LNG Shipping: How Long Will The Good Times Last?

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1 LNG Shipping: How Long Will The Good Times Last? Poten & Partners November 1 HOUSTON NEW YORK LONDON ATHENS SINGAPORE GUANGZHOU PERTH A GLOBAL BROKER AND COMMERCIAL ADVISOR FOR THE ENERGY AND OCEAN TRANSPORTATION INDUSTRIES

2 LNG Shipping Spot Rates Are At 5-Year Highs And There Is Limited Availability Spot Charter Rates vs Vessel Availability # of Vessels 5 3 US$ per Day 1 $1, per day $3, per day Jan-1 Jul-1 Jan-15 Jul-15 Jan-1 Jul-1 Jan-17 Jul-17 Jan-1 Jul-1 Prompt Vessel Availability Weekly Spot Charter Rate Assessment (1,m3 TFDE) Notes: Prompt vessel availability are LNG carriers that are immediately available for spot hire, defined as charter periods months or less Weekly spot charter rate assessment are a global average for a 1,m 3 TFDE vessel available in cold condition

3 LNG Fleet Growth Has Been In-Line With Trade Growth. LNG market growth has been significant and is forecasted to remain strong, but the fleet is forecasted to grow faster LNG Global Trade Volumes Million Tons LNG Fleet (Normalized to 1, m 3 ) # of Vessels % % Note: fleet statistics exclude vessels <5, m3, FLNG, FSRUs, FSUs, and Laid-up vessels 3

4 But A Significant Volume of U.S. Supply Is Being Exported To Asian Markets Over 5% of all U.S. supply in 1 has been exported to Asia because of higher than expected demand in China, South Korea, India, and Taiwan U.S. Export Trading Patterns (January 1 Through October 1) The number of cargos imported into each country is highlighted % 55% 11 Latin America ME & Africa % 7% Europe Asia Source: Reuters, Poten & Partners Note: This analysis includes partial cargos

5 Which Has A Significant Impact On Shipping Demand U.S. exports require a high level of shipping to be able to deliver their cargoes to Asia # of Vessels Required to Deliver 1 Million Tons of LNG by Export Region x Vessels 17 Country/Region % of Global Supply 1.3x Vessels 1.1x Vessels Equivalent # 1k m 3 Vessels Required Per MTPA Africa 11% 1.3 Australia % 1. Qatar 7% 1.1 South East Asia 17%. U.S. %.1 Rest of World 1% 1.3 Totals Volume Weighted Vessel Multiplier 1.3.x Vessels 1.x Vessels 5

6 U.S. Exports Will Grow Their Market Share of LNG Supply The U.S. market share of global LNG trade will grow to 1% of the total market, approximately million tons, by 1 based on current projects under construction Market Share of U.S. Exports vs Global Supply Breakdown of U.S. Offtakers % 9% % 5% 9% 13% 1% 1% 7% % 7% % 5% % Asian / Pacific Basin Buyer European / Atlantic Basin Buyer Portfolio Player / Energy Major Rest of World US

7 LNG Prices Encouraged Inter-Basin Trading Earlier This Year, But The Arb Closed Global LNG / Natural Gas Price Markers Gas Sales by Price Structure US$ / mmbtu Percentage % % % 15% 17% % 5% % 13% % 7% % % Jan-1 Jul-1 Jan-15 Jul-15 Jan-1 Jul-1 Jan-17 Jul-17 Jan-1 Jul-1 Japan 1% Slope U.S. LNG Export Price Japan 1% Slope UK (NBP) % 17 Spot LT Hybrid LT NBP LT HH LT Oil Notes: Asian LNG imports prices use (JCC or Japanese Crude Cocktail) multiplied by a slope of 1% and 1%, as a proxy of oil-linked sale and purchase agreements typically signed by Asian buyers U.S. LNG export prices calculated at Henry Hub * 115% + $3. liquefaction fee UK (NBP) is the domestic gas price for the UK market. Does not include a regasification fee 7

8 U.S. Export Prices Are Above Breakeven Levels At Today s Shipping Costs U.S. offtakers who are fully exposed to variable prices across the value chain would sell cargos loss based on current commodity prices and spot charter rates U.S. Gulf to Asia (via Panama) US$ / mmbtu 1. Henry Hub U.S. Gulf to United Kingdom US$ / mmbtu 1. Henry Hub.1 Tolling Fee (15% of HH).1 Tolling Fee (15% of HH) ( 1.3) Liquefaction Fee Shipping Costs Profit (Loss) Margin 3. Liquefaction Fee 1.5 $1, per Day Shipping Cost $1, per Day.5 Regasification Costs (.17) 9. Japan LNG 1% Slope Brent = $5 / bbl Profit (Loss) Margin NBP

9 LNG Shipping Is One Of The Most Expensive Forms Of Energy Transportation Shipping Costs vs Cargo Value US$ Millions $1 LNG LPG Crude Oil % of Cargo Value % $1 $ $ $13 % % $ % $ $ $ $35 Cargo Value 33% Shipping Cost $3 Cargo Value 15% Shipping Cost Cargo Value 3% Shipping Cost Notes: Cargo Value based on current prices: LNG - $9. / mmbtu, LPG - $53 / ton, Crude - $5 / bbl Shipping Cost is based on current spot charter rates: LNG - $1, / day charter rate, LPG - $77 / ton freight cost, Crude 93 WS % % 9

10 LNG is Capital Intensive Industry and Remains Underpinned by Term Agreements Capital Expenditure for a million ton per annum project ( Trains) US$ bn 1 Global LNG Charter Coverage % of Global Trade by Dedicated SPAs October 1 15% SPAs 5% Spot 11. Percentage of Fleet by Charter Length October 1 7%. 1. Liquefaction Shipping Regasification 5% % Spot Market months - 3 years > 3 years Shipping capital expenditure assumes 13 newbuild vessels acquired to service a mtpa project Regasification capital expenditure for 1 land-based receiving terminal

11 The LNG Market Is Not As Short As Believed The next two years are expected to be strong, but the market can be in balance by 1. Owners need to restrain from overordering despite attractive newbuild prices Additional Demand for Shipping Above Current Orderbook # Vessels Low Case 3% of U.S. Exports Go To Asia # of Vessels High Case 55% of U.S. Exports Go To Asia Notes: Additional shipping demand is estimated by the number of vessels required to keep spot charter rates at $7, per day 11

12 LONDON NEW YORK HOUSTON PERTH ATHENS SINGAPORE GUANGZHOU