Focused Energy Report –

Volume XXXXX

Monthly Report – November 2016

Energy Desk

GAIL (India) Ltd.

1

Table of Contents

I. Energy Prices 3

II. Under-Recoveries on Petroleum Products 3

III. Country Analysis – South Korea 4

A. Energy Mix ...................................................................................................................................................... 4

B. SWOT Analysis ............................................................................................................................................... 4

C. Resources ........................................................................................................................................................ 5

D. Oil and Gas Infrastructure ......................................................................................................................... 5

E. Natural gas ...................................................................................................................................................... 5

F. Key Players - South Korean Oil & Gas Sector .................................................................................... 6

G. Competitive Landscape .............................................................................................................................. 7

IV. Company Analysis – Essar Oil 8

A. Business Segments ....................................................................................................................................... 8

B. Milestones ....................................................................................................................................................... 9

C. Acquisition of Essar Oil ............................................................................................................................... 9

D. Key Indicators .............................................................................................................................................. 10

V. World Energy Scenarios 2060 11

A. Key Findings ................................................................................................................................................. 11

B. Factors Shaping World Energy .............................................................................................................. 11

C. India’s Energy Outlook - Coal ................................................................................................................ 12

D. Outlook Gas -India ..................................................................................................................................... 12

E. Outlook Oil - India ..................................................................................................................................... 13

F. Comparison of China, India & World .................................................................................................. 13

VI. Underground Storage Of Natural Gas (UGS) 15

A. Europe ............................................................................................................................................................ 15

B. United States & Canada ........................................................................................................................... 16

C. Asia Pacific .................................................................................................................................................... 18

D. Iran & Azerbaijan ........................................................................................................................................ 19

2

Executive Summary

The Focused Energy Report for the month of November 2016 reviews the Energy Prices taking in

consideration the comparison with last month. There’s decrease of around 2.9 % in the WTI oil prices, the

prices of natural gas Henry Hub have increased by 4.1 % and crude oil prices of Brent decreased by around

1.5%.

The next discussion in the report is about “South Korea”. It is the world's 2nd

largest liquefied natural gas

importer. It is one of the top energy importers in the world and relies on fuel imports for about 97% of its

primary energy consumption because the country lacks domestic energy reserves. Its national strategy is

largely geared towards energy conservation, achieving efficiency gains and diversifying import sources. It has

very small, state-controlled upstream sector, managed by KNOC.

An analysis of its Energy Mix, SWOT Analysis, Resources, Oil and Gas Infrastructure, Natural gas, Key Players -

South Korean Oil & Gas Sector and Competitive Landscape is covered.

In the next section company “Essar Oil” is analysed. It was incorporated in 1989 with the objective of

engaging in exploration, production, refining and marketing and related services in the oil and gas

sector. Its Vadinar Refinery of 20 MTPA is 2nd

largest single location refinery in India. It has countrywide

network of over 1,750 operational retail outlets with about 1,900 outlets in various stages of construction.

Rosneft and investment consortium led by Trafigura sign agreements to acquire 98% in Essar Oil -

Transaction includes ~Rs 72,800 crore ($10.9 bn) for Essar Oil’s refining and retail assets, and ~Rs 13,300

crore ($2 bn) for Vadinar port and related infrastructure making it India’s largest inbound FDI.

The analysis covers its Business Segments, Milestones, Acquisition of Essar Oil and Key Indicators.

In this section there is a discussion about “World Energy Scenarios 2060” of World Energy Council which has

collaborated with Accenture Strategy and the Paul Scherrer Institute. It presents three exploratory scenarios—

Modern Jazz, Unfinished Symphony, and Hard Rock. The world’s primary energy demand growth will

slow and per capita energy demand will peak before 2030 due to unprecedented efficiencies created by

new technologies and more stringent energy policies. In India, coal in primary energy peaks at 989 MT in

2040, coal settles at 660 MT in 2060. Beyond 2030, China and India account for more than 50% of growth

in gas consumption, with their combined primary gas demand totalling over 1,221 BCM in 2060. Natural gas

demand of India stands at 1262 mmscmd by 2060 and in 2030 of 346 mmscmd.

The analysis covers Key Findings, Factors Shaping World Energy, India’s Energy Outlook – Coal, Outlook Gas –

India, Outlook Oil – India and Comparison of China, India & Word.

In the last section an analysis on “Underground Storage Of Natural Gas “is covered. Gas storage is

principally used to meet load variations. Gas is injected into storage during periods of low demand and

withdrawn from storage during periods of peak demand. Natural gas storage is also used by industry

participants for commercial reasons; storing gas when prices are low, and withdrawing and selling it when

prices are high. In the U.S., large storages are provided by the private sector, also in order to keep

production flows constant. Japan is almost totally dependent on LNG imports. It has substantial LNG

storage, but its gas markets are fragmented.

The analysis covers underground gas storage market assessment of Europe, United States & Canada, Natural

Gas Working Storage Levels, Asia Pacific, Korea, China, Australia & New Zealand and Iran & Azerbaijan.

3

ENERGY PRICES I.

Price on 2nd

October 2016 Price on 1st Nov. 2016 Change % Change

Brent crude oil 49.06 48.3 -0.76 -1.5%

WTI crude oil 48.24 46.86 -1.38 -2.9%

Henry Hub Natural Gas 2.91 3.03 0.12 4.1%

WTI Crude Oil ($/barrel) BRENT Crude Oil ($/barrel) Natural Gas ($/mmbtu)

Particulars Aug. 2016 (Final) Sep. 2016 (Estimated)

JCC Crude Oil ($/b) 45.4 45.49

Average International FOB Price & Exchange rate:

UNDER-RECOVERIES ON PETROLEUM PRODUCTS II.

(A) Product-wise Under-recovery of Public Sector Oil Marketing Companies(OMCs):

* Under (Over) Recovery is for Mumbai market, ** Cash Subsidy is for Delhi market

(B) The details of the under recovery/DBTL Subsidy during 2014-15 & 2015-16:

Particulars Unit 28-Oct.-16

Next Pricing Fortnight

for

1st Nov. 2016

Crude Oil(Indian Basket)

- In US Dollar

- In Indian Rupees

($/bbl)

(Rs/bbl)

48.50

3242.61

49.53

3309.10

Exchange Rate (Rs/$) 66.86 66.81

Product Unit Under/Over-recovery

(eff. 16th

Oct. 16)

Cash Transfer under

DBTL (eff. 1st Oct. 16)

PDS Kerosene* (Rs/litre) 10.25

Cash Compensation on Domestic LPG by

Govt. to consumers** (Rs./Cylinder)

28.23

Cash Compensation on Domestic LPG by

OMCs towards

'Uncompensated Costs' to consumers**

(Rs/Cylinder) 34.68

Product 2015-16

(Rs./Crore)

2014-15

(Rs./Crore)

Diesel 0 10,935

PDS Kerosene 11,496 24,799

Domestic LPG 18 36,580

DBTL Subsidy (Direct Benefit transfer for LPG) 16,056 3,971

4

Oil 41%

Natural Gas 14%

Coal 31%

Nuclear Energy

13%

Hydro electric

0%

Renewables 1%

Energy Mix 2015: South Korea

COUNTRY ANALYSIS – SOUTH KOREA III.

South Korea, officially the Republic of Korea, is a sovereign state in East

Asia, constituting the southern part of the Korean Peninsula. South

Korea was the world’s ninth-largest energy consumer in 2015,

according to estimates from the BP Statistical Review of World Energy

2016. South Korea’s highly developed economy drives its energy

consumption and economic growth is fuelled by exports, most notably

exports of electronics and semiconductors.

Korea is one of the top energy importers in the world and relies on fuel

imports for about 97% of its primary energy consumption because the

country lacks domestic energy reserves. South Korea ranks among the

world’s top five importers of liquefied natural gas, coal, crude oil, and

refined products.

A. Energy Mix

Oil comprises of 41 % in its energy mix with coal next with

31%.Share of natural gas and nuclear is 14 % and 13%

respectively. Following Japan’s Fukushima disaster and South

Korea’s problems with false safety certifications of nuclear parts

in late 2012, the government scaled back its long-term reliance

on nuclear power in the energy and electricity portfolios from its

first plan in 2008 to the most recent plan unveiled in early

2014.South Korea is attempting to balance its fuel portfolio to

meet higher energy consumption, to moderate its nuclear

power generation, and to offset some fossil fuel imports. As part

of this effort, the government is also promoting greater

demand-side management, energy efficiency tactics, and use of

renewable energy.

B. SWOT Analysis

Strengths

Large and technologically sophisticated refining

sector, supporting significant refined fuels exports

to buyers around the world.

Stable short-term and long-term political

environment and economic growth outlook,

which offers a largely risk-free operating

environment to investors.

Geographical proximity to major consumer

markets in the Asia-Pacific region puts the

country in a favourable position to capitalise on

their growing energy needs.

Opportunities

The country's offshore acreages are open to

foreign investment.

The East Sea could be prospective for methane

hydrates.

The petrochemical sector is likely to continue its

high demand for oil and/or gas feedstock.

The government is mulling liberalising the

domestic retail electricity market and the

LNG trading sector, traditionally dominated by

KEPCO and KOGAS, respectively, to greater private

sector participation.

Weaknesses

The country's small proven reserves and

negligible oil and gas output renders it to remain

heavily dependent on crude oil and LNG imports.

Korea National Oil Corporation retains a

monopolistic presence in the South Korean

Threats

Subdued below-ground potential dissuades private

and international investment in upstream activities,

limiting opportunities for reserves and output

growth.

Rising prominence of alternative energy sources

5

upstream segment, as international interest in the

country's upstream potential remains limited.

such as nuclear energy, coal and renewables, could

erode the share of gas in South Korea's power mix.

In light of its heavily contracted LNG volumes in

the coming years, this increases the risk of an

oversupply in the domestic market.

Source: BMI

C. Resources

2014 2015e 2016f 2017f 2018f 2019f 2020f

Crude, NGPL & other liquids prod, 000b/d 20.0 19.6 19.2 18.8 18.5 18.5 18.1

Refined products production, 000b/d 2,821.1 3,068.6 2,945.9 2,916.4 2,901.8 2,887.3 2,872.9

Refined products consumption & ethanol, 000b/d 2,347.8 2,613.6 2,622.2 2,630.8 2,639.5 2,648.1 2,675.2

Dry natural gas production, bcm 0.3 0.2 0.1 0.1 0.0 0.0 0.0

Dry natural gas consumption, bcm 49.7 42.7 42.3 41.9 41.4 41.0 40.8

Brent, USD/bbl 99.50 53.60 46.50 57.00 62.00 65.00 71.00

e/f = BMI estimate/forecast. Source: KNOC, KOGAS, Bloomberg, EIA, BMI

D. Oil and Gas Infrastructure

1. Oil Refineries

There are six major refineries in South Korea and

two smaller refineries, giving the country an

estimated total capacity of 3.0mn barrels per day

(b/d) in 2015. SK Energy is the largest player in the

sector, with more than 1mn b/d in total of refining

capacity, followed by the likes of GS-Caltex, S-Oil

and Hyundai Oilbank.

2. Oil Storage

South Korea has nine oil storage facilities in operation with total

capacity of 146mn bbl of crude oil and oil products, of which

about 85mn bbl (equivalent to about 58.2%) remain filled, based

on figures provided by Korea National Oil Corporation (KNOC).

E. Natural gas

South Korea is the second-largest importer of liquefied natural gas

in the world behind Japan. South Korea relies on imports to satisfy

nearly all of its natural gas demand, which has nearly doubled over

the past decade. South Korea does not have any international

natural gas pipeline connections and must therefore import all gas

via LNG tankers. As a result, although South Korea is not among

the group of top natural gas-consuming nations, it is the second-

largest importer of LNG in the world after Japan.

Refinery Capacity (b/d)

Owner Completed

Busan 9,500 Hyundai Corporation

1965

Seosan, Daesan

3,90,000 Hyundai Oilbank

1964

Daesan 13,052 Hyundai Oilbank

2014

Incheon 2,75,000 SK Energy 1972

Onsan, Ulsan

6,69,000 S-Oil 1980

Ulsan 8,40,000 SK Energy 1964

Yeosu 7,86,000 GS Caltex 1969

Seosan, Daesan

1,10,000 Hyundai Oilbank

2016

Total 30,98,500 - -

6

1. LNG Terminals

Terminal Status Capacity (mntpa) Completion Ownership

Pyongtaek LNG Operational 20.0 1986 KOGAS

Tongyeong LNG Operational 10.5 2002 KOGAS

Incheon LNG Operational 26.0 1996 KOGAS

Samcheok Terminal Operational 6.5 2016 KOGAS

Gwangyang LNG Operational 1.7 2005 POSCO

Boryeong LNG Under Construction 3.0 2016 GS Caltex

Gwangyang Expansion Proposed 1.3 2015 POSCO

Jeju LNG proposed - 2017 KOGAS

Tongyeong Expansion Proposed 8.0 2015 KOGAS

Total Capacity (Active) 64.7 - -

Total Capacity By 2017 77.0 - -

In 2015, South Korea imported 43.7 bcm of LNG, which was 13% of the global LNG trade, according to BP

Statistical Review of World Energy 2016. South Korea currently has five LNG regasification facilities, with a total

capacity of 64.7 mmtpa and a 38% utilization rate. KOGAS operates four of these facilities (Pyongtaek, Incheon,

Tong-Yeong, and Samcheok), accounting for about 98% of current capacity. The Samcheok terminal, located on

the northwest coast, is KOGAS’s smallest terminal and was added in 2016. Pohang Iron and Steel Corporation

(POSCO) and Mitsubishi Japan jointly own the only private regasification facility in Korea, located on the southern

coast in Gwangyang. KOGAS is constructing a second privately owned regasification facility at Boryeong in the

Northeast. The terminal’s capacity is 3 mmtpa, and the facility is scheduled to begin operations in 2016.

2. Pipeline

Location (Region) Pipeline Length (km)

Chungcheong 464

Gangwon 587

Gyeongbuk (Daegu) 672

Gyeonggi 517

Gyeongnam (Busan) 525

Incheon 270

Jeonbuk 398

Jeonnam (Gwangju) 451

Seoul 356

Total 4,240

F. Key Players - South Korean Oil & Gas Sector

Company 2015 Revenues

(USDbn) 2015 Total Assets

(USDbn) Year

established Main Ownership

SK Innovation 42.7 26.6 1962 SK Holdings

GS Caltex 25.1 16.1 1967 -

S-Oil 15.8 9.2 1976 Saudi Aramco

Hyundai Oil Bank 11.5 6.4 1964 -

KNOC 4.1 24.6 1979 100% state

KOGAS 23 36 1983 Ministry of Strategy &

Finance POSCO Daewoo

Corp 15.4 6.8 2000 POSCO

7

G. Competitive Landscape

South Korea's national strategy is largely geared towards energy conservation, achieving efficiency gains and

diversifying import sources. The Ministry of Trade, Industry and Energy (MOTIE) is the main government branch

responsible for issues pertaining to the domestic oil and gas industry, in which the state retains a sizable

influence via national companies, Korea National Oil Company (KNOC) and Korea Gas (KOGAS).

South Korea has a very small, state-controlled upstream sector, managed by KNOC. Partly privatised KOGAS

manages the country's natural gas industry. Both companies have been expanding their overseas portfolios with

a view to securing the country's energy supply. Both are now under pressure to slow the rate of international

expansion and focus on near-term financial strength.

In April 2016, the government scrapped plans for an IPO for KNOC, along with five power service providers,

citing security concerns and poor market conditions amid continued oil price weakness.Following a strong 2015

in which it recorded operating profit of USD1.7bn, SK Innovation outlined its intention to boost M&A activities

in 2016, focusing on opportunities in the petrochemicals and EV battery sectors.

SK Innovation is participating in 29 oil/gas blocks and five liquefied natural gas (LNG) projects in 16 countries. It

has proved reserves of more than 500mn barrels of oil equivalent (boe). The SK refining arm reported its first

annual operating loss in 2014 as a result of tumbling oil prices and negative inventory revaluation. SK Innovation

reported a profit in the third quarter of 2015 on continued improvement in its lubricant oil business and reduced

inventory losses.

8

COMPANY ANALYSIS – ESSAR OIL IV.

Essar Oil Limited (EOL, "the Company") was incorporated in 1989 with the objective of engaging in exploration,

production, refining and marketing and related services in the oil and gas sector. EOL is a subsidiary of Essar

Energy Plc (LSE listed), an Essar group company which holds all of its Indian oil and gas assets under EOL and

power assets under Essar Power Limited. Essar Oil Limited is a privately held company after a complete delisting

from the bourses in 2015. Only 2% of the equity remains with public shareholders who had not participated in

the delisting.

A. Business Segments

The Company earns revenue from three different business segments viz. Refinery, Marketing and Exploration and

Production as outlined in subsequent section. Essar Oil has a retail presence in 28 states & UTs; its products

marketed through 58 supply locations .It manufactures petrol, diesel, LDO, Sulphur, FO, Bitumen and PetCoke.

1. Vadinar Refinery

Particulars Details

Capacity 20 MTPA (2nd largest single location refinery in India) 405,000 bpd

Complexity 11.8 Location Vadinar, Gujarat, a natural all-weather, deep-draft port that can accommodate very large

crude carriers (VLCCs). The Vadinar port area receives almost 70 per cent of India's crude oil imports.

Location on the west coast of India provides efficient access to indigenous crudes and Persian Gulf-based crudes plus high-growth refined product export markets.

Capex USD 5.31 billion Capex per bbl.: USD 13,152 Operating Cost USD 2.8 per bbl. Raw Materials Capability to process ~85% of heavy/ ultra-heavy crudes & produce Euro IV/V grades of

products Product Slate LPG, Naphtha, Light Diesel Oil, ATF, Kerosene, Gasoline, Gasoil, VGO.

85% production comprises of high margin light and middle distillates. GRMs USD 8.37/bbl. (For FY15)

2. Marketing

Essar Oil serves retail customers through a modern, countrywide network of over 1,750 operational retail outlets

with about 1,900 outlets in various stages of construction. It was the first private Indian company to enter petro

retailing, looking beyond urban markets and reaching out to consumers in India's heartland.

Tie-ups with other oil marketing companies gives EOL access to the products and the right to use their terminals

and facilities for placing and marketing our products. Company has pan-India presence with more than 30 supply

locations.

The company offers a wide range of products to bulk customers in the industrial and transport sectors. EOL has

product offtake and infrastructure sharing agreements with all the oil PSUs, namely Bharat Petroleum

Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL) and Indian Oil Corporation (IOCL). It has

received approvals to supply Aviation Turbine Fuel (ATF) to the Indian Armed Forces.

3. Exploration & Production

Essar Oil’s exploration and production business has ~1.75 billion barrels of oil equivalent of reserves, resources.

Of this, approximately 175 million barrels are 2P and 2C resources, ~830 million barrels are prospective resources

and ~750 million barrels are unrisked, in-place resources. EOL has acreage of over 2,700 sq km in India, which

gives it one of the largest CBM acreage in the country.

9

The E&P division overall has a diverse portfolio of 15 blocks and fields for the exploration and production of oil

and gas in India and overseas. It has net 2P (proven and probable reserves) and 2C (contingent resources) of 209

mmboe, best estimate prospective resources of 929 mmboe and an un-risked in-place resource base of 971

mmboe across the globe.

EOL-E&P is now focusing towards CBM where it is one of the leading player in India with 2,733 km2 of acreage

and ~10 TCF of reserves and resources across five CBM blocks.

100% interest in Raniganj (West Bengal), Rajmahal (Jharkhand), Talchir (Orissa), IB Valley (Orissa), and

Sohagpur - NE (MP) CBM Blocks

100% interest in Mehsana Oil Block, Cambay, India (Except ESU field where it has 70% interest)

50% interest in Ratna and R-Series, Offshore Mumbai, India

100% interest in two Assam Blocks

Essar Oil is India’s largest producer of CBM gas.

B. Milestones

2002 Essar Oil Limited is awarded its first CBM block, the RG (East)–CBM–2001/1 block in the

Raniganj region of India.

2003 Essar Oil Limited commences building its network of franchised retail petrol stations.

2005 Construction of the Vadinar refinery recommences.

2006

The Vadinar refinery commences operations on a trial basis.

Essar Oil Limited implements plans to debottleneck Vadinar refinery to expand its annual

capacity from 10.5 mmtpa to 16 mmtpa.

2008 The Vadinar refinery commences commercial operations.

2009 Essar Oil Limited is provisionally awarded exploration and production rights in the Rajmahal

CBM block RM (E)-CB-2008/IV.

2010 Essar Oil declared winner of four CBM blocks as per announcement by CCEA namely RM(E)-

CBM-2008/IV, SP(NE)-CBM-2008/IV, TL-CBM-2008/IV and IB-CBM-2008/IV.

2011 Essar Oil completes 35-day planned project as part of its expansion and optimization

project

2012

Essar Oil Completes Expansion and Optimisation Projects; Capacity Increased To 20MMTPA

Commissioned 510 MW coal fired captive power plant, the first refinery in Asia to do. This

boosts margins by ~$1/bbl.

2013 EOL exits CDR loan facility in March 2013.

Improvement in credit rating by two notches from BBB- to BBB+

2016 Rosneft and investment consortium led by Trafigura sign agreements to acquire 98% in

Essar Oil

C. Acquisition of Essar Oil

Rosneft and investment consortium led by Trafigura sign agreements to acquire 98% in Essar Oil.

Transaction includes ~Rs 72,800 crore ($10.9 bn) for Essar Oil’s refining and retail assets, and ~Rs 13,300

crore ($2 bn) for Vadinar port and related infrastructure

This makes it India’s largest inbound FDI

Essar Oil was set up using an equity capital of about Rs 9,000 crore in the 1990s. The transaction values the

Company at over 8 times that cost.

1. The Deal

The first sale and purchase agreement envisages the sale of 49% to Petrol Complex Pte. Ltd (a subsidiary of PJSC

Rosneft Oil Company); the second envisages the sale of the remaining 49% to Kesani Enterprises Company

Limited (owned by a consortium led by Trafigura) at an enterprise valuation of Rs 72,800 crore ($10.9 bn) (the

10

“Transaction”). An additional Rs 13,300 crore ($2 billion) will be paid for the acquisition of Vadinar Port, which has

world-class storage and import/export facilities.

The all-cash deal encompasses EOL’s 20 million tonne refinery in Gujarat, India, and its pan India retail outlets.

The closing of the Transaction is conditional upon receiving requisite regulatory approvals and other customary

conditions. The Parties expect to obtain the relevant approvals before the end of this year.

Its 20 million tonne oil refinery in Vadinar, which accounts for 9% of India’s total refining output, is supported by

a 1,010 MW captive power plant, and complemented by a network of around 2,700 operating retail outlets. The

additional Rs 13,300 crore that the new stakeholders have agreed to pay is for the 58 million tonne deep draft

port in Vadinar that helps in importing crude and exporting finished products. The Transaction is the single

largest tranche of foreign direct investment in India.

2. Highlights

All-cash deal expected to close in Q1 2017, subject to all necessary approvals

Essar plans to utilise proceeds from the stake sale to deleverage the Group and pave the way for

strategic consolidation and growth in other businesses

There is no non-compete fee under the transaction with Rosneft

Deal in line with government’s vision to attract high ticket foreign investments into India

Transaction includes 20 MTPA refinery at Vadinar (Gujarat) and all supporting infrastructure

Transaction also gives Rosneft and the UCP-Trafigura consortium access to Essar Oil’s pan-India network

of over 2,700 fuel retail outlets

Deal will help Essar deleverage almost 50% of its Rs 88,000 crore debt and substantially reduce interest

costs

D. Key Indicators

Rosneft picked up a 49% stake in Essar

Oil Limited Consortium of

Trafigura and UCP pick up another 49% stake

14.76

13.5

19.77

20.23

20.49

0 5 10 15 20

2010-11

2011-12

2012-13

2013-14

2014-15

Throughput (MMT)

4.53

4.23

7.96

7.98

8.37

0 2 4 6 8

2010-11

2011-12

2012-13

2013-14

2014-15

CP GRM (USD/bbl)

-1500 -500 500 1500 2500 3500 4500 5500

2010-11

2011-12

2012-13

2013-14

2014-15

PAT (Rs Crore) EBITDA (Rs Crore)

11

WORLD ENERGY SCENARIOS 2060 V.

In this section of report we have covered World Energy Scenarios of World Energy Council which has

collaborated with Accenture Strategy and the Paul Scherrer Institute to explore likely futures for the Grand

Transition—a world of lower population growth, radical new technologies, greater environmental challenges, and

a shift in economic and geopolitical power—looking to 2060.

It presents three exploratory scenarios—Modern Jazz, Unfinished Symphony, and Hard Rock.

Modern Jazz represents a ‘digitally disrupted’, innovative, and market-driven world.

Unfinished Symphony is a world in which more ‘intelligent’ and sustainable economic growth models

emerge as the world drives to a low carbon future.

Hard Rock which explores the consequences of weaker and unsustainable economic growth with inward-

looking policies.

A. Key Findings

The world’s primary energy demand growth will slow and per capita energy demand will peak before 2030

due to unprecedented efficiencies created by new technologies and more stringent energy policies.

Demand for electricity will double to 2060. Meeting this demand with cleaner energy sources will require

substantial infrastructure investments and systems integration to deliver benefits to all consumers.

The phenomenal rise of solar and wind energy will continue at an unprecedented rate and create both new

opportunities and challenges for energy systems.

Demand peaks for coal and oil have the potential to take the world from “Stranded Assets” to “Stranded

Resources”.

Transitioning global transport forms one of the hardest obstacles to overcome in an effort to decarbonise

future energy systems.

Limiting global warming to no more than a 2°C increase will require an exceptional and enduring effort, far

beyond already pledged commitments, and with very high carbon prices.

Global cooperation, sustainable economic growth, and technology innovation are needed to balance the

Energy Trilemma.

B. Factors Shaping World Energy

Most significant factors that shaped world energy’s performance and how the interaction of four key drivers

influenced energy outcomes:

12

Population and labour force growth

New technologies and productivity

Environmental priorities

International governance and geo-political relationships

1. Population

By 2035, Asia has become the dominant economic region. China is the number-one economy in the world, the

largest global manufacturer and is in transition to consumption—and services-led growth. India rises as the

world’s most populous country and the third-largest economy. Asian middle-class consumption reflects two-

thirds of the global market. Global financial institutions such as the WTO, IMF and World Bank are increasingly

pressured to reform and better represent the diversifying global economic landscape.

C. India’s Energy Outlook - Coal

Despite high economic growth and growing energy demand, especially in developing nations, the role of coal in

primary energy declines at a pace of 0.4% p.a. from 2014 to 2030. Declines are seen all over the world except for

India, where 288 MTOE of coal are added to the primary energy supply in the period. Growth in India is offset by

declines of 350 MTOE in NAM and EUR, where coal peaks before 2020. In India, coal in primary energy peaks at

989 MT in 2040, coal settles at 660 MT in 2060.

Coal production is dominated by China and India throughout the period, with China maintaining its position as

the number-one producer of coal globally. Still, India makes significant strides, adding 400 MTOE of production

from 2014 to 2060.

D. Outlook Gas -India

Beyond 2030, China and India account for more than 50% of growth in gas consumption, with their combined

primary gas demand totalling over 1,221 BCM in 2060. Natural gas in TPES grows at 5.7% p.a. in Sub Saharan

Africa in the second half of the period, reaching 347 BCM and driving 20% of global gas growth from 2030 to

2060.

539 717

950 989 847

660 539 581 651

499 303

201

539 694

986

1251 1340 1374

0

500

1000

2014 2020 2030 2040 2050 2060

MT India Coal Outlook - WEC

MODERN JAZZ COAL UNFINISHED SYMPHONY COAL HARD ROCK COAL

13

MMSCMD 2014 2020 2030 2040 2050 2060

Modern Jazz 131 215.9 346.72 596 934 1262

Unfinished Symphony 131 215.9 407.55 687 897 1034

Hard Rock 131 209.9 398.42 575 736 985.4

Projected CAGR for 2014-60 for

different scenarios - Modern Jazz

is 5%, Unfinished Symphony is

4.6% and Hard Rock Gas is

4.5%.Projected numbers for 2060

for India in mmscmd is as above.

E. Outlook Oil - India

The market re-balances in the face of lower oil prices via higher demand and lower supply. With the OPEC

holding production levels and non-OPEC supply costs coming down, oil prices settle at an affordable equilibrium.

This leads to growth of oil in TPES through 2030 at a pace of 1.1% p.a. By then, China has added 8.2 mb/d of

consumption and India has added 3.6 mb/d. The transport and petrochemical sectors are the main drivers of

growth, with demand for oil in aviation growing at the fastest pace to 2030.

F. Comparison of China, India & World

1. Coal

Modern Jazz Coal By Region - Mtoe

2014 2020 2030 2040 2050 2060

CAGR

(2014-60)

World 3,902 3,831 3,636 3,102 2,303 1,832 -1.60%

China 2,017 2,080 1,919 1,681 1,239 937 -1.70%

India 377 502 665 692 593 462 0.40%

Unfinished Symphony Coal By Region - Mtoe

2014 2020 2030 2040 2050 2060

CAGR

(2014-60)

World 3,902 3,509 3,062 2,058 1,063 724 -3.60%

China 2,017 1,912 1,648 1,158 602 384 -3.50%

India 377 407 456 349 212 141 -2.10%

48 79

127

218

341

461

48 79

149

251

327 377

48 77

145 210

269

360

0

200

400

2014 2020 2030 2040 2050 2060

BCM India Gas Outlook - WEC

MODERN JAZZ GAS UNFINISHED SYMPHONY GAS HARD ROCK GAS

4 5

7 8

9 9

4 5

7 8

9 9

4 4

6 7

8 9

0

5

10

2014 2020 2030 2040 2050 2060

MBl/D India Oil Outlook - WEC

MODERN JAZZ OIL UNFINISHED SYMPHONY OIL HARD ROCK OIL

14

Hard Rock Coal By Region - Mtoe

2014 2020 2030 2040 2050 2060

CAGR

(2014-60)

World 3,902 3,932 3,923 4,044 3,524 3,194 -0.40%

China 2,017 2,162 1,945 1,935 1,448 1,159 -1.20%

India 377 486 690 876 938 962 2.10%

2. Oil

Modern Jazz Oil By Region - Mb/D

2014 2020 2030 2040 2050 2060

CAGR

(2014-60)

World 86 94 103 99 91 80 -0.20%

China 11 14 19 17 14 12 0.20%

India 4 5 7 8 9 9 1.90%

Unfinished Symphony Oil By Region - Mb/D

2014 2020 2030 2040 2050 2060

CAGR

(2014-60)

World 86 92 94 88 78 65 -0.60%

China 11 14 16 15 12 10 -0.20%

India 4 5 7 8 9 9 2.00%

Hard Rock Oil By Region - Mb/D

2014 2020 2030 2040 2050 2060

CAGR

(2014-60)

World 86 92 101 104 104 103 0.40%

China 11 12 15 16 15 15 0.70%

India 4 4 6 7 8 9 1.90%

3. Gas

Modern Jazz Gas By Region - Mtoe

2014 2020 2030 2040 2050 2060

CAGR

(2014-60)

World 2,891 3,417 3,927 4,515 4,974 4,968 1.20%

China 155 238 322 475 692 703 3.30%

India 43 71 114 196 307 415 5.00%

Unfinished Symphony Gas By Region - Mtoe

2014 2020 2030 2040 2050 2060

CAGR

(2014-60)

World 2,891 3,375 3,554 3,637 3,822 3,604 0.50%

China 155 221 318 415 647 563 2.80%

India 43 71 134 226 295 340 4.60%

Hard Rock Gas By Region - Mtoe

2014 2020 2030 2040 2050 2060

CAGR

(2014-60)

World 2,891 3,392 3,727 3,811 4,231 4,370 0.90%

China 155 217 252 259 453 426 2.20%

India 43 69 131 189 242 324 4.50%

15

UNDERGROUND STORAGE OF NATURAL GAS (UGS) VI.

Gas storage is principally used to meet load variations. Gas injected into storage during periods of low demand

and withdrawn from storage during periods of peak demand. Natural gas storage is also used by industry

participants for commercial reasons; storing gas when prices are low, and withdrawing and selling it when prices

are high. Natural gas is stored underground primarily in three reservoir types: depleted oil and gas fields,

depleted aquifers, and in salt beds and salt caverns. Natural gas may also be stored above ground in refrigerated

tanks, as liquefied natural gas (LNG).

In the U.S., large storages

are provided by the

private sector, also in

order to keep production

flows constant. Japan is

almost totally dependent

on LNG imports. It has

substantial LNG storage,

but its gas markets are

fragmented. Australia is

also a self-sufficient and

actually an exporting

country. Storage is just

one way of providing such

gas to be supplied in

emergencies, which have in fact never been called for yet.

A. Europe

Between 2010 and April 2015, storage capacity in Europe steadily grew from 118 to 137 bcm of working gas

volume. In Germany,

Italy, Austria and the

United Kingdom,

several projects with

a phased increase of

capacity were

completed. In 2015,

the Bergermeer gas

storage facility in the

Netherlands went on

line with a capacity of

4.1 bcm.

Mandatory storage

obligations exist in

the majority of

sample countries: Bulgaria, Denmark, France, Poland, Spain, Czech Republic and Hungary. Italy and Hungary also

require strategic storage. Only three out of 11 sample countries have no Security of Supply related Storage

measures (SRSMs): the UK, Germany and Austria. 56% of totally available EU storage capacity lies in countries

with mandatory storage obligations while 44 % is not restricted by any obligations. In France, the obligation also

concerns withdrawal capacity, as since 2014 suppliers have to ensure they hold a minimum withdrawal capacity,

in addition to gas stocks. The total amount of mandatory storage is computed differently in each country.

The graph below show that underground storages have generally been well exploited and are an important tool

for covering the seasonal swing, in different scenarios of gas demand and gas prices. The availability of stored

Gas Volume by Countries (bcm) (Source: IGU)

UGS Working Gas Volume by Storage operators (Bcm) (Source: IGU)

16

gas was an important tool to face

geopolitical crisis during past years, also

considering the decreasing domestic

production and the increasing dependency

of the gas supply by non-EU countries.

1. Underground storage sites for natural gas in Europe

This map represents the working gas

capacities of underground storage

sites in millions of m3 and the number

of storages in each European country.

The total working gas capacity in

Europe today totals around 148 billion

m3, including 108 billion m3 in the

UE-28. Global storage capacity is

currently estimated at over 360 billion

m3.

France, Germany and Italy can hold

approximately 1/3 of their annual

requirement in stock. These countries

store natural gas in a unique logistics

chain to maintain a balance between

supply and demand.

Over 50% of total storage capacity in

EU28 is concentrated in three

countries: Germany, Italy and France.

The same three countries have the

highest concentration of storage sites

and together account for 54% of the total number of facilities in EU28.

Country Number

of sites

Working gas

capacity (million of

m3) (Total)

Aquifer Salt

cavity

Depleted

field

Other (oil field with

gas cap, rock cavern,

LNG peak shaving)

EU28 152 107,886 24 52 74 3

Europe 174 147,662 29 55 88 3

Source: GSE, MEDDTL (2016)

B. United States & Canada

Underground storage of natural gas is an integral component of the nation’s energy system. Natural gas

consumption is highest during the winter time and lowest during mild-weather months. Natural gas storage

enables supply to match demand on any given day throughout the year.

The United States and Canada have approximately 4.72 trillion cubic feet (Tcf) of working natural gas storage

capacity (3.9 Tcf in the U.S. and 0.82 Tcf in Canada). This volume is equal to approximately 60 days of average

17

daily North American consumption. In Canada storage capacity is equivalent to approximately 30 per cent of

domestic annual natural gas demand.

1. Natural Gas Working Storage Levels

(Source: American Gas Association) Energy Information Administration, “Weekly Natural Gas Storage Report, History,” January 8, 2016.

The chart above shows how

storage fluctuates with the

weather. During the mild winter

of 2012, the gas withdrawn from

storage was far more moderate

(see black arrow). In contrast, in

2014, the year of the Polar

Vortex, natural gas storage was

“drawn down” sharply (see grey

arrow). But even in the mildest of

winters, such as 2012, natural gas

withdrawals from storage were vital to meeting winter natural gas demand.

North American natural gas market is well supplied and that there should be ample natural gas in storage to

meet any unexpected changes in demand next winter, which should provide some market stability and help

moderate the volatility of prices. Unusually cold weather can be a strong driver of natural gas demand and

prices. As witnessed in 2013-2014, an unusually cold winter tends to put upward pressure on natural gas prices,

while a mild winter tends to lead to weaker demand, which can moderate or even reduce prices and their

volatility.

2. Where Natural Gas Underground Storage Fields are Located

In Canada, the majority of storage is located in Western

Canada (472 bcf), with Alberta having the greatest volume,

and smaller storage capacity in place in British Columbia and

Saskatchewan. Western Canadian storage is used primarily for

managing producer and pipeline supplies. Storage in Eastern

Canada is located primarily in Southwestern Ontario, one of

the most significant North American storage hubs in North

America, and is used almost exclusively by end use customers

to meet winter demand in the provinces of Ontario and

Quebec. These Ontario facilities have a working capacity of

just over 241 bcf. To put it into perspective this is equivalent to about 72,000 GWh of electricity or enough to

power just over 10 million households in Ontario for one year. There is also a small amount of storage capacity in

Quebec and New Brunswick in the form of LNG storage and a facility is under development in Nova Scotia to

build a salt cavern facility for operation by 2017.

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C. Asia Pacific

Japan, South Korea, and China are the three largest importers of liquefied natural gas (LNG) in the world,

accounting for more than half of global LNG imports in 2015. Key elements of Japan’s overall gas security policy

are: diversifying its long-term supply contract portfolio; ensuring that long-term contracts include flexibility to

increase imports during an emergency; and using voluntary commercial LNG stocks in industry. Even though

industry is not obliged to hold any emergency gas stocks, industry has commercial stocks equivalent to about 20

to 30 days of consumption. The five

underground gas storage sites in Japan

are all located in the Niigata prefecture

and are even more important assets than

before.

As per IEA 2014, Japan has no

underground facilities to store natural gas

in its gaseous state. Japan has 31

operational LNG receiving terminals with

a total LNG storage capacity of over 16

mcm (equivalent to around 10 bcm of

natural gas storage capacity).

(Source:LNG Journal.com published in 18th January,2012)

1. Korea

Korea has no underground natural gas storage facilities. Almost all natural gas storage facilities are in the form of

LNG storage tanks and their ancillary facilities. An innovative method of liquefied natural gas (LNG) storage in

lined rock caverns has been developed to provide a safe and cost-effective solution. According to a report LNG

accounted for about 21.4 percent of South Korea's power generation in 2014.

2. China

In 2014 China had 25 operational gas storage facilities with a total capacity of 12.3 bcm, compared with demand

of 179 bcm in 2014. As per IEA 2014, CNPC brought into operation the country’s largest underground gas

storage facility in Hutob in July 2013. This facility has a combined storage capacity of 10.7 bcm for the West-East

Gas Pipeline. CNPC has been constructing five other large gas storage facilities. Sinopec’s second gas storage

facility has also been developed in Zhongyuan, with a capacity of 10.4 bcm, in addition to its existing capacity of

around 0.5 bcm. It is reported that China has plans to construct over 35 underground storages in total to boost

its storage capacity to 35 bcm by 2015 and to 60 bcm by 2020.

Facts as of 2015:

Total Number of Existing Fields =

415 in 30 States

[Salt Caverns = 39

Aquifers = 47

Depleted Fields = 329]

Total Wells under service = ~ 17500

Total Storage Capacity =

9,230,840 mcf (261388 mcm)

Total Working Gas Capacity =

4,800,671 mcf (135939 mcm)

~ 20% of all natural gas consumed during

the winter is supplied by UGS.

19

Commercial incentives for new gas storage are lacking. The commercial case for underground gas storage in

China is unclear. Storage fees are charged as part of pipeline transmission costs and not broken out separately in

the tariffs levied by CNPC, which operates most of the national pipeline network.

3. Australia & New Zealand

As per IEA, 2011 report, there are 4 underground natural gas storage facilities in Australia with a total capacity of

1.3 bcm of working gas. The Dandenong LNG Storage Facility in Victoria provides peak shaving and security of

supply services for the Victorian transmission system as well as supporting wholesale trade in LNG used as fuel

for transport vehicles. Further Natural Gas Information 2016 edition of IEA shows the updated data as per the

table.

The Ahuroa Gas Storage (AGS) facility, New Zealand’s first underground natural gas storage facility, was officially

opened in May 2011. Owned by Contact Energy, the facility has a maximum drawdown capacity of 45 terajoules

per day. The AGS is located close to Contact Energy’s 380 megawatt (MW) Taranaki Combined Cycle (TCC) power

station and a 200 MW gas-fired peaking power station located near the TCC at Stratford. (Source: IEA, 2014)

D. Iran & Azerbaijan

Iran began underground gas storage in 2008. Gas storage project is a national strategic plan. Serajeh gas

storage facility was Iranˈs first project. By producing 10 mcm per day in winter, it played a crucial role in meeting

the countryˈs gas demand. Shourijeh gas storage facility was the country’s second gas storage project, which was

launched in 2010.

Azerbaijan has two existing underground gas storage facilities (UGS), both located at Garadag and Galmaz, 20

and 75 km respectively to the south-west Baku. Galmaz is a sandstone reservoir with relatively dry gas, very little

condensate content and no significant water content. The Garadag UGS has also been developed in the depleted

gas/condensate Garadag field, which comprises two reservoirs. Total design storage capacity is around 3.5 bcm:

1.5 at Galmaz and 2.0 at Garadag. In 2011, 1.45 bcm of gas has been injected in Galmaz and 1.78 bcm to

Garadag.

SOCAR to build first liquefied gas storage with capacity of 150 mcm in Nakhchivan. 300 mcm underground gas

storage is intended to be constructed in Nanotsminda oil and gas deposit in Georgia. Estimated cost amounts

USD 150 mn. Iran’s Deputy Oil Minister for International Affairs Amir Hossein Zamani Nia earlier expressed

willingness of his county to pump its gas to the underground gas storages of Azerbaijan in the nearest future.

Note:

The data and information in the report is sourced from websites and documents available in public

domain and doesn’t purport to be official view of government or any organization. Sincere efforts have

been made to present correct data; however, errors and omissions, if any, are regretted and the same may

please be brought to the notice of Energy Desk for necessary corrective action.