Atlantic LNG: Has the boat sailed? Is the US out of the LNG trade and what are the implications for Europe?

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1 Atlantic LNG: Has the boat sailed? Is the US out of the LNG trade and what are the implications for Europe? James Osten Principal North American Energy Markets

2 LNG Trade Different for U.S. Than Europe U.S. and European gas markets are similar in size but vary in dependence upon imports U.S. natural gas pricing is independent of petroleum products and independent of European pricing U.S. Supply and Demand Imbalance is Closing! Shale gas supply increase Volumetric considerations for arbitrage The U.S. can give up from 10 to 25 BCM of LNG supply under the right circumstances The U.S. can absorb from 10 to 20 BCM of LNG supply if the price is right!

3 Large Gas Markets, Dependent Upon Trade, U.S. and Europe Have Similarly Sized Natural Gas Markets (billion cubic metres) U.S. is 85% self sufficient, 98% with Canada and Mexico U.S. Demand Europe U.S. Supply Europe U.S. Reserves Europe Demand Production Pipeline Imports LNG Imports Reserves divided by 10

4 Natural Gas Prices Track Crude Oil, Somewhat (Dollars per million Btu) Henry Hub at $6.61 for % of Crude Oil Ethane indicates lower natural gas prices ahead: Obtained from natural gas and used as feedstock When priced at parity to natural gas, indicates low demand, excess supply and lower gas prices ahead 10 5 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Henry Hub West Texas Intermediate Ethane Mt. Belvieu

5 U.S. is Dependent Upon Trinidad Elba Island LNG Cargo Price 2007/ (dollars per million Btu) Elba Pricing: Tracks Henry Hub /1/07 4/1/07 7/1/07 10/1/07 1/1/08 4/1/08 7/1/08 10/1/08 Henry Hub Trinidad-BG-Short Term Trinidad-BG-Long Term Egypt-BG-Long Term Eq Guinea-BG-Long Term

6 Everett Receives All of Its LNG from Trinidad Everett LNG Cargo Price 2007/2008 (dollars per million Btu) Everett Pricing: Premium market and priced above Henry Hub /1/07 4/1/07 7/1/07 10/1/07 1/1/08 4/1/08 7/1/08 10/1/08 Henry Hub Trinidad-Distrigas-Short Term Trinidad-Distrigas-Long Term

7 U.S. Natural Gas Production Increasing 7% in U.S. Natural Gas Supply Growing Rapidly Lowering Imports (trade in billion cubic metres ) (Supply and Demand in billion cubic metres) U.S. Imports Decrease in 2008, Pipeline - Canada LNG Production Demand

8 Shale Gas Growing 50% per year, 2005 to (billion cubic metres) U.S. Shale Gas Production U.S. drilling is expected to decrease by 15% in 2009 slowing shale gas development Barnett Fayetteville Woodford Haynesville

9 U.S. Capability to Divert or Absorb LNG In 2008, LNG Imports are down 54% or 11 BCM LNG diverted to higher value markets In future from 10 to 20 BCM of LNG could be diverted The U.S. needs LNG in isolated corners of country New England, Southeast and California Absorption capacity of 10BCM to 20 BCM depends upon low price Local demand Storage fill Pipeline constraints

10 The U.S. Could Send LNG Elsewhere 9 Possible LNG Diversions from U.S. Market Could Reach 25 BCM by 2011 (billion cubic metres) Diversions reflect change from 2007, future diversions depend upon size and nature of commitment to U.S. market Trinidad Qatar Eq. Guinea Egypt Nigeria Algeria Yemen Norway Diversions Divertable

11 The U.S. will Import LNG from Many Countries U.S. Imports LNG From Diverse Sources (billion cubic metres) Qatar s Role as U.S. supplier will expand Other West Africa Asia Algeria Middle East Qatar Eqypt Nigeria Trinidad

12 U.S. Could Absorb (Import) More LNG in Summer! U.S. LNG Imports Peak in Summer (LNG Imports at annual rate in billion cubic metres) Summer 2007: Imports nearly triple from Summer 2008: U.S. shale gas production surges, storage nears full Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Summer Jul-09 Oct-09 Jan-10 Winter Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12

13 Most LNG is consumed within 300 kilometres of Terminal U.S. LNG Imports to Diverse Regional Markets (billion cubic metres) New England Steady, Small Imports East Coast is premium, growth market but no new LNG terminals Gulf Coast has surplus shale gas supply, huge LNG terminal capacity West Coast will use Energia Costa Azul in Baja Mexico New England East Coast Gulf Coast West Coast

14 U.S. Will Absorb Limited Arbitrage Volumes The U.S.Could Absorp Up To 20 BCM of Short Term LNG During April to October 6.00 (billion cubic metres) Louisiana and East Texas: large markets, unfilled storage, low utilization of existing terminals East Coast: small markets, little storage Everett Elba Island Irving Cove Point Freeport LNG Golden Pass Sabine Pass Lake Charles

15 U.S./Europe Pricing: Cyclical and Seasonal Seasonal LNG to U.S. during summer storage fill (U.S. absorption) LNG to Europe and Asian during winter (U.S. diversion) Cyclical LNG to U.S. when oil prices are low, U.S. demand strong or oversupply of LNG LNG to Europe when oil prices are high, U.S. demand weak or limited LNG supply Uncertainties Relative carbon mitigation policies, U.S. versus Europe Relative cost of carbon mitigation as carbon capture and sequestration

16 Thank you! James Osten Principal, North American Energy Markets