The IEA s Gas 2017 Report - LNG moves to the front

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1 The IEA s Gas 2017 Report - LNG moves to the front Peter Fraser, Head of the Gas, Coal and Power Division EMART Energy, Amsterdam, 5 October 2017 IEA

2 Gas in today s world The contribution of gas Versatile fuel within the energy system, helping to address environmental concerns In 2016 gas became the leading power generation source in the US An abundant fuel, but strong competitive pressures, especially in Asia Space for gas squeezed between renewables and coal in some markets A second natural gas revolution is underway, this time caused by LNG A new surge in LNG export capacity is helping unconventional gas go global Low prices continue, bringing new LNG-importing countries into the market Strategic & environmental role of gas deserves attention from policy makers

3 Demand growth moves from power generation to industrial sector Demand growth by sector 400 bcm 1.5% 1.6% Energy industry own use 300 Transport 200 Residential/commercial 100 Industry Power sector China, US and India account for half of the growth in industry sector, driven by chemicals and fertilisers

4 Demand growth focuses in developing countries bcm Global demand growth is around 360 bcm in Developed economies Australia United States Japan + Korea Canada Europe Rest of the world Middle Developing East economies India China Developing countries account for around 90% of the incremental demand The United States accounts for most of the growth in the developed economies

5 The United States accounts for 40% of global production growth Global production growth, United States Middle East China Australia Russia Europe bcm The Middle East will continue its production growth China will become the 4 th largest gas producer

6 Low production cost supporting continuous growth 300 bcm Production volumes and cost of the Marcellus play, USD/MMBtu Marcellus production Henry Hub Dominion South Wellhead breakeven gas price The Marcellus, one of the largest fields worldwide, will grow by 45% in Ensuring pipeline access would be vital 0.0

7 US LNG s destinations driven by premium in 2016 US LNG merit order among regions, 2016 Share of US LNG destination by region, USD/MBtu Europe 10% Margin Shipping cost 115% HH MENA 14% Asia 30% Americas 46% 1 0 Americas MENA Asia Europe In 2016, US LNG was exported to destinations which have higher margin

8 bcm/year Utilization rate Europe has ample spare regasification capacity 250 LNG regasification capacity, imports and utilization rate in OECD Europe 50% % % % 50 10% Regasification capacity LNG Imports Utilization rate 0% IEA 2016

9 bcm/y bcm/y.but LNG is heading somewhere else 6,0 4,0 2,0 0,0-2,0-4,0-6,0 0,2 Europe Change in global LNG trade 2016 vs ,9 0,9 0,9 2,5-3,3-1,2-0,6 Europe breakdown Others Lithuania Poland Netherlands France Belgium United Kingdom 35,0 30,0 25,0 20,0 15,0 10,0 China + India account for half of the incremental LNG trade while the remaining half comes from MENA countries + Pakistan 5,0 0,0-5,0-10,0-15,0 20,2 Rest of the World 2,1 1,7 1,8 2,8 5,3 6,0 9,2-1,2-3,1-4,3 Rest of the World breakdown Others Brazil Japan Mexico UAE Jordan Pakistan India Egypt China IEA 2016

10 Decreasing European production, increasing import needs 600 bcm others the Netherlands United Kingdom Norway Production Demand Import growth European import requirement grows steadily with flat demand and declining production It is up to competition between pipeline and LNG to fill this gap

11 Second wave of additional LNG supply is already coming online bcm Incremental LNG capacity, (bcm) Others Russia Qatar United States Australia 15 new projects with total export capacity of around 140 bcm are now under construction Australia and the United States account for 75% of them

12 Asia, Europe and South America will drive LNG import growth China and India together will double their LNG imports Smaller and new LNG import markets will add more than 40 bcm to global LNG imports

13 Demand in developing countries reshaping the LNG market LNG import volumes, (bcm) 300 bcm Other developing countries India China Developed countries China, India and other developing countries will import more than 50% of all LNG by 2022

14 United States will join the club of top gas exporters Top gas exporters Russia Qatar Norway Canada Australia United States bcm A wave of new LNG supply, led by the US, will provide more options to guard against supply shocks, changing the gas security equation

15 Gas security of supply remains a live issue Katrina, Rita & Wilma: 2005 Harvey: 2017 Mexico Cross border supply cut Terrorist attack - sabotage Natural disaster Technical disruption Tight market / shortages Political tensions, no shortage Recent events (past 12 months) Canada 2014 Polar Vortex Trinidad & Tobago Venezuela Barbados 2015 Brazil Argentina - Chile 2004 Argentina United Kingdom 2006/ 2010/2013 Algeria 2013/2016 Southern Europe Winter 2016/2017 Libya Egypt 2014 Nigeria Angola 2014 Russian - Ukraine 2006/2009/2014 Egypt/Sinaï Qatar 2017 Pakistan India 2013 Yemen India - Nepal 2015 Indonesia 2007 China 2009/2013/2015 Japan 2011 Australia 2016/2017

16 Conclusion Lower prices help gas to strengthen its foothold in Asia Developing countries account for 90% of demand growth, China alone for 40% Industrial consumers take over from power generation as the main source of growth The US takes the lead on global supply as the shale revolution gets a second wind The US generates almost 40% of the rise in global output & the largest increase in exports New diversity to global supply & trade, with new entrants on demand & supply side A glut of LNG continues to put pressure on markets Challenges to existing suppliers, business models and pricing mechanisms Even though markets remain well supplied, recent events remind us that gas security cannot be taken for granted