Gas CCGT Combined Cycle Gas Turbine LPG Liquefied Petroleum Gas CEPCO Chubu Electric Power Company Ltd

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Gas CCGT Combined Cycle Gas Turbine LPG Liquefied Petroleum Gas CEPCO Chubu Electric Power Company Ltd Report No. 29579-LE Report No. 29579-LE Republic of Lebanon Hydrocarbon Strategy Study Public Disclosure Authorized Public Disclosure Authorized June 30, 2004 Finance, Private Sector Development and Infrastructure Group Middle East and North Africa Region FOR OFFICIAL USE ONLY Republic of Lenanon Public Disclosure Authorized Public Disclosure Authorized Hydrocarbon Strategy Study Strategy Hydrocarbon Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank Public Disclosure Authorized Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Abbreviations and Measures BBC Brown, Boveri & Co. IEC Israel Electric Corporation bld barrel(s) per day KBR Kellogg, Brown, and Root BCM billion cubic meters kWh kilowatt hour BOOT build-own-operate-transfer LNG liquefied natural gas CCGT Combined Cycle Gas Turbine LPG liquefied petroleum gas CEPCO Chubu Electric Power Company Ltd. OFGEM Office for Gas and Electricity Markets CIF Cost, Insurance, and Freight mmbtu million British thermal units COZ Carbon Dioxide MMCM million cubic meters EdL Electricit6 du Liban MEW Ministry of Energy and Water EL4 Environmental Impact Assessment MW megawatt EMA Energy Market Authority (Singapore) MWh megawatt hours EMG Eastern Mediterranean Gas NOC Libyan National Oil Corporation FERC Federal Energy Regulatory Commission NOx Nitrogen Oxides FSRU Floating, Storage, and Regasification Unit NTPA negotiated third-party access GDP gross domestic product O&M operation and maintenance G.E. General Electric PSC Petroleum Syrian Company GHG green house gas PMlO particulate matter less than 10 microns GJ Gigajoul RTPA regulated third-party access dkWh grams per kilowatt hours sox Sulfur Oxides GNP gross natural product TOR Terms of Reference GWh gigawatt hours TPP thermal power plant HFO heavy fuel oil VAT value added tax IEA International Energy Agency Vice President: Christiaan Poortman Country Director: Joseph Saba Sector Director: Emmanuel Forestier Team Leader: Anna Bjerde Table of Contents PREFACE.................................................................................................................................................................... i EXECUTIVE SUMMARY ........................................................................................................................................ i1 1.LEBANON’S ENERGY BALANCE AND POTENTIAL GAS DEMAND........................................................ 1 SOURCES OF PRIMARY ENERGY................................................................................................... 1 DELIVEREDENERGY TO CUSTOMERS ........................................................................................... 2 THE KEY ROLEOF THE POWER SECTOR AND SCOPE FOR INCREASEDUSE OF NATURALGAS ...... 3 FUTURENATURAL GAS DEMAND ................................................................................................ 7 2 .GAS SUPPLY OPTIONS...................................................................................................................................... 10 POTENTIAL REGIONAL SOURCES FOR PIPED NATURALGAS ...................................................... 10 POTENTIAL FOR LNG SUPPLY ................................................................................................... 15 SECURITY OF GASSUPPLY ......................................................................................................... 18 3.THE PETROLEUM SECTOR AND IMPLICATIONS FROM INCREASED GAS DEMAND ................A. 20 THE MARKETFOR OIL PRODUCTS.............................................................................................. 20 OIL MARKETSTRUCTURE AND PETROLEUM PRICING ................................................................ 21 4 .THE POTENTIAL FOR A REFINERY INLEBANON ................................................................................... 27 DEMANDFORECAST FOR PETROLEUMPRODUCTS ...................................................................... 27 SUPPLY OF PETROLEUMPRODUCTS ........................................................................................... 28 FEASIBILITY OF A NEWOIL REFINERY IN LEBANON.................................................................. 30 5.THE GAS MARKET STRUCTURE ................................................................................................................... 32 GOVERNMENTOBJECTIVE ......................................................................................................... 32 INITIALMARKET STRUCTURE .................................................................................................... 32 THE NATIONALPIPELINE AND GASMARKET REFORM .............................................................. 34 KEY PRINCIPLES FOR ESTABLISHINGEFFICIENT GAS MARKET STRUCTURE ............................... 34 A FUTURECOMPETITIVE GASMARKET STRUCTURE ................................................................. 38 6 .LEGAL AND REGULATORY FRAMEWORK FOR THE GAS SECTOR .................................................. 40 THE LEGALFRAMEWORK .......................................................................................................... 40 MODELGAS LAW ...................................................................................................................... 40 THE REGULATORY FRAMEWORK............................................................................................... 42 SEPARATION OF GASPOLICY AND REGULATION ........................................................................ 42 WHO SHALL REGULATETHE GASINDUSTRY? ........................................................................... 43 HOW SHALL REGULATION BE CONDUCTED?.............................................................................. 44 7.BENEFITS OF INTRODUCING NATURAL GAS ........................................................................................... 46 BENEFITSTO THE POWER SECTOR ............................................................................................. 46 BENEFITS TO THE ENVIRONMENT............................................................................................... 48 Index of Figures FIGURE 1.1. SOURCES OF PRIMARY ENERGY.2002 ..................................................................... 2 FIGURE1.2. DELIVEREDENERGY BY CONSUMER CATEGORY. 2002 ............................................ 2 FIGURE2.1. REGIONALPROVEN GAS RESERVES. 2002 ............................................................. 11 FIGURE 2.2. IRAQIGAS AND OIL PIPELINE ROUTES ................................................................... 12 FIGURE2.3. REGIONALNATURAL GAS PIPELINE NETWORK...................................................... 14 FIGURE2.4. MEDITERRANEANLNG ~FRASTRUCT URE ............................................................. 16 FIGURE 3.1. LEBANESEOIL PRODUCT IMPORTS, 1998 AND 2002 (IN ‘000 TONS) ...................... 21 FIGURE3.2. COMPARISON OF RETAIL PRICES AND IMPORT COSTS FOR PETROLEUM PRODUCTS 23 FIGURE 3.3. COMPARISON OF IMPORT COSTS AND GOVERNMENTTAKE ON OIL PRODUCTS ...... 24 FIGURE3.4. INTERNATIONAL COMPARISON OF GOVERNMENTTAKE ON OIL PRODUCTS, 2003.25 FIGURE 4.1. EXPORTCAPACITY OF REFINERIES IN REGION AND LEBANESEDEMAND ............... 30 FIGURE4.2. REFINING CAPACITY AND DOMESTICDEMAND IN MIDDLEEAST ........................... 30 FIGURE5.1. GASMARKET STRUCTURE FOR THE GASYLE PIPELINE ........................................ 34 FIGURE 5.2. ENVISAGEDMARKET STRUCTURE WITH GASYLE AND NATIONALPIPELINES ...... 34 FIGURE 5.3. UNBUNDLINGOF COMPETITIVE AND MONOPOLYACTIVITIES ................................ 35 FIGURE5.4. SEPARATION OF CONTRACTUAL ARRANGEMENTS ................................................. 37 FIGURE 5.5. OPTIONS FOR ACCESSINGTRANSPORTATION NETWO RK ........................................ 38 FIGURE5.6. THE FUTUREGAS MARKET STRUCTURE IN LEBANON........................................... 39 Index of Tables TABLE1.1. ELECTRICITYPEAK DEMAND FORECAST (MW) ....................................................... 5 TABLE1.2. THERMALPOWER PLANTS ........................................................................................ 6 TABLE1.3. DEMANDFORECASTS FOR NATURALGAS (MMCM/DAY) ....................................... 8 TABLE1.4. RESIDENTIAL AND COMMERCIAL CONSUMPTION PATTERN, 2002 ............................. 8 TABLE2.1. COMPARISON OF PRODUCTION COST INDICATORS................................................... 15 TABLE2.3. TOTALLNG COSTS................................................................................................. 17 TABLE2.4. ESTIMATEDPIPED GASAND LNG IMPORT PRICES ................................................. 17 TABLE3.1. CURRENT MARKETSTRUCTURE FOR OIL PRODUCTS IN LEBANON.......................... 22 TABLE3.2. THE STRUCTURE OF OIL PRODUCTS PRICES ............................................................ 22 TABLE3.3. PRICE STRUCTURE FOR PETROLEUM PRODUCTS, NOVEMBER2003 (IN US$/TON) .. 23 TABLE3.4. INTERNATIONALLPG PRICES, 2001-2003 .............................................................. 26 TABLE4.1. DEMANDFORECAST FOR PETROLEUM PRODUCTS, 20 15 (IN ‘000 TONS) ................28 TABLE4.2. REFINING AND EXPORTCAPACITY IN THE MEDITERRANEANREGION, 2000 ........... 29 TABLE6.1. KEY FUNCTIONSOF GASMARKET PARTICIPANTS ................................................... 43 TABLE7.1. FUELCONSUMPTION AND TYPEOF
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