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PACIFIC PETROLEUM PROJECT PHASE 1 - A BULK PROCUREMENT INITIATIVE. Presentation to STAR 2010 Shakil Kumar 16 th October 2010. Presentation Outline. SPC’s role in the Petroleum sector Overview of Oil & Gas Industry. Overview of fuel Consumption & Supply Chain in PIC’s
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PACIFIC PETROLEUM PROJECT PHASE 1- A BULK PROCUREMENT INITIATIVE Presentation to STAR 2010 Shakil Kumar 16th October 2010
Presentation Outline • SPC’s role in the Petroleum sector • Overview of Oil & Gas Industry. • Overview of fuel Consumption & Supply Chain in PIC’s • Pacific Petroleum Project Status. • Recommendation - Harmonizing fuel quality and its benefits. - Encourage more countries to Sign
SPC’s role in the Petroleum Sector • Provides petroleum data and advisory services to Pacific Island Countries for efficient use of fuel. • Strengthening the existing petroleum database of PIC’s (Demand/Supply). • Assist regulators in PIC’s to monitor price control instruments. • Harmonize Fuel standards • Support the Bulk Procurement Initiative which is retained by Pacific Islands Forum Secretariat currently.
Oil and Gas industry - Overview Oil and gas provide the world's 6.4 billion people with 60 percent of their daily energy needs. The other 40 percent comes from coal, nuclear and hydroelectric power, "renewables" like wind, solar and tidal power, and biomass products such as firewood.
Consumption World - 82,000,000 barrels per day Pacific - 40,000 barrels per day Fiji - 11,000 barrels per day PNG - 20,000 barrels per day
SINGAPORE Hub Ports /MR Secondary Distribution Ports
Fuel Supply Chain – PIC’s Shipped in MR Extraction of Crude Oil - Malaysia Crude Oil refined in Singapore SPOL
FDI & State Investment 2010 MNOC SOE Regional
Exxon Mobil Divestment 2002. Shells Divestment 2005 BP (SWP) Divestment 2010 Reduction in level of competition. Additional players in the value chain. Strengthening of market power. Transfer of contaminated land liability. Transfer of operations and management. On going operation of grandfathered facilities. Loss of Foreign Direct Investment (FDI)
PACIFIC PETROLEUM PROJECT STATUS PIFS ADVERTISED TENDER SIGNATORIES COOK IS, MARSHALL, NAURU, NIUE & TUVALU HALE & TWOMEY IMPLEMENTATION SINCE JANUARY 2010
PROJECT OUTLINE Pacific Petroleum Project Phase 1 Milestone 1: Assessment of national standards and requirements Milestone 2: A procurement strategy Milestone 3: A risk assessment Milestone 4/5: A commercial contract Milestone 6: Associated tendering documentation (Expression of Interest & Cost benefit Analysis). First five milestones which have been completed with exception to Republic of Marshall Islands.
SUPPLY ROUTES TO PACIFIC ISLANDS MR tanker supply from Singapore LCT supply Possible LCT supply from Fiji Tanktainer supply from New Zealand
BULK FUEL PROCUREMENT • What it isn’t • A single cargo purchased in Singapore delivering to all countries • Forcing a certain delivery method • Nationalisation of oil industry • Forcing a single supplier for all participants. • Price cross-subsidisation. • It can’t change location and volume constraints. What it is • Achieving efficient supply into each country • Aim to get price competition between suppliers • Working with current suppliers and supply infrastructure • Combining countries to leverage volume • Levering supply with other countries as appropriate.
Procurement Strategy: Principles • Maximise Volume • Encourage more participation as appropriate • Mutual dependences recognised • Dependences exist between Signatories, non-Signatories and market participants • Market approach will be followed • Innovation from suppliers will be encouraged • Transparency of pricing is essential • Costs will lie where they fall • No cross-subsidisation between countries
Procurement Strategy: Approach • Recognise different situations in different countries • Government or private sector control of petroleum supply infrastructure • Will require voluntary participation of marketers; can be encouraged • Cover full supply chain into country terminal(s) • Covering both primary and secondary distribution • Supply standards to be harmonised • Tender can cover product quality and marine standards • Standards within countries handled outside the tender • Recommended managed through regional organisations
Issues to manage in process • Voluntary participation of private sector – encouraged through maintaining competitive supply • Countries dominated by a single supplier – can be efficient but lacks price competition • Countries with only one supply option/single company • Quality of receiving assets – ports/terminals • Suppliers who have interest in the in country facilities • Availability of funds for term supply • Willingness of donors to participate • Commitments to existing suppliers
RECOMMENDATIONS - PPP • Encourage more Pacific Islands to sign and participate in the Pacific Petroleum Project. • Harmonisation of fuel quality, vessel and terminal facility standards are required across the region. • Regional role recommended for supporting Pacific Island countries with petroleum standards
Harmonising Diesel Standards • Pacific Island Countries that are currently importing 5000ppm sulphur diesel to adopt 500ppm sulphur diesel as maximum quality. WHY Price differential less than 1 cent/litre Low Sulphur fuel Reduces CO2 and sulphur Emission
Harmonizing ULP This area is difficult as it will require : • Oil Industry Consultation • Vehicle Suppliers Consultation • Huge Capital Investment. Therefore this can be a long term objective for SPC to work towards with PICs.