The role of LNG as a flexible source of supply

Transcription

1 Cancún, 6 th - 7 th November 2012 The role of LNG as a flexible source of supply Elena Olivares Villegas Isabel González Yagüe III WEC Biregional Forum of North America and Latin America & the Caribbean. 1

2 Contents 1. About Gas Natural Fenosa 2. Introduction to LNG 3. Flexibility in downstream gas and power markets. Case of Spain 4. LNG global markets 5. Adapting to current trends in global LNG markets 2

3 About Gas Natural Fenosa 3

4 About Gas Natural Fenosa 25 countries Over 20M customers around the world Largest integrated gas and electricity company in Spain and Latin America Workforce of 16,202 1 employees 1. At 31/12/11. 4

5 About Gas Natural Fenosa EBITDA 4,645 M 1 Installed Total assets capacity 46,502 M 1 15,443 MW 1 A multinational company leader in the sector of gas and electricity 1. At end

6 About Gas Natural Fenosa Gas Natural Fenosa around the world 6

7 About Gas Natural Fenosa Leadership in the liquid natural gas market Key LNG and natural gas operator in the Atlantic basin and the Mediterranean with 30 bcm 1 One of the biggest LNG operators in the world Fleet of 11 methane carriers 1 Investments in 3 regasifiers (2 more under development), 2 liquefaction plants and several projects in the gas value chain 1 1. Including Unión Fenosa Gas. 7

8 Introduction to LNG 8

9 Introduction to LNG LNG value chain and market model Licuefaction Throughput Agreement Shipping FOB DES Unload slots LNG Storage Regasification (flexibility = min and max send-out) Third Part Access Terminal Free Access + Tolls = IRR Exempted Terminal Ship or pay = IRR Transport Network Trucks loading 9

10 Introduction to LNG Magnitudes Economics of gas and oil by distance The energy per unit volume of natural gas is significantly lower than that of oil, which affects its higher cost of transport: 1 m3 of natural gas gas natural (n.c.) ~ 11,6 KWh 1 m3 of PNG ~ 744 KWh 1 m3 of LNG~ KWh 1 m3 of oil ~ KWh US$/MBtu km Oil Oil pipeline LNG Overland gas pipeline Marine gas pipeline 10

11 Petról eo GNL Introduction to LNG Evolution LNG market vs oil Administered markets Most trade on term contracts Administered government and private corporation pricing 19 producers (13 in OPEC) Production, purchasing, and refining dominated by the 7 sisters oil majors Vertically integrated industry Growth of spot trading Spot sales only 5% of total sales; many traders enter spot market Rapid price escalation Term contracts increasingly linked to prices of spot benchmarks Nationalization of upstream operations breaks up vertical integration Early 1980s Spot prices benchmark for all trades Sellers market became buyers market Additional non- OPEC production reduces preeminence of OPEC Spot trading over 30% of total sales 1983 WTI futures listed on NYMEX OTC derivatives illegal in U.S. until Oil derivatives grow Increased price volatility 1986 crude price collapse Netback pricing by Saudis Forward and futures markets grow in importance Oil majors reduce costs 1987 Chase completes first matched commodity swap ( ) (2002-?) (2002-?) Early 1990s-today Derivative markets mature industry dis-integration and realignment Intermediary trades dwarf underlying physical markets Increased liquidity and derivatives competition Major oil companies restructure activities role of refining and marketing reviewed The oil path could happen in the LNG market, at least partially As the LNG market becomes fully arbitraged, efficient spot markets in LNG likely to emerge Critical question is how and how long will market evolution take? 11

12 Flexibility in downstream gas & power markets 12

13 Demand evolution in Spain Power generation mix Electricity demand growth has been covered by renewable energies and CCGT: CCGTs: higher efficiency and more environmentally than any other fossil fuel Renewables: attractive regulatory framework GWh GWh 300,000 (1) 250, ,000 Renewables 150, ,000 Conventional 50, (1) Includes solar, small hydro, other renewable Hydro Nuclear Coal Fuel/gas CCGTs Wind power Other Renewables Thermal generation room has decreased continuously 13

14 Demand evolution in Spain Power generation mix. Domestic coal Security of supply regulation supporting domestic coal With new coal regulation Without new coal regulation CCTG gas consumption (TWh) x3 Hydro range Source: CNE Coal Real Decree, has had a significant impact in gas power generation Source CNE 14

15 Demand evolution in Spain Power generation mix. Wind Differences of MW in 5 days: (equivalent to 25 CCGT) High intermittency of wind power generation... Source: REE 10 th march th march 2009 Over MW disappears in hours (equivalent to 11 CCGT)... has a clear impact in gas power demand Decrease of MW in a few hours Increase x6 in a few hours Source: REE 16 th dec 2010 Wind power generation Conventional + CCGT Conventional 16 th dec 2010 CCGTs are acting as a back up power source, increasing the requirement for flexibility and reliability Gas power demand Source: Enagas 15

16 Demand evolution in Spain Conventional demand. Domestic demand Demand deviation over the previous month forecast is significant GWh/d Forecast Pattern Actual Values Winter Winter deviation GWh/w Monthly deviation GWh/m Daily deviation 300 GWh/d Winter Winter deviation Monthly deviation Daily deviation GWh/w GWh/m 200 GWh/d Conventional demand also requires short term flexibility to face the differences between reality and forecasts 16

17 Infrastructures in Spain Planta Musel Source: Enagas 6 LNG Terminals, pipeline connection with Morocco, Algeria, Portugal and France and underground storages 17

18 Infrastructures in Spain Underground storages. Benchmarking Underground storage vs demand Benchmarking 60 UGS Capacidad capacity AASS // demanda (%) Letonia Eslovaquia Austria Hungría Francia República Checa Alemania Italia Dinamarca Holanda Polonia España Bélgica Reino Unido bcm With the commissioning of the new capacity, is expected the ratio rises but still will be low Spain is one of the countries with less relative capacity which gives little flexibility to the system 18

19 Infrastructures in Spain Interconnection projects between the Iberian Peninsula and France Decided 2bcm 2bcm Biriatou Larrau Decided 5bcm 5bcm MIDCAT NOT Decided 5bcm 7bcm 19

20 Supply evolution in Spain Modulation in gas supply is required 1400 Daily send-out from Spanish regasification terminals GWh Source: Enagas GTS LNG is providing the flexibility 20

21 Supply evolution in Spain Diversified supply portfolio Spain has a diversified supply portfolio due to access to LNG producers Pipeline/GNL Origins LNG GWh Total Pipe LNG share has decreased until around 60% The highest share by origin is less than 35%, Key role of LNG in the Spanish market 21

22 Supply evolution in Spain Access to a range of supplies Natural gas supply to Spain in 2010 LNG 77% Nigeria 21% Egypt 8% Lybia 1% T&T 9% Peru 2% Other 4% Oman 1% Norway LNG 5% Qatar 15% Norway NG 4% Source: Enagas Argelia LNG 11% Argelia NG 19% Pipe gas 23% Diversified origins thanks to access to LNG supplies 22

23 Supply evolution in Spain Access to a range of supplies Natural gas supply to Spain in 2011 LNG 67% Nigeria 19% Algeria LNG 13% Source: Enagas Qatar 13% Trinidad&Tobag o 8% Algeria NG 25% Norway LNG 3% Norway NG 4% Egypt 6% Peru Italy 0% 5% France 1% Belgium 1% Oman USA 1% 1% Yemen 0% Pipe gas 33% Diversified origins thanks to access to LNG supplies 23

24 Supply evolution in Spain Impact of the LNG market LNG Terminals International Connections 100% 30% 100% Average PRODUCTION Mar-11 to Feb-12 Source: Enagas Low load factors in LNG terminals. Idle capacity in 2011 around 50% higher than the previous years Although surplus capacity exists, international connections and underground is needed 24

25 Supply evolution in Spain Impact of the LNG market Expected global LNG prices influence in Spanish market LNG demand 2011/2010 (variation y/y in Mtpa) Pipe Gas Hub LNG Hub LNG as key supply in Spain and Portugal LNG as new supply in North Europe Decrease on LNG in Spain due to diversion to other markets and influence of Medgaz 25

26 Market evolution Organized markets: the Spanish hub Every exchange point can be considered as a hub. The system balance point (AOC) could be a hub. But in a technical understanding, a hub is an exchange point with reference price Consumers In Spain is possible to exchange NG/LNG trough 8 different points, and each shipper has to be balanced in three different points: LNG Plants, AOC, and Underground Storage Source: CNE 26

27 LNG Global Markets 27

28 7% 2% Global Gas Markets International trade 9% 3% 4% 15% 31% 7% 18% Pipeline: 75% Exporters 29% 22% Importers 12% 19% 22% Rusia Russia Canada Noruega Norway Holanda Neether Argelia Algeria Otros Others Germany Alemania USA EE.UU. Italia Italy Francia France Turquía Turkey Bélgica Belgium España Spain Otros 3% 3% 4% 4% 4% 6% 7% Japan Exporters 8% South Korea Spain UK France Taiwan US East China India Italy Turkey Belgium Otros 6% 9% 4% 5% 5% LNG: 25% 25% 10% 6% 11% Qatar Indonesia Malaysia Nigeria Australia Trinidad & Tobago Algeria Russia East Oman Egypt Brunei Importers Otros 3% 3% 2% 8% 4% 4% 9% United Arab Emirates The total volume consumed worldwide in 2010 was about 3170 bcm, of which only 30% was commercialized 14% 33% 28

29 Global Gas Markets Licuefaction capacity Liquefaction capacity In 2010 (mmpta) Northamerica 0,6 Europe 2,9 Southamerica 16,7 North of Africa 22,3 West Africa 21 Middle East 76,2 Asia - Pacific 82,5 Source: WoodMackenzie 29

30 Global Gas Markets Consumption Consumption of gas in 2010 (bcm) bcm Generation Dom and comm Industrial Others Fuente: WoodMackenzie 30

31 Global Gas Markets LNG imports in the world LNG imports in 2005 and 2012 by region (mtpa) North America Europe Middle East Asia - Pacific South America Source: IHS CERA. November 29,

32 Global Gas Markets Evolution of the planned LNG demand In any economic situation and any scenario of unconventional gas production is forecast significant growth in demand for LNG globally LNG Demand Demanda de GNL Growth Recovery bcm 5,1 % a.a. Shale gas global bcm 3,4 % a.a. Double recession bcm 4,0 % a.a Fuente: IHS CERA 32

33 Global Gas Markets Focus switching to emerging markets Robust economic growth in emerging markets Leading to a faster growth in natural gas consumption GDP Growth (%) 6000 Gas consumption (bcm) World USA Euro area Latin America Africa Asia non-oecd Middle East China India Note: GDP growth at constant prices (percente change). Source: IMF, World Economic Outlook, April 2012 % E. Europe / Eurasia OECD Source: U.S. Energy Information Administration (EIA), International Energy Statistics database (as of March 2011) 33

34 Global Gas Markets Market characteristics The different regions have different characteristics, there is no single market for gas global dimension Northamerica Increased domestic production and reserves of unconventional gas Indexing to hubs (Henry Hub) High liquidity Europa Hubs or prices linked to oil Liquidity. Possibility of price arbitrage. España América del Sur Counterseasonal market Indexing HH / petroleum products Decline of local production in certain countries. Importance of rainfall (eg Brazil) Importance of supply by LNG Indexing Brent / products Low interconnection capacity Asia High dependence on imported LNG: Japan, Korea, Taiwan. Crude prices indexed (JCC), higher than in other markets in the current context. 34

35 Global Gas Market Price formation mechanism Most of the gas traded globally is still sold at regulated prices, often highly subsidized. Only in NorthAmerica there is a developed natural gas market with a price formation mechanism Formación de precios del gas por región Of the 3170 bcm consumed in 2010, almost 40% (1,180 bcm) were at regulated prices 35

36 Global Gas Market Context of volatile prices 25 HH NBP Oil parity 20 US$/MMBtu Source: Bloomberg 36

37 Global Gas Market Inderdependent markets After the nuclear crisis is likely a key role of natural gas in the global energy mix GNF operator is well positioned for the future with a diversified mix of NG / LNG sources and end markets Will be key to maximizing the value of the gas chain combining stable presence in end markets with greater flexibility in contracts and fleet Fuente: WoodMackenzie 37

38 Global Gas Market Growing counterseasonal demand Counterseasonal markets in Middle East and South America increasing LNG purchases, markedly higher in the summer 1 months. Quarterly LNG imports Middle East South America New commercial models Complementary to heating demand in Northern Hemisphere. MMt Role of aggregators and traders Spot purchases and contracts with seasonal bias vs traditional long term contracts Source: IHS Cera, November (1) Northern Hemisphere summer 38

39 How to optimize portfolio in a changing market? No silver bullet, but some useful tips Commercial schemes: Long term / medium term / spot Firm deliveries vs schemes with optionality (put/call) Hedging / derivatives Complex criteria Expected value not enough as a single criteria Robust decisions, scenario planning Value the flexibility associated with each decision Constant dynamical restructuring, striving for optimization Close collaboration within the organization among functions and regions: logistics, shipping, trading, marketing, power generation, etc. 39

40 Adapting to current trends in global LNG trade 40

41 Far East Markets Fukushima. LNG imports Japanese LNG Imports Nuclear Power Plants in Japan Spot demand > 40% Fukushima Middle East volumes diverted are not enough Pacific basin is not feeding Asia with additional volumes Source: The Federation of Electric Power Companies of Japan. April 2012 Source: Wood Mackenzie Prior to Fukushima nuclear disaster, new LNG markets had arisen (China, India, etc.) After Fukushima, Japan progressively shut down all of their Nuclear Power Plants and Japanese LNG demand grown up dramatically Even non typical supplies from Atlantic (TT, Algeria and Norway) intended to go to Europe, have diverted to Far East post-fukushima 41

42 The Fukushima Effect Nuclear vs CO2 post Fukushima Some countries have announced that they will change their generation mix. Impact on Global LNG Market Increased demand accelerating shift excess gas shortage in the market. Increases the uncertainty of demand contractual needs. Not enough portfolio in the Atlantic to Pacific demand balance in the medium term. Qatar a input is necessary. North America can be an alternative to the supply problem with recent liquefaction projects

43 Shale gas revolution in North America New sources of unconventional gas in North America have drastically reduced the need to import LNG 200 Evolution of US LNG import forecasts AEO bcm AEO 2007 AEO 2006 AEO 2008 AEO 2009 AEO 2010 AEO 2011 AEO Source: Energy Information Administration, Annual Energy Outlook 2005, 2006, 2007, 2008, 2009, 2010, 2011 and 2012 (Early Release) 43

44 Shale gas revolution in North America LNG originally earmarked for the US largely resold into other markets. Exports from US regasification terminals: US$/MMBtu Re-exports Liquefaction capacity proposed High differentials between US and other markets stimulates reexports Cargoes re-exported 0 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dic-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dic-11 0 Reexports from US terminals Source: Office of Fossil Energy, U:S: Department of Energy, Bloomberg Dif NBP-HH 44

45 The impact of the shale as in Global Markets It is a reality in the U.S. The estimated stock level Imports Exports Sabine Pass primer proyecto exportación Estimado has had a real impact on the price HH Mensual, Mayo 2011 $/MMBtu Precios proyectados HH hasta el 2035 Fuente: Stream... and are expected to continue Decoupling prices interbasin price arbitrage Fuente: Dow Jones Fuente: ICF International 45

46 The impact of the shale as in North America LNG export projects have been proposed thanks to the abundance of low-cost production in North America. How much volume can be exported without limitation and what will be its impact? Douglas Channel Energy Project: barge of 1.2 bcm / year near Kitimat Dominion announced plans to add liquefaction capacity at Cove Point BG and Southern Union have announced plans to add 20 bcm of export capacity in Lake Charles Shell/Mitsubishi (with Asian utilities) and Nexen/LNG Japan) are considering similar schemes in the area Cheniere has proposed adding 10 bcm of export capacity at Sabine Pass and has signed six no-binding MOU for capacity contracting Macquarie / Freeport have proposed adding 14 bcm capacity at Freeport LNG export 46

47 Cheniere GNF LNG SPA Only Cheniere has concluded long-term contracts so far. Company Capacity (Bcf/d) DOE Filing FERC Filing Sabine Pass Liquefaction 2,2 Jordan Cove US LNG exports projects Cove Point Corpus Christi Liquefaction 1,8 * Freeport LNG Expansion 2,8 * Lake Charles Exports 2,0 * Dominion Cove Point 1,0 Freeport Lake Charles Cameron Jordan Cove Energy Project 1,2 * Cameron LNG 1,7 Exports Terminals Sabine Pass DOE Approved Gulf LNG Sabine Pass Gulf Coast LNG Export 2,8 * FERC Pre-Filing Process Source: Office of Oil and Gas Global Security and Supply, Office of Fossil Energy, U.S. Department of Energy; U.S. Federal Energy Regulatory Commission Gas Natural Fenosa entered into an LNG sale and purchase agreement with Sabine Pass Liquefaction, a subsidiary of Cheniere Energy Partners. 47

48 Cheniere GNF LNG SPA Cheniere GNF LNG SPA: Main terms and Conditions LNG SPA was signed in November 2011, and will allow GNF to supply new potential markets worldwide Delivery & Flexibility FOB (GNF shipping portfolio) Free destination Middle East Start Up Expected volumes 2017 diverted are not enough Duration 20 years Volume 5 bcm Price ($/MMBtu) 115%HH + 2,49 For discussion purposes only 48

49 Thank you 49

50 This presentation is the property of Gas Natural Fenosa. Its content and graphic design are for the exclusive use of its personnel. Copyright Gas Natural SDG, S.A. 50