
Seller
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ClearingHouse
ClearingHouse Buyer
A Clearing Union guarantees credit from member sellers to member buyers…
Seller BuyerBuyer
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Pool
GuaranteeGuarantee
...with a common bond as market participants
Seller BuyerBuyer
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Pool
GuaranteeGuarantee
Both seller and buyer pay into a Pool for the use of a mutual Guarantee
Seller BuyerBuyer
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Pool
GuaranteeGuarantee
Fee Fee
Buyer settles credit in money, or money’s worth of Value acceptable to seller
Seller BuyerBuyer
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Pool
GuaranteeGuarantee
Fee Fee
Value
If a buyer defaults, Pool pays seller, and collects from buyer
Seller BuyerBuyer
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Pool
CollectsPays
A service provider sets guarantee limits, handles defaults & manages the system
Seller BuyerBuyer
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Pool
ServiceProviderServiceProvider
Services Fee
Fee
Guarantee Guarantee
Fee
The Clearing Union
Seller BuyerBuyer
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Pool
ServiceProviderServiceProvider
Services Fee
Fee
Guarantee Guarantee
Fee
Value
Credit
Risk intermediaries are service providers not middlemen
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…managing risk without committing their own capital
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Financing – a project to capture flared gas
A Custodian holds the asset
AssetsAssets CustodianCustodianOwnership
Contractors provide money’s worth
AssetsAssets
Contractors
CustodianOwnership
CapitalEquipment
Suppliers - may invest equipment & materials
...but must invest agreed profit margin, thereby giving a stake in the outcome
Investors - provide risk capital for costs suppliers cannot or will not invest
AssetsAssets
Investors
CustodianOwnership
Risk Capital
Managers provide Human Capital of time, expertise and experience
AssetsAssets
Investors
CustodianOwnership
HumanCapital
Financial Capital
Managers
...and the project is completed
Outcome – micro Gas Pool
Gas PoolGas PoolUnit Investors
Consumers
Equity SharesManagers, Producers
gas $ or Units Redeemed
$
Units
Units
Units
Re-financing of debt-funded LNG train
$2 billion in conventional debt may be refinanced by Qatar
…..by selling 400 million Units redeemable in payment for 1 MMbtu @ $5.00 each to Japan
Outcome – macro Gas Pool
Gas PoolGas PoolUnit Investors
Japan
Equity SharesManagers, Qatar
gas $ or Units Redeemed
$
Units
Units
Units
Gas Pools are merged within a global Master Partnership framework agreement
Master Partnership
Master Partnership
Financial Capital(Money, IP etc)
Financial Capital(Money, IP etc)
Clearing UnionClearing Union
Human Capital(Developers, Operators)
CustodiansCustodians
% %
$
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Master Partnership transcends borders through consensual agreement
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…without adversarial relationships and problematic jurisdictions
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...and without costly, complex and hierarchical global institutions
The Gas Pool is not an Organisation...
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...it does not own anything, do anything, employ anyone, or contract with anyone...
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….it is simply a framework for cross border investment in gas infrastructure
The Gas Pool may lead the way to a new approach to the Kyoto carbon markets....
...as invented by Enron...
...where the Emperor has no clothes
Overheard at a traders’ conference.....
“If you want to keep a cow healthy, you don’t regulate what comes out of it……”
“……you regulate what goes in….”
A Gas Pool enables a Carbon currency based upon the intrinsic value of energy…
..rather than a market in value-less Units of CO2 emissions, imposed by governments
Gas is homogeneous and gas Units would be globally acceptable in exchange
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Electricity Units – redeemable in Kilo Watt Hours – would be regionally acceptable
Other Units – redeemable in payment for carbon fuels - may be nationally acceptable
All may be priced against a Unit of measure – an Energy Standard....
...a fixed Unit of energy
Producer and consumer nations would massively increase energy prices
...and compensate populations with Energy Units
Consumers may choose to waste energy and redeem Units in payment
...or conserve energy and exchange Units for accommodation, food or other value
An Alternative Agenda for COP15 Copenhagen?
How? A Global Energy Clearing Union
Energy Unitisation – a new mechanism to finance the transition to renewables
Dollars priced in energy: not energy priced in dollars
Who? Producers - GECF/Gas OPEC - led by Iran, Qatar, Russia
Who? Consumers - led by China, Japan, EU
Who? Trusted Developer – Norway
Thank You
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