Qatargas' December 2011 SPA with Chubu Electric and Shizuoka Gas

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1 Qatargas' December 2011 SPA with Chubu Electric and Shizuoka Gas Alessandro Bacci, DAO s Board of Directors December 22, 2011 On Wednesday December 7, 2011, Qatargas, the world's largest LNG company owing a total annual capacity of 42 million tons, signed a tripartite sales and purchase agreement (SPA) with Japan's Chubu Electric Power Company (the electric provider for the middle Chubu region of the Honshu island) and Shizuoka Gas (one of the 211 city gas distributors in Japan with a business area covering 10 municipalities between Tokyo and Nagoya). The Qatari LNG producer, founded in 1984, has an established relationship with Japan and its first LNG shipment dating back to 1997 was delivered exactly to Japan. This new deal was announced during the World Petroleum Congress in Doha, Qatar (December 4-8, 2011) and was signed by Qatar's Minister of Energy and Industry, Mohammed Bin Saleh Al Sada, Chubu Electric Power Company's General Manager of the fuels department, Yuji Kakimi and Shizouka Gas' Chairman and CEO, Seigo Iwasaki. Qatargas is already exporting to Japan 10 million tons of LNG per year. This new deal will last for five years from 2016 to 2021 and according to the agreement every year Qatargas will be supplying to the Japanese companies 200,000 tons of LNG (the final supplied quantity will be approximately 1,200,000 tons). The two companies will decide how to share the LNG. The LNG will be delivered ex-ship to the following group of receiving terminals: Chita, Kawagoe, Yokkaichi, Joetsu and Sodeshi. Delivered Ex Ship "Delivered Ex Ship" means that the seller delivers when the goods are placed at the disposal of the buyer on board the ship not cleared for import at the named port of destination. The seller has to bear all the costs and risks involved in bringing the goods to the named port of destination before discharging.

2 This is the first time that Qatargas signs such an agreement with Shizouka Gas. In fact, the latter up to now had just purchased spot LNG cargos from Qatargas. Instead, Chubu Electric is also a foundation buyer of the LNG project in Qatar since the Japanese company underwent an SPA in 1992 ( LNG coming from the first Qatari asset: Qatargas 1). It's quite probable that on the Shizouka Gas' side the decision of becoming a longterm LNG buyer was facilitated by the long time trust relationship between Chubu and Qatar. Also for this new SPA the Qatari LNG will be shipped departing from Qatargas 1 which has three trains (with an annual production of 2 million tons each) and is a joint venture (JV) of different stakeholders: state-owned Qatar Petroleum (QP), US' ExxonMobil, France's Total and Japan's trading houses Mitsui and Marubeni. This agreement is remarkable in many aspects. It further nurtures our long lasting relationship with Chubu Electric Power Company while it welcomes Shizuoka Gas Company as the first new long-term Japanese buyer of LNG, in addition to those 8 buyers which formed the currently existing consortium purchasing LNG from Qatargas 1 joint venture for contracts signed in 1992 and It is also an example of how Qatargas can grow its share of the Japanese gas market in partnership with Chubu Electric Power Company said Qatargas's CEO, Khalid Bin Khalifa Al-Thani. He also specified that "this agreement is further testimony of our long-term reliable commitment to Japan and the innovative ways in which Qatargas is able support new customers. Whether for a very large sale of LNG or for a smaller volume like under this Tripartite SPA, Qatargas values all of its customers and seeks to assist them all in their aspirations to grow in the future. Outline of the LNG Contracts Signed at the World Petroleum Congress (Dec 2011) Seller Qatargas RasGas Buyers Chobu Electric Power Company, Inc. (Japan), and Shizuoka Gas Company (Japan) Duration Quantity Existing SPA Approximately 200,000 tons per annum (Total quantity of LNG to be delivered is approximately 1.2 million tons) CPC Corporation (Taiwan) 1.5 million tons per annum of Qatari LNG for 20 years starting in 2013, in addition to incremental volumes from 2012 to 2016 Qatargas supplies eight Japanese buyers with a total Deliveries commenced in of 6 mtpa of LNG. This was 2008 for the supply of 3 boosted to 10 mtpa on a shortterm basis after the LNG for a period of 25 years million tons per annum of Fukushima disaster. Source: Chobu Electric, Qatargas, RasGas, Interfax

3 It should be underlined that during the World Petroleum Congress in Doha two other Qatari companies accomplished important results. Qatar's RasGas, the world's second largest LNG producer after QatarGas, made public a contract with Taiwan's CPC Corporation aimed at shipping 1.5 million tons per annum of Qatari LNG. This deal will have a 20-year duration. Moreover, Qatar Petroleum (QP) signed a memorandum of understanding (MOU) with UK's Centrica aimed at investments in the upstream assets, facilities for gas storage, combined-cycle gas turbine generation assets and downstream opportunities. Still in 2011, Centrica had signed a three-year contract (valued $3.1 billion) with Qatar's state oil company, Qatar Petroleum International (QPI, it's the international investment division of Qatar Petroleum) in order to receive 2.4 million tons per annum of LNG. Also Centrica has an established commercial relationship with Qatar dating back to In recent years Qatar increased its LNG supplies to both Europe and Asia. This was possible thanks to new facilities that were ready at the end of the 2010s. Japan has been buying LNG for decades and now after the Fukushima disaster of March 2011 LNG imports will increase. In fact, the country is implementing stress tests for all the Japanese nuclear power plants while at the same time some nuclear plants are shut down for inspection and maintenance. At the end of November 2011 only 10 out of 54 nuclear units were in operations. It's quite evident that Japan's power companies are boosting their gas purchases. And LNG is the best currently available solution. Estimates envisage for Japan a 2011 LNG demand increase by at least 12 million tons. And Daisuke Harada, Deputy General Manager of Japan Oil, Gas and Metals National Corporation (JOGMEC), recently stated in 20 million tons the additional LNG demand for 2012 if some nuclear reactors do not restart operations.

4 Data about LNG imports for the period April-October 2011 show a relevant increase of LNG imports in comparison to the same months in The above graph from Flower LNG, a consultancy, well illustrates this trend. Between April and October 2011, Qatar supplied almost 7 million tons of LNG with 2.77 million tons more than the same period in 2010 (65.4% increase only from Qatar). Similarly, the other LNG producers of the Atlantic Basin not including Libya, increased their shipments (+1.24 million tons) as well as did the two newest LNG producers, Peru and Yemen (+0.27 million tons). Still with reference to the period April-October 2011, among the long-term suppliers, apart from Qatar that increased by 65% its LNG exports, also Australia (+0.87 million tons), Russia (+0.7 million tons) and Oman (+1.01 million tons) shipped more LNG to Japan. At the same time Japan received less LNG from Indonesia (-2.51 million tons) and US' Alaska (-0.21 million tons). Among the other producers (those not bound through a long-term agreement) it's important to consider Nigeria (+1.03 million tons). According to Japan's Ministry of Finance, in October 2011 the country overall imported 6.12 million tons of LNG with a 17.9% increase in comparison to October 2010 (the highest annual increase since August 2011, when Japan imported a record 7.55 million tons meaning a 18.2% increase than the August 2010 imports). Considering these data, it's highly probable that adding all exporters, Japan's LNG imports for 2011 will reach the amount of 78/80 million tons from 70 million tons in 2010 (at least a 10% increase). Natural Gas Measures and Conversions 1 billion cubic feet 1 billion cubic meters 1 million metric tons LNG billion cubic meters 35.3 billion cubic feet 1.38 billion cubic meters million metric tons LNG 0.73 million metric tons LNG 48.7 billion cubic feet These Japanese purchases will not be without consequences in Asia. In fact, already few days ago, Nanang Untung, Senior Vice President of Indonesia's Gas PT Pertamina (Persero) stated that Qatar seems currently less attracted by the idea of exporting its LNG to Indonesia than to Japan. This could very soon be a problem for Indonesia which has recently encouraged the procurement of floating storage regasification units (FSRUs). These units are the three FSRUs located in Belawan, Teluk Jakarta and East Java (each has a capacity of 3 million tons per year). It's quite evident that at least the FSRU in East Java could experience a shortage of LNG supply (up to now it did not secure any LNG supply). All this situation derives from the fact that Japan - given the strategic importance for its economy of LNG - is capable of purchasing LNG at the price of $14 per million British thermal unit (mmbtu) while Indonesia may arrived at $11 per mmbtu (Japanese price is 27.2% higher than the Indonesian price). But obviously, high prices will soon put some stress on the business results of the Japanese power producers but viable alternatives do not abound. And rates for the December 2011 LNG delivery is around at $17 to $17.50 mmbtu.

5 With no doubt, Qatar with its production capacity of 77 million tons of LNG per year (by far the largest LNG exporter in the world) could profit from the upsurge of LNG prices in the short-to medium-term in the Asia-Pacific Region. Japan and South Korea will necessitate probably 25 million metric tons in 2012 which could rise to 49 million tons in 2015 according to report released in December 2011 by the Swiss bank, Credit Suisse. Not to mention an increase in the Chinese and Indian LNG needs. And this gas will come from Qatar. In fact, in the near term, the only player capable of increasing its exports catching the LNG demand without a long-term contract is Qatar. Geographically Australia could supply the Asia-Pacific Region but its new liquefaction plants (between them Gorgon and Queensland Curtis) won't be ready before 2014 with no significant contribution to global LNG production before Russia, already an LNG seller to Japan, would be an obvious candidate for supplying additional tons of gas. In fact, for Russia it's smoother selling to Japan and South Korea than to China. Apart Russia's gas projects in the Pacific also Yamal LNG project, located in Yamal Peninsula (facing the Arctic Ocean), is targeted at Asian clients and one of them could certainly be Japan. And with no doubt in order to partially lowering LNG prices it could also be of huge utility for Japan to have different sellers: Qatar, Australia and Russia. The problem is that apart from Sakhalin-2, which already well serves Japan, the other Russian LNG projects will take time before being operative. In other words, up to 2015 the real player with monopoly power in relations to shortterm supply to be delivered to Asia - and consequently to Japan - will be Qatar. Now, the real job for the Gulf country will be to convert short-term supply into long-term supply based onto long-term contracts. The 2.77 million tons increase in LNG sold to Japan between April and October were mainly diverted cargos initially considered as LNG volumes for Europe. At this regard, in September 2011, Qatar publicized plans of doubling its long-term contracts to Asian countries in the next years up to 20 million metric tons annually. In the end, at least for the next three years, Qatar has now metaphorically and concretely the power of moving the rudder.