Gas Field Monetisation: Major Investment Drivers for Gas-to-Power Ventures

Abstract

Vertical integration between natural gas and power generating companies is essential in ensuring profitable monetisation of the massive natural gas fields in all regions of the world, including the Asia-Pacific. With a simple economic model, major investment drivers most likely to ensure the success of such integration have been highlighted in this study. The sub-surface and surface engineering data inputs into this model were obtained from a natural gas company conducting a test trial of feeding gas into a 14.4–24 MW Power Plant. Data included production profiles, facility costs and historical performance obtained from both gas and power sides of the integrated venture. Also included in the modelling were prevailing regimes of fiscal and government incentives. Adequate measures of economic and risk analyses were implemented. To validate the model, the assumptions were passed through challenge sessions, and many runs of other investment options were made. The outputs were checked for consistency. The results have shown that gas-to-power profitability, and hence final investment decisions, are mostly affected by changes in gas and power market prices. Supply reliability, government interventions, project location, and expected return are the next set of important variables any investor should closely monitor. Natural gas costs and electricity consumption pattern additionally affect the power generation side of the venture. Effectively identifying, evaluating, and communicating these investment drivers should ensure profitable gas field monetisation - in the form of gas-to-power ventures. Project optimisation and effective business control should also be facilitated. Introduction Natural gas is projected to be the fastest-growing component of primary world energy consumption [1]. It is estimated that world natural gas consumption will reach the level of coal by 2005, and exceeds it by 29 percent in 2020. It is the fastest growing primary energy source with massive global reserves still very much untapped. Liquefied natural gas (LNG) has proved to be a viable option for transporting natural gas to the market especially over long distances (including transcontinental routes) where pipelines have mostly been uneconomical. Coyle, Durr and Shah [2] rightly argued in their report that LNG is a proven gas monetisation option, which has developed over the past 30 years as a considerable world trade. Other gas utilization options [3] are production of petrochemicals, iron & steel, etc. But as countries and regions develop, their appetites particularly for electric power grow in parallel. Thus, considerable growth is being witnessed in the global demand for gas-fired power generation, which we referred to as gas-to-power generation for this report. This trend is expected to continue into the foreseeable future. And professionals in the oil and gas industry need to recognize this as we look forward. Worthy of note is the fact that general growth in demand for natural gas as fuel is continually being encouraged by the worldwide concerns for the environment. Compared to liquid hydrocarbons and coal per unit of energy, when it is burn, natural gas releases less sulphur dioxide, less nitrates, less carbon dioxide, less particulate matter, and no ash or dust to the atmosphere. This advantageous situation applies to natural gas-fired electricity generation. Globally, natural gas accounts for the largest increment in electricity generation (41 percent of the total increment of energy used for electricity generation) [1]. Combined-cycle gas turbine power plants (a typical Schematic shown in Figure A1 in the Appendix Section) offer some of the highest commercially available plant efficiencies. According to Peebles [4], this technology offers an environmentally friendly and generally cost-effective solution to an emerging nation's energy needs — especially if the gas already has been discovered. The value chain of gas-to-power generation is incomplete without the industry (or their affiliates) responsible for the gas exploration, production, and, in many cases, supply - the Oil and Gas Industry.