Session 3: Enhancing gas supply and diversification New sources & markets

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1 Session 3: Enhancing gas supply and diversification New sources & markets IEF-IGU Gas Ministerial 22 nd November 218

2 Key messages: Enhancing gas supply and diversification new sources and markets Key messages Global LNG supply is growing rapidly, but further new capacity will be required by the mid-22s Liquefaction capacity growing by 1/3 from Demand growth likely to outstrip supply growth by 225 additional investment of >$11bn may be required LNG market growth is currently led by China and a small number of new LNG "niche" markets China responsible for nearly half of recent global LNG demand growth Other LNG demand growth has been led by a small number of new "niche" markets (<15) To sustain continued gas market growth significant infrastructure investment is required Investment of $35-55bn per year is required to enable gas demand growth in emerging market cities Session objectives Discuss the role of new sources of LNG supply and how to ensure it is cost competitive Assess the key drivers of new gas market development and key enablers Identify how to accelerate gas infrastructure investment in emerging markets 1

3 Agenda LNG supply growth LNG market growth Gas infrastructure requirements Questions for discussion 2

4 Strong global gas trade growth in 217 led by US, Russia, and Australia exports bcm 4, 3, 2, 1, Global gas trade by year 382 1% % % Intl LNG Intl Pipeline Domestic supply 217 annual change in exports 216 total US 22.8 Russia 2. Australia 15.4 Norway 11.2 Nigeria 4.2 Angola 4.1 Iran 3.2 Malaysia 2.9 Canada % Turkmenistan 1.3 Kazakhstan 1. UK 1. Inra-Europe (other) 25.2 Qatar -2.8 Netherlands -5.1 Other total Pipeline 1,15 LNG 1,2 1,25 bcm Source: Cedigaz global trade data, BCG analysis 3

5 LNG liquefaction and regasification capacities growing at 6% per year Global liquefaction capacity Global regasification capacity bcm bcm 1,2 1, % ,2 1, ,9 +5.8% 1, , Liquefaction Utilization 1 (%) 81 Regasification Utilization 2 (%) Decline driven by cap. increase in Asia/Oceania and Africa Decline driven by Europe and N. America 1. Liquefaction utilization = LNG Exports/Liquefaction capacity * 1 2. Regasification utilization = LNG Imports/Regasification capacity * 1 Source: CEDIGAZ data (Trade, Plants, Terminals), IGU, BCG analysis 4

6 Global liquefaction capacity increasing by 1/3 from Projected annual liquefaction capacity (BCM) ~6 33% total total Total Other Russia (Yamal) US Australia Source: Cedigaz, Platts, BCG analysis 5

7 More than $11bn of FIDs required for post-225 LNG supply Post-222 LNG supply growth yet to be sanctioned Requiring $11-16bn capital LNG supply forecast (mtpa) 5 Pre-FID capital requirement ($bn) LNG demand 5% pa growth LNG demand 3% pa growth +87 mtpa Low case High case New source: Pre-FID New source: Post-FID Producing 1.Only includes capex for liquefaction capacity based on estimate range of $1,-1,5/mtpa capacity Source: Rystad, IHS, BCG analysis 6

8 Despite low cost imperative, LNG project costs expected to remain >$1k/tonne Greenfield liquefaction costs expected to continue exceeding $1,5/tonne Driven by further development of integrated, complex projects Av. liquefaction costs ($/tonne) 1,6 1,5 1,4 1,2 1, , ,41 Key drivers of capex escalation include: Full, integrated projects (not just liquefaction trains) e.g. upstream costs, pipeline costs (US) Remote locations (e.g. Mozambique, Yamal, West Africa) Large, technically complex projects Driving supply chain pressures Greenfield Brownfield Floating Note: Liquefaction costs are in real 216 dollars Source: IHS, BCG analysis 7

9 Agenda LNG supply growth LNG market growth Gas infrastructure requirements Questions for discussion 8

10 Three key sources of global LNG demand, with current growth led by China and "niche" markets 2 "Niche" 1 markets 44 bcma demand 49% yoy growth 2 3 Established markets 288 bcma demand <1% yoy growth 2 1 China 52 bcma demand 2% yoy growth 2 1. "Niche" markets defined as new LNG importers since 29; 2. Average annual growth in LNG demand from Source: Cedigaz, BCG analysis 9

11 1 China Chinese LNG import capacity growing rapidly, but still a constraint in winter LNG receiving capacity growing 8%/yr to 221 Capacity utilization increasing, but limited due to seasonality LNG receiving capacity (BCM/y) LNG receiving capacity utilization (%) % Winter utilization exceeding 1% in the north 217 Av: 64% total Jan Mar May Jul Sep Nov Existing Under construction & planned Source: Cedigaz, China Customs statistics, BCG analysis 1

12 2 Niche markets LNG "niche" markets are a key source of growth Multiple new LNG niche markets since 29 LNG imports (BCM) Country First LNG av. Kuwait UAE Thailand Indonesia Singapore Lithuania Pakistan Egypt Poland Jordan Jamaica Malta Bangladesh Total Niche market receiving capacity may nearly double by 221 Niche market capacity (217) Bangladesh Bahrain 8. Singapore 6.7 Thailand 6.7 Pakistan 6.1 Total potential capacity (221) 91.1 Kuwait 15.5 UAE Others Potential receiving capacity (BCM) +88% Source: Cedigaz, University of Columbia, BCG analysis 11

13 2 Niche markets FSRUs are providing a lower cost, flexible way of diversifying gas supply for new LNG markets FSRUs provide less capital intensive supply FSRU capacity is growing... And is helping countries to diversify supply Total cost ($B) Global FSRU capacity (MTPA) 1 91% 84 8 Argentina: FSRUs quickly added 9bcma capacity to offset domestic production decline FSRUs require less up front capital due to charter structure $25mn vs. $1bn Jordan: FSRU capacity restored gas supplies after Egyptian imports dropped given domestic supply shortages FSRU Conventional re-gas Bangladesh: Plans currently in place to develop FSRU import aligned with new CCGT plants Opex Vessel charter Capex Source: IGU, BCG analysis 12

14 3 Established markets Growth among "established" LNG markets has been weak and faces headwinds Established market LNG demand Future drivers of LNG demand LNG demand (BCM) 35.3% NE Asia India Japan: Nuclear restart Korea: Shift away from coal and nuclear Taiwan: Focus on coal-fired power gen. Policy-led adoption for cities and industrial use 15 Accelerating shift away from coal India Americas Europe NE Asia Europe Americas LNG uncompetitive vs. pipeline supply Growing US pipeline exports Growing domestic supply in SA Upside Neutral Downside Note: "Established" markets defined as all LNG consumers existing prior to 29, excluding China Source: Cedigaz, BCG analysis 13

15 Agenda LNG supply growth LNG market growth Gas infrastructure requirements Questions for discussion 14

16 Gas pipeline and storage infrastructure is concentrated in North America & Europe Total gas pipeline distance by region Underground storage capacity by region North America 2,4 North America 144 CIS 271 Europe 187 Asia-Oceana 168 Latin America 69 Middle East 41 Africa 41 CIS % 94% Europe 113 Asia-Oceana 16 Middle East 7 Latin America Africa 2, 2, pipeline distance (km,) 216 storage (bcm) Source: Cedigaz, BCG analysis 15

17 Greatest urbanization will occur in regions with lowest gas penetration today Gas share of energy consumption 1 Projected urban population growth (215-5) Middle East 59 Middle East 118 Non-OECD Europe 4 Non-OECD Europe -11 OECD Americas 33 OECD Americas 134 OECD Asia Oceania 24 OECD Asia Oceania 2 OECD Europe 24 OECD Europe 7 Non-OECD Americas 22 Non-OECD Americas 132 Africa Non-OECD Asia (ex. China) Africa Non-OECD Asia (ex. China) China 4 China (%) (mn) 1. Includes weighted average of power generation, buildings, and industry sectors; based on 215 data Source: IEA, UN Population Division, BCG analysis 16

18 In China, infrastructure constraints limit gas consumption to coastal and gas producing provinces Gas consumption by province (216) Gas consumption/gdp per province (216) BCM/yr % of consumption in top 5 provinces Other Producing Coastal >4 CM/person 1-2 CM/person Coastal Province with High Pop. density 2-4 CM/person <1 CM/person High penetration in producing regions 1 5 Core infrastructure Beijing a key growth driver to date now growing in surrounding regions Sichuan Jiangsu Guangdong Beijing Xinjiang Shandong Shaanxi Henan Chongqing Zhejiang Shanghai Tianjin Hebei Shanxi Liaoning Fujian Qinghai Inner Mongolia Hubei Hainan Anhui Heilongjiang Hunan Gansu Ningxia Jilin Jiangxi Guizhou Guangxi Yunnan Planned pipeline Existing pipeline Regas Terminal Regas Terminal (under constr.) Infrastructure a constraint for inland provinces to date Potential for greater penetration in Southern coastal provinces Source: China NBS, BCG analysis 17

19 $35-55bn investment per year required to extend gas access to cities ($bn) Annual midstream gas investment required per year through High Low Asia Middle Europe LNG East total Africa Latin North America America Asia Middle East Africa Latin America Europe Transmission total North America Asia Middle East Africa Latin America Europe Distribution total North America Midstream total LNG import infrastructure Transmission infrastructure Distribution infrastructure Requirement to achieve projected gas demand growth under IEA New Policies Scenario Source: IEA, Douglas Westwood, BCG analysis 18

20 Agenda LNG supply growth LNG market growth Gas infrastructure requirements Questions for discussion 19

21 Questions for discussion Role of new sources of LNG supply Does the global LNG market risk under-investment in supply by the mid-22s? Given recent price cyclicality, how can new LNG project developers ensure they will achieve acceptable returns? What steps can industry and governments take to reduce LNG project costs? Key drivers of gas market development What markets/countries will drive the next wave of LNG demand growth? What measures are needed to initiate the development of new gas markets? How can new technologies and business models facilitate the development of new gas markets? Accelerating gas infrastructure investment Do small scale LNG and other new technologies provide an opportunity to leapfrog traditional gas infrastructure investment? How can governments and industry facilitate investment in new gas infrastructure? What financing tools can be deployed to facilitate that investment? 2