Natural Gas Supply to CAPCO/CLP

Natural Gas Supply to CAPCO/CLP

An Introduction to LegCo Panel on Economic Development8th January 2013

CB(1)401/12-13(01)

CLP Pioneered Gas-fired Power Generation in Hong Kong in 1996

2nd longest subsea pipeline in the world when built in early 1990’s

One of the 4 largest offshore gas fields in China at that time

Black Point Power Station~800km

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Energy MoU signed with National Energy Administration

3 sources of new natural gas supply identified to be pursued: Second West-East Natural Gas Pipeline (WEPII) A new Liquefied Natural Gas Terminal in Shenzhen New gas supplies from the South China Sea

The Energy MoU signed in 2008 ensured long term clean energy supply to Hong Kong

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The Second West-East Gas Pipeline – the earliest available gas supply to Hong Kong to sustain gas-fired power generation

Second West‐East Gas Pipeline

Length • Approx. 9,000km, the world’s longest gas pipeline

• 1 truck line & 8 branches• Cover 15 provinces & regions

including Hong Kong

Serving • 500 million people     

Capacity • 30 billion cubic metres annually    

Source: PetroChina website

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Black Point Power Station –New Gas Receiving Station & Plant Modifications

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Parties PetroChina International Company Limited (PCI) CAPCO

Terms 20 years duration from 2013

Price Clear and transparent pricing mechanism

Contract Price consists of following components:

a) A commodity element, reflecting cost of gas imported from Central Asia to China, in which typically moves in line with prices of oil

b) Transportation element, reflecting cost of pipeline transportation charge for taking gas from the border in Xinjiang to Hong Kong

c) Applicable taxes and duties and administration costs

Government’s scrutiny

Scrutinizing GSA terms and its implementation

Gas Supply Agreement (GSA) for WEPII Gas

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0

10

20

0

30

60

90

120

150

Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12

Gas Price (US$/MMBtu)Oil Price (US$/Barrel)

Crude Oil price (JCC) Japan LNG import price Yacheng price (original gas) China LNG import price

Gas Price Trend

YachengGas

Market

CLP Gas Prices : Yacheng ~$6 ; Short term South China Sea ~$14; Market ~$18-20CLP Gas Prices : Yacheng ~$6 ; Short term South China Sea ~$14; Market ~$18-20

Short term S. China

Sea

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WEPII Gas Price Competitiveness

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^ LNG

* Infrastructure in GDInfrastructure to

HK

WEPII gas to Shenzhen

Guangdong Hong Kong

End Users - Cost Estimates(For illustration purpose at US$100/Barrel crude)

* Referencing Dapeng LNG terminal^ 2012 average import price adjusted to

US$100/Barrel crude (deals concluded after 2006)

Comparison of LNG Import Prices to China and Japan versus Crude Oil Price 

Comparison of Cost Estimates  to End Users 

Under current market, 2013 WEPII gas price is expected to be around US$18 - 20/MMBtu

Price level of WEPII gas supply to Hong Kong is generally in line with LNG import prices Adding infrastructure cost to end users, WEPII gas supply price to Hong Kong is

competitive vs. gas supply to South China region based on LNG imports

Tariff Impact – WEPII Gas Supply

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2012 2013e

Gas Volume/Price

WEPII Gas

Yacheng Gas

Short Term South China Sea Gas

2011

~6~6

~6

~14

~18-20~14

Gas Price in US$/MMBtu

Basic Tariff The additional investment in new gas receiving station and BPPS modification project requires an

increase of Basic Tariff by about 0.9¢/kWh in 2013 With higher than expected local electricity sales in 2012 and continued stringent cost management, we

are able to maintain Basic Tariff unchanged in 2013

Fuel Clause Charge CLP/CAPCO take various mitigating measures

in order to minimize tariff impact due to rising cost of gas

Due to current price differential between WEPII and Yacheng gas, Fuel Clause Charge in 2013 requires an increase of about 7¢/kWh as a result of higher priced WEPII gas

Considering of total fuel costs together with a widening of Fuel Clause Account deficit, we have managed to contain an increase of Fuel Clause Charge to 4.6¢/kWh in 2013

Future tariff adjustment is subject to a host of factors including electricity sales, capital investment, operating cost and fuel mix / cost, etc.

Fuel Clause Charge requires anincrease of about 7¢/kWh

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1

2

3

CLPPower

Singapore London New York Sydney

Reasonable Tariff with World Class Reliability

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CLP Power

2.3

Remarks: Comparison based on average monthly domestic consumption of 275kWhTariff and exchange rate at November 2012 (CLP tariff excludes Rent & Rates Special Rebate)

HK$/kWhLow Tariff

$1.03

Unplanned customer minutes lost per year

Note: 2009-2011 average

Sydney(CBD)

New York London

19.2

28.3

39.5

0.0

10.0

20.0

30.0

40.0

50.0

High Reliability

$2.78

Singapore

0.5

$2.29$2.02

$1.85

More Reliable Less Reliable

CLP 2013 tariff adjustment

2013Adjustment

Summary

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With WEPII gas supply and infrastructure in place, Hong Kong will continue to benefit from:

Reliable pipeline gas supply replacing depleting Yacheng gas

Gas supply priced under a clear and transparent mechanism

Supply resource available to support increasing gas needed to meet future emissions / fuel mix targets