RYSTAD ENERGY GAS PERSPECTIVES. Jakarta, November 20 th 2017

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1 RYSTAD ENERGY GAS PERSPECTIVES Jakarta, November 2 th 217

2 Agenda 1. Global LNG market outlook Oversupply and new Asian demand 2. Japan LNG Market outlook LNG demand in a nuclear restart 2

3 Longer distances between supply and demand to facilitate more LNG trade Asia to drive import growth Supply and demand of natural gas, Bcm per year 14 Australia Asia Middle East Africa South America North America Europe Russia More LNG exports More LNG imports, mostly from Australia, and pipeline from Russia More LNG exports (but limited by increasing demand), some countries become importers New East African LNG exports going mostly to Asia Switching from LNG exports to imports Switching from LNG imports to exports, then back to imports as gas production won t keep pace with demand growth Likely still rely on piped gas and LNG imports Key exporter to Europe, in future - increasingly to Asia Net Export 214 Net import 24 Source: Rystad Energy UCube; IEA World Energy Outlook New Policies Scenario for gas demand 3 Production Demand

4 China to drive NE Asian natural gas production growth South and South East Asia faces maturing production North East Asian natural gas production Bcm 16 South Asian natural gas production Bcm 12 South East Asian natural gas production Bcm Bangladesh Thailand 6 China 4 Pakistan 1 Malaysia India 5 Indonesia China Other India Pakistan Bangladesh Philippines Vietnam Malaysia/Thailand JDA Brunei Myanmar Source: Rystad Energy Gas Markets Cube Pilot 4

5 Declining production to drive need of LNG imports to Asia New regasification infrastructure is needed North East Asian natural gas production Bcm 6 South Asian natural gas production Bcm 18 South East Asian natural gas production Bcm LNG Demand Pipe import LNG Demand 15 1 Net exporters Net importers Thailand Malaysia 1 Production 4 2 Production 5 Indonesia Production LNG Import Production LNG demand Production Net Imports Net exports Source: Rystad Energy Gas Markets Cube Pilot 5

6 Global sanctioned LNG supply to peak in 22 at 384 Mt per year, 12 Mt up from 216 LNG production by country, potential from sanctioned capacity Mt per year 45 Qatar Australia History Forecast 4 35 United States Russia Indonesia Malaysia Nigeria CAGR 215 to 22: 8,7% Algeria 3 Trinidad and Tobago Papua New Guinea Other % 23 2% 2% Source: Rystad Energy UCube 6

7 Peak oversupply in the LNG market of 4 Mt in 22 New supply needed post 223 LNG supply and demand, by scenario Mt per year Sanctioned supply Base case Demand Low case Demand High case Demand Global LNG oversupply, base case Mt per year Source: Rystad Energy UCube

8 Significant gas production potential in US and Canada at 3 USD/MMbtu Natural gas production potential in US and Canada by source and breakeven BCM per year Associated gas Under development Producing Abandoned Demand incl. exports 1 4 USD/kcf USD/kcf USD/kcf Source: Rystad Energy research and analysis 8

Russia Europe North America HH: $3, 65 MT $1,5/mmbtu 4% NBP: $4,5 LNG: $ 5,1 4%

9 US Henry Hub + variable transportation cost to set LNG prices in an oversupplied market 22: US LNG export volumes and SRMC of US LNG Mt per year and USD/Mmbtu Russia Europe North America HH: $3, 65 MT $1,5/mmbtu 4% NBP: $4,5 LNG: $ 5,1 4% $1,5/mm btu Middle East Asia 1% LNG: $4,5 Africa South America Australia $2,1/Mmbtu 9

10 7-8 $/MMbtu needed to sanction 5 mtpa+ of known LNG projects Volumes and breakeven prices for unsanctioned LNG projects, 225 Indonesia 14 United States Malaysia Russia 12 Equatorial Guinea Australia Papua New Guinea Breakeven gas price (USD/Mmbtu) Golshan Forouzan Mozambique Qatar Iran Average Breakeven 5.3 North Field 6.2 MZLNG T3 Area 1 LNG 6.4 PNG LNG (P Nyang) Gulf LNG 6.5 Greater Gorgon Area North West Shelf Venture Pluto 6.7 Fortuna FLNG Deep Luba 7.4 Sakhalin 2 Arctic LNG M5 7.9 Sabine Pass T6 Corpus Christi T3 Driftwood LNG 8.5 Bontang Mtpa Source: Rystad Energy Ucube 1

11 Oversupply put a lid on LNG prices until early 22 s, then converging towards cost of new LNG Gas prices USD/MMBtu (real) 2 18 History Forecast Surplus supply cleared by demand response in Asia, supply response from the US LNG supply and demand Mtpa Asian spot LNG NBP Henry Hub Regional spreads dependent on transportation costs 5,1 4,5 3, Balance point dependent on LNG demand scenario LNG deficit 7,5 7,5 7,5 7,5 3,1 3, Phase Market drop Phase 1 - Oversupply Phase 2 - Balancing Source: Rystad Energy research and analysis 11 Phase History The LNG prices were very high in 212 and 213 due to additional demand from Japan in particular. As new LNG production capacity came online, and energy prices in general declined through 215 and 216, LNG prices followed suit. Phase 1 Oversupply The high LNG prices in the 21s encouraged large numbers of LNG FIDs, adding capacity in the US as well as Australia. This is due to come onstream over the next ~5 years, resulting in an oversupply of about 68 bcm at peak. Phase 2 Balancing Longer out in time, production from fields exporting LNG is expected to decline, balancing the market, and driving the need for additional supply. The undersupply post 223 will be covered by new non-sanctioned project, such as Coral LNG in Mozambique.

12 Agenda 1. Global LNG market outlook Oversupply and new Asian demand 2. Japan LNG Market outlook LNG demand in a nuclear restart 12

13 LNG demand increased 17% in 211 due to nuclear shut down The world s largest LNG importer, with over 2 mtpa in import capacity Import most of its natural gas consumption LNG imports surged after Tohoku earthquake in 211 leading to shutdown of nuclear power plants Gas for power is the main driver of LNG imports into Japan Japan total gas demand (mtpa) and average LNG import prices (USD/MMBtu) 9 17% mtpa USD/MMBtu Gas for power & heat Industry Residential & Commercial Others Average LNG import prices Source: Japan Gas Association, Japanese import statistics, Rystad Energy research and analysis 13

14 : Nuclear restart resets Japanese energy sector Rystad Energy s base case: 12 out of 26 reactors initially under review become operational by 22 Another six reactors likely to restart by 225, adding 15.8 GW of nuclear capacity or 1% of Japanese power generation in 225 Rystad Energy s high case scenario assuming faster restarts, we expect 26 reactors to come online by 225, adding 25 GW of capacity. This equates to power generation of about 16 TWh (16% of power generation in 225) Nuclear restart Base case (GW) Before Fukushima 48,8 High case Total Source: Rystad Energy research and analysis 14

15 Nuclear comeback to take share from Petroleum and Natural gas in the power mix Total power generation in Japan has been falling Japan s power generation mix (TWh) According to the Japanese Government s Long-Term Energy Supply and Demand Outlook, % of electricity will come from renewables by 23, up from 13.5 % in Historical Forecast The strategy also pushes for nuclear to supply 2-22% of Japanese power generation in 23 to meet their Greenhouse Gas (GHG) target under the UN s Intended Nationally Determined Contribution Nuclear Coal Natural Gas Petroleum Hydro conv. Solar Wind Bioenergy Geothermal Source: Rystad Energy research and analysis 15

16 Japan to be overloaded with long-term contracts Call for contract negotiations and banning of destination clauses In our base case, we expect Japan s LNG imports to be 69 mtpa by 225, falling from 85 mtpa in 215. This fall in LNG imports would mean that Japan is overloaded with long-term contracts. Over 7% of long-term contracts to Japan have destination clauses. In 217, Japan s Fair Trade Commission ruled that new long-term LNG contracts could not have destination clauses. The ruling will lead to more active trade in LNG cargoes, internationally and domestically, supporting the government's agenda of liberalizing the market and developing a liquid spot LNG market and price index. Source: Japan s import statistics, Rystad Energy research and analysis 16 Japan s projected LNG imports and contracted volumes (mtpa) Contracted - Others LNG imports - Base case 212 Spot Contracted - United States LNG imports - high nuclear case

17 Spread between oil-linked gas contracts and LNG spot to widen as oil prices increase - Pressure for long-term contract renegotiation and gas-to-gas price indexation Global gas prices (USD/MMBtu) and Brent crude price (USD/bbl), Real 18 Historical Forecast USD/MMBtu Gap JCC-LNG Spot call for renegotiations? USD/bbl Henry Hub NBP East Asian spot LNG JCC-indexed (14%) Brent crude history Brent crude - Rystad Energy's base case *Prices are real, annual average, assuming normal weather without seasonal variations. East Asian Spot LNG excludes regasification cost. Brent crude price forecast is Rystad Energy s base case scenario. JCC-indexed is linked to Brent crude with a lag History is based on historical Brent crude and Forecast is based on Rystad Energy s Brent base case forecast. Brent crude forward as of 26 Apr 217. Source: Rystad Energy research and analysis 17

18 DATA SOURCES Jakarta, November 2 th 217

19 POWER CUBE POWER CAPACITIES AND PRODUCTION, ASSET BY ASSET Tailored presentations and discussions

20 GAS MARKETS CUBE THE NATURAL GAS VALUE CHAIN FROM UPSTREAM ASSET TO CONSUMERS SECTOR Tailored presentations and discussions Source: Gas Markets Cube Pilot

21 GAS MARKETS SOLUTIONS Gas Markets Cube Supply, demand, balance and trade Quarterly Report Medium and long-term gas market outlook Weekly/ Monthly comments Monthly natural gas commentaries Onsite workshops Tailored presentations and discussions

Global LNG Market dynamics, key trends and market outlook

REUTERS / Anne Kat Brevik Global LNG Market dynamics, key trends and market outlook December 14, 217 What to address Market dynamics, key trends and market outlook The role and outlook for U.S. LNG China