Building The Trans-ASEAN Gas Pipeline (TAGP) project envisages the - - PDF document

▶

Dec 22, 2023 430 likes •493 views

Asia Pacific Review Trans-Asian pipe Building The Trans-ASEAN Gas Pipeline (TAGP) project envisages the creation of a trans-national pipeline network linking ASEANs major gas production and utilisation centres. Once realised the TAGP will

SLIDE 1 ASEAN’S ENERGY POLICIES ASEAN, the Association of South East Asian Nations, is a ten-state co-operative framework intended to promote greater regional development through mutual assistance. Originally founded in 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand, the membership of ASEAN has since doubled to include Brunei (1984),Vietnam (1995), Laos (1997), Myanmar (1997) and Cambodia (1999). ASEAN promotes various regional policies in the furtherance of the economic, social and political interests of its members.An integral part of ASEAN’ s regional economic co-operation focuses on the energy sector where it is ASEAN’ s declared intention to ensure greater security and sustainability of regional energy supplies through diversification, development and conservation of resources, the efficient use of energy and the wider application of environmentally sound technologies. ASEAN’ s energy policies are founded upon a combination of various accords, policy declarations and summit undertakings. Critical amongst these for the realisation of the TAGP are: (i) The 1998 Hanoi plan of action - The Hanoi Plan was adopted at the Sixth ASEAN Summit and calls for member states to implement initiatives to ensure security and sustainability of energy supply , efficient utilisation of regional energy resources and the rational management of energy

demand. In particular the Hanoi Plan calls for

the institution of a policy framework and implementation modalities by 2004 for the early realisation of the TAGP . (ii) The ASEAN plan of action for Energy Co-

peration 1999-2004 (Bangkok, 1999) - The Bangkok

Plan was adopted by the Seventeenth ASEAN Ministers of Energy Meeting and identifies six programme areas to be focused on in order to implement the Hanoi Plan, including the development

f the TAGP as part of an integrated ASEAN energy

grid.The Bangkok Plan provides for the establishment

f the ASEAN Council on Petroleum (ASCOPE)

TAGP Task Force to formulate a masterplan for the most likely scenario for the short term development

f the TAGP following the successful completion of a

conceptual project feasibility study and the resolution

f relevant institutional, legal, financial, commercial and

technical issues. (iii) The ASEAN Memorandum of Understanding on the TAGP (Bali, 2002) - The Bali Memorandum was adopted at the Twentieth ASEAN Ministers of Energy Meeting and sets out a co-operative framework within which ASEAN member states agree to study the regulatory and institutional frameworks for the cross-border supply , transportation and distribution

f gas throughout ASEAN.

THE ASEAN ENERGY PERSPECTIVE A consideration of the demographic and geophysical aspects of ASEAN reveals three essential features: (i) Energy demand - ASEAN represents more than 500m people, spread between 10 countries over an area

f approximately 4.5m sq km.While the 1997 Asian

economic crisis and the global economic slowdown since 2001 has hampered the region’ s economic and

Asia Pacific Review Trans-Asian pipe

July 2003 Asia Pacific Review 15 The Trans-ASEAN Gas Pipeline (TAGP) project envisages the creation

f a trans-national pipeline network linking ASEAN’s major gas

production and utilisation centres. Once realised the TAGP will have the potential of linking almost 80% of the ASEAN region’s total gas reserves and will embody a far-reaching expression of the region’s energy interdependence and long-standing interest in the co-

rdination of energy activities. There is still much to do however in
rder to realise the dream, not least in establishing a solid legal and

regulatory basis upon which the TAGP could operate in the best interests of all those who would derive benefit from such a network. By Peter Roberts and Alex Cull, Jones Day, Hong Kong.

Building the Trans- Asean gas pipeline

SLIDE 2 energy demand growth the underlying factors which propelled Asia’ s miracle growth in the 1990s - greater industrialisation, increased urban migration into highly concentrated areas of population, an expanding middle class and increasing consumer disposable incomes – are still largely intact. These characteristics present an inherent demand for energy which should continue to grow as the global economy recovers and regional industries regain lost ground.This potential is recognised for example in a predicted 60% growth in demand for energy within ASEAN for the period to 2010. Demand for gas in particular will increase due to the improving cost-competitiveness and greater recognition of the ecological benefits of gas-fuelled power generation, increasing emphasis on regional petrochemical production and the ongoing development of essential gas transportation infrastructure. (ii) Energy supply - ASEAN covers a region rich in energy resources, with aggregate proven reserves of around 27bn barrels of oil and 350tr cu ft of gas, particularly in the major supply areas of Indonesia, Malaysia, Brunei,Vietnam and Thailand. However, demand for energy in many member states will

utstrip domestic supply capabilities and the import
f energy will be common across the region. Domestic

imbalances will need to be satisfied by a combination

f intra-regional energy transportation supplemented

through extra-regional imports, primarily from the Middle East. (iii) Interconnection – The relative proximity of the demand concentrations and the prospective sources

f supply within ASEAN, when viewed in light of

regional pockets of supply shortage, together suggest an inherent justification for the creation of a regional energy network. Commentators on the Asian energy scene are, when faced with a map of the region which demonstrates the centres of demand and supply , seemingly incapable of resisting the urge to ‘join the dots’with a series of interconnected pipeline systems, transporting gas in particular from where it is to where it needs to be. The first two features are empirically quantifiable components and establish the demand and the supply sides of the energy equation which are required before a successful energy network can be established.The third is different. It is not an objective reality but rather it is a vision that combines geopolitical, economic and cultural conjecture, and thus is the basic hypothesis of connecting supply to demand through a single regional interconnector suggested by the promoters of the TAGP . MATCHINGREGIONALENERGYDEMAND& SUPPLY When considering the centres of energy demand and supply across Asia one thing becomes apparent - there is rarely a happy coincidence of population and resources and it is usually necessary to transport energy resources to where they are most needed. Coal, which at the present time comprises approximately 11% of power generation feedstock in ASEAN, is typically transported by ship. Crude oil, refined into products such as fuel oil, presently constitutes approximately 54% of power generation feedstock in ASEAN and is also typically transported by ship. Gas, which now comprises approximately 27% of ASEAN’ s power generation feedstock mix, may be transported by ship as LNG. LNG projects have high capital expenditure requirements in the construction of expensive gas liquefaction and regasification terminals and specialist LNG ships, although from a project development perspective they raise potentially simpler legal, regulatory and administrative issues than cross-border pipelines as they tend to be bilateral arrangements with limited land use requirements. LNG tends to be more cost-effective than pipelines only where longer distances or especially difficult terrain is involved.An LNG project will have a large initial capital requirement but its overall cost will not significantly increase over greater distances, whereas pipeline costs increase linearly as pipeline distances increase. Short distance pipelines should therefore be the most cost-effective form of gas transportation within ASEAN. This would explain why , of all the cross-border energy trades within ASEAN, the only proposed LNG trades are for a recently announced LNG regasification terminal to be built in the Philippines which may source LNG from Indonesia, Brunei or Malaysia.All other LNG trades involving an ASEAN member country are exports of LNG to purchasers outside ASEAN. Increased pipeline infrastructure will also enable the development of gas fields located near pipeline routes which may otherwise be uneconomical to develop in their own right.This development will in turn be used to increase the extent by which regional demand for gas can be met by regional supply . THE TRANS-ASEAN GAS PIPELINE PROJECT The first cross-border gas pipeline in ASEAN exports gas from Malaysia to Singapore and was commissioned in 1991. Since then several regional gas pipelines have been completed and several more are in the process of design and construction or are envisaged:

Trans-Asian pipe Asia Pacific Review

16 Asia Pacific Review July 2003

SLIDE 3 Full interconnection of these pipelines, which is envisaged by ASEAN to be done by 2020, would see the creation of an interconnected gas grid throughout ASEAN and links between demand and production centres beyond pipelines which have hitherto been built between countries solely where single project economics have dictated the necessity for such infrastructure. REGULATORY AND INSTITUTIONAL ISSUES The stated objective of the Bali Memorandum is to provide a broad framework for ASEAN member states to co-operate towards the realisation of the TAGP to help ensure greater regional energy security . Under the terms of the Bali memorandum the ASEAN member countries, individually and/ or jointly , will study the legal, regulatory and institutional frameworks for cross-border supply , transportation and distribution

f gas in the region, with particular attention to the

commercial and economic feasibility of construction, financing, operation and maintenance of the proposed network. The Bali Memorandum specifically identifies nine issues to be addressed in developing the TAGP: (i) Financing - The costs of constructing the TAGP will be monumental. One estimate is of US$7bn for the necessary pipeline infrastructure, platforms and compression equipment (excluding drilling costs).These investment costs will need to be met from various sources including private equity , commercial debt, state aid and multilateral agency advances. (ii) Technical specifications - any integrated network is only as strong as its weakest link. Harmonised standards and protocols for construction, operation and maintenance, safety and measurement will be necessary to ensure that the operational integrity of the TAGP is not jeopardised by substandard materials, equipment, techniques or services being utilised in any particular segment of the network. (iii) Access and use - There will need to be effective and stable contractual arrangements for the supply , distribution and transportation of gas, including adherence to the principles of open access as well as management of the network in accordance with internationally accepted oil and gas industry standards. At the nineteenth meeting of the ASCOPE TAGP Task Force in 2001 it was resolved to establish an ASCOPE joint venture company to manage the TAGP and to draft a model gas sale and purchase and a gas transportation agreement in addition to considering the standard terms to apply to all future gas sales and transportation agreements. 1 Malaysia to Singapore (commissioned 1991). 2 Myanmar (Yadana) to Thailand (Ratchaburi) (commissioned 1999). 3 Myanmar (Y etagun) to Thailand (Ratchaburi) (commissioned 2000). 4 Indonesia (West Natuna) to Singapore (commissioned 2001). 5 Indonesia (West Natuna) to Malaysia (Duyong) (commissioned 2002). 6 Indonesia (Grissik) to Singapore (commissioning scheduled 2003). 7 Thailand (Joint Development Area) to Malaysia (commissioning scheduled 2005). 8 Indonesia (South Sumatra) to Malaysia (commissioning estimated 2005). 9 Indonesia (Arun) to Malaysia (commissioning estimated 2010). 10 Indonesia (East Natuna and West Natuna) to Malaysia (Kerteh) and Singapore (commissioning estimated 2010). 11 Indonesia (East Natuna) to Thailand (JDA-Erawan) (commissioning estimated 2012). 12 Indonesia (East Natuna) to Malaysia (Sabah) and the Philippines (Palawan-Luzon) (commissioning estimated 2015). 13 Malaysia-Thailand (JDA) to Vietnam (Block B) (commissioning estimated 2016).

Asia Pacific Review Trans-Asian pipe

July 2003 Asia Pacific Review 17 India Myanmar Thailand Malaysia Thailand Andaman Sea Singapore Indonesia Philippines Vietnam Cambodia South China Sea Laos China Brunei 2 3 9 8 6 1 4 7 12 11 13 5 10 The route

SLIDE 4 (iv) Security of supply and emergency supply arrangements - This will entail the implementation

f appropriate measures to enhance security and

safety and the uninterrupted flow of gas through the network, including a framework for co-operation in the event of a serious disruption to supplement the emergency response provisions in the 1986 ASEAN Petroleum Security Agreement. (v) Health, safety and environment - HSE issues will become increasingly prominent throughout the region as the TAGP is developed. Evidence of increased environmental awareness can be seen in the construction of the Thai-Malaysia JDA pipeline which was first scheduled to commence construction in early 2001.The original pipeline route was met with strong protests from environmental activists and affected villagers in Thailand and resulted in re-routing of the landing point and delayed construction until the second half of 2003. (vi) Transit rights - This issue envisages acceptable measures which would facilitate the issue of permits, licenses, consents, or other authorisations for pipelines and gas being transported through the territory of any member state. The TAGP is based upon the integration of the existing and proposed pipeline interconnections into a single regional network grid.The existing gas pipelines between ASEAN states are based on bilateral arrangements between two states with no pipelines passing through a transit country .As a consequence it has not been necessary in the past to consider issues pertaining to transit across third countries, but such issues will need to be considered in the near future before a truly integrated network can be realised. (vii) Taxation and tariff - The harmonisation of taxation, tariffs, subsidies, controls on rate of return and

ther fiscal terms applicable to pipeline construction

and operation will help to ensure a more consistent development of infrastructure and will enhance the prospects for freedom of transit throughout the region. If fiscal terms vary between ASEAN states then investors may be encouraged to forum shop to find the most lucrative state in which to invest in gas development and transportation infrastructure, which might not result in the development of the necessary infrastructure in those states most in need of it. (viii) Abandonment - Increasingly stringent environmental obligations have been imposed on oil and gas companies over recent years, both by imperative legislative requirements and by corporate shareholder expectations.The oil and gas industry in Asia is still in its relative infancy when compared to more established regions such as the North Sea and Gulf of Mexico and consequently the issue of abandonment of petroleum infrastructure has only become an immediate concern of regional industry participants in recent years. (ix) Jurisdiction - Determining jurisdiction over

nshore pipeline segments is a relatively straightforward

matter with the principle of territorial integrity , which ASEAN strongly respects, dictating that each ASEAN member state will have jurisdiction and responsibility

ver the pipeline segments located in its own territory

. Jurisdiction over offshore pipeline segments, particularly outside of a state’ s territorial seas, is more

contentious. Despite the aura of close co-operation

that surrounds ASEAN’ s activities, there are presently a number of territorial disputes between the member states in respect of offshore territories.While agreements have been struck between some states, allowing development in disputed contiguous areas (eg the Thai-Malaysia JDA), development of potential reserves in other disputed areas has been delayed for many years while disputes remain unresolved (eg in the Thailand-Cambodia OCA). Diplomatic tensions are rife where claims compete, as evidenced in the recent award of production sharing contracts by both Malaysia and Brunei for blocks which Malaysia claims are in its territorial waters and Brunei claims are within its exclusive economic zone. Each of the above issues might best be addressed by the ASEAN member states through some form

f government–level accord which establishes a

common regulatory and fiscal regime. Such an accord might also provide for principles of investment protection and the preclusion of unwarranted state intervention.

Trans-Asian pipe Asia Pacific Review

18 Asia Pacific Review July 2003

“ ”

Jurisdiction over offshore pipeline segments, particularly outside of a state’s territorial seas, is more contentious. Despite the aura of close co-operation that surrounds ASEAN’s activities, there are presently a number of territorial disputes between the member states.

SLIDE 5

Trans-Asian pipe Asia Pacific Review

20 Asia Pacific Review July 2003 The Energy Charter Treaty , originally signed in December 1994 and with a strongly European flavour, is a multi-national energy infrastructure investment treaty and may have significant value as a precedent for ASEAN.The objective of the Energy Charter Treaty was to secure reliable supplies of energy for western Europe while attracting foreign capital investment to countries of eastern Europe in the overall context of strengthening security through close co-operation in a key economic sector and also the definition of a multi-national legal and regulatory framework for private investment and cross-border gas trades. Such fundamental investment protection principles provide at least some protection for investments from political risk events without seeking to determine or undermine national energy policies.This is in harmony with ASEAN’ s long-standing position of non- interference with member state internal affairs.There may therefore be merit in the ASEAN states creating an equivalent ASEAN energy treaty , whereby governments make legally binding commitments in favour of common principles supporting the co-operative development of regional energy infrastructure and markets against unilateral actions

r inactions which may jeopardise the overall integrity
f the network.

The great diversity of legal and regulatory systems and economic development throughout ASEAN will inevitably make the harmonisation of institutional frameworks challenging.ASEAN does however have in its favour a long history of regional co-operation through the various ASEAN forums, and an understanding of the importance that co-operation in the energy sector is essential to the well-being of all ASEAN states. The 21st ASEAN Ministers of Energy Meeting was held in Langkawi, Malaysia on 3 July , 2003.The Ministers agreed that an enabling framework was required to stimulate strong private-sector participation in the TAGP on a commercial basis, and they agreed to enhance the ASEAN Energy Business Forum as an important platform to facilitate cooperation between ASEAN energy authorities and the private sector in business interaction, technology transfer and project financing opportunities.The Ministers also welcomed the establishment of the ASEAN Gas Consultative Council (AGCC) to serve as the strategic technical and information resource and capacity building advisory body to ASCOPE in the facilitation and implementation of the TAGP . With respect to greater regional and extra-regional cooperation, the Ministers called on the Senior Officials Meeting on Energy to expeditiously conclude a new petroleum security agreement to replace the existing 1986 agreement, agreed to strengthen cooperation with China, Japan and the Republic of Korea through the SOME+3 Energy Policy Governing Group, and expressed an intention to apply for observer status at the Energy Charter Conference so as to foster more active dialogue and regular exchange of information with the Energy Charter Secretariat. BEYOND TAGP Given the ambitious magnitude of the TAGP it may be natural to wish to continue the momentum and to think even further afield for possible extensions to the network. It is not inconceivable that a pipeline from Myanmar, Laos or Vietnam could extend into the southern Chinese provinces of Y unnan or Guangxi.Y unnan, for example, is already part of the ADB-assisted Greater Mekong Sub Region Program of economic co-

peration, including co-operation in the energy sector.

Thailand has already signed a preliminary accord for imported power from Y unnan, and this sub-regional co-operation could extend to gas transmission if suitable markets can be established. From Y unnan or Guanxi a pipeline could be linked to China’ s planned West-East gas pipeline either via existing pipeline infrastructure in Sichuan province and the planned Chongqing-Wuhan pipeline or to Shanghai through the eastern seaboard pipeline system sometimes envisaged by the Chinese government. Beyond this there is an irresistible tendency to look beyond the western fields of China to see the West- East pipeline linking with central Asia and, looking further north, talks have been held considering an infrastructure system to carry gas from Russian fields in East Siberia and Sakhalin to markets in China, Korea and Japan. The possibility of extending the TAGP into south Asia has also been considered, such as during the October 2002 India-ASEAN Business Summit.This would involve the extension of existing pipelines through Myanmar into India, possibly transiting Bangladesh and thereby facilitating the export of gas from Bangladesh into the Indian market. Although the thought of one interlinking network

f gas transmission pipelines stretching from Java to

Sakhalin and from the Philippines to central Asia may

nly be a flight of fancy now, such an ambition could

soon be capable of realisation if the will exists to progress from pipedreams to practicalities.