LNG Pricing, Markets in Europe and Outlook

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1 LNG Pricing, Markets in Europe and Outlook Presentation to Florence School of Regulation Friday 30 th March 2012 David Ledesma Tel: Mobile: d.ledesma@south-court.com Wed:

2 Agenda LNG Market Fundamentals as at March 2012 LNG Supply, Shipping & Regasification European Market LNG Pricing Short-term trading of LNG NOTE: This informa0on is provided by South- Court Ltd for general informa0on only. The informa0on is derived from public sources and from the opinion of South- Court Ltd and no warranty is made as to its accuracy.

3 LNG Market Fundamentals as at March 2012

4 World LNG Demand in mtpa Americas Europe Middle East Thailand China India Taiwan Korea Japan

5 LNG Trade by Exporter in mtpa Peru Yemen Russia Norway Eq. Guinea Egypt Oman Nigeria Trinidad Qatar Australia Malaysia Abu Dhabi Indonesia Brunei Libya USA - Alaska Algeria

6 The Rising Importance of Qatar In mtpa Qatar Indonesia Algeria Malaysia Australia 6

7 World Natural Gas Supply 2010 LNG 9.4% Pipeline Trade 21.4% Indigenous 69.2% Oil around two-thirds of production is traded internationally, mainly by tanker 7

8 Share of LNG in Natural Gas Supply in Firm Percentage Flexible 0 Japan Korea Taiwan Spain France Turkey Italy Belgium UK USA 8

9 LNG Chain Gas Use, Capex and Unit Costs Upstream Liquefaction Shipping Regasification Total Gas Use 10-14% % 1-2% % Capex $2 6bn $6-10bn $1-2.5bn $1-1.5bn $10-20bn Unit Cost In $/MMBtu $1-3 $3-4.5 $ $ $5.2-$9.8 Capex estimates based on an 8mtpa project 9

10 Example of LNG project schedule Year Upstream Marketing LNG Plant Discovery of Reserves Initial Feasibility Study Appraisal Initial Discussions with Buyers Active Marketing Facilities Design Development Letter Of Interest Heads of Agreement Sales & Purchase Agreement Initial Planning/Conceptual Engineering First Gas Front-End Engineering Design (FEED) Engineer, Procure & Construct Contract Shipping Financing Financial adviser Design/Discussions with Shipyards Discussion with Lenders 10 Loan Agreement Ready for Start-up Construction First Delivery First Ship Delivered

11 LNG Supply, Shipping &

12 LNG Supply & Demand Three producing regions Pacific Basin Indonesia, Malaysia, Australia, Brunei, Alaska, Russia, Peru, Papua New Guinea Middle East Qatar, Abu Dhabi, Oman, Yemen Atlantic Basin Algeria, Nigeria, Trinidad, Egypt, Libya, Equatorial Guinea, Norway, Angola Four consuming regions Asia Japan, South Korea, Taiwan, India, China, Thailand, Singapore, Indonesia, Malaysia Middle East Kuwait, Dubai Europe Spain, Portugal, France, Italy, Belgium, Turkey, Greece, UK, the Netherlands, Poland Americas USA, Puerto Rico, Dominican Republic, Mexico, Brazil, Argentina, Canada, Chile 12

13 Liquefaction Plants in Operation and Under Construction at the end of March 2012 Norway Russia (Sakhalin) Alaska Trinidad and Tobago Peru Algeria Nigeria Equatorial Guinea Libya Egypt Angola Abu Dhabi Qatar Oman Yemen Brunei Indonesia Malaysia Papua New Guinea Australia In Operation Under Construction 13

14 Which Countries Import LNG? Mexico USA Chile The Netherlands Canada UK Spain Portugal France Belgium Puerto Rico Dominican Republic Argentina Brazil Poland Italy Greece Dubai Kuwait Turkey India Malaysia China Singapore Japan Korea Taiwan Thailand Indonesia In Operation Under Construction 14

15 LNG Shipping March 2012 In Operation or Laid-up 18,900 to 41,000 cubic metres 10 65,000 to 89,800 cubic metres ,000 to 177,000 cubic metres Conventional 289 FSRU 8 210,100 to 217,330 cubic metres ,000 to 266,000 cubic metres 14 Total 367 On Order 145,000 to 177,000 cubic metres Conventional 58 FSRU 6 Total 64 15

16 Orders for New LNG Ships 2002 to March Number of Ships Speculative FSRUs

17 Changes in Liquefaction Capacity and Shipping Capacity 2000 to % 25% 20% 15% 10% 5% 0% Shipping Capacity LNG Production 17

18 Short-term Charter Rates: January 2008 February 2012 $000/day Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12

19 European Market

20 Why Does Europe Need LNG? European gas production is declining and Europe needs increased natural gas imports to meet growing demand Today, the main source of imports is pipeline gas from Russia Which raises concerns for European buyers and Governments about over-dependence on Russian gas The dispute between Russia and the Ukraine and the stoppage of gas supply from Russia through the Ukraine in January 2009 has re-emphasised the risks A number of countries are turning to LNG to provide access to wider global gas markets and increase the security of supply In North West Europe the interest in LNG is, in part, from companies who want access to markets on both sides of the Atlantic to allow them to trade LNG to take advantage of price arbitrage opportunities 20

21 European Natural Gas Supply in 2010 LNG 16.3% Imports by pipeline from FSU 23.4% Domestic production 52.0% Imports by pipeline from Algeria and Libya 8.2% 21

22 Europe Natural Gas Import Infrastructure In Operation Under Construction Planned Pipelines Operating Planned Pipelines El Ferrol Teesport S. Hook Dragon Isle of Grain Zeebrugge Montoir La Spezia Sines Huelva Bilbao Fos Sagunto Barcelona Cartagena Adriatic LNG Revythoussa Marmara Ereglesi Aliaga 22

23 Europe LNG Imports by Country in mtpa UK France Spain Italy Belgium Turkey Greece Portugal NetheNetherlands 23

24 Sources of Europe s LNG Imports 2000 to in mtpa Algeria Libya Egypt Oman Abu Dhabi Qatar Middle East Brunei Australia Malaysia W.Africa Americas Norway Pacific Basin 24

25 Monthly LNG Imports into Europe in 2010 and in mt per month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

26 UK Monthly LNG Imports January to December in million tonnes per month Jan- 11 Feb- 11 Mar- 11 Apr- 11 May- 11 Jun- 11 Jul-11 Aug- 11 Sep- 11 Oct- 11 Nov- 11 Dec- 11 Qatar Algeria Trinidad Egypt Nigeria Norway Yemen USA Re-exports 26

27 Total European LNG Receiving Terminal Capacity March 2012 Capacity in mtpa Operating 139 Under Construction 29 Planned 100+ Total 268+ Imports

28 But there are other challenges for LNG Natural gas is cleaner than other hydrocarbon fuels but it is still seen as a carbon dioxide emitter by Governments, NGOs, environmentalists, the media etc. Renewables (wind, solar etc.) are generally favoured by Governments and the European union over natural gas However, there is a view that this could be an opportunity for gas since it has the flexibility to back up intermittent renewables There is strong support from buyers and Governments for major new pipelines to bring gas from Russia, the Middle East and Central Asia into Europe Shale gas may have the potential to transform European gas production as it has in North America Is the technology transferable? How large are Europe s shale gas reserves and how producible are they? 28

29 Pipeline Projects Could Erode Demand for LNG 29

30 Total European LNG Imports and Capacity at the end of 2010 Capacity in mtpa Operating 124 Under Construction 35 Planned 120+ Total 279+ Imports

31 Shale Gas in Europe Europe is believed to have substantial resources of shale gas Poland and Germany have been identified as two of the countries with the best prospects Drilling of prospective reserves has commenced but few wells have as yet been drilled Europe does not have the infrastructure of drilling rigs that can drill horizontal wells Europe is estimated to have only 67 active onshore drilling rigs with only 15 having horizontal drilling capability The USA has an estimated 900 horizontal drilling rigs In the USA mineral rights belong to the landowner in Europe they are the property of the state which will discourage landowners to allow drilling on their property Stringent regulations in Europe mean that obtaining permits to drill takes time and costs are high The availability of water will also be a constraint in some locations 31

32 LNG Pricing

33 LNG Pricing Formula based price A formula nego0ated between buyer and seller that links the price of LNG to compe0ng fuels (usually crude oil or oil products) Used in countries where there is no gas trading to provide a transparent gas price Applies in Asia and southern Europe Market based prices Used in markets where gas is traded and there is a transparent market price Applies in N. America and northern Europe 33

34 Market Based Prices USA Henry Hub provides the basis for prices Other hubs around US are also used (e.g. Southern California) Markets in the Caribbean and L. America are linking their prices to Henry Hub Europe UK: Na0onal Balancing Point (NBP) Belgium: Zeebrugge Hub Netherlands: Title Transfer Facility (TTF) 34

35 Natural Gas and LNG Prices January 2008 to December In $/MMBtu Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 US (Henry Hub) Germany Japan Brent UK-NBP 35

36 Crude Oil Prices (JCC) and Japanese LNG Prices (in real 2011$) Fixed Prices Crude Oil Parity S -Curves Transition To Straight Lines In $(2010)/MMBtu JCC Price Average LNG Price

37 Straight line pricing formula in Asia Since the 1970s, the basic price formula for Asian LNG has been a straight line relationship between the price of LNG and the price of crude oil of the form where P(LNG) P(LNG) = price of LNG in $/MMBtu P(Crude Oil) A = A x P(Crude Oil) + B = price of crude oil in $/bbl = a constant agreed between the parties and in many contracts it is B = a constant in cents/mmbtu which for DES contracts is often related to the transport cost and for FOB contracts is typically close to zero A is generally referred to as the slope and is often expressed as a percentage of the crude oil price (e.g %) The most commonly used oil price index in Asia is JCC but the Indonesian Crude Price (ICP) and Brent are used in some contracts 37

38 Crude oil parity If LNG were sold on the basis of parity with crude oil then the formula would be as follows: P(LNG) = x P(CRUDE OIL) Since: Average barrel of crude oil = 5.8 MMBtu Therefore to convert from $/bbl to $/MMBtu, multiply by 1 =

39 Straight line pricing and crude oil parity 25 Crude Parity LNG Price in $/MMBtu Oil Price in $/bbl LNG Price Crude Parity : P(LNG) = * JCC LNG Price: P(LNG) = * JCC

40 The Original S -Curve JCC = $20/bbl PLNG LNG Price Crude Oil Parity $11 $16 $24 $29 Applicable Range PCrude 40

41 S-curve pricing - the current version 20 LNG Price in $/MMBtu Oil Price in $/bbl LNG Price S-curve 41

42 Oil Linked and Market Based Natural Gas Pricing in Europe Market Based Oil Linked 42

43 Formula Based Prices in Europe 43

44 Natural Gas Prices in Europe European countries are mainly supplied with gas by pipeline - domestic production and/or imports The gas markets in most European countries were dominated by a single company that had a monopoly, or close to monopoly, position (e.g. Gaz de France in France, Distrigas in Belgium, Enagas in Spain) before the deregulation of markets. There was no gas on gas competition or gas trading to set prices. The main competition came from other fuels principally oil products and gas companies needed their gas supplies to be priced to compete with oil products In the domestic and commercial sector, gas oil (No 2 heating oil) was the main competitor and in the industrial sector fuel oil (No 6 heating oil) Therefore, prices in pipeline gas contracts were generally linked to a mixture of fuel oil and gas oil and usually at a discount to oil prices on a Btu basis 44

45 European Natural Gas and Crude Oil Prices: Europe Gas cif Crude Oil $/MMBtu Source: BP Statistical Review of World Energy

46 European LNG prices Linkage to Oil Products Nigeria/Trinidad - Price is escalated with a mix of gas oil and fuel oil - A typical formula would be: P(LNG) = P0 (A x GO/GO0 + B x FO/FO0) Where P(LNG) = price of LNG delivered to market P0 = base price GO = price Gas Oil GO0 = base price of Gas Oil FO = Price of Fuel Oil FO0 = base price of Fuel Oil A and B are constants: A + B =

47 European LNG prices Linkage to Crude Oil Some contracts use crude oil rather than oil products For example, LNG from Algeria, Middle East, Egypt is: Linked directly to Brent crude oil P(LNG) = A * P(Brent) + Constant Where A is typically between 0.08 and 0.12 (i.e the linkage to crude oil is between 45% and 70%) The linkage to Brent crude oil price facilitates hedging/risk management 47

48 European Natural Gas Prices Information on natural gas and LNG prices in Europe is not as readily available as in the USA or in Asia Most published prices are estimates using the actual oil price and the assumed price formula 48

49 Quarterly Delivered Algerian LNG LNG prices and Brent Crude Oil Prices1999 to $/MMBtu Q99 4Q99 3Q00 2Q01 1Q02 Source: Gas Matters 4Q02 3Q03 2Q04 1Q05 4Q05 3Q06 2Q07 1Q08 4Q08 3Q09 2Q10 1Q11 4Q11 Algeria to France Algeria to Spain Brent 49

50 Quarterly Prices of Algerian and Trinidadian LNG Exports to Spain 1998 to $/MMBtu Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 Trinidad to Spain Algeria to Spain Brent Source: Gas Matters 50

51 Market Based Prices in Europe 51

52 Gas Trading is Becoming a More Important Feature of the Gas Industry in Europe Trading hubs have grown up in several continental European countries Some (e.g. France, Germany) have more than one hub Prices for NW Europe hubs are closely correlated to NBP; Southern European hubs have their own dynamics None of the continental European hubs matches the liquidity and depth of NBP European Gas Trading Hubs DKH NBP TTF GPL NCG PEG N CEGH PEG S PEG SW PSV MS ATR 52

53 The UK National Balancing Point (NBP) The National Balancing Point (NBP) is a virtual point in the UK gas system Suppliers pay an entry fee to put gas into the network and buyers pay an exit fee to take gas out All gas that enters the system is deemed to be at the NBP Natural gas is bought and sold for delivery at the NBP, which provides the reference point for UK prices (in a similar way to Henry Hub in the USA) NBP natural gas futures are traded on the InterContinental Exchange (ICE) allowing buyers and sellers to manage the price risk 53

54 Liquidity at European Hubs in 2010 Country Hub Traded Volume in Bcm/a Physical Volume in Bcm/a Churn UK NBP Netherlands TTF Germany NGC Belgium Zeebrugge Italy PSV Austria CEGH

55 UK Gas Network Entry Points Northern N. Sea Gas Production and Westerled pipeline from Norway Gas from Morecambe field LNG St Fergus Teesside Easington Bacton Milford Haven Isle of Grain Central N. Sea Gas and Teesport LNG Southern N. Sea Gas and Langeled Pipeline from Norway Interconnector from Belgium an BBL Netherlands LNG 55

56 UK NBP Natural Gas Prices Jan 2007 Dec In $/MMBtu Jan-07 Jan Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 UK NBP NBP Futures 18th Feb 2011 NBP Futures 5th Aug 2011 NBP Futures 3rd Jan 2012 NBP Futures 9th Mar

57 Linking LNG Prices to Market (Traded) Natural Gas Prices The increase in trading is resulting in market prices that reflect gas on gas competition Recent LNG contracts have been indexed to NBP and Zeebrugge market prices: Qatargas II sales to the UK are priced using a netback from NBP prices RasGas II sales to Distrigas in Belgium are based on Zeebrugge hub prices 57

58 UK National Balancing Point (NBP) Prices and Spanish LNG Prices $/MMBtu Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 UK NBP Index Source: Gas Matters 1Q03 1Q04 1Q05 1Q06 Algeria-Spain LNG 1Q07 1Q08 1Q09 1Q10 1Q11 58

59 Average German Border and UK NBP Prices January 2005 to December 2011 $/MMBtu Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 NBP German Border Price 59

60 An End to Oil Price Indexation in Europe? There is a view that the linkage of gas, which is now predominantly a fuel in the static sector, to oil, which is largely a transport fuel, is illogical The gap over the last three years between oil-indexed and hub-based prices has added a new dimension to the debate on whether oil-price indexation should continue The well developed gas grid in Western Europe means that companies can access gas from trading hubs which have been at a lower price than under their long-term contracts for over 3 years Incumbents face the risk of losing market share to new entrants who are not burdened with higher price long-term supplies In 2010, some producers accepted, at least temporarily, an element (around 15%) of hub-based prices for sales under the terms of long-term contracts European Buyers are putting increasing pressure on sellers to move to market based pricing and they have the support of the European Union. Sellers are resisting arguing that oil linked prices have served buyers and sellers well in the past so why change? Negotiations between Gazprom and E.On Ruhrgas, RWE and others have already gone to arbitration ENI and GDFSuez say that they have settled new pricing with an increase chare of hub based prices in the index 60

61 Short-term Trading

62 What is LNG Short- term Trading? There is no industry-wide accepted definition of what constitutes short-term trading in LNG Different sources of information on short-term trading use different definitions and, as a result, estimates of the amount of short-term trading can vary significantly In this presentation, a short-term cargo is defined as a cargo which delivered to a final buyer at the receiving terminal by the seller under the terms of a contract of less than 2 years duration Reliable data for short-term trading globally in 2011 is not yet available It is very different from short-term trading in oil markets Loading port, destination and ship are usually decided well in advance A limited number of cargoes have been diverted in transit 62

63 LNG Short- term Trades In mtpa % 15% 10% 5% 0% Percentage share of production Volume Percentage Share 63

64 Share of Short- term LNG in 2009 Asia 13.7% Europe and the Americas 23.8% 86.3% 76.2% Total World 18.8% 81.2% Short-term Long-term 64

65 Short- term LNG Trading in the Basin Terminals in north-west Europe and the USA operate on a flexible basis and can increase or decrease LNG imports at short notice Price transparency at trading hubs in the UK (NBP), Belgium and the Netherlands (TTF) and in the USA (HH) As a result these are now the markets of last resort for surplus LNG cargoes and they are the sources of LNG to meet demand in excess of long-term contracted volumes in markets in Asia, S. America and the Middle East Long-term FOB contracts with Trinidad and Tobago, Egypt and Equatorial Guinea give the buyers varying degrees of flexibility over the destination of the cargoes 65

66 Re- Exports from the USA and Belgium An increasing number of cargoes are being re-exported from US terminals and from the Zeebrugge terminal in Belgium Cheniere, Chevron, Sempra, ENI and ConocoPhillips have re-export licences from terminals in Louisiana and Texas Cargoes from these terminals have been re-exported to Europe (UK and Spain), Asia (Korea and Japan) and S. America (Brazil) Cargoes from Zeebrugge have been re-exported to Korea, China, India, Spain, the Netherlands and Kuwait In 2011, cargoes have also been re-exported from Costa Azul (Mexico), Brazil and Spain LNG Re-Exports in 2010 and 2011 Country No of Cargoes Volume in mt Belgium USA Others Total

67 Short- term Trading in the Pacific Basin Short-term trading is used mainly by buyers to manage unexpected variations in supply and demand Korea Gas uses short-term purchases to meet winter demand (typically over 3 times summer demand) TEPCO (Japan) has used short-term trades to compensate for the loss of output from some of its nuclear power plants Buyers in Japan, Korea and Taiwan have used short-term purchases to compensate for Indonesia s failure to meet its contractual commitments Buyers reduced their short-term imports in 2009 in response to the decline in demand in their downstream markets Short-term imports increased by 18% in 2010 despite the start-up of new contracts from Russia (Sakhalin), Indonesia (Tangguh), Yemen and Qatar None of the terminals in Asia operate on an open access basis which means that sellers can only deliver cargoes to Asian markets by selling them to the owners of the terminal 67

68 LNG from the Basin to Asia 2007 to In mt Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Korea Japan Taiwan India China Thailand 4Q11 68

69 Sources of Basin Cargoes Delivered to Asia 2007 to In mt Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 Trinidad Egypt Nigeria Algeria Equatorial Guinea Norway Belgium/USA 69

70 Pricing of Short- term LNG Cargoes Pre-2004 prices were usually based on the level in the market into which the LNG was being sold The increased global competition for cargoes is resulting in buyers having to pay a premium over long-term prices to secure short-term cargoes The fall back markets for uncommitted cargoes are the USA or the UK As a result the higher of NBP or Henry Hub has provided a floor for short-term LNG cargoes In 2010, the UK has been the higher of the two markets and NBP has been the effective floor price. This approach is being used for spot deals into Asian markets However, there are some medium-term deals under which Atlantic Basin cargoes have been delivered to Asia with the price linked partially or completely to JCC The average premium for Atlantic Basin cargoes delivered to Asia has been boosted by these medium term deals 70

71 How Much Does a Buyer in Tokyo Need to Pay for a Cargo from Nigeria for Delivery in April 2012? in $/MMBTU UK NBP Price (March 2011) $9.44 Less Terminal Cost (Fee and Fuel Use) -$0.50 LNG DES Isle of Grain* $8.94 Less Shipping Nigeria-UK -$1.09 LNG FOB Nigeria $7.85 Plus Shipping Nigeria - Japan +$2.61 LNG DES Japan $ * The Isle of Grain terminal is located about 30km east of London, UK 71

72 Prices of Basin Cargoes Delivered to Japan Jan 2006 to December Atlantic Basin Cargoes to Japan 15 In $/MMBtu Higher of Henry Hub and NBP Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 72

73 LNG Spot Price Indices A number of publications are publishing daily or weekly LNG spot assessments Platts LNG Daily World Gas Intelligence ICIS Heren They are usually estimates based on quotes from traders, sellers and buyers Examples of deals done using the indices are limited but some cargoes into Japan since March 11 th are reported to have used Platts Japan Korea Marker (JKM) 73

74 PlaZs Japan Korea Marker (JKM) and NBP/HH In $/MMBtu Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Platts JKM Marker NBP/HH Customs Reported Spot Prices 74 Jan-12

75 ICIS Heren Assessments of Japanese Spot Prices and UK Delivered Prices for LNG In $/MMBtu th Jan 11 28th Jan 11 18th Feb 11 11th Mar 11 1st Apr 11 22nd Apr 11 13th May 11 3rd Jun 11 24th Jun 11 15th July 11 5th Aug 11 9th Sept 11 30th Sept 11 21st Oct 11 11th Nov 11 2nd Dec 11 23rd Dec 11 20th Jan 12 10th Feb 12 2nd Mar 12 Japan/UK Difference Japan UK 75

76 LNG Cargo Swaps The potential for cargo swaps is increasing as the LNG business grows Cargo swaps can be difficult to arrange since they generally require the approval of two buyers, two sellers and possibly other players such as banks and ship-owners An increasing number of cargo swaps are being arranged But some obvious swap opportunities are not happening e.g., Nigeria-Turkey and Middle East-Spain Atlantic Basin-Asia and Middle East-Spain Trinidad-Spain and Egypt-US 76

77 Who are the LNG Short- Term Traders? LNG Aggregators BG, BP, Shell, Total, Repsol LNG Buyers GDF Suez, Gas Natural, Iberdrola Japanese Trading Houses Mitsui, Mitsubishi, Marubeni, Itochu, LNG Japan Banks Citigroup, Barclays Capital, Morgan Stanley, JP Morgan, Goldman Sachs, Bank of America Merrill Lynch Oil Traders Vitol, Gunvor, Mercuria LNG Shipping Companies Golar LNG 77

78 The Outlook for Short-Term Trading 78

79 What is needed for Short-Term Trading? Divertible LNG output Spare capacity in plants during build-up and at plateau More flexible contracts Market requirement for additional LNG Receiving terminals in the US and Europe currently have surplus capacity and more are under construction or planned. Korea will continue to need additional LNG in the winter Shipping capacity Shipping capacity has become a constraint as production has increased and the rate of delivery of ships from the yards has slowed However, orders for speculative ships are picking up which could result in more flexibility in the shipping market from mid

80 Outlook for Short-Term Trading Short-term trading will increase However, rigidities in the LNG business will continue and place limits on the proportion of LNG which will be traded on a short-term basis Short-term trading will grow most rapidly in the Atlantic Basin but it will also increase its role in Asia- Pacific markets Overall, short-term cargoes could represent 25% to 30% by

81 Thank you David Ledesma Tel: Mobile: d.ledesma@south-court.com Wed:

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