LNG MARKET TRENDS AND OPPORTUNITIES IN LNG SUPPLY CHAIN

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1 LNG MARKET TRENDS AND OPPORTUNITIES IN LNG SUPPLY CHAIN LNG SEMINAR PETROLEUM INSTITUTE OF PAKISTAN MAY 23, 2016 ISLAMABAD No part of this presentation may be circulated, quoted, or reproduced for distribution outside the recipient organization without prior written approval from the Granada Group of Companies

2 Overview of Global LNG Supply - 1 The advent of shale technology has resulted in incredible growth in oil and gas production in North America especially the United States. The largest importer and consumer of energy is due to become significant exporter of energy shortly. Paradigm shift in international energy markets. LNG market is entering a period of extended over supply from new LNG projects in Australia and the USA. Global supply reached 249 mmtpa in 2015 By 2020, Australia's effective LNG capacity will reach 84 mmtpa through the start of another 11 LNG trains from QC LNG & GLNG Projects Beginning with production of 9 MM tons in 2016, the USA is poised to commission a production capacity of almost 70 mmtpa by 2020 In Mauritania/Senegal, 17 tcf of discoveries were made that will result in the nation emerging as a potential new supplier as well. 1

3 Overview of Global LNG Supply - 2 Of the projected 121 metric Tons of additional LNG capacity during the next five years, about 70 metric Tons are expected to come on line in the USA: Year Sabine Pass Freeport LNG Cameron LNG Cove Point Corpus Christie Total MTons Supply growth is likely to slow as Final Investment Decisions (FIDs) on new projects are expected to be deferred. No FIDs are expected on any new major LNG supply projects in

4 Overview of Global LNG Demand - 1 The new supply is entering the market when demand is weakening in the major northeast Asian LNG markets Lower demand from northeast Asia is partly balanced by deferrals on new projects, increased European imports of LNG and in emerging markets By 2025, global LNG demand is expected to grow at an average rate of 5.6% per annum to 422 mmtpa. Japanese LNG demand growth to be modest as nuclear restarts remove the need for incremental LNG imports in the power sector. China has experienced a sharp slowdown in GDP growth as the economy shifted towards the service sector. India: LNG imports rose as Indian buyers benefited from the downturn in China and South Korea. Longer-term demand is expected to be strong. South Korean LNG imports declined for a second annual year to 34 mmtpa in

5 Overview of Global LNG Demand - 2 Egypt, Pakistan and Jordan were bright spots in global LNG demand growth in Imports via FSRU terminals increased by 44% in 2015 to 22.8 mmtpa. In Europe, LNG imports displace piped gas supply from Russia due to concerns about security of supply and coal in power generation. LNG imports in South America remain strong with Argentina, Brazil and Chile importing LNG on a spot basis. Brazil contributed to 5 mmtpa of imports in 2015 due to a severe drought causing hydroelectric output to decline. Lower prices and the ability to deploy Floating Storage and Regasification (FSRU) and FSU technologies will see new LNG markets emerge rapidly 4

6 Projected Global LNG Supply - Demand 5

7 Opportunities - 1 FSU deployment alongside onshore re-gasification has provided even more economical and rapid development of LNG import infrastructures. This option provides significant economic, operational, social, environmental and financial benefits when compared with FSRU deployment. For obvious reasons, FSRU or FSU deployment should only be considered as an interim measure with a plan for moving the storage and re-gasification onshore within a realistic time line of 3 years. Given Pakistan s position at this time as being one of the few high LNG growth markets, this position and huge investment in LNG purchases should be leveraged to develop onshore LNG infrastructure, acquire LNG ships and technology for construction of LNG equipment, ships and barges. In in the JKT markets, 60% of LNG contracts (8 Bcfd or 61 MMtpa) will expire, enabling buyers to drop oil-indexed supplies. This fact should be considered when signing long term LNG supply contracts. 6

8 Opportunities - 2 Opportunity for acquisition of equity gas reserves at very low prices of less than $1/mmBtu in United States at this time, provides an excellent opportunity for securing long term LNG supply chain without any escalation of price or linkage with oil prices or indexes. Window of opportunity also exists for securing long term LNG supply from United States at low delivered prices indexed with HH gas prices taking advantage of NYMEX Futures. A sudden drop in the orders for new LNG ships due to unexpected drop in LNG shipments resulting in oversupply of LNG ships has resulted in sharp drop in the charter rates as well as prices of new LNG carriers. For above reasons, diminished orders for new construction and conversions of LNG tonnage for the shipyards creating opportunity for acquisition of cheaper LNG vessels, FSRUs and FSUs. Used and older LNG vessels can be acquired and chartered at rock-bottom rates and converted in to FSUs and FSRUs 7

9 SPOT PRICE FOR US LNG BY COUNTRY GREAT BRITAIN BRAZIL ARGENTINA CHILE $4.05/MMBtu $4.33/MMBtu $4.60/MMBtu $4.44/MMBtu UNITED STATES NOTE: ALL FIGURES BASED ON ANNUAL ICIS REPORT EGYPT JAPAN INDIA $4.90/MMBtu $4.70/MMBtu $4.65/MMBtu 8

10 SHIPPING COSTS FOR US LNG TOKYO AIN SUKHNA HAZIRA $1.03/MMBtu $0.72/MMBtu $0.93/MMBtu ISLE OF GRAIN $0.36/MMBtu UNITED STATES QUINTERO $0.55/MMBtu GUANABARA BAY $0.30/MMBtu NOTE: ALL FIGURES BASED ON ANNUAL ICIS REPORT BAHIA BLANCA $0.39/MMBtu

11 Contracting Future LNG Supplies Global supply-demand balances and increased supply liquidity could impact pricing practices, especially in East Asia and Europe North American LNG exports compete favorably with more expensive Australian LNG projects and green-field East African and East Mediterranean projects The sustainability of shale production and the scalability of global LNG demand will drive Shale Spreads and thus LNG export economics In Canada, at least 9 Bcfd of LNG export capacity is under construction or in advanced development, with another 33 Bcfd of capacity proposed With 6 Bcfd more North American LNG exports, HH price impacts could approach $1 around 2020, but then subside while sweet spot shale production remains high In in the JKT markets, 60% of LNG contracts (8 Bcfd or 61 MMtpa) will expire, enabling buyers to drop oil-indexed supplies 10