Presented by:

Ray Tomkins Economic Consulting Associates, UK

Shangri-La Hotel, Jakarta

21 June 2012

Gas Development Master Plan Outline of Indonesia GDMP Model Consensus Building Workshop

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Overview

• Purpose of the Indonesia GDMP Model

• What will the model be used for?

• What should be the key outputs of the model?

• Structure of the Indonesia GDMP Model

• Detailed and comprehensive vs simple and user friendly

• Scope of the Indonesia GDMP Model

• What time horizon should be used in the model?

• What should be the inputs of the model?

• What policy assumptions should be considered?

• What scenarios should be included in the model?

• How are the scenarios assessed and analysed?

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Purpose of the Model will determine key outputs

• What will the model be used for: • During the GDMP study

• After the GDMP study

• The model can be designed to assist policy makers in developing policies to achieve certain outcomes

• The purpose of the Indonesia GDMP Model (the ‘IGM’) will determine the scope of the model

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What will the model do?

Integrate outputs from other parts of the study: • Supply

• Demand

• Projects and their assessments

INPUTS

INDONESIA GDMP MODEL

OUTPUTS

Analyze alternative scenarios:

• Assumptions on supply and demand

• Alternative investment projects

Provide a range of output indicators:

• Cost, financial impacts

• Other gas policy indicators, eg:

• Economic value of gas (value of gas consumed, Government revenues)

• Carbon dioxide (CO2) emissions reduction

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Structure of the Model

Inputs Scenarios and projections Outputs

Demand scenarios • Electricity • Others

Price scenarios

Supply scenarios,

resources, fiscal terms

List of potential investments for given

scenarios

Total cost of projects for given scenarios

Financial and economic analysis of projects

Transportation

scenarios

• Scenario / programme development

• Supply demand balancing

• Project selection • Financial and

economic calculations

• Other indicators

Price impacts

Total gas cost, Government financial

returns

Other policy indicators

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Price modeling issues

• Prices as input: – International price scenarios

– Domestic price scenarios

Demand scenarios – fixed per scenarios, use RUPTL

• Prices calculated in model: • International price scenarios

• Supply / fiscal terms – domestic gas price

Demand scenarios:

− Electricity price depends on electricity demand

− Simple electricity dispatch model

− Gas demand price elasticity

• Latter may be too complex unless timeframe and scope extended

DEMAND

SUPPLY

PRICE

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Time horizon of the IGM

• The Gas Master Plan is developed for the time period of 2012 – 2025

• For the model to simulate realistic investments, longer time period should be used, e.g. up to 2050 or 2060

• Economic gas prices should ultimately reflect Long Run Marginal Cost (LRMC), which is affected by the backstop price when there is shortfall in gas supply

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Options for modeling gas demand in electricity

• Taking into account changes to gas prices in calculating the electricity demand, and then re-calculate gas prices based on changes in demand (iterative calculation)

• Based on a simplified approach to electricity dispatch, eg dispatch curve

• Making gas prices exogenous to the model, i.e. price sensitivity will be modeled as different scenarios

• Or use the RUPTL for electricity sector demand

• A simple electricity model to be included in the IGM

• The electricity demand analysis could take into account price sensitivity of electricity demand by:

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Model component – Demand

DG MIGAS regional gas demand

Demand calculations

Electricity demand

Demand scenarios

Industrial demand

Export demands

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

mmscfd

Other industries

Flat Glass

Ceramics

Metal

Pulp and paper

Petrochem - energy

Petrochem - feedstock

Fertiliser - feedstock

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Model component – Demand scenarios

• Demand scenarios could include: • Different levels of electricity demand (base case, high and low)

• In-build demand elasticity (model will re-calculate demand based on price scenarios)

• Different levels of export demand, based on contracted amount, possible contract extensions, new contracts, etc

• Possible changes to domestic market obligations

• Separate demand scenarios for each regions as well as national demand

• Other policy issues

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Model component – Prices

Price calculations and transportation

costs

Upstream and

export gas prices

Price scenarios

Domestic prices

6.95

10.05

10.13

14.35

18.11

18.29

24.28

29.07

30.76

31.01

33.00

0 5 10 15 20 25 30 35

PGN Average Sales Price

LPG 3kg Subsidised

PGN West Java Price (May 2012)

LPG 12kg Unsubsidised

LPG 50kg Unsubsidised

LPG Bulk

MFO

MDF/IDO (Diesel)

HSD

Kerosene

Premium

$/mmbtu

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Prices of

competitive fuels (coal, oil)

International

gas prices

Transport

project costs

Delivered gas prices

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Model component – Price scenarios

• Price scenarios could include: • Different levels of international gas price forecasts (base case,

high and low)

• Domestic price calculation based on costs (upstream, LNG, transportation, distribution)

• Subsidized and unsubsidized domestic prices

• Changes in other competitive fuel prices (e.g. removal of coal and fuel oil subsidies)

• Long run convergence to economic prices

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Model component – Supply

DG MIGAS regional existing gas supply

Supply scenarios

Imports (?)

Unconventional gas Resources

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• Supply projection • Balancing annual

supply and demand

• Allocation of production by resource

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Model component – Supply, gas production

• Each group of fields modeled separately:

• Proven, in production

• Probable, possible, yet to find

• Model allocates production and start date for each new field

• Example of Parameters for each field

Fields (name)

Fully or partly contracted? (0-fully, 1-partly)

Initial reserve in 2011 (bcm)

Depletion policy (years)

Start of development (year)

CAPEX - exploration (US$ m)

CAPEX - development (US$ m)

OPEX - fixed (% of CAPEX)

OPEX - variable (US$/mmbtu)

Start production ( year)

Initial production volume (bcm)

Maximum production volume (bcm)

Time to reach max prod. vol (years)

Domestic sales via Ashdod (% of production)

Pipeline export via Northern terminal (% of production)

LNG export via Northern terminal (% of production)

LNG export via Ashdod (% of production)

LNG export via Cyprus (% of production)

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Model component – Supply scenarios

• Supply scenarios could include: • Probability of new supply

• Ultimately recoverable resource

• Year when fields are being developed and when production starts

• Exploitation of unconventional gas

• Different depletion policies (DMO, export policies)

• Production rates of each filed (determined in the model)

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Model component – Transportation and infrastructure

Transmission & Distribution Master

Plan

Transportation project selection

and costs calculations

Existing

transportation modes

Transportation scenarios

New projects

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Model component – Gas transportation options

• Gas can be transported between regions through: • Gas pipelines

• LNG

• Electricity

• Model could include different transport scenarios using the different options

• A generic interconnector between each region for existing capacity will be included, plus

• New interconnector for added capacity: • Combine projects’ capacities for each mode of transportation

between regions

• Financial appraisal based on expected utilisation

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Model component – Infrastructure projects

• Project sheet (example): Capacity of pipe to shore bcm

Capacity of LNG terminal bcm

Capacity of transport to market bcm

Distance to terminal km

Distance to market km

Lifetime of assets years

Pipeline costs US$ m / km

LNG transport costs US$ m / km

CAPEX - pipe to shore US$ m

CAPEX - LNG terminal US$ m

CAPEX - transport to market US$ m

Annuatised CAPEX - pipe to shore US$ m / year

Annuatised CAPEX - LNG terminal US$ m / year

Annuatised CAPEX - transport to market US$ m / year

OPEX % of CAPEX

Pipe capacity utilisation %

LNG terminal capacity utilisation %

Transport to market capacity utilisation %

Netback costs US$ m/bcm

US$/mbtu

• Each project will have a sheet within the IGM with its parameters and evaluation

• Financial and economic evaluations:

• Netback costs

• NPV (at start date)

• Rate of return

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Model component – Policy assumptions

• Domestic market obligation policy will continue

• Discount rate assumptions

• Exchange rate

• Transmission and distribution master plan

• PLN’s RUPTL as base case for electricity demand forecast

• Other policy issues?

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How the Model works

Demand scenarios

Supply scenarios

Transportation scenarios

Price scenarios

+

+

+

Gas balance

Transportation projects

Total costs and other indicators

Supply projects

Key outputs

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Model outputs, indicators

Key model outputs:

• Least cost set of investment projects

• Financial and economic values of projects

• List of investment projects to meet a set of indicators, including:

• Costs

• Percentage split between export and domestic consumption

• Remaining reserves at a certain year (eg 2030)

• Government revenues / economic value from gas

• Minimize costs, or

• Maximize value of gas

• Emissions • Change in CO2 emissions from power sector

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Summary of key questions

• What is the main purpose of the model?

• What should be the time horizon for the model?

• What policy assumptions should be considered?

• What scenarios should be developed?

• What are the key outputs/indicators the model should produce? • Least cost investment projects?

• Set of investment projects to meet certain indicators?

• Maximize economic value of gas use?

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Next steps and time frames

• Agree on scope of the model

• Gather key parameters for model inputs

• Develop model

• Modify and update model as project progress

Timeframe depends on scope of the model