Meeting Asia LNG Demand in Challenging Cost and Price Enviroment

Transcription

1 Meeting Asia LNG Demand in Challenging Cost and Price Enviroment 9 th China-U.S. Oil and Gas Industry Forum G. M. (Chip) Schuppert, Jr Manager, Global LNG Marketing & Sales ConocoPhillips September

2 Outline Key Factors Influencing Current LNG Marketplace Meeting Demand in Near-term ( ) Meeting Demand in Longer-term (2013+) Conclusions 2

3 Factors Influencing Current Marketplace - Dramatic Growth in LNG Trade Growth in: Volume Number of trade routes Diversion & short term trades 3 Results in: Faster response to changes in market needs More commodity-like behavior in LNG supplies

4 Factors Influencing Current Marketplace - Significant LNG Supply Shortfall of Series of events led to Asia supply shortfall Significant Japan nuclear power outage Strong economic growth & LNG demand growth Significant demand growth from new markets Decline in supplies from maturing supply projects Flexible LNG supplies prevented actual shortage Flexible LNG supplies allowed LNG to be delivered: Both When and Where it was needed most Albeit at greater costs and prices Quick supply response to incremental Asia supply needs was direct result of growth in flexible/divertible supplies

5 Factors Influencing Current Marketplace - Effects of Economic Downturn Thousand Metric Tons Atlantic to Pacific LNG Flows Flexible LNG supplies are diverted into Asia in response to price signals caused by supply shortfall then Forecast revert back to other markets as economic downturn effects Asia demand Source: CERA Flexible supplies played critical role in effectively managing dramatic changes in market demand fluctuations 5

6 Factors Influencing Current Marketplace - Pricing Returning to Traditional Levels Ex-Ship Price ($/MMBtu) Gold band = pricing range of 1980 s 90 s Indonesia sales contracts Oil parity Early } [2007] [2008] }[2009] [2007] [2000] [2006] LNG pricing appears to have returned to traditional levels of oilindexation in response to combination of: Increased EPC costs tightening of supplies [2005] *Dates in brackets [ ] indicate approximate date of negotiation settlement JCC ($/bbl) [2002]

7 Meeting Demand in Near-Term ( ) - A Wave of New LNG Supply in Near-Term Volume (mtpa) Startup of Sanctioned W orldwide LNG Supply Projects Source: Poten LNGas Database Some 2009 volume may shift to Yemen Trinidad Russia Qatar Peru Oman Norway Nigeria Malaysia Indonesia Equatorial Guinea Egypt Australia Angola Algeria Abu Dhabi The significant amount of mostly Middle East projects sanctioned in is resulting in wave of new supply in

8 Meeting Demand in Near-Term ( ) - Growth in Amount and Diversity of Flexible Supplies 2007 Asia-Pacific 4% Distribution of Flexible Supply Volumes by Region Asia-Pacific 17% 2012 (est.) Atlantic 32% Middle East 27% Atlantic 69% Middle East 51% Source: CERA ~26 mtpa ~80 mtpa 1? Growth in flexible supplies should enhance ability to respond to price signals and avoid LNG supply shortfalls in the near term 8 1 There are indications this volume is shrinking

9 Meeting Demand in Near-Term ( ) Summary Wave of new LNG supply in Economic downturn, reduced LNG demand growth + Recent increase in flexible/divertible LNG supplies + Asia s return to traditional oil-indexed pricing levels = Likely adequate LNG supplies for Asia in Near-Term However, there is significant potential for regional LNG supply shortfall in the period 9

10 Meeting Demand in Longer-Term (2013+) Challenges Significant difficulties sanctioning new supply projects Declining production from existing supply projects Reduction in flexible supply volumes due to terming up Growing domestic gas (and LNG) demand both in Middle East and traditional LNG exporting countries Significant LNG demand growth (China, India, etc.) European demand growth (Russia supply concerns) 10

11 Meeting Demand in Longer-Term (2013+) Challenges Dramatic Escalation in Project Costs Unit Capacity (US$/tpa) $1,000 $800 $600 $400 $200 Grassroots Projects Expansion Projects Liquefaction Projects Unit Capex vs. FID Date $ FID Year Poten & Partners, Copyright Reproduced by permission only

12 Meeting Demand in Longer-Term (2013+) Challenges Lack of New Project Sanctions Worldwide LNG Project Sanctions * Gas reserves (mnboe) Source: Goldman Sachs Group, July E There have been very few LNG supply project sanctions since 2005? 12 * 1000 mmboe gas/lng reserves is roughly equivalent to ~4.5 MTPA of LNG for 25 years

13 Meeting Demand in Longer-Term (2013+) Challenges New Project Sanctions Must Increase Worldwide LNG Demand = ~170 MMT equivalent to consuming a ~7 MTPA x 25 yr project each year ~4% growth requires another ~7 MTPA project each year Simplifying, the industry needs ~14 MTPA new sanctions/yr To continue providing current ~170 MMT/yr supplies into the future To provide for ~4% growth in world wide LNG demand New sanctions have not reached ~14 MTPA/yr since 2005 Permitting and political environment challenges Dramatic escalation in project costs Where will the new LNG come from? Qatar? moratorium on new LNG sanctions until at least 2012 Iran? oil recovery (gas re-injection) and domestic needs West Africa? domestic needs and supply aggregation challenges

14 Meeting Demand in Longer-Term (2013+) Challenges Where Will the New LNG Come From? $13 $12 Prospective LNG Supply Projects (Goldman Sachs, non-exhaustive) US$/mcf breakeven $11 $10 $9 Gladstone LNG Curtis LNG Ichthys Wheatstone LNG Brass LNG ConocoPhillips-Origin (APLNG) Greater Sunrise LNG Prelude Abadi LNG PNG Gas Project Browse LNG Evans Shoal OK LNG Greater Gorgon WLGP LNG Nigeria LNG Train 7 $8 Damietta train 2 Source: Goldman Sachs Group, July 2009 $ Cumulative LNG reserves (mn boe) There are sufficient new supply projects to meet demand in longer term provided they are sanctioned in timely manner

15 Meeting Demand in Longer-Term (2013+) Challenges Where Will the New LNG Come From? $13 $12 Prospective LNG Supply Projects (Goldman Sachs, non-exhaustive) US$/mcf breakeven $11 $10 $9 CSG-LNG Projects Curtis LNG Ichthys Wheatstone LNG Brass LNG ConocoPhillips-Origin** Gladstone LNG OK LNG WLGP LNG Nigeria LNG Train 7 PNG Gas Project Greater Sunrise LNG Prelude Abadi LNG Browse LNG Evans Shoal Greater Gorgon Denotes Australia based resources $8 Damietta train 2 $7 ** Australia Pacific LNG (ALNG) Cumulative LNG reserves (mn boe) Source: Goldman Sachs Group, July 2009 Australia likely to be a significant, competitive contributor of new LNG supplies required to meet Asia demand

16 Conclusions Asia LNG supplies likely adequate in near term There are threats of significantly tighter supplies in longer term The undeveloped reserves exist to meet future LNG needs New project sanctions must increase to avoid LNG supply shortfall 2013+; reduction in EPC costs is needed Australia is positioned to be a significant and competitive source of new LNG supplies both CSG-LNG and conventional Sellers and Buyers must work diligently bring new supply projects to sanction in time to avoid undue tightening of supply 16

17 17 Thank You