Infrastructure investments on NCS Kurt Georgsen, CEO, Silex Gas Norway AS Oslo, 21 January 2014
Today s topics Gassled Role of infrastructure companies on the NCS Governance model Framework conditions for Gassled
The Gassled system comprises almost all of Norway s gas transport system 8000 km of offshore pipelines 3 platforms 2 large gas processing plants 6 gas receiving terminals ~355 MSm³/d or ~120 billion Sm³/y gas export capacity Cover around 20% of EUs gas consumption Gross tariffs ~NOK 25bn per year
Organisation of the gas value chain E&P companies individually....produce....and market.... their own gas..transport.. Special features of the gas transportation model: Joint ownership Gassled Regulated access and tariff regime Independent system operator - Gassco Non discriminatory Transparent Efficient
The picture has changed after infrastructure owners were allowed Reasons for upstream companies exiting: 1.Regulated regime no preferential rights as owners 2.Limited rate of return 3.Release capital to pure upstream investments 4.Focus portfolio Petoro (45%) Infrastructure companies (45%) Total transaction value c. NOK 32bn Reasons for infrastructure companies entering: 1.Regulated regime 2.Long-term asset base with risk adjusted return 3.Stable and predictable framework 4.Large scale investment opportunity
Governance model secures users involvement Before infrastructure owners in Gassled After infrastructure owners in Gassled Owners Shippers Owners IAB Shippers Interaction between owners and shippers increased after the transactions Crucial to develop the infrastructure to meet the demands of the customers (shippers)
Tariffs were changed shortly after the new owners were approved by the MPE No concrete plans to reduce tariffs - MPE Transactions Silex time horizon 2011 2012 2013 2028 2050 90% tariff cut License expire Minimum time horizon for need of gas infrastructure on NCS
Strong reaction on the proposal from several stakeholders «bekymret for de ringvirkninger den foreslåtte, dramatiske reduksjon i tariffene kan få for det norske kapitalmarkedet generelt, og markedet for finansiering av infrastrukturprosjekter generelt» «Spesielt synes bruken av historisk avkastning lite egnet til å forsvare svakere forventet avkastning for nye investorer» «kan påvirke investorers vurdering av kredittverdigheten til andre utstedere hvor de økonomiske utsiktene er avhengig av myndighetsutøvelsen til den norske stat» «There is also likely to be significant damage to investor confidence and a negative impact on the availability and price for any external future external finances sought» «bekymret for at en her har tatt en forhastet beslutning, som i alt for liten grad er utredet» «Dersom denne endringen skulle bli gjennomført vil dette sende signaler til investorer om at vårt gode rykte som stabil sokkel er under endring, og at en kan oppleve endringer over natten. Vi frykter naturligvis at dette vil fremstille norsk sokkel som mindre attraktiv for investeringer» «Kjøperne av 44 prosents andel av Gassled er langsiktige utenlandske investorer som er tilsvarende opptatt av moderat og forutsigbar avkastning. Forutsetningene for dette synes nå å brytes ved forslag til endring i tariffene» Ketil Solvik Olsen, (i valgkampen) «We will go back to the Gassled tariffs that used to be»
Legal basis for changing tariffs is not fulfilled Petroleum law section 4-8: MPE can stipulate or alter tariffs in order to ensure implementation of projects based on two cumulative conditions Resource management Reasonable profit
The new tariffs have limited resource management effect In-depth studies on resource management undertaken on a field-by-field basis Negligible effects seen *Risked additional volume for tariff change. Total is total gas resources North Sea and Norwegian Sea 1.1.2014 Source: Rystad Energy research and analysis; UCube
and will not secure owners with a reasonable profit Tariff cut leads to a NOK 34bn loss for Gassled owners Pure value transfer from owners to shippers Our basis for investing was stable tariffs The tariff cut leads to a halving of the expected return
Thank you for your attention!