australian gas and lng

Australian Gas and LNG Australia with a population of 25 million people, consists of 4 distinct gas production zones and markets:

• LNG export market – Australia was the number 1 exporter in the World in 2019 (just surpassing Qatar) with gas produced in Western Australia, Queensland and Northern Territory

• Western Gas market – Servicing around 2 Million people with well-developed mining industry

• Eastern Gas market – Servicing circa 20 Million people with some mining mostly in Queensland and with seasonality of demand (especially in Victoria).

• Northern Gas market – Approximately 200,000 people

Below is a table showing the relative size of the LNG exports vs domestic use

Australian Gas Use (PJs) in 3Q 2019

Export (LNG) Domestic use Sources of gas Northern 155 9 Mostly offshore conventional Western 739 101 Mostly offshore conventional

Eastern 324 195 Mostly Offshore (Vic) and Coal Seam Methane (Qld)

Total 1218 305 1523 Percentage 80% 20%

Note: Gas drawn from storage provides some domestic gas

LNG Industry in Queensland

The development of Queensland’s LNG industry transformed the eastern Australian gas markets, giving producers choice between exporting their gas or selling it domestically. By 2018 around 61 per cent of eastern Australian gas production was being exported. With domestic users now competing with overseas customers to buy Australian gas, prices in the domestic market have risen to align more closely with international gas prices. Higher gas prices also impact electricity markets, which became more reliant on gas powered generation following the closure of several coal fired generators in 2016 and 2017.

Production Outlook and Shortfall Solutions

Production in the northern states (QLD and NT) continues to increase, but production is declining in the southern states (VIC, NSW, SA and the QLD part of the Cooper Eromanga Basin).

• The southern states will not be able to meet their own gas demand by 2024, thereby increasing their reliance on gas from the north (Queensland) which will itself be constrained by pipeline capacity

• New sources of supply are therefore required from a combination of:

o Potential LNG import terminals (though not likely to ease gas pricing pressures)

o The development of New gas transmission pipelines from QLD to NSW and/or the development of the Narrabri project in NSW

o Development of other resources such as Arrow Energy’s resources in Queensland and in the longer-term the Beetaloo Basin in the Northern Territory

Meanwhile in there is an abundance of gas in Western Australia and the price of gas is low.

While there has been talk of constructing a pipeline from WA to the East Coast, the cost of circa A$5 Billion is considered uneconomical.

Meanwhile, the Northern Gas Pipeline is bringing material volumes of gas to east coast market since starting up at the beginning of 2019. In Q3 2019, 6.1 PJ flowed along the NGP to Queensland. This represented 3.1% of east coast domestic gas consumption of 195.2 PJ in Q3 2019.

The natural gas and energy landscape is becoming increasingly complex.

East Coast Australian generation from gas (GPG) increased by 38% compared with 1 year ago, reaching its highest Q3 level since 2014, with increases in all states except Tasmania. Average gas generation output was higher with some power stations running at elevated levels to cover coal-fired generator outages.

It is acknowledged by most of industry that coal fired power stations will be phased out. However, there is opposition to increased use of gas by some stakeholders, with onshore drilling moratoriums in more populated states in Australia.

Federal Government - Promoting gas

The federal government has moved to get states to free-up more gas for use by offering grants for the construction of interconnectors, the underwriting of new power projects (gas or renewables) and funding for emission reduction projects.

Renewable and Hydro projects are not without downsides either. Snowy Hydro's plan to develop 2000 megawatts of storage is likely to be far more expensive than alternative projects. There are concerns the Snowy Hydro 2 scheme in Australia may allow fast breading fish to eat the eggs of indigenous fish.

Power station closures

Power production in is dominated by coal fired power stations especially in Queensland and NSW.

There are planned closures of major NEM coal-fired power stations expected: AGL’s Liddell (2,000 MW) at the end of the 2022-23 summer, the Queensland government’s Callide B (700 MW) in 2028 and Energy Australia’s Yallourn (1,450 MW) in 2029-2032. (Hazlewood was 1,600 MW closed in 2017).

AGL’s replacement plans for Liddell include a 100 MW upgrade to the Bayswater coal plant, a 250 MW pumped hydro facility at Bells Mountain and a 250 MW gas power station at Newcastle along with renewables and battery options. There is a combined federal/NSW taskforce assessing the risks to the electricity grid from the exit.

New Technologies

There are moves to install synchronous condensers will ensure there is adequate minimum levels of both system strength and inertia in the power system.

Proponents say the condensers will also avoid the need for compensation payments to be made to gas generators when directed by market Operator to provide supply during times of system strength shortfall.

Future Financing Hurdles

Of growing concern is an emerging position in Europe that casts gas in the same category as coal, as seen in a new finance directive by the European Investment Bank, the world’s largest multilateral lender. The EIB, which is owned by the member states of the European Union, announced on 15 November it would not finance fossil fuel projects after 2021, although gas projects are still eligible if they involve carbon capture and storage (CCS) or blending of gas with low-carbon gases such as biogas, syngas and hydrogen.

The International Gas Union (IGU) strongly opposed to the decision and pointed out it was inconsistent with the EIB’s policy to support the United Nation’s sustainable development goals. “Natural gas is an essential component of the global energy mix if there is any hope of meeting the Sustainable Development Goals. It is the most flexible, abundant, and available fuel, that offers an immediate reduction in GHG emissions from higher emitting fuels that are widely burned, guarantees reliability and security of energy systems, and eliminates air pollution, all while enabling

the world to lift communities out of poverty and supply safe and modern energy to where it is still in deficit,” the IGU said.

Nonetheless the EIB is sticking by its decision, which can only be regarded as a set-back for gas generally, not only in Europe. The decision will affect the perception of gas by other international financial institutions as well as the public. It adds credibility to the narrative that gas production is bad for the climate and should be reduced.

Benefits of Natural Gas

Natural Gas is clean, reliable, efficient, and economical energy source for electricity generation, heating and hot water supply, cooking fuel and motor fuel. Because of these attributes, it serves as a key feedstock for industry across a range of sectors from agriculture to chemicals – natural gas enables the manufacture of life-enhancing products.

Sectors include:

• Healthcare including medical gases and much of the pharmaceutical industry rely on natural gas as either a feedstock or as a key part of the lifecycle

• Agricultural Chemicals - Such as Ammonia and Urea are produced from natural gas

• Construction – Natural gas is an essential component of cement and also is needed for hitech forges for the production of thick or thin glass

Gas power is cleaner than coal fired generation and is a natural partner for renewable energy as it can rapidly be deployed to provide power when the wind and solar sources of power are inadequate due to weather conditions.

IGU TF2 Feb 2020

1

Tanami Gas Pipeline – Benefits of Gas Australian Case Study Project Introduction

Newmont has fully owned and operated the Tanami mine since 2002. The mine is located in the remote Tanami Desert in the Northern Territory, Australia. The mine and plant are located on Aboriginal freehold land that is owned by the Warlpiri people and managed on their behalf by the Central Desert Aboriginal Lands Trust.

Annual production is 496,000 attributable ounces of Gold.

Power and Water’s specialist Gas Services team proposed the change from diesel to natural gas and proved the commercial, reliability and reduced emissions of changing to natural gas through a joint feasibility study.

In 2017, a decision was made to construct a gas fired power project to reduce costs, and improve reliability and environmental impacts

• Switching to natural gas from diesel was expected to lower CO2 emissions by up to 20%

• Included construction and operation of 450km natural gas pipeline and 2 power stations

• Expected to reduce power costs by >20%

Blacktip

IGU TF2 Feb 2020

2

The pipeline was to be constructed and be maintained by Australian Gas Infrastructure Group under

Build-Own-Operate agreement, while the power stations were to be constructed and operated by

Zenith Energy. Capital costs were estimated at approximately US$ 245 million with annual cash lease

payments over a 10-year term beginning in 2019.

Detailed engineering and design

This was conducted by the Australian Infrastructure Group (AGIG) in-house engineering and pipeline

design team from late 2017. The project scope included pipeline design calculations and five

associated facilities including the inlet meter station adjacent to the Amadeus Gas Pipeline, the two

scraper stations and two custody transfer meter stations at Granites and Dead Bullock Soak power

stations.

Heritage, environmental and land management approvals

AGIG’s land management team negotiated primary agreements with the Central Land Council (CLC)

representing three separate native title groups, with three Indigenous Land Use Agreements (ILUAs)

and five Section 19 deeds of the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth). In

conjunction with the CLC, representing five separate Aboriginal Land Trusts and owners of Aboriginal

freehold land. Extensive cultural heritage surveys were undertaken across the pipeline route to

ensure sensitive areas were protected and avoided during construction and operation.

IGU TF2 Feb 2020

3

AGIG’s in-house lawyers and land access professionals negotiated land access and compensation

agreements, covering pastoral properties traversed by the pipeline. Management worked with

stakeholders to minimise disruption, while providing income generating opportunities as a value-add

component of the construction process.

Both State and Federal environmental approvals were managed in-house, utilising industry expert

resources and professionals to provide a sustainable environmental statement in relation to the

impacts of the project. All environmental approvals were achieved within 10 months, allowing the

construction to proceed in a timely manner.

Indigenous Employment:

The mine has about 950 employees of whom 118 are Aborigines and Torres Strait Islanders. There

were also more aboriginals employed during the construction period.

Results:

In March 2019, Newmont announced that the Tanami Power Project in Australia was completed

safely and on schedule. The project included the installation of two power stations, a 66kV

interconnected power line, and a 460-kilometre 8-inch diameter natural gas pipeline.

The power station comprises 52 MW of gas-fired and circa 10 MW of diesel (back-up) power

generation.

NT Power and Water Corporation was awarded a contract to supply the 13 TJ/d of natural gas to the

pipeline from the Blacktip gas field.

The project has been a success with Newmont now also committing to expand the mine.

IGU TF2 Feb 2020

4

AGIG Speech in May 2019

AGIG’s CEO Ben Wilson used his speech to highlight the importance of natural gas to both a low

carbon future and an Australian hydrogen economy.

"Gas is an indispensable fuel in Australia - both directly and for power generation - and today it is

very low emissions compared to electricity generated from diesel or coal," he said.

"Significantly, construction of the AGIG owned and operated Tanami natural gas pipeline is

contributing not only to the continuing strong performance of this longstanding, major Australian

underground gold mine, but also to growth in the Territory."

"The decarbonisation challenge is huge and many solutions are needed for Australia to meet its

emission reduction targets, including gas stepping up to play its part."

"Developing the hydrogen economy will also play a key role and momentum around hydrogen is

building with burgeoning research and development underway.

"Commercial hydrogen production is achievable and can decarbonise Australia's energy mix while at

the same time accessing export markets.”

IGU TF2 Feb 2020

5

Footnote:

The author notes that Newmont’s other mine Telfer is about 1,000 kilometres away. Perhaps there

will be a West to Eastern Australia gas connection in the future! Though some capacity will need to

be added to make a difference. The pipeline to Telfer is only a 10-inch diameter (250mm) and the

Tanami pipeline is only 8 inch (200mm).

Blacktip

1000 kms

IGU Taskforce 2 - Energy for all Feb 2020 Woodside LNG trucking case study

1

LNG Industry in Australia In 1989 the Woodside-operated North West Shelf (NWS) Project delivered its first LNG cargo, marking the beginning of Australia’s LNG industry. Since that time, the NWS Project has expanded to five LNG trains, and likewise Australia’s LNG industry has grown to include other projects including Pluto, Gorgon and Wheatstone, Ichthys in the Northern Territory and Gladstone LNG in Queensland, the latter supplied by coal seam methane. Australia is now the first or second largest global producer of LNG with circa 87 Million Tonnes of LNG production capacity.

Australian LNG – key destinations Australia is a key supplier of LNG to Asia. Below is a table of the top destinations for Australian LNG in 2018:

Country LNG Millions of Tonnes Australia’s share of market

Japan 29.0 35%

South Korea 8.2 18%

China 24.0 44%

These LNG supplies are used primarily in power generation, as well as cleaner source of fuel in transport and industry. LNG also helps to reduce pollution in export markets where it displaces higher emission fuels.

Importance to development of local industry The huge investment in LNG projects in Australia supplies the energy-hungry countries in Asia and enables the development of domestic gas supplies in Australia, supporting thousands of jobs. These developments have also spawned the growth in downstream industries and supply of gas and power to local cities and communities.

Pluto Start date 2012 Production Capacity: 4.9 million tons per year Partners: Woodside, Kansai Electric, Tokyo Gas


2

Pluto LNG Project – innovation with Trucked LNG

The Woodside owned and operated Pluto LNG plant, commenced operations in 2012 (90% owned by Woodside Energy) and has recently entered a new phase with production commencing from the Pluto LNG Truck Loading Facility. It represents a key milestone towards development of a local LNG market for remote power generation and transport fuels.

Photos courtesy of Woodside

The facility is now able to deliver seven LNG truck loadings per day (15 TJ/day equivalent), each one transporting the equivalent of more than 80,000 litres of diesel. At this initial capacity, replacing that diesel with LNG could reduce lifecycle greenhouse gas emissions by more than 120,000 tonnes per year. The facility’s capacity can be doubled by moving to 24-hour operations, and further expanded if needed to meet future market demand.

During construction of the facility, more than 60 workers, many of them local, were employed on the project and $4 million worth of fabrication contracts were awarded to local businesses.

Woodside’s initial focus is on supplying trucked LNG to mining operations and communities in the Pilbara, Kimberley and elsewhere in WA for use in power generation, supporting regional development through provision of reliable, flexible and includes delivered LNG, regasified LNG, integrated LNG power solutions and integrated LNG-plus-renewables power solutions.

"We have formed a downstream joint venture with EDL Energy to develop integrated solutions and offer miners a suite of solutions which best meet their needs; including gas facility storage and vaporisation, gas-fired power generation and renewable generation," O’Neill says.

To date, Woodside has secured an agreement with Sheffield Resources to supply LNG to its Kimberley Thunderbird project some 450 kms away.

Then in December 2019, Strandline Resources announced it has selected Woodside and EDL to provide a fully integrated energy solution for its Coburn mineral sands project, in Western Australia (900 kms away).

The parties have signed a non-binding proposal for the development of a 27 MW integrated trucked LNG, storage and power station facility, comprising gas and diesel back-up generators combined with state-of-the-art solar and battery technology. Strandline is expecting to finalize a 15-year power purchase agreement over the coming months preparatory to the commencement of construction.


3

Energy Transition - LNG for trucking and shipping In the longer term, LNG from the Facility could support the transition towards cleaner fuel for trucks and trains in the region’s heavy transport sector. Woodside is also planning to develop infrastructure to enable LNG to be supplied to the international shipping industry, particularly iron ore carriers operating from the Pilbara to Asia, the busiest bulk carrier trade in the world.

LNG-fuelled bulk carrier ships would emit less greenhouse gases A transition within the Pilbara’s bulk shipping industry to LNG fuelling could make a significant further contribution to reducing emissions. Analysis by Energetics (consulting firm) shows that if LNG from Woodside were used in iron ore carriers operating from the Pilbara, life-cycle greenhouse gas emissions are up to 33% lower than would be the case if heavy fuel oil were used. This assumes LNG is sourced from Woodside’s Karratha facilities and the ships are bunkered in the Pilbara, and that those ships use high pressure (diesel cycle) engines. If all of the ships carrying iron ore from the Pilbara were LNG-fuelled, it could also provide a reduction in greenhouse gas emissions up to 5.8 million tonnes per year, equivalent to taking 1.8 million cars off the road. In addition, a switch to LNG could nearly eliminate sulphur and particulate emissions.

The shipping industry is focused on the International Maritime Organisation’s 2020 deadline for ships to comply with a 0.5 percent global sulphur cap on heavy fuel oil.

Now we are in 2020, there is growing consensus that LNG is the best solution for today and into the future, as there are no alternative solutions that can match LNG’s emissions profile and scalability. The growth of LNG infrastructure worldwide will ensure adequate supply of the fuel to the maritime industry.

Green Corridor

Last year saw the conclusion of the Green Corridor joint industry project, in which the gas producer joined forces with other resources giants to assess the commercial feasibility of LNG-fuelled iron ore bulk carriers on the trade route from the Pilbara to Asia.

Woodside’s partners in the Green Corridor project included Rio Tinto, BHP and Fortescue Metals Group.

In mid-2019, mining giant BHP issued the first LNG-fuelled bulk carrier tender, which is to ship up to 27 million mt of iron ore, or about 10% of its exports.

Gas deficiency in China

2017 was the final year in the implementation of the “Action Plan for the reduction

of environmental pollution for 2013–2017.” Many regional governments

accelerated the campaign to shift consumers from coal to gas, as a result of which

gas consumption growth rates exceeded the expectations of most analysts and gas

suppliers themselves, which led to a large-scale gas shortage in late 2017. Given

the shortage of gas supplies with the start of the heating season in the 4th quarter of

2017, the Chinese authorities called on importers to further increase LNG imports,

including through purchases on the spot market.

Due to the massive gas shortage that has arisen, suppliers have been forced to

reduce gas supplies to industrial enterprises and, in some cases, to consumers in the

“residential sector”. As a result of the current crisis, pipeline gas suppliers

transported part of the gas to the northern provinces to the detriment of the

southern regions. In December 2017, the CNPC began to transfer LNG by vehicles

from south to north of China. As a result, the southern provinces began to suffer

from a shortage, where many industrial consumers were forced to suspend

production due to gas supply interruptions.

In 2017 production of natural gas was 147.4 billion m3, that’s 62% of that years

consumption (237.3 billion m3). China imports gas from both pipelines and LNG

ways. Pipeline gas goes from Middle East (Turkmenistan, Uzbekistan and

Kazakhstan) and Myanmar. But in case of unstable gas imports from Uzbekistan in

first quarter of 2017 and from Turkmenistan in fourth quarter Chinese suppliers

had to increase LNG imports. According to China Customs data in 2017 LNG

exceeded the share of pipeline in gas imports to China (56%–44%).

Figure 1 China import balance 2011-2018, %

46% 50% 53% 54% 56% 52%44% 41%

54% 50% 47% 46% 44% 48%56% 59%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014 2015 2016 2017 2018

LNG

Pipeline

Throughout 2018, the Chinese authorities were “impressed” by the gas shortage

that arose during the 2017–2018 heating season, when gas supply was interrupted

in the residential and social sectors, and in the industrial sector, supply blackouts

caused significant losses for enterprises.

The decisions that Chinese government departments and companies made in the

gas sector were largely dictated by the intention to prevent a recurrence of such a

deficit. In particular, it was decided to accelerate the construction of underground

storage facilities, the creation of which, along with the increase in production, was

among the main objectives of the development of the gas industry for the next

period. Despite the fact that the Ministry of Environmental Protection of the

People's Republic of China insisted on the need to continue the campaign to switch

consumers from coal to gas, in the middle of the year a new plan was adopted to

combat air pollution, which proposed to switch from coal to gas but also to

electricity, as well as a fundamental ban on the construction of new gas generation

facilities - this measure should contain the growth in gas demand.

Figure 2 China natural gas self-sufficiency 2007-2018, bln cubic meters, %

Source: NDRC, National Bureau of Statistics (PRC)

China gas production in 2018 was 161 billion m3 (+7.5% to 2017) growing not that

fast as consumption which increased by almost 44 billion m3 (+18.1%) reach 280.1

billion m3. In this case gas supplies from abroad were growing rapidly, and

imported LNG was firmly established as the main way of meeting additional gas

demand. By the middle of the year, China reached the first place in the world in

69.580.7 86.1

105.8

127.1145.1

164178.6 185.6

205.8

237.3

280.1

100% 100% 99%

90%

81%74% 74% 72%

73%

67%62%

57%

0

50

100

150

200

250

300

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Production Consumption Self-sufficiency

terms of gas imports, overtaking Japan. The dependence of the PRC on import

deliveries also grew, which, according to the results of the year, was almost 45%.

That is 5 percentage points more than in 2017. According to China Customs

statistics import of LNG grew by 41.2% reached 74.7 billion m3 (59% of gas

imports), pipeline gas with 20.3% growth rate reached 51.1 billion m3(41%).

The share of gas in the energy balance for the year increased by almost 1

percentage point to 8%. According to 13th five year plan (2016–2020) gas share

should reach 8.3–10%.

Before the start of the heating season 2018–2019 the authorities have announced

the readiness of the gas industry to increase demand in the winter season. CNPC

prepared an operational gas reserve of 8 billion m3. In December, the National

Development and Reform Commission held a press conference, during which it

assured that the situation in China’s gas supply was “generally stable” in the

current heating season, which, among other things, was due to warmer weather.

Figure 3 China natural gas pipeline network

The most problematic region for gas supply in high demand level period is

Northern China. Some provinces there (for example, Heilongjiang) have not yet

been connected by gas pipelines to other regions of China. The length of gas

pipelines is considered the “weak link” in the Chinese gas industry. Inadequate

development of the pipeline system leads to a high share of gas supplies by road

(this way 12% or 33,5 billion m3 of gas is delivered). During heating season

Chinese companies began to transfer gas from the southern to the northern regions

by any available means, including such (as yet) exotic, such as delivery to

cryocontainers.

According to Chinese experts, this type of LNG transportation has several

advantages over the traditional transportation scheme: it does not require special

infrastructure for receiving liquefied gas, can be used to organize mixed land-sea

logistic schemes using rail and road transport, and allows you to import small

batches of LNG. These advantages allow reducing the share of transportation costs

in the cost of LNG, which, according to expert estimates, is 20-50%. In addition,

the need for a new method of supplying LNG to areas with an undeveloped

pipeline system is caused not only by the delivery price, but also by the high exit

prices from the Tianjin terminal ($ 752 / t - December 2018), whose target market

is North China, and LNG terminal congestion. During the heating season, the

workload of terminals in the north of China reaches 100%, while in the south of

the country, where there is no central heating system, the load drops sharply.

According to Chinese National Bureau of Statistics gasification level of

Heilongjiang province is less then country’s average (39% against 43% in

mainland China). Situation will be changing from the end of 2019, China will start

to import gas from Russia by “Power of Siberia” pipeline. In the middle of 2018 in

Harbin city was officially established prov. Heilongjiang Gas Pipeline Company. It

will distribute and market gas from the “eastern” route pipeline. Heilongjiang

Province is located on the border with Russia and is the entry point of the “eastern”

route to the territory of the PRC. At present, Heilongjiang is among the 10 regions

with the lowest gas consumption, including due to the weak development of the

gas transmission infrastructure and the lack of communication with gas pipelines

with other regions of the PRC. Province’s gas pipeline network will unite the 12

largest cities, and the annual volume of deliveries through it may reach 9–14

billion m3 in the future.

NATURAL GAS: A SOCIAL AND SUSTAINABLE BUSINESS Natural gas has generated progress and well-being at every level of the Colombian society. It has produced great benefits to both residential users and companies who have found in this fuel a source of income, a way to save time and to provide for better sanitary conditions in homes and cities. The way in which the use of natural gas has developed in Colombia has not only allowed for excellent profits for those who are part of the chain, but it has also provided well-being and sustainable development to people and communities, especially those whose income are the lowest. Therefore, the Colombian government and private enterprise, as well as multilateral organizations and international cooperation, have persisted in their effort to foster the use of natural gas and to find new formulas and alternatives, particularly in the vehicle and residential sectors as a replacement for more expensive and polluting fuels, so the successful process of massive use of natural gas does not stop and benefit the development of segments of the population without gas coverage, especially to expand to all those in extreme poverty which are not been reached. 1. Natural gas as a stimulus for the local economy

The relationship between the consumption of Domestic Natural Gas (together with other sources of energy) and economic growth tends to work in both directions and has even become a fundamental factor for emerging economies, since there is a close interrelation between a country’s Gross Domestic Product (GDP) and energy consumption. In the case of a smaller community, quality of life in people’s homes benefits greatly. The relationship between natural gas and living conditions or quality of life is clear and manifests itself in many ways, such as replacement of biomass use, lower fuel or energy costs for preparing food and the use of clean fuel for cooking, all of which are greatly appreciated. Focus groups in population centers that benefit from mass natural gas projects report improvements in emotional wellbeing, material wellbeing, personal development and physical wellbeing. In Colombia, the comprehensive distribution of natural gas and other basic services is a strategy for enabling people to escape poverty traps and improve their living conditions, factors which are measured in variables like the Multidimensional Poverty Index. In order to visualize the relationship that exists between natural gas usage and economic growth, we reviewed growth in natural gas coverage in homes and the impact that this has had on living conditions, as measured using poverty indicators. To make the estimate, an independent variable was taken, namely effective domestic natural gas (DNG) coverage at municipal level, plus a dependent variable, the economic importance (value added) to the municipality, measured in thousands of millions of pesos. The difference was thus established between municipalities with and without coverage, during the period from 2010 to 2016.

Evidence of the association between DNG and economic growth in Colombia Natural gas coverage in Colombia doubled between 2010 and 2016, from 27% of municipalities in 2010 to 62% in 2016. When the average growth in municipal economic importance (value added) between 2011 and 2016 of municipalities with natural gas is compared with that of municipalities without natural gas, the former group can be seen to be greater (28.4% vs. 22.7%). Municipal economic importance growth rate based on presence of natural gas, 2011-2016.

Type of Municipality

Average Value Added, 2011 (millions of pesos)

Average Value Added, 2016 (millions of pesos)

Increase in value added

Without natural gas 102.5 132.6 22.7

With natural gas 754.0 1052.9 28.4

Likewise, a graphic analysis of the relationship between natural gas coverage (measured in terms of the number of homes with DNG) and the Multidimensional Poverty Index (MPI) in different regions of the country is similar for all of them. The resulting figure for each region is like a pair of scissors, with contrary trends between the two variables until they reach a point where they intercept, before continuing with the same trend. This is in line with the theory and as envisaged and stated above. By way of example, the graph for the Caribbean region is shown.

(Graph) Coverage MPI Finally, if certain indicators, such as number of companies registered with chambers of commerce and growth rate in municipal economic relevance, are compared and contrasted, a greater number of companies and higher economic growth can be seen in municipalities with DNG situated near ones which currently have no DNG coverage. Evidence of the impact of natural gas on the economy Field work was carried out in three population centers in Colombia’s Caribbean region, namely the island of Barú (5,000 inhabitants), the town of San Pablo (1,100 inhabitants) and the town of Ayapel (52,000 inhabitants). Activities related to the gas service were taken into account, such as restaurants, cafeterias, hotels, other accommodation, bakeries, manufacture of clay, pottery and porcelain materials, manufacture of cement, lime and plaster.

In particular, homes tend to see a saving of between 10% and 40% in energy costs for preparing food. And earlier studies in communities that have benefited recently from Domestic Natural Gas have reported homes spending the equivalent of 2.4% of household income on this service, as against 7.8% of the same household income when fuel other than DNG is used; in other words, the expenditure is at least three times lower. This saving resulting from the use of Domestic Natural Gas is irrespective of socio-economic level, type of home, and even type of gas appliance. Recognition of the value of Domestic Natural Gas to business performance is high, since 81% of businesses consider it indispensable. Perceptions of the relevance of Domestic Natural Gas In-depth interviews were conducted with key personnel, such as managers or owners of economic units associated with Domestic Natural Gas. “You can’t do anything without natural gas”. “It would be very difficult. Meeting a diner’s needs would be very hard. Also, having liquid fuel is a risk. Cooking with liquid fuel would put costs up something like 80% or 90”. Manager, gourmet restaurant “El Pescador de Colores” “Natural gas is really important, it’s the main thing you need to cook everything”. Manageress, Kokoriko Chicken Restaurant “Once the natural gas service has been installed, the benefits are obvious; people know it’s really very good”. “A cylinder of gas on Barú island costs far too much, quite apart from the fact that gas cylinders and pipes harm your equipment, cookers and burners, and cylinders don’t last long and are too expensive”. Owner, Barú Plaza “Here we’re paying 295,000 on gas and it costs something like 200,000 to buy a cylinder that lasts only three days”. Business owners and managers have a positive perception of the benefits of DNG. So much so that today they consider it essential because of the financial savings it offers, which help them to optimize business performance. This is consistent with the results of previous studies, which show savings from using DNG in homes. 2. Natural gas and its contribution to health in homes In 2009, Promigas Foundation and University of Cartagena published the results of a study entitled “Sanitary and economic impact of connecting poor homes to domestic natural gas in Colombia, 2007”, which appraises the Domestic Natural Gas (DNG) connection; the study was sponsored by GPOBA and was conducted in around 35,000 poor homes in 84 localities in 63 Colombian municipalities. The study estimated that in the period covered by the project (13) (five years), between four and five thousand outpatient cases of ARI and between 1,200 and 2,300 cases of COPD would be prevented. Additionally, around 1,200 hospital cases of ARI and around 500 of COPD would be prevented in the project’s target communities.

Similarly, between 45 and 170 deaths would be prevented, representing between 45,000 and 90,000 DALY (18). It was also estimated that economic costs related to the ARI and COPD disease burden in a non-DNG scenario would be between 10.7 and 23.6 million dollars, and that in a DNG scenario these costs would fall by around 32%. In 2013, the respiratory function of persons living in homes where cooking was done with biomass fuels was evaluated vs. homes where natural gas was used. All patients were evaluated by a general practitioner and a pneumologist, and a spirometry analysis was carried out. The prevalence of respiratory anomalies in persons who used natural gas for cooking was compared with that of people who used biofuels. Prevalence of the severe obstructive pattern in persons who used biofuels for cooking was significantly higher than in those who used natural gas for cooking. Municipalities with and without domestic gas coverage were chosen for making the estimate. Population projections and mortality rates between 2013 and 2016 were also used as sources of information, and an environmental disease burden study conducted in Colombia, which was published that year, was taken into account. Measurements established included number of deaths and fraction attributable to respiratory diseases associated with intra-domestic contamination in settlements without natural gas. Mortality rates per 100,000 inhabitants were calculated. We used municipal DNG coverage as a basis for identifying exposure to intra-domestic contamination and calculating deaths attributable to this risk factor. It was assumed that homes without DNG were exposed to intra-domestic contamination when cooking. According to the ONS Environmental Burden report (20), this exposure is equivalent to 300ug/m3 of PM2.5 per four hours, with sex differences (men have only 65% of the exposure by women). For the 2013-2016 period, the number of deaths caused by COPD attributable to IDC was 2,672 (5.4% of all deaths resulting from this disease). The trend over time in the proportion of COPD deaths attributable to IDC is a downward one (6.3% to 4.5%). When municipalities with and without DNG coverage in 2016 are compared, a difference in attributable mortality rates can be seen: the risk in municipalities that do not have DNG coverage is nearly twice what it is in those which do have DNG (5.78 vs. 3.27).

Municipalities with DNG coverage 2013 2014 2015 2016 Total COPD deaths attributable to IDC 445 317 379 288 1,429 Population 10,822,437 10,904,666 10.897,758 11,072,694 43,697,555 COPD mortality rate per 100,000 (with DNG)

4.11 2.91 3.48 2.60 3.27

(Graph) COPD mortality rate per 100,000 (with DNG) COPD mortality rate per 100,000 (without DNG)

Municipalities without DNG coverage 2013 2014 2015 2016 Total COPD deaths attributable to IDC 265 319 312 297 1,193 Population 5,103,498 5,141,971 5,181,032 5,221,304 20,647,805

COPD mortality rate per 100,000 (without DNG)

5.19 6.20 6.02 5.69 5.78

For the 2013-2016 period, the number of LARI deaths attributable to intra-domestic contamination (IDC) has been estimated to be 1,893 (5.3% of all deaths from this disease). The trend over time in the proportion of Lower Acute Respiratory Infection (LARI) deaths attributable to IDC is a downward one (6.3% to 4.6%). When municipalities with and without DNG coverage in 2016 are compared, a difference in attributable mortality rates can be seen: the risk in municipalities that do not have DNG coverage is nearly twice what it is in those which do have DNG (3.09 vs. 1.67).

Municipalities with DNG coverage 2013 2014 2015 2016 Total LARI deaths attributable to IDC 301 229 278 222 729 Population 10,822,437 10,904,666 10.897,758 11,072,694 43,697,555 LARI mortality rate per 100,000 (with DNG)

2.78 2.10 2.55 2.00 1.67

(Graph) LARI mortality rate per 100,000 (with DNG) LARI mortality rate per 100,000 (without DNG)

Municipalities without DNG coverage 2013 2014 2015 2016 Total LARI deaths attributable to IDC 197 190 212 236 638 Population 5,103,498 5,141,971 5,181,032 5,221,304 20,647,805 LARI mortality rate per 100,000 (without DNG)

3.86 3.70 4.09 4.52 3.09

During the study period (2013-2016), slightly over 133,000 cases of COPD were reported in category 6 municipalities without DNG coverage in Colombia, 47,000 of which were associated with the use of biomass fuels. These cases led to around 60,000 people requiring medical care, 6,090 of them hospitalization. The costs associated with this avoidable morbidity were a little over 233,000 million pesos (IC95% 179.8 - 288.1), around 50% of this total being direct hospitalization costs.

Meanwhile, the same municipalities without DNG coverage reported over 50,000 LARI hospitalization cases in children under the age of 5, in around 50% of which cases biomass smoke was a decisive factor. Direct care costs were between 58.8 and 90.3 thousand million pesos. This resulted in an avoidable economic impact building up on the health system of over 300,000 million pesos during the study period. In economic terms, DNG use could lead to costs being saved, because preventing a death could save around 18,000 dollars and preventing a DALY 16 or 17 dollars. It was clear that the increase in DNG coverage in the four years covered by the analysis was reflected in a decrease in the number of deaths and the mortality rate attributable to IDC in category 6 municipalities in Colombia. This improvement was due to the respective municipalities gaining access to DNG, while those that did not have access to it even witnessed an increase in their figures relating to these two events. 3. Principal strategies (at regulatory and commercial levels) employed by our companies to extend

domestic natural gas coverage Regional gas pipelines: a success story This section presents the principal figures for the regional gas pipelines on Colombia’s Caribbean coast and, specifically, illustrates how the investment made in these is recouped through a tariff that involves all Transportation System users, something that is fundamental if natural gas is to be made available to the vast majority of homes in the region. Once the main towns and cities had been provided with the domestic natural gas service, Promigas began to turn its attention to how this fuel could be delivered to small villages and communities. The exercise that was carried out in the year 2000 for presenting its tariff proposal involved calculating possible tariffs for regional gas pipelines in different scenarios, but with these tariffs it was not possible to separate investments in these pipelines or assign them based on their geographical location. Passing this rate on to a residential user in the respective villages and communities was not a viable proposition, and the coverage rates we have today could not have been achieved. Faced with this situation, we started to look for ways to make the project viable, and with help from the national government we were able to build the regional gas pipelines and connect small settlements in our area of influence to our gas service. The Energy and Gas Regulation Commission approved the Promigas proposal, which consisted of including the volume of all users and of the Transportation System in both the calculation and application of the tariff. This made it possible for gas to be made available to more than three million users in the Caribbean region and for small communities to have access to the service. Subsidies: materialization of a public policy The goal of making natural gas available on a mass scale in the country has been based on two key premises, namely, Promigas, a private company, being committed to investing significant funds, and regulation being based on a clear government policy.

It is this latter premise, where subsidies or funds have been provided by the state through various entities such as FSRI, FECF, SGR, city halls, etc.) over a period of four decades, that has been fundamental to the success of this mass availability goal. In the early days of the General Royalties System (SGR), regulations governing projects to finance public domestic gas service connections for users in the lower income brackets (1, 2 and 3) were not specific when it came to establishing exactly what the term “user connections” covered. The General Royalties System Guidance Commission (CRSGR) therefore defined “user connection” as the connection charge cost (connection and meter). However, the internal installation, as a percentage of the total cost of the necessary infrastructure, is much more costly than the value of the connection charge. Problem of financing only the connection charge Infrastructure needed for using natural gas $1,200,000* 100% Connection charge: connection, regulator and meter $500,000* 34% Internal installation: pipework from meter to gas appliances and gas appliance connector $800,000* 66% *Average prices, early 2016 Source: sector companies The national government was encouraged to offer a solution to this problem and included an article in the law under which the 2014-2018 National Development Plan was issued which permitted SGR funds to be used for financing internal installations. Subsidies for low-income users With a view to making it easier for people in income brackets 1, 2 and 3 to gain access to natural gas, the Income Redistribution and Solidarity Fund (FSRI) was formed in 1997. Natural gas distribution companies collected the contribution that was paid by industry, traders and users in income brackets 5 and 6, directly applied the subsidies due by law to users in income brackets 1, 2 and 3, and transferred any resulting positive difference to FSRI or, alternatively, received a transfer from FSRI. FSRI recorded a surplus on its operation until 2003. Although 2004 and 2005 were negative years, it still had a positive accumulated balance, but since 2006 it has recorded a loss. In view of this, the national government has had to use its own funds to finance natural gas consumption subsidies for users in income brackets 1, 2 and 3, resulting in it issuing laws from time to time legislating the origin of these funds and expiry periods for limitations applicable to these subsidies. 4. Conclusions • Although natural gas coverage in Colombia is comparable to that in developed countries, major

challenges face the poorest municipalities if living conditions in homes are to be improved, and it is therefore essential for them to have access to DNG.

• This study found a causal link between natural gas coverage and economic growth, firstly by

reviewing the literature and then through indicators relating to the absence or presence of natural gas at municipal level in Colombia that were calculated and contrasted. It also revealed the inverse

relationship that exists in Colombian regions between growth in DNG coverage in municipalities and reduced poverty, measured using the MPI.

• It is therefore possible to conclude that natural gas consumption has a satisfactory influence on

social wellbeing. It also generates growth in such indicators as GDP, with a long-term causal link being found that is unidirectional in some cases and bidirectional in others. Establishing social tariffs, subsidies on consumption and policies aimed at conserving natural gas therefore become strategies that focus on economic development.

• Decisions to invest in subsidizing DNG connections in poor homes are highly cost-effective and

result in costs being saved, especially in the poorest homes where the risks of respiratory diseases are higher (sanitary risk) and incomes lower (economic risk), and such decisions could improve quality of life in these homes.

• Natural gas can boost the economy by exporting and developing domestic consumption. Gas

consumption generates a saving which translates into an incentive to invest. It also leads to business development and hence to more jobs, and these, in turn, translate into basic needs being met with a resulting encouragement to consume more goods and services; in both cases, people’s quality of life is improved. When families can save a little, the first thing they spend the money they save on is recreation and leisure. All this has a positive effect on health and the environment.

• From Promigas’ and the Colombian experience standpoint, natural gas is a social and sustainable

business that contributes to the well-being of communities and one whose model could be replicated in other Latin American countries with similar socio-economic conditions.

• The development of the natural gas sector in developing countries requires that the government

and the private sector work together, in such a way, that it allows for the right conditions to exist for new long- haul investors to entry the market and for an adequate regulation that encourages private investment and protects users’ interests.

IGU TASK FORCE 2 ENERGY FOR ALL

EGYPT CASE STUDY

Page 1 of 5

1. BACKGROUND

Egypt has been known to mainly depend, in all its energy-related activities, on three major sources: oil, natural gas and the hydroelectric power generated from the large dam projects over the Nile: The High Dam, Aswan I & Aswan II. Despite being a major producer and net exporter of oil, especially in the 1990s, when its oil production peaked, reaching approximately over 900000 bbl/day, Egypt has become a net oil importer around 2009/2010, Thus can be traced back to both economic and population accelerated growth, which accompanied the beginning of the new millennium, leading to an increase in consumption by about 3% per year, resulting in growing of demand, and falling in production, that could roughly meet consumption requirements, resulting in a significant drop in the country’s oil refinery output since 2009. Earlier 2000’s Egypt major natural gas discoveries drove the country to emerge as a key role player in the region as a natural gas producer and exporter. Mainly, due to the same reason as in oil, consumption of natural gas has approximately increased by 7% per year during the first decade of 2000s, and production has noticeably decreased by around 3% yearly during the period of 2009-2013, Consequently limiting its natural gas exporting capacity to only 5% of its total production by 2013, and eventually driving the country to start signing importing agreements in the following years of 2014 and 2015. In 2017, natural gas accounted for 53 per cent of Egypt’s energy mix. Natural gas investments accounted for 12.1 per cent of petroleum total inward investments, which represents the biggest share among other hydrocarbon exploration and production investments.

IGU Task Force 2 Case Study Page 2 of 5

2. NATURAL GAS USE IN EGYPT

In 1995, the Egyptian General Petroleum Corporation (EGPC) signed a concession agreement with BG International Limited (BG) and Edison International (Edison) for exploration in the West Delta Deep Marine (WDDM) region in the North Eastern Mediterranean. Very successful drilling activity uncovered a world-class gas resource that carried substantially larger reserves than that the local market could absorb. As a result, in 2001, the concession agreement was amended to allow the partners to export gas as LNG. Egypt became an important LNG exporter in the region with two world-class LNG projects under its belt. The export possibilities were endless and many European nations were eager to diversify LNG supply sources. Meanwhile, rapid growth in Asian energy demand contributed to a very lucrative LNG export option. But as years went by the effects of a population explosion and the growth of its industrial base required more power resources. This eventually resulted in natural gas contracted for LNG export markets being diverted to domestic facilities. The power situation became so dire that countrywide power cuts became a daily occurrence, with electricity use hitting a record daily high in August 2014 of 27,700 megawatts (MW), 20 percent more than the national grid could provide. The jewel in Egypt’s crown this century has been the offshore Mediterranean where the resources once dedicated to the LNG export scheme are located. More recently, a “super giant” natural gas discovery was made in August 2015 by the Italian firm ENI. The Zohr gas field discovery is a game-changing development for the country’s ailing power sector. The volume of natural gas resources accumulated from this discovery through 2016 confirmed a potential of 30 trillion cubic feet (Tcf). All the major new discoveries have taken Egypt bas to the track, with its LNG facilities on the Mediterranean facilitating the transfer and export of LNG to Europe and shifting the country to being a major regional energy hub. The increase use of natural gas for local power generation and the expansion of NGV (natural gas for vehicles) or CNG will decrease the import and dependency for oil and thus increase foreign currency reserves. For the past 20 years in Egypt, the largest user of gas has been power generation, representing 63 per cent of total local gas consumption. Egypt also saw small to medium-sized industries converting from diesel imports to natural gas which provided savings and environmental benefits. Natural gas consumption by the industry sector represented 22 per cent. The petroleum sector’s use of gas accounted for 10 per cent of local consumption. Only four per cent of total gas consumption was represented by the residential sector. In 2015, the decision was made to allow private companies to use the state-owned national gas grid to import, transfer and distribute natural gas to the local market. This decision to liberalize the market was enshrined in law in 2017. This new law has had a positive impact on the Egyptian economy and it is believed that the move will improve the national budget. Prior to 2017, natural gas activities in Egypt were covered by a law which made the Egyptian Natural Gas Holding Company responsible for all operations related to the transportation and domestic supply of natural gas to different sectors. There was a decrease in domestic supply and growing domestic demand of natural gas which forced Egypt to start importing the fuel. In 2015/16, Egypt had utilized its FSRU’s located on the red sea turning the country into a net natural gas importer, with a bill of $2.2 billion in 2016/17.


Egypt has recently discovered natural gas fields which have given the government the opportunity to plan the end of natural gas imports and reinstituting exporting of the fuel. The Egyptian government aimed to be self-sufficient and stop the imports of natural gas by 2019. They have been successful in meeting this objective and plan to restart exporting natural gas by June 2020. The aim is to turn Egypt into a regional Energy Hub for circulating and trading oil and gas, with the objective to maximize private sector investments and maximize the use of existing facilities for liquification and regasification. Egypt’s Ministry of Oil has announced that the natural gas market will be fully deregulated by 2022.

3 Decades of Natural Gas Consumption Growth

Recent Natural Gas Growth by Sector


3. SUPPORTING NATURAL GAS UTILISATION

The Government of Egypt has priorities to increase household use of natural gas by connecting homes to the distribution network to replace the largely imported and subsidized liquefied petroleum gas. This objective was an integral component of Egypt’s national energy strategy which aims to increase the domestic use of natural gas and reduce the subsidies of the energy sector. As a result of the activity of the local distribution companies, the total number of residential customers connected with natural gas reached 8.8 million in 2018. Egypt has also promoted the use of compressed natural gas for vehicles as an environmentally friendly fuel. In 1997, the Egyptian Environmental Affairs Agency and USAID launched the Cairo Air Improvement Program with the United States contributing $60 million and Egypt $12 million. One main focus of the program was to convert all taxis and municipal buses to CNG. Along with the funding support from the US and Egypt, CNG companies were provided a five-year tax holiday. Other market-based incentives were used to help encourage the use of CNG. These included a CNG Smart Card program to reduce the upfront cost of conversion, through commercial lending on a debit card. There was also a taxi replacement program to replace 100 old taxis exceeding 35 years of age with new CNG vehicles. This pilot project was successful and led to an expansion in future years which was structured as a Public Private Partnership (P3). These financing incentives played a key role in encouraging conversion to CNG. The price advantage of CNG is also supported by the subsidized price of natural gas supplies for the CNG market.


4. FINANCIAL SUPPORT FOR INFRASTRUCTURE INVESTMENT

In 1992, part of a World Bank loan was used to finance the extension of Cairo’s gas distribution network. Prior to 1997, the public sector Petrogas handled the operation and maintenance of distribution network and Egypt Gas handled the construction works. That year, gas distribution companies were deregulated and a franchise system was introduced to transfer gas from the national grid system for sale a distribution to power generation plants, industrial, commercial and residential customers. Today in Egypt there are 14 gas distribution companies and five state-owned LDCs/EPCs. This has provided Egypt with a savings of $750 million per year in saved subsidies and over $1 billion in foreign and local investment. Egypt’s national gas grid was expanded during the fiscal year 2017/18 through the completion of new gas pipelines. Other pipelines are still under implementation aiming to achieve gas connection to the maximum number of factories and to deliver gas to provinces in an aim to reduce the consumption of other higher emitting petroleum products. The aim was to replace LPG with affordable piped natural gas and provide customers with energy security, affordability and convenience.

IGUTASKFORCE2ENERGYFORALLINDIACASESTUDY

Page1of3

1. ENERGYFORAGROWINGPOPULATION

Ensuringaccesstosafe,reliableandcleanenergy isagrowingchallengeforthe IndianGovernment.With a population of 1.3 billion, India is the second most populated country in the world, with aprojected increase inenergydemandof165%by2040,nearly three times thegrowthprojected fornon-OECDcountriescombined.Todate,naturalgashasplayedarelativelysmall,butimportantroleinIndia’senergysupplymix.AsIndiaachievesitsbaselinetargetsofuniversalaccesstoelectricityandcleancookingfuel,itfacesthechallenge of balancing air quality, health, climate and energy security concerns, with the need foraffordable energy. The Government has a stated objective of increasing the use of natural gas,targeting15%naturalgasby2030,morethandoublethe6%itcurrentlyrepresents.2. NATURALGASUSEININDIA

Gas uses in India is dominated largely by Fertilizer (28%) and Power (23%) followed by CGD (17%).Indiahasputthrusttopromotetheusageofenvironmentfriendlycleanfueli.e.naturalgastomovetowardsagas-basedeconomywithincreasedfocusedinCNGandPNG.Pipednaturalgas(PNG)isanimportantenergysourceforhomesandindustryinIndia.WithrecentCGDexpansions,itisexpectedthatover70%ofthepopulationwillhaveaccesstonaturalgasby2023,animpressiveincreasefromadecadeago,whenonly10%ofthepopulationhasaccesstonaturalgas.Indiahasnearly17,000kmofnaturalgaspipelineinoperation,withafurther13,000kmapproved,orunderconstruction.

FigureX–CityGasDistributionConnections

Investment innaturalgas infrastructurehasprovidedurbandwellerswithaclean,safecheaperandconvenient alternative source of fuel for cooking for households previously reliant only on LPG.Importantly,italsofreedupGovernmentresourcestoaddressthecontinuingrelianceonbiomassandkeroseneinruralareas.Thanksto“Ujwala”programlaunchedin2016,Indianowhasover249millionLPGconnectioncovering89%ofthehouseholds.

IGUTaskForce2CaseStudy Page2of3

India currently has around 3.3 million CNG vehicles running on road but they are primarilyconcentrated inWestern Indiadue to infrastructureavailability.At theendofApril 2018, thereare1,424CNGstation in Indiaand82%of the totalCNGstationsare locatedat theDelhi,MumbaiandGujarat.AsIndiaisplanningtorolloutof10,000CNGgasstationsinadecadeunderitsCGDexpansionprogram,itisexpectedthatshareofCNGbasedvehiclewillriseovertheyearsduetocostadvantageand focus on urban pollution. CNG is cheaper by asmuch as 40% and the total cost of ownershipshowsCNGtobeabout20%cheaperthandieselandpetrol. Interestingly,astheCNGinfrastructureimprovesacrosstheIndia,someofmajorvehiclemakersarelookingatphasingoutdieselenginesanddevelopingpureCNGvehiclesaspartoftheirfutureexpansionplan.Indiacurrentlyhavearound25,000MWofgasbasedpowergenerationcapacitybutlackofdomesticgasandhighcostofLNGhavemademorethanhalfofIndia'sgas-basedpowerplantsstranded.Gasbasedpowersectorispayingthepriceforincorrectprojectionsandfalseassurancesonthesupplyofgas. In a policy change, in 2013, domestic gas allocation toCGD systemswasplacedunder ‘no cut’categoryatthecostofthepowersector.Nowmerely4%ofIndia’selectricitydemandcomesfromgasbased power. But considering limitations on use of coal due to environmental consequences andchallengesofelectricitygridbalancingincaseofrenewables,gas-basedpowersectorislikelytoplayanincreasinglyimportantroleinthecountry'spowersectorprovidedgivenadequatepolicysupport.3. SUPPORTINGNATURALGASUTILISATION

Governmentpolicyandsupport,addressingthesupplyofgas,developmentofgasinfrastructureanddevelopment of downstreammarkets, rationalization of transpiration tariff has been critical to theexpansionofnaturalgasinIndia.On the supply side, Government policy has supported development of domestic conventional andnon-conventional resources, as well as LNG imports. There is pricing and marketing freedom toproducers of natural gas. Importantly, pricing guidelines and policies enabledmarket based pricingandhelpeddevelopeddomesticresourcestobepricedatparitywithLNGimports.CreationofNaturalGas Exchange /Hub along with necessary enabling regulators in gas transportation sector areproposed.Further,thereisemphasisoncompletingtheNationalGasGrid(NGG)tomakeavailablegasacross India but rationalization of transpiration tariff to ensure assured return for the pipelinedevelopersisvitalforfastexecutionofproposedpipelines.Gas fired power generation and the fertilizer industry (via urea production) provided the requiredbaselinedemandtounderwritethesignificant investment inLNG import terminalsandtransmissionpipelines,enabling Indiatosupplement itsdeclininggasreservesandprovideavitalsourceofcleanandreliableenergytoimprovethequalityoflifeofitsrapidlygrowingpopulation.Gasusesinfertilizersector as feedstock is supported by policy and subsidy. But policy supported needed to promote‘stranded’gasbasedpowerastheycan’tcompetewithcheapcoalbasedpower.IndiaGovernment is promoting the usages of environment friendly transportation fuel, i.e. CNG byexpandingthecoverageofCGDnetworkinthecountry.InordertopromotetheCNGservicesinthecountry,theGovernmenthasissuedguidelinesformakingavailabledomesticgastotheCGDentitiesformeetingtheentirerequirementofCNGfortransportsegments.ExpansionandpenetrationofCNGisvitalforholisticdevelopmentofCGDnetworksacross IndiaasCNGsectorprovidesvitaleconomicviabilityforaCGDnetwork.WithimplementationofBharatStageVI(equivalenttoEuroVI)compliantpetrolanddieselwith10ppmSulphur, it isexpectedthatCNGwillgainmorepopularitydueto lessacquisitioncostaswellasoperationalcost.


Consideringtherisingurbanpollution,SupremeCourtofIndiahasbanneduseoffurnaceoilandpetcokeinindustriesinsomepartsofIndia.Importofpetcokeforuseasfuelhasbeenbannedaswell.WithCGDgasnetworkexpansion,naturalgasprovidesindustrialusersabetteralternativeandIndiaisslowly seeing industrial consumers moving out from dirty polluting fuel to alternative clear onesdespite of higher economic cost. But this shift will happen over time asmany industrial unitswhocurrentlyusepetcokewillhavetoincurinvestmenttoswitchfuels.GST,thebiggest indirecttaxreformin India,hasbeen introducedfrom1st July2017butNaturalgashasbeenkeptoutof its regime. InclusionofnaturalgasunderGST isessential for rationalizationoftaxesandtomakegascheaper,affordableandcompetitiveforindustrialconsumersthroughinputtaxcredit.Further,taxreformssuchaszerocustomdutyonLNGimportinlinewithcrudeandexemptionofexcisedutyonCNGisdesired.4. FINANCIALSUPPORTFORINFRASTRUCTUREINVESTMENT

Indian pipeline infrastructure and demand is continued to face the traditional 'chicken and egg'problem.Govt.hasalreadypermittedupto100%FDIthroughanautomaticapprovalrouteinnaturalgaspipelinestoattractinvestmentbutduetolackofutilization,pipelinedevelopersarereluctanttoinvest in new pipelines. Developing gas pipeline infrastructure requires huge investment, butcustomersmayposeasignificantrisktopotentialdevelopers/investorsintheabsenceofassuredgasavailabilityinaparticulargasgrid.Developinganappropriatecostrecoverysystemisessentialwhichrequires an appropriate regulatory framework for determining rational tariffs to lower themarket/volumeriskfortheprojectdevelopers.With an aim to establish aNationalGasGrid, India is considering to provide financial assistance topromotepipelineprojectswhichprovide long termbenefits,butareeconomically challenged in thenearterm.In2016,Indiangovernmenthastakenaveryprogressivedecisiontoprovide40%viabilitygap funding/partial capitalgrant (Rs.51,760million) fordevelopmentof2540km long Jagdishpur-Haldia-Bokaro-Dhamra Gas Pipeline (JHBDPL) project connecting Eastern India with main gas grid.Capitalgrant isalsoenvisionedforNorth-easterngasgridconnecting7NorthEasternstatestomaingasgrid.

IGU TASK FORCE 2 ENERGY FOR ALL ISRAEL CASE STUDY

1. Background: From Energy Dependence to Independence From the time of its establishment and for many decades thereafter, Israel was considered poor in sources of energy. Lacking its own energy resources, Israel had to make significant efforts to import the oil it required as the almost exclusive energy source for power generation, transportation, and industry in a developing economy. Despite the discovery of the Yam Thetis reservoirs in 1999, the dramatic turnabout in the future of Israeli energy began toward the end of 2009. The drilling of the Tamar-1 field commenced after many years of study, and the result was the largest gas discovery in the world for that year: the Tamar reservoir.

This great success led to an increase of exploration in the area of the new discovery, and about a year later, the Leviathan reservoir, twice the size of the Tamar reservoir, was discovered. Immediately thereafter, deep-sea drilling in Israel’s waters resulted in the discovery of Tanin, Karish, and additional reservoirs. In sum, over the course of a relatively brief period, more than 1,000 BCM of natural gas reserves were discovered in Israel’s economic waters, enough to supply the Israeli economy at that time with 200 years’ worth of natural gas. The massive scope of these gas discoveries resulted in a substantive change in the State of Israel’s long-term energy planning.

2. Natural Gas Use in Israel Israel began using natural gas in 2004, first in the electrical sector, and later in the industrial sector. Until 2013, when production of gas from the Tamar field began, usage was relatively limited due to the small amount of local gas sources. The breakthrough in Israel’s natural gas usage resulting from the large gas discoveries led to a broad expansion of infrastructure and implementation of gas use in the Israeli economy.

In 2018, the extent of Israel’s natural gas usage reached 11 BCM, or almost 40% of total energy consumption in Israel. Most gas consumption today is from the electricity sector, where natural gas constitutes c. 66% of the fuel mix providing electricity in Israel.

In addition to the electricity sector, natural gas is the primary energy source for Israeli industry connected to gas-conduction infrastructure. As of today, the implementation of natural gas in small- and medium-sized plants is still in its early stages, as distribution infrastructure continues to be developed.

Another instance of use in the industrial sector is accomplished by providing gas through CNG tanks. The transportation sector also began consuming natural gas, as there has been some initial development of CNG infrastructure for transportation, thanks in part to a government policy to stop using oil and to transition to natural gas and electricity for transportation.

3. The Contribution of Natural Gas to the Israeli Economy From 2013 until the end of 2018, natural gas has saved over 60 billion NIS in energy costs and external costs to the Israeli economy. Relative to the size of the Israeli economy, these are massive contributions.

a. Energy costs

The total savings to the Israeli economy in energy costs due to the transition to natural gas from more expensive and dirtier petroleum-based fuels and dirty coal amounts to c. 46 billion NIS between 2013 and 2018. These savings have led to a reduction in electrical bills, which would have been 30% higher if not for natural gas.

In the industrial sector, the switch to natural gas has led to a dramatic reduction in energy costs to plants connected to the natural gas grid. It even prevented the shutdown of several plants that, until switching to natural gas, used more expensive petroleum-based fuels.

b. Reduction of pollution from exhaust and of external costs

The transition to natural gas in the Israeli economy has led to the dramatic reduction in SOX and NOX emissions. Between 2013 and 2018, the emission of these pollutants declined by 62% and 50% respectively.

The reduction in emission of pollutants is of major economic significance in that the decline in emission of sulfur oxide and nitrogen has saved the Israeli economy 14 billion NIS during these years.

4. Summary and Conclusion The discovery of natural gas has made massive contributions to the Israeli economy and significant reduction of pollutants it emits. Moreover, gas has allowed the State of Israel, which for many years was classified as an “energy island”, to attain the energy security it has lacked since its establishment. The continued assimilation of gas into the Israeli economy, alongside the development of Israeli gas reservoirs, will make natural gas the primary source of energy in Israel within the next decade, as its share of the total fuel mix reaches an expected 60%.

Unlimited access (in Israeli economic terms) to cheap, clean, local energy allows Israeli industry, by means of low direct energy costs and low electricity costs, to compete on a global scale. This will create employment and development opportunities that would not exist without using local natural gas.

Thus, plants have improved or are improving their financial results, whether by connecting directly to the natural gas pipelines or by using CNG, as compared to when they used petroleum-based fuels – all while complying with the restrictive emission permits of the Environmental Protection Ministry, which they could not meet while using petroleum-based fuels.

of2

KOREACASESTUDYIGUTASKFORCE2ENERGYFORALL

1. EconomicgrowthwithlimitedenergyresourceoverdecadesTheessentialfeaturesoftheRepublicofKoreacasestudyaremainlybasedonthefactthatKoreareliesonimportstomeetabout98%ofitsfossilfuelconsumptionduetothelimitednationalenergyresourcesbuthasshownasolideconomicgrowthoverdecades.Korea’shighlydevelopedeconomydrives itsenergyconsumptionandeconomicgrowth is fueledbyexports,mostnotablyexportsofelectronics,semiconductors,andpetrochemicals.Thecountryalsoishometooneoftheworld’stopshipbuildingindustries.Realgrossdomesticproduct(GDP)hasedgedupsince2015to3.1%in2017asdemandforthecountry’sexportsstrengthened.

2. LNGasasolutionofKoreaenergydiversificationandcleanfuelFortheneedofimprovingbenefitsofthepublicpeopleandthelackofdiversificationofthenationalfuelimports,whichwasheavilydependentonoilafterthesecondoilcrisisin1979,thesolutionoftheKoreangovernmentwasintroductionofLNG.AfterthefirstnaturalgaswasintroducedtotheSeoulCapitalareain1987inthenameof“citygas”whichmeansacleanandmoderngaseousenergy,Koreanaturalgasdemandrosewithtwo-digitgrowthin1990sand2000sasKoreaneconomyalsokeptgrowing.Oil andCoalweremajor sources of Koreanhousehold’s heating energy forwinter and LPG/AirwasdistributedforcookingandheatingtosmallerconsumersincityareasbeforethearrivalofLNG.OnceLNGwasintroducedasacleanandeasyenergy,naturalgasrapidlyreplacedLPG/Airmainlyincityarea.After2000naturalgasextendeditsusagearea into industrysectorasnationalpipelinenetworkanddistributionnetworkwerebuilt.3. ThreeturningpointsofexpandingnaturalgasaccessofKorea

-9 -6 -3 0369121518

-5

5

15

25

35

45

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

MillionTon

Powergeneration Citygas CES&etc. GDPgrowth(annual%,RH)


NaturalgashasexpandeditsusagesectorsgraduallyincreasingKorea’sacceptancelevelofnaturalgas.Therehavebeenthreeturningpointsinthesupportingpoliciessuchas,

1. IntroductionofLNGin1986:Frompowersectortohouseheating2. CleanAirPoliciesin2003:IntotransportationsectorinSeoulMetropolitanArea3. EnergyTransitionPolicyin2017:Asakeyplayerinthenationalenergymix

Naturalgasdemandforthecitygassectorfrom1987to2011recorded39.6%averageannualgrowthrate.Itshowed3.5%inthesecondhalfoftheperiodasthedemandforcitygassaturated.In1990sconcernsaboutairpollutionincreasedinKorea.Vehicleswereidentifiedasamajorsourceofpollution,andmeasurestopromotetheuseofcompressednaturalgas(CNG)wereputinplace.AsaresultsofaseriesofSeoulMetropolitanAirQualityImprovementPlanin2000s,allofintra-citybusesinSeoulwasreplacedcompletelywithnaturalgasvehicles(NGV)by2014.Natural gas is regarded as a key player in the recent Energy Transition policy by the incumbentgovernmentofKorea.Naturalgaswillalsooneofthemajorimplementationtoolsoftherecentenergytransitionpolicydirectionbases suchasnuclearpowerphase-out, reinforcementofgreenhousegasemission reduction, reduction of Coal-fired power generation, restructuring of energy taxation andexpansionofrenewableenergy.4. KeysuccessfactorsKeysuccessfactorsfornaturalgashistoryofKoreacanbesummarizedmainlyonthreeaspects.Firstly,stronggovernmentpolicies.Secondly,avirtuouscyclefromgasinfrastructureandcomponentstotheotherrelatedindustriesincludingLNGvesselsbuildingindustry.Thirdly,thecapabilityofmanagingtherisksandrealizingthepotentialofthefeaturesofnaturalgas.It is necessary for government to engage from the beginning stage to establish required gasinfrastructure,toprepareasoftwaresystemsuchasrelatedlaws,marketplayersandpricingandmarketsystemsofnaturalgasandtooperatethemeffectivelyandefficientlyunderthecircumstanceswhichcertaineconomiesfacerespectively.TheKoreagovernmenthasdevelopeda“Long-termgassupplyanddemandplan”everytwoyearssince1992,thelatestbeingApril2018.Making a virtuous cycle across industries is also the key for natural gas to expand its scope and tomaximize the potential. The Korea case shows an example of the circle such as infrastructureconstruction, energy access improvement, demand increase, related industries development, newbusinessopportunities,tojobcreationandevenpossibilityofcontinuingtoplaysignificantroleinthenewenergymixofthecountry.Anygasindustrydevelopmentmustbeviewedinthecontextoftheoverallenergystrategy.Thedifficulttaskforgovernmentistomanagethehigh-levelrisksbetweenenergyplansandtheimplementationofthem.Alongthegasvaluechain,manytypesofriskcouldexist.ElementsofanationalenergyplancouldincludeanLNG-import facility,anassociatedgas-firedpowerstation,gastransmission linestootherbulk consumers, distribution to commercial and public-sector consumers and to CNG stations, CNGstation development, CNG vehicle conversion, electricity transmission, power distribution extensionand reinforcement, renewable generation development and off-grid energy solutions. It is alsoimportantforacountrytoobtainthecapabilityofrealizingthepotentialofthefeaturesofnaturalgas,suchasaffordable,availableandofflexibleenergyforthesustainablefutureundertheirownenergycircumstance.

of2

IGUTASKFORCE2ENERGYFORALLMALAYSIACASESTUDY

1. FROMPRIMARY-BASEDDEPENDENTTOINDUSTRIALISATION

Today, Malaysia is one of the most prosperous and dynamic economies in Southeast Asia, with aburgeoningmanufacturing sector, anexpandingmiddle class, rising literacy rates, and increased lifeexpectancies. Its political stability, economic resilience,well-rounded progress, the creation of newindustriesandimprovementsintheproductivecapacityoftheeconomygenerally,arecementingthesurvivalofMalaysiawithinthecontextofglobalization.Butthathasnotalwaysbeenthecase;untilthe1980s,theMalaysianeconomywaslimitedtoprimaryindustriesandexposedtointernationalenergyandcommoditypricemovements.Thedevelopmentofmajor gaspipeline infrastructure, driven and supportedby strongGovernmentpolicy, enabledMalaysia to develop its indigenous resources and transform into the industrializedeconomyitistoday.2. ENERGYACCESSIMPROVEMENTSFACILITATEDBYNATURALGAS

The global “oil shocks” of the 1970s and early 1980s, togetherwith rapidly decliningMalaysian oilreserves(whichwereexpectedtobefullydepletedwithin20years),providedtheimpetustodevelopMalaysia’s indigenous gas resources. Complementing over 2,000km of trans-Peninsula natural gastransmissionpipelineisthedistributionpipelineinfrastructure,spanningover2,000kmintotallength,providingdirectaccesstonearly2,000industrialandcommercialcustomers.Morerecently,LNGimportfacilitieshaveprovidedadditionaldiversificationandenergysecuritybenefits.Direct access to natural gas and indirectly through the development of gas fired power generationprojects,providea reliableandsecuresourceofenergy for theMalaysianpopulation,aswellas forindustry.

3. OUTCOMESDRIVENBYSTRONGGOVERNMENTPOLICY

VariouscomponentsofenergypolicyinMalaysiacanbetracedbacktotheearly1970,beginningwiththePetroleumDevelopmentAct(1974)andNationalEnergyPolicy(1979).Thesepoliciesaredesignedtoensuresecurityofsupply,efficientdelivery&utlisationofenergyandminimizingadverseimpacttotheenvironment.


4. TRANSLATINGPOLICYTOACTION

Theconceptofconstructingagaspipelinenetworkwasfirstmootedinthe1970s,afterthefirstlargediscoveriesofgasinoffshoreTerengganu,onthenorth-eastcoast.ThissubsequentlyevolvedintothePeninsularGasUtilization(PGU)pipelineproject,comprising3distinctphases,eachtargetingamajordemandcentreonthewestandsouth-westregions.Importantly,eachphasewasunderwrittenbygasfiredpowergenerationandpetro-chemicalindustryas“anchor”projectswhichprovidedthebaseloadgas demand, while enabling the development and growth of a diverse range of industries andapplications.

Tofurtherstrengthensecurityofsupplyandsustainabilityofthegasindustry,Malaysiahasopenedthesupplyofgastothirdpartysince2017.Increasedcompetitionwillprovidemorecompetitivelypricedoptionstogasusers.

5. ECONOMICGROWTHFUELEDBYNATURALGAS

Naturalgasisnowthelargestcomponentofthenation’sprimaryenergysupply.IthasfacilitatedtheindustrializationanddiversificationoftheMalaysianeconomy,leadingtostabilizedexportearningsandincome,andimprovedMalaysia’sbalanceofpaymentsposition.Malaysia’sGDPin1980,beforethedevelopmentofnaturalgasresources,stoodatjustUS$24.5billion.In2016,thecountry’sGDPhasgrowntoanimpressiveUS$296.5billioninthespanofjust26years.Correspondingly,itspercapitaincomeincreasedfromUS$1,790in1980toUS$9,860in2016.

australian gas and lng

Documents