Regional Gas Trade Projects in Arab Countries
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Report No. 76114-MEN Public Disclosure Authorized Regional Gas Trade Projects in Arab Countries Volume 1 Main Report Public Disclosure Authorized Volume 2 Annex February 2013 Public Disclosure Authorized Sustainable Development Department (MNSSD) Public Disclosure Authorized Middle East and North Africa Region (MNA) ________________ The findings, interpretations, and conclusions expressed in this report are entirely those of the authors and should not be attributed in any manner to the Public-Private Infrastructure Advisory Facility (PPIAF) or to the World Bank, its affiliated organizations, or members of its Board of Executive Directors or the countries they represent. Neither PPIAF nor the World Bank guarantees the accuracy of the data included in this publication or accepts responsibility for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this report do not imply on the part of PPIAF or the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. Contents Volume 1: Main Report Acknowledgments v Acronyms and Abbreviations vi Conversion Factors vii Executive Summary viii Gas Demand and Supply in Arab Countries ix Assessment of Gas Deficits and Surpluses in Arab Countries xii The Choice between Cross-Border Pipeline Transport and LNG Imports xiii Identification of Gas Trade Projects xiv Economic Analysis of the Identified Projects xviii Constraints and Outlook for the Proposed Projects xix Financing Gas Trade Projects xx Financing the LNG Import Terminal Projects in Jordan and Lebanon xxii Key Risks in Gas Trade Projects and Mitigation Measures xxiv Chapter 1. The Global Gas Market : Status and Outlook 1 Recent Developments and Current Situation 1 Outlook for the Gas Business 3 Chapter 2. The Role of Arab Countries in World Gas Markets 7 Chapter 3. Gas Supply Potentials and Constraints in the Arab Countries 13 Countries with High Potential to Increase Supply 13 Countries with Some Potential to Increase Supply 18 Countries with Little or No Potential to Increase Supply 21 Chapter 4. Projection of Demand for Natural Gas in Arab Countries 25 Demand Growth to Date 25 Sectoral Composition of Gas Demand 26 The Role of the Power Sector 26 Gas Demand for Enhanced Oil Recovery 31 Future Demand Growth for Gas, by Country 32 Chapter 5. Existing and Potential Gas Trade Projects in Arab Countries 37 Existing Import Facilities 46 Characteristics of Existing Regional Gas Trade 48 Regional LNG Trade Options 55 Chapter 6. Economic Analysis of Identified Gas Trade Projects 57 iii Pipeline Gas Trade vs. Electricity Trade 59 Emergence of a Pan-Arab Gas Pipeline System 60 Possible Shelf of Projects for Increased Regional Gas Trade 60 Economic Analysis of Possible Projects 64 Results of the Economic Analysis 65 Demonstration of the Superiority of the Combined Pipeline Project 67 Ensuring the Financial Viability of Gas Import Projects 68 Outlook for the Proposed Projects 69 Chapter 7. Financing and Implementation Arrangements 71 Financing Gas Trade Projects 71 The Roles of Government and the Private Sector 72 Key Risks in Gas Trade Projects, and Mitigation Measures 73 Public-Private Partnership Structure for Gas Trade Projects 75 Chapter 8. Legal, Regulatory, and Contractual Issues 83 Legal and Regulatory Framework 83 Government Strategies for Gas Imports 84 Gas Pricing Framework for Regional Trade 85 Gas Price by Contract 86 Terms of Gas Trade Contracts 87 References 90 Volume 2: Annex Gas Profiles of Arab Countries iv Acknowledgments This study is being published by the Public-Private Infrastructure Advisory Facility (PPIAF) and the World Bank. PPIAF is a multidonor technical assistance facility aimed at helping developing countries improve the quality of their infrastructure through private sector involvement. For more information on the facility see www.ppiaf.org. The study was prepared by a team consisting of Hussam Beides (task manager), Hossien Razavi, and Venkataraman Krishnaswamy (consultants). Hayat Taleb Al-Harazi carried out the initial statistical analysis, and Azeb Yideru provided administrative assistance. The report was edited by Steven B. Kennedy, and most maps were provided by Jeffrey N. Lecksell of the World Bank Map Unit. The preparation of the study was supported by Jonathon Walters (director of Regional Programs and Partnerships), who chaired the review process; four peer reviewers from within the World Bank (Robert Lesnick, Alan Townsend, Franz Gerner and Andrew Jones); and two external peer reviewers (Chakib Khelil, formerly Algeria’s minister for energy and mines, and Taisir Anbar, vice president of Shell Oil Corporation. v Acronyms and Abbreviations AGP Arab Gas Pipeline bcf billion cubic feet bcm billion cubic meters BP British Petroleum btu British thermal unit CAGR compound annual growth rate EIA Energy Information Agency (United States) EOR enhanced oil recovery E&P exploration and production FSRU floating storage and re-gasification unit FSU Former Soviet Union GCC Gulf Cooperation Council GWh gigawatt hour HFO Heavy fuel oil IEA International Energy Agency IFI international financial institutions IPP independent power producer IRR internal rate of return ISCID International Settlement Center for Investment Disputes km kilometer kWh kilowatt hour LDO light diesel oil LNG liquefied natural gas LRMC long-run marginal cost MENA Middle East and North Africa MIGA Multilateral Investment Guarantee Agency mmbtu million btu mmcfd million cubic feet per day MW megawatt NBP national balancing point OECD Organisation for Economic Co-operation and Development O&M operation and maintenance OPEC Organization of Petroleum Exporting Countries OAPEC Organization of Arab Petroleum Exporting Countries PAGPS Pan-Arab Gas Pipeline System PV present value RPR reserves-to-production ratio tcf trillion cubic feet tcm trillion cubic meters toe tons of oil equivalent TWh terawatt hour UAE United Arab Emirates vi Conversion Factors One bcm of natural gas = 35.3 bcf of natural gas One bcm of natural gas = 36 trillion btu One bcm of natural gas = 0.90 million toe One bcm of natural gas = 0.73 million tons of LNG One bcm of natural gas = 6.29 million barrels of oil equivalent One million tons of LNG = 1.38 bcm of natural gas One million tons of LNG = 1.23 million toe One million tons of LNG = 52 trillion btu One million tons of LNG = 8.68 million barrels of oil equivalent One nautical mile = 1.150779 miles or 1.852 km “Tons” are metric tons (1,000 kg; 2,204.6 pounds). $ = U.S. dollars. vii Executive Summary Context and Objective of the Study Arab countries hold about 29 percent of the world’s proven gas reserves, but every country (except Qatar and Algeria) is short of the gas supply needed to meet its current and projected demand. The rapid growth in gas demand is mostly a consequence of a sharp increase in electricity consumption. Although part of the growing electricity demand may be curbed through more effective energy conservation policies and technologies, there is a clear need to expand electricity generating capacity in all countries of the region. Indeed, most countries have been facing power shortages in recent years. Among the most significant bottlenecks in developing new power-generating capacity, however, is the supply of the required fuel. Traditionally, the region has depended on oil for power generation. That dependence was substantially reduced as gas became a desirable substitute because of its economic and environmental attributes. Between 1990 and 2010, the share of gas in power generation doubled from 25 percent to about 50 percent. Yet in recent years the availability of gas has become a serious issue, as countries including the Syrian Arab Republic, Jordan, Tunisia, Morocco, Saudi Arabia, Kuwait, the United Arab Emirates (UAE), and Egypt have come to realize that their domestic gas production is not sufficient to meet the needs of their power sectors. This has triggered a search for alternative energy (particularly renewable energy), as well as sources of imported gas and electricity. Gas trade in the Arab world has been dominated by the objective of exporting gas in the form of liquefied natural gas (LNG) to points in Asia, Europe, and North America. Algeria was, until recently, the largest gas exporter and remains the only country that exports significant amounts of gas in the form of both LNG and piped gas. Qatar is now the largest exporter of gas, most of it in the form of LNG. The Arab Republic of Egypt has successfully completed implementation of two LNG plants. Oman, the UAE, and the Republic of Yemen also have LNG export projects, though they are now in need of gas for domestic use. Gas trade within the region is limited to rather small volumes, moved from Algeria to Tunisia and Morocco; from Egypt to Jordan, Syria, and Lebanon1; and from Qatar to the UAE—all through pipelines. A small volume of LNG is also exported from Qatar to Kuwait. Yet the needs for imported gas are much higher. Morocco and Tunisia; Jordan, Lebanon, and Syria; and Kuwait, Bahrain, the UAE, and Oman are all in search of gas imports. Even Saudi Arabia, which has the fourth-largest gas reserves in the world, is short of gas and is presently burning crude oil in its power stations. In sum, the potential for gas trade within the Arab world is widespread and substantial. This paradoxical situation, in which most Arab countries export much-needed gas to destinations outside the region rather than within it, was created by a pricing scheme that enables better returns on gas exports to industrialized countries outside the Arab world. This pricing scheme, however, has the potential to change alongside the growth in regional gas demand. The gas markets of some industrialized countries (in North America and Europe) have softened significantly, to the point that some newly commissioned LNG projects are unable to sell to their intended markets in these countries.