# Presentation: 411756

## Natural Gas Module (GasMod)

- Shilpa Shah
- Energy Information Administration
- June 2004

- Philippines Department of Energy (PDOE)
- Energy Pricing Model Project

## Overview of GasMod

- Developed by East-West Center for PDOE resource assessment
- Aided pricing analysis of Camago-Malampaya natural gas field
- Excel-based spreadsheet model that includes 25 worksheets
- Enables analysis of economic and financial costs of developing and utilizing up to three natural gas fields
- Substantial data requirements include natural gas field development costs, supply-demand projections and alternative fuel price forecasts

## Components of GasMod

- Gas Cost Model (GasCost)
- Natural gas pricing analysis
- Calculations of AIC and economic rents
- Calculations of netback values in different applications
- Natural gas project evaluation
- Calculation of revenues and profit to each stakeholder
- NPV and IRR for each stakeholder
- LNG Model (LNGMod)
- Investment requirements for LNG receiving facility
- Calculation of AIC for terminalling
- Pipeline Cost Model (PipeMod)
- Investment requirements for onshore pipeline
- Size and compression analysis

## GasCost – Natural gas pricing

**Calculation of AIC**

- INPUTS
- Investment Costs (Exploration, Drilling/Wells, Gathering System, Transmission, Gas Treatment, Field Compression)
- Operating Costs
- Forecast of Volumes of Natural Gas Production
- OUTPUT
- AIC at each natural gas field

## GasCost – Natural gas pricing

- Calculation of AIC (3 worksheets)
- Field Costs
- Input investment/operating cost information and production volume forecast for each natural gas field under analysis
- Calculates AIC
- Production Investment
- Summarizes total investment costs for all natural gas fields
- Production Volumes
- Summarizes production forecasts for all natural gas fields

## GasCost – Natural gas pricing

**Calculation of AIC**

## Average Incremental Cost (AIC)

- Practical measure for approximating marginal cost (P = MC ~ AIC)
- Measures the additional investment and operating costs required to increase the output of an energy resource and to maintain it at a designated level of production for a designated period of time
- Sets the minimum economic value of gas needed to recover all economic costs at the national discount rate
- AIC = _NPV(incremental investment and operating costs)_
- 		                NPV(incremental production)

## GasCost – Natural gas pricing

**Calculation of Economic Rents**

- INPUTS
- Price forecasts for natural gas substitute fuels (fuel oil, LPG, naptha)
- Production supply and regional demand forecasts for natural gas
- Supply distribution matrix
- OUTPUTS
- Depletion Value
- Scarcity Rent

## GasCost – Natural gas pricing

- Calculation of Economic Rents (6 worksheets)
- EPP Fuels and Commodities
- Input investment/operating cost information and production volume forecast for each natural gas field under analysis
- Calculates AIC
- Area Supplies
- Summarizes supply available from all natural gas fields under analysis
- Area Demands
- Summarizes regional demand assumptions for natural gas based in each major consuming industry/sector

## GasCost – Natural gas pricing

- Calculation of Economic Rents (6 worksheets)
- Supply Allocation
- Matrix of distribution of natural gas supplies among regions
- Supply-Demand Summary
- Calculates excess or shortage of supply in each year of analysis period
- EPP Calculation
- Calculates depletion value and scarcity rent to arrive at EPP
- Assumes depletion occurs in a specified year
- Calculates depletion value based on specified default fuel

## GasCost – Natural gas pricing

**Supply Allocation Matrix Worksheet**

## GasCost – Natural gas pricing

**Supply-Demand Summary Worksheet**

## Scarcity Rent (SR)

- Reflects the premium value of a resource to consumers when demand exceeds supply
- Raises economic price as rent accrues to producers
- Measured as the difference between the present value of the price of the next best fuel in a particular year, n, and the AIC
- SRn = PV(backstop fuel in year n) – AICn

## GasCost – Natural gas pricing

**Default Fuels Worksheet**

## Depletion Value (DV) 

- Measures the additional costs associated with supplying an exhaustible resource
- Reflects the fact that a unit of a resource used today will not be available at some time in the future and another fuel will have to be used in its place, normally at higher cost
- AIC does not account for depletability of finite resources
- Calculated for a specified time, n, in relation to a backstop fuel, BF, and a future year, T, in which the fuel under analysis becomes depleted
- DVn = _NPV (backstop fuel price in year T)_
-                                     (1+r)T-n
- This rent accumulates to producers and the government

## GasCost – Natural gas pricing

**EPP Calculation Worksheet**

## GasCost – Natural gas pricing

**Calculation of Netback Value**

- INPUTS
- Price forecasts for backstop fuels (fuel oil, LPG, naptha) for each industry/sector utilizing natural gas
- Investment/operation specifications for each fuel alternative in each industry/sector under analysis
- Investment cost
- Plant capacity and fuel factors
- OUTPUT
- Netback Value of natural gas in each application

## Netback Value (NB)

- Indicates the highest price that consumer is willing to pay for an energy resource
- Assume consumer wishes to buy resource at lowest cost possible and will evaluate relative costs of different resources on a comparative basis
- As calculated, netback value shows the maximum a consumer is willing to pay given the cost of the next best available fuel for a given application
-  NBNatGas = _[I_Oil_ – I_NatGas_+ F_Oil_]_
- 			       ConsNatGas
- 	where,  INatGas = investment and operating costs required to use natural gas
- 		   IOil = investment and operating costs required to use oil
- 		   FOil = price of oil
- 		   ConsNatGas = consumption of natural gas

## GasCost – Natural gas pricing

- Calculation of Netback Value (3 worksheets)
- Default Fuels
- Input investment/operating cost information and production volume forecast for each natural gas field under analysis
- Calculates AIC
- Netback Calculations
- Summarizes total investment costs for all natural gas fields
- Netback Value Summary
- Summarizes production forecasts for all natural gas fields

## GasCost – Natural gas pricing

**Netback Calculations Worksheet**

## GasCost – Natural gas pricing

**Default Fuels Worksheet****	****            Netback Value Summary Worksheet**

## GasCost – Project Evaluation

- INPUTS
- Terms of production-sharing agreement (PSA)
- Forecast of volumes of natural gas production
- Natural gas price
- Based on price range determined in natural gas pricing analysis
- Investment and operating expenses
- Discount rate
- OUTPUTS
- NPVs and IRRs of project for producing company and government
- Effective natural gas price

## GasCost – Project Evaluation

- 5 worksheets
- Financial Inputs
- Includes investment cost, fuel price, discount rate and natural gas field parameters necessary for the financial calculation
- Financial Calculation
- Evaluates the profitability of a natural gas resource project to its stakeholders based on the provisions of the production sharing agreement or service contract
- IRR and NPV
- Calculates IRR and NPV values for project stakeholders based on a specified discount rate
- Depreciation
- Calculates annual depreciation on natural gas field investment according to terms of PSA
- Adjusted Prices

## GasCost – Project Evaluation

- Financial Calculation
- Gross revenues =  production x sales price
- Net Operating profit = gross revenue – expense claimed
-       where expense claimed equals
- 	  - claimable expense up to 70% of gross revenues
-        - depreciation charge + op cost + carry forward or           	unclaimed expense from previous year
- Net operating profit = 60% government share + 40% company share
- Company net revenue = company share + expense 	claimed – operating costs – capex

## GasCost – Project Evaluation

- Financial Calculation
- Effective gas price (all gas basis) = (gross gas revenue – government take)/gas production
- Effective gas price (pro-rata basis) = (gross gas revenue - (gas revenue/total revenue from gas, oil & condensate x  gov't share))/ gas 	production
- Government pro rata gas revenue = (gas revenue /total revenue)  x  gov't share

## GasCost – Project Evaluation

** ****Financial Inputs Worksheet**

## GasCost – Project Evaluation

**Financial Calculation Worksheet**

## GasCost – Project Evaluation

**Financial Calculation Worksheet**

## GasCost – Project Evaluation

** ****IRR & NPV Worksheet**

## LNGMod

- 2 worksheets
- LNG Receiving Facility Cost
- Shows LNG terminal investment cost buildup
- LNG AIC Calculation
- Calculates AIC of vaporized LNG at plant outlet

## LNGMod

**LNG AIC Calculation Worksheet**

## LNGMod

**LNG Receiving Facility Cost Worksheet**

## PipeMod

- 7 worksheets
- Pipeline Summary
- Summarizes parameters utilized in PipeMod
- Pipeline Investment
- Summary of offshore and onshore pipeline installation and compression costs
- P-L Node Data
- Contains pipeline design data by node
- P-L Flow Data
- Calculates pipeline pressures

## PipeMod

- 7 worksheets
- P-L Flow Diagram
- Summarizes pipeline design data from P-L load and flow worksheets
- Pipeline Costing Model
- Calculates costs of constructing onshore and offshore pipeline segments
- Transport AIC
- Calculates AIC for pipeline transmission of specified volume of gas

## PipeMod

**Pipeline Summary Worksheet**

## PipeMod

**P-L Node Data Worksheet**

## PipeMod

**P-L Flow Data Worksheet**

## PipeMod

**Pipeline Investment Worksheet**

## PipeMod

**Pipeline Costing Worksheet**

## PipeMod

**Transportation AIC Worksheet**

## Summary of GasMod

- Determination of natural gas price range for new field development
- Average incremental cost (AIC)
- Economic rents
- Transport AIC
- LNG AIC
- Netback Value
- Evaluation of natural gas development project according to PSA
- NPV and IRR for each stakeholder
- Comparison of netback value of natural gas with other fuels in various end-use applications

## Questions?