Plenary Session 2: Natural gas: Market and policy hurdles to the golden age of gas. Bangkok Thailand. Background Paper

Transcription

1 Plenary Session 2: Natural gas: Market and policy hurdles to the golden age of gas Bangkok Thailand Background Paper

2 Disclaimer The observations presented herein are meant as background for the dialogue at the 7 th Asian Ministerial Energy Roundtable. They have been prepared in collaboration with The Boston Consulting Group and should not be interpreted as the opinion of the International Energy Forum or The Boston Consulting Group on any given subject.

3 Introduction Market context Session objectives Asia is home to the world s largest new gas consuming markets, and counts among its number the world s most rapidly growing economies that seek to embrace the Age of Gas Despite already high growth rates, infrastructure and market hurdles remain Liquified Natural Gas technologies have made global gas markets more competitive As Asia weighs the costs and benefits of gas bilateral producer-consumer relations built up over the past decades have never been more critical for longer term gas market security Discuss which policy and market levers will enable gas to shape healthy and affordable energy matrices in support of clean energy technologies to underpin sustainable growth and development in Asia How will Ministers help enhance gas market penetration, and overcome market and policy hurdles to achieve healthier energy matrices in Asia? Key Question: How can hurdles be overcome in the Gas sector in Asia? Copyright 216 by The Boston Consulting Group, Inc. All rights reserved. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 2

4 Contents What is the future role of natural gas globally? What is the natural gas balance in Asian Pacific (APAC) countries? Key questions and discussion Copyright 216 by The Boston Consulting Group, Inc. All rights reserved. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 3

5 Natural gas: the greatest growth fossil fuel Demand expected to be driven by non-oecd Asia Predicted demand growth for natural gas leads other primary energy sources 1 Growth expected to be driven by non-oecd Asia Mtoe 5, 4, 3, 2, 1, 2, % 3,39 Gas 4,11 4,11 3,926 3,955 Coal New Policies Scenario Source: IEA, BCG LNG Market Model +.2% +.5% 4,78 4,577 4,266 Oil +x.x% CAGR AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 4 Mtoe 5, 4, 3, 2, 1, 2,893 16% % 3,39 23% 225 Non-OECD Asia OECD ROW 4,11 28% 235 CAGR %.5% 1.6% Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

6 Separation between the major future demand sinks and producing regions will necessitate the increased flow of LNG World wide regional Natural gas balance (Mtoe) North America Europe CIS 1,5 1, 5 Production Demand Exports Imports Production Demand 1,5 1, 5 Source: IEA WEO Latam ,5 1, 5 Production Demand Export Export Production Demand Production Demand Import Import Production Demand 1,5 1, 5 Production Demand Export Export Production Demand LNG flow expected to increase from 325Mtpa in 215 to ~7Mtpa in 235; gas demand becomes an LNG story AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 5 1,5 1, 5 Africa/Middle East Production Export ,5 1, 5 Demand Export Production Demand Asia Pacific Production Demand Import Import Production Demand Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

7 LNG demand is expected to grow at 5-6% p.a. between 215 and 225 under the base scenario bcma Global LNG demand projections between 215 and % Base scenario Source: BP Statistical review of world energy, Cedigaz, WoodMackenzie, BCG analysis Copyright 216 by The Boston Consulting Group, Inc. All rights reserved. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 6

8 More countries can join supporting a higher demand growth rate Jordan has deployed a FSRU LNG terminal LNG supplied via tendering Further CCGT capacity too be develop Development of more CCGTs FSRU already in place Develop new LNG terminals and FSRU Development of new CCGTs CNG market will keep growing Development of CCGTs Potential market for transport and distribution Development of CCGTs Total consortium to developa.4bcma FRSU plant that is planned to reach 1bcma Development of CCGTs Potential market for transport and distribution At least 4 FSRU Ninho makes hydro production went down and LNG imports are needed to supply CCGTs needs Development of FSRU CCGTs Currently 4 LNG terminals porposed EWC, Shell, First Gen Meralco LNG plantis currently under construction CCGTs will be develop fostering naturla gas demand Copyright 216 by The Boston Consulting Group, Inc. All rights reserved. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 7

9 There are also three new market segments that has potential to increase natural gas consumption Criteria Marine transport Road transport Off-Grid and small scale LNG Regulatory Compliance Emissions Control Areas (ECA) Euro VI India Bharat 3 PNLT 29 Japan National V standard China US EPA standards Environmentally friendly emissions with lower carbon content Economic Practical Market potential 23 Fuel pricing, compliance, and reduced maintenance costs Technological advances in LNG bunkering 12-18bcma Fuel pricing, compliance, and reduced maintenance costs Natural gas engines operate at lower noise levels facilitating access to urban zones 4-6bcma Fuel pricing, multifuel capabilities, and reduced maintenance costs A means of creating gas distribution networks where no pipeline supply current exists ~4bcma power 3-5bcma industry Copyright 216 by The Boston Consulting Group, Inc. All rights reserved. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 8

10 A new 'bullish' industry consensus has emerged on the growth of gas between now and 235 World Gas Demand (Bcm) 6, Key global gas consumption growth forecasts Projections and growth CAGRs 5, 4, 3, Vs. ~3,5 Bcm consumption today 2, EIA Intl Energy Outlook 216 (2.2%) Shell LNG Outlook 217 (2.%) BP Statistical Reivew 216 (1.8%) IEA Golden Age of Gas scenario 211 (1.8%) 1 IEA - NPS 216 (1.6%) 2 Gas expected to be the fastest growth fossil fuel, surpassing coal by 235 Coal demand growth forecast to be between negative and.5% per year period period. 3. Includes forecasts of EIA, IEA, BP. Note: NPS: New Policies Scenario, which is the base scenario used in annual World Energy Outlook Reports. Source: IEA Reports, EIA 216 Report, BP Statistical Review 216, BCG Analysis Copyright 216 by The Boston Consulting Group, Inc. All rights reserved. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 9

11 Non-OECD Asia is a critical driver of global gas growth Projected gas consumption growth to 24 (216 IEA NPS) Annual gas consumption (BCM) 5,5 5, 4,5 4, 3, United consumptionstates Source: IEA, BCG analysis Global total Americas Europe/CIS Asia 9 Other Americas 5 Europe Middle East Africa Bunkers OECD -34 Japan 23 Other Asia 68 E. Europe / CIS Non- OECD Asia: 739bcm or 43% of total growth AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx China 138 India 185 Other Asia Non-OECD 363 Middle East 181 Africa 15 Latin America 49 Bunkers 5, Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

12 But natural gas consumption growth has been slower than anticipated Gas consumption growing slower than anticipated Though gas has started to gain share against coal since 214 Annual gas consumption growth rate (%) 3 Share of global energy mix by fuel (%) Global consumption.9.7 OECD consumption IEA "Golden age of gas" scenario (211) 1 Actual growth rate (21-15) 2.2 Non-OECD consumption Gas (est.) Period. 2. Non-OECD 215 demand calculated using 214 IEA demand data and CEDIGAZ growth rate; Source: IEA data (Natural gas balance, Consumption by fuel), IEA WEO 216, IEA Golden Age of Gas Report, BCG analysis Coal 27.7 Copyright 216 by The Boston Consulting Group, Inc. All rights reserved. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 11

13 ... And for different drivers than the ones anticipated by the golden gas era WEO 21 Expected growth by region Real demand growth by region MToe MToe 3, 2, , 2,9 Shale gas revolution 159 2,8 2,7 2,6 2, Latam demand North America 6 Europe 13 ME/Africa 35 CIS 2911 APAC 215 demand 2,8 2,7 2,6 2, Latam demand North America Europe Greater growth than expected in domestic N. Am & ME consumption; Asia growth driven in large part by Japan ME/Africa -7 Fukushima added 23bcm CIS 295 APAC 215 demand Copyright 216 by The Boston Consulting Group, Inc. All rights reserved. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 12

14 As actual gas consumption was growing less than forecasted, projections have been lowered World Gas Demand (Bcm) 5,25 IEA World Gas Demand Forecasts 5, 4,75 4,5 Golden Age of Gas WEO - NPS 214 WEO - NPS 215 WEO - NPS 216 4,25 4, 3,75 3,5 3, Note: NPS: New Policies Scenario, which is the base scenario used in annual World Energy Outlook Reports Source: IEA Reports, EIA 216 Report, CEDIGAZ 216 report, BCG Analysis AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 13 Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

15 ASEAN governments have set very ambitious targets for renewable energy penetration but more policy support is needed Hydro Solar PV Wind Geothermal Biomass Tidal Total Indonesia 5.3 GW in GW by MW in GW by 22 7 MW in MW by GW in GW by 225 n/a n/a 25% of generation by Thailand 3.5 GW in GW by GW in GW by MW in GW by 221 ~ MW in MW by GW 1 in GW 1 by 221 MW in MW by % of generation by Malaysia Singapore Philippines 3 MW 5 in MW 5 by 22 n/a 3.6 GW in GW by MW in GW by MW in MW by 22.4 GW in GW by 23 n/a AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 14 n/a MW GW 1 by 22 n/a 11% of generation by 22 4 n/a n/a n/a n/a 8% (no date) 49 MW in GW by 23 2 GW in GW by GW in MW in MW by 23 7 MW by GW by 23 (5% power mix) 1. Includes biogas and municipal waste. 2. Share from primary energy of renewables sources. 3. Share from final energy of renewables sources. 4. Share of renewables in generation mix. 5. Mini-hydro only. Sources: BMI, Indonesian Presidential Regulation No 22 Year 217, SEDA Sustainable Energy Malaysia Magazine Vol. 1 Issue 1 217, SEDA - National Renewable Energy Policy and Action Plan 21, SEDA Presentation Malaysia Updates on RE Program (April 216), press search (link) Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

16 On the other hand forecasts have often been over pessimistic on renewable deployment World New Policies Scenario forecast Non-OECD New Policies Scenario GW 4. GW % % % Source:IEA WEO AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx Renewable in Non-OCDE countries to lead renewable deployment Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

17 Energy efficiency policies and cheap coal have also reduced natural gas demand growth Energy efficiency and energy demand electrification......with renewable and Coal pants competitiveness 1 Energy Security in the Transition-Towards A New Paradigm From Efficiency To Electrification 1. Due to low CO2 prices Source: CERA, BCG analysis Energy Electricity AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 16 Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

18 Is natural gas use in the transport sector also being overoptimistic given the EV outlooks? Global light duty vehicle fleet Annual global EV sales by market Cars on the road (M) 2, Cars per year (M) 8 1,5 6 1, Source: Bloomberg new energy finance % % % 24 ICE Fleet EV Fleet Rest of Europe Germany France UK 225 Japan 23 Rest of World 235 China US 24 Copyright 216 by The Boston Consulting Group, Inc. All rights reserved. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 17

19 Contents What is the future role of natural gas globally? What is the natural gas balance in APAC countries? Key questions and discussion Copyright 216 by The Boston Consulting Group, Inc. All rights reserved. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 18

20 Natural gas demand has soared (>6%CAGR) in APAC region since the beginning of this century Natural gas demand by country in APAC region Bcma 1, 11% 11% 12% 12% 13% 13% 14% 14% 15% 16% 16% 17% 17% 18% 18% 18% % over global demand % Other NEW-ZEALAND VIETNAM 1. Papua New Guinea, Philippines Brunei And Myanmar Source: Cedigaz SINGAPORE TAIWAN 26 BANGLADESH 27 AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx AUSTRALIA MALAYSIA PAKISTAN THAILAND 211 INDONESIA SOUTH KOREA INDIA JAPAN CHINA Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

21 APAC countries natural gas supply and demand is diverse, which stimulates cross border trade and investment 1 largest APAC producers 1 largest APAC consumers Top exporters and importers in APAC Bcma Bcma Bcma Source: Cedigaz AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 2 Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

22 APAC countries can be identified by 4 supply and demand balance categories APAC countries production, consumption and trade in 215 Trade balance Bcma 14 Importers with no production 12 JAPAN CHINA Source: BCG analysis and Cedigaz SINGAPORE PHILIPPINES SOUTH KOREA TAIWAN NEW-ZEALAND VIETNAM INDIA TIMOR LESTE/AUSTRALIA JPDA BRUNEI BANGLADESH PAPUA NEW GUINEA MYANMAR Exporters without inland consumption THAILAND PAKISTAN Importers with inland production AUSTRALIA MALAYSIA Market size 4Bcms Exporters with inland consumption INDONESIA AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx Production bcma Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

23 Japan shut down most of the nuclear fleet after Fukushima, but is now considering restarts Japanese reactors fleet 44 PWR 24 2 BWR Stopped for Applied for restart inspection Stopped for Applied for restart Cold shutdown inspection Genkai 3/4 (Kyushu) Ikata 3 (Shikoku) Ohi 3/4 (Kansai) Sendai 1/2 (Kyushu) Takahama 3/4 (Kansai) Tomari 1/2/3 (Hokkaido) 11 1 No indication or Fault not active or Fault likely to be Active fault associated with an active fault 1 1 <=32 years >32 years Ikata 2 (Shikoku) Takahama 1/2 (Kansai) Takahama 1 et 2 are included due to an extended life allowed by NRA Under Base scenario included in scenario medium although unexpected <=25 years >25 years <=12 years >12 years K-K 6/7 (Tepco) Oragawa 2 (Tohoku) Shika 2 (Hokuriku) Shimane 2 (Chugoku) Hamaoka 4 (Chubu) Hamaoka 4 et 5 excluded due to Chubu's hostility to nuclear+ probleme of public acceptance 2 No indication or Fault likely to be associated with an active fault Oragawa 3 (Tohoku) Hamaoka 5 (Chubu) it is not under this scenario consideration included in medium scenario but not in the low scenario Fault likely active 1. under the criteria of this model this should not be consider for re-start, nevertheless due to other reasons they have been included (extended life) 2.these are particular cases as they are both pretty younge reactors economically profitable Source: BCG Nuclear Power Model. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

24 METI has already published an outlook which is optimistic on Efficiency, Renewable, LNG, Nuclear, and Clean Coal Electric power demand Power source mix Note: Values are approximate Electric power billion KWh FY213 (Actual value) Through energy efficiency and conservation billion kwh (17% lower than before the implementation of the energy conservation measures) Economic growth 1.7%/year Electric power 98.8 billion KWh FY23 (Power transmission distribution loss,etc) Energy efficiency and conservation and renewable energy account for 4% (Total power generation) 1,278 billion kwh Power conservation: 17% Renewable energy: 19 to 2% Nucler power: 17 to 18% LNG: 22% Coal: 22% AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 23 Oil 2% Renewables will grow mostly on account of Solar PV and Hydro FY23 (Total power generation) 1,65 billion kwh Renewable energy: 22 to 24% Nucler power: 2 to 22% LNG: 27% Coal 26% Oil 3% Geothermal power: 1. to 1.1 % Biomass power: 3.7 to 4.6% Wind power: 1.7% Solar power: 7.% Hydroelectricity power : 8.8 to 9.2% Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

25 Renewable technology may challenge coal and gas technologies in Japan if a Carbon tax is added /kwh 6 Total cost of power generation in Japan by source Carbon tax 2 /ton Potential CO2 tax LCOE 4 2 Nuclear (7%) Oil Oil (5%) Oil (1%) LNG (8%) Note: METI coul try to add a carbon tax in order to meet 27% emmision reduction target Source:Macquarie Research Japan s energy choices LNG (5%) Coal (8%) Geothermal (8%) AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 24 Hydro (45%) Wind (2%) Wind (offshore) Solar (12%) Solar (mega solar) Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

26 No urgency for new LNG long term contracts in Japan Current long term contract volume exceeds expected demand mtpa Long-term LNG supply contracts (>4 years) in Japan, (mtpa) The country's top-8 consuming companies make up ~8% of the long-term contracted volume in Includes traditional Japanese producers (INPEX, JAPEX) as well as corporations/trading houses (Mitsubishi, Mitsui, Toshiba, Itochu, etc.) 2. Includes Chukoku Electric, Okinawa Electric and Shikoku Electric's contracts 3. Essentially includes the contracts of Shizuoka Gas, Saibu Gas, Hokkaido Gas, Nippon Gas, Hiroshima Gas and Sendai Gas Source: GII, company annual reports, broker reports; BCG analysis AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx Demand does not account for nuclear re-start METI 23 LNG contracting target Demand Other incumbents Other gas retailers Other EPCOs Kyushu Electric Toho Gas Tohoku Electric Kansai electric Osaka Gas Chubu Electric Tokyo Gas Tokyo Electric Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

27 China will also have a surplus of contracted LNG from 216 Supply contracts VS expected LNG needs Mtpa Surplus from 216 onwards LNG needed 1 13 Queensland Curtis LNG Tangguh LNG MLNG Tiga Qatargas 3 Gorgon LNG Gorgon LNG 1. Demand based on bottom-up forecast of needs for each of Gas Distribuion, Storage and transmission, Commercial, Residential, Petrol. E&P, Power, District heating, Transport, Industry; minus expected local gas supply Source: BCG analysis, Cedigaz, UBS, Deutsche Bank, Rystad AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx NWS Australia LNG Yamal LNG 19 2 Qatargas 4 Elk-Antelope LNG 21 Australia Pacific LNG 22 PNG LNG BG BP Engie Total SPOT Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

28 China and multiple policy measures driving rapid growth of gas across all sectors Multiple policies supporting gas consumption are in place Share of industry and transport increase in total gas consumption Coal boiler conversation to gas Target conversation of 2k coal boiler units to natural gas New residential connections Target to increase penetration from 35% to 85%, adding >12m new connections Incentives for CNG/LNG for transport Discounts provided on prices in gas price formula Gas consumption of cars targeted to more than double from 214 to 22 New 5 year plan prioritizing gas power Targeting 44GW of new gas-fired capacity Though also targeting 2GW of new coal capacity Gas consumption by sector (%) % bcm (13%) (11%) Source: CEDIGAZ data (Terminals and Plants), IEA data (Natural gas balance), analyst reports, BCG analysis AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 27 75% 5% 25% % 8 (8%) 18 (17%) 13 (13%) 29 (27%) 23 (22%) 21 +1bcm +7bcm +13bcm +16bcm +37bcm Despite a higher price vs. coal, policy makers have supported a greater role for gas in China 18 (1%) 25 (14%) 26 (14%) 45 (25%) 5 (27%) 214 Other Transport Power Production Energy use Comm & Res Industry Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

29 China gas consumption has outpaced domestic production growing at over 1% Share of natural gas in energy basket, %, China natural gas reserves, TCM, energy consumption % 1 5 Share of Natural Gas 21 (BCM) % 5% 5% 6% 6% Renewables Nuclear Hydro Coal 215 China natural gas production, BCM, % Oil Natural Gas AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 28 TCM Source: BP Statistical Review of World Energy 216, EMIS China Natural Gas Sector 216/17 Report, 13th Five year plan % China natural gas consumption BCM +12% Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

30 Gas demand is expected to double over the next decade driven by the use of clean fuels in industries China Gas Demand by Sector, CAGR BCM Residential Chemical Other Industrial Use Source: China National Bureau of Statistics, Morgan Stanley, BCG Analysis Electricity & Heat Generation FORECAST AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx Others % Transportation Residential Electricity & Heat Generation Transportation Chemical Other industrial use Others 8% 9% 1% 1% 11% 1% Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

31 Share of imports expected to increase to almost 5% by 225; pipelines imports play an increasingly important role China Gas Supply by Source BCM % Share of Imports 23% 29% 38% 49% Pipeline import 1% 15% 19% 32% LNG imports 13% 14% 19% 16% Conventional Shale gas Coal-to-gas Pipeline from Russia Yamal LNG Others Tight gas CBM Pipeline from Central Asia Contracted LNG Spot LNG Source: China National Bureau of Statistics, Morgan Stanley, BCG Analysis AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 3 Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

32 Indian gas sector has witnessed a slowdown over the last five years as domestic production fell significantly Share of natural gas in energy basket, %, India natural gas reserves, BCM, energy consumption % 1 5 BCM 1,5 1, 1,142 1,167 1,172 +1% 1,199 1,252 1,227 Share of Natural Gas Coal MMSCMD Oil Natural Gas % 11% 9% 8% 7% Electricity India natural gas production, MMSCMD, % Source: Ministry of Petroleum and Natural Gas AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx MMSCMD India natural gas consumption % Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

33 Demand impacted by low ability of affordable natural gas for key sectors; Future growth comes from City Gas Demand (CGD) India Gas Demand by Sector, CAGR MMSCMD Fall in domestic production and unaffordable LNG led decreased consumption Source: Ministry of Petroleum and Natural Gas, BCG Analysis Power Sector Fertilisers Petchem/Re fineries/inter nal Cons. FORECAST AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx CGD Industrial Sponge Iron/Steel Power Fertilizers Petchem/Refi neries/interna l Cons. CGD Industrial Sponge Iron/Steel.5% 3.3% 4.3% 9.5% 6.3% 3.6% Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

34 Regulated pricing structure resulted in significant decline in domestic production and consumption Regulated price structure resulted in artificially low domestic prices Resulting in significant gas production decline... $/ MMBTU MMSCMD 2-11% Specific regulated pricing structure for domestically produced natural gas Domestic gas RLNG Source: India Ministry of Petroleum and Natural Gas, BCG analysis And declining consumption AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 33 MMSCMD % Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

35 Gas supply expected to rise significantly if TAPI is confirmed; Share of domestic gas to go below 3% MMSCMD India Natural Gas Supply from Source, TAPI Pipeline TAPI will run 1,8 km, starting from Turkmenistan ( through Afghanistan, Pakistan to at Punjab India % 73% % 38% 7% % % 59% % 54% Source: Ministry of Petroleum and Natural Gas, BCG Analysis % 52% TAPI pipeline % 49% % 45% % 45% LNG Imports 38% 34% 27% % 38% AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 34 34% 28% % 28% % 36% 35% 28% Domestic Gas Production 37% 27% Pipeline will carry 9 MMSCMD of gas with India, Pakistan, and Afghanistan originally set to have received 38, 38, and 14 MMSCMD respectively Construction of pipeline work in Turkmenistan has already been awarded to a Chinese Firm The pipeline is expected to be completed by 219 and may change paradigm of gas sector in India Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

36 Indonesian natural gas market suffers from a geographical supply/demand mismatch Natuna holds the largest reserves Largest reserve: 1.4Tcm Problematic commercial potential due to high level of CO 2 Aceh (NAD) RTH Sumatra Central Sumatra South Sumatra Natuna West JAVA East Borned Celebes East JAVA Java accounts for 67% of consumption Indonesian economic concentration accounts for 67% of energy consumption but far from main gas fields 3 LNG terminals but no sufficient pipeline infrastructure ~1.4Tcm GAS proven and potential resources LNG Plant operational Most recent discoveries are in East Indonesia Coalbed Methane (CBM) est. potential resources 12Tcm Mostly deep water projects Legend LNG plant under construction CBM Resources LNG receiving operational Moluccas LNG Receiving under construction Overview and challenges Source: Regulatory reform in the Indonesian Natural Gas Market Aldi Hutagalung, Maarten Arentsen and Jon Lovett University Of Twente 21, EIA, igu AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 35 Papua NG accounts for 16% of energy consumption Indonesia energy split 215(%) Petroleum 16 Coal 16 Natural Gas 34 Renewalbe Electricity 1 Total Geographical supply demand mismatch Many small fields in remote and distributed locations Present pipeline capacity insufficient to deliver demand: Need to use LNG domestically Significant "costly" reserves with mixed qualities require high investment Future potential lies in non conventional gas reserves - CBM and shale gas High level of CO 2 in main fields Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

37 Indonesia is a large scale natural gas producer and exporter c.6% of production consumed domestically Consumption: mostly industrial and power Bcm, Consumption by end user 215 (%) Production Consumption 3.3 Exports Reserves 2.7 Tcm #14 in the world Production- 72.8Bcm #11 in the world LNG exports- 21 Bcm #5 in the world Exports: mostly LNG to Asia Source : BP Statistical Review of World Energy June 213; EIA, PGN Indonesia s Gas Transportation and Distribution Infrastructure The Perspective of PGN 213 AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 36 5 Pipeline 35 Industry Power Energy industry Indonesia exports by country 215 (%) Geographical mismatch between production and consumption and lack of pipeline infrastructure forces Indonesia to consume LNG domestically LNG Other 1 1 Other Total Total Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

38 Malaysian natural gas market divided in 3 distinct areas Malaysian market divided into 3 areas Key highlights about industry structure 1 M'sia/Thai Joint Development Area Peninsula Malaysia 1 Malaysia gas fields discovered in total Sarawak is the largest production area, and is the only LNG export gateway in Malaysia The world's largest LNG complex w. ~27.6 mtpa capacity: MLNG Satu (3 trains), Dua (3 trains), Tiga (3 trains) 86% Demand 38% Supply Main pipelines 38% Reserves 7% 2 Demand Sarawak 56% Supply LNG regas facilities on stream 48% Reserves 7% 3 Demand LNG regas facilities planned Sabah 6% Supply 15% Reserves LNG liquefaction facilities Peninsula Malaysia represents ~86% of consumption, with gas distributed via 'PGU' 'Peninsular Gas Utilization' pipeline: ~25 km No pipeline linking the Peninsula with East Malaysia, causing supply-demand mismatch and the need to import Despite being an LNG exporter, Malaysia imports gas via pipeline from Indonesia, Vietnam and Thailand Additionally, Malaysia imports LNG, although they expect to avoid this from 216, when the country's first floating LNG facility is ready to supply the Peninsula from Sarawak First LNG regasification facility completed in 212 in Melaka for supplying the Peninsula 2 more confirmed, and 1 being contemplated Joint-Development Area (JDA) set up by Malaysia and Thailand in 1979 for E&P on the overlapping continental shelf claimed by both countries (north-east of Peninsula).3Tcm of proved plus probable natural gas reserves Source: Malaysia Economic Monitor - Harnessing Natural Resources, June 213; Maybank, Malaysia sector update data on map refers to 211, except demand which refers to 21; EnergyQuest; press search; EIA AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 37 Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

39 Malaysia is a large natural gas producer, and the 3rd largest LNG exporter in the world, since Australia surpassed it lately 63.1 Bcm natural gas produced of which 52% for export in 215 All export goes to Asia, with Japan making up ~6% in 215 Bcm Source: Cedigaz 63.1 Production (48%) Consumption Reserves 2.7Tcm, #13 in the world Production 63.1Bcm, #12 in the world Exports 33.4Bcm, #3 of LNG in the world Despite being a large exporter, import is necessitated by a supplydemand mismatch Imported Domestically produced 35. (52%) Export NG exports by receiving country (Bcm) AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx (62%) 5 (15%) 4 (13%) 3 (9%) (1%) Other 33 (1%) Total Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

40 Gas represents ~4% of domestic energy consumption, power generation stands as the main gas consumer 43% of energy came from NG in % of total energy consumption, with 46% dedicated to power generation (Mtoe)% of domestic gas consumption, % 8 3 National energy company and IPPs Total Petroleum Source: IEA world energy balance Natural Gas Coal Renewable energy AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx Total 46% Power Generation 34% Industry & Energy industry 3% GTL 17% Other Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

41 Despite being a large exporter with material resources, Malaysia has recently become a gas importer Limit: Onshore, not yet confirmed Peninsula Malaysia 86% Demand Energy consumption very heavily focused on densely-populated Peninsula Malaysia... 38% Supply 38% Reserves... and Peninsula pipeline not linked to East Malaysia. Regasification capacity only available since but gas resources most strongly focused in Sarawak 1... Sarawak 7% 56% 48% Sabah 7% Demand 6% Supply MLNG Satu (3 trains), Dua (3 trains), and Tiga (2 trains) plants 15% Reserves Lahad Daty: Onshore, confirmed for '15 Melaka: Offshore, completed in '12 Pengerang: Onshore, confirmed for '15 Demand Reserves With local demand outstripping supply, imports have gained importance Imports via pipeline from Indonesia started in 22, followed by Vietnam in 23 and Thailand in 25 With the first LNG regas terminal in Melaka, other LNG suppliers will be able to access the Malaysian market under TPAs 2 more LNG regasification facilities confirmed: 1 on the Peninsula and 1 in Sabah. 1 more contemplated for the Peninsula. Additionally Malaysia expects to finish their first floating LNG facility by 215 LNG imports, however, expected to cease by 216, as Malaysia will supply the Peninsula with LNG from Sarawak The expected decrease in LNG available for exports will cause PETRONAS to have to use LNG production from elsewhere in the world to meet their long term export contracts 1. Government planning to develop industries in Sarawak to use local resources (petrochem and aluminum) Source: Maybank, Malaysia sector update data refers to 211, except demand which refers to 21; EnergyQuest; Reuters AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 4 Supply LNG regas facilities on stream LNG regas facilities planned LNG liquefaction facilities Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

42 Thailand: Upstream reserves and production Proved reserves have declined 4-5% between 22 and 215 Around 7% of Thailand's upstream production is gas Crude and condensate proved reserve (mmbbl) % -46% -53% Natural Gas (RHS) Condensate (LHS) Crude oil (LHS) Natural gas proved reserve (tcf) Oil & gas production (kboe/d) Note: Proved reserve includes only quantity of petroleum which is has a clear production plan approved by the Government and is expected to be commercially viable. 1bbl of condensate is equivalent to ~.9bbl of crude oil; 1mmcf of gas is equivalent to ~174.5bbl of oil. Exclude JDA production Source: EPPO, Department of Mineral Fuels (DMF), BCG analysis AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx Jan 1986 Jan 199 Jan 1995 Jan 2 Jan 25 Condensate Crude Gas Jan 21 Jan 215 Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

43 Thailand is running out of gas and no new development is expected Expected reserves evolution Expected production profile Bcma 5 Bcma % 2-19% To be found Reserves Source: Rystad AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 42 Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

44 Thailand: Evolution of energy demand mix Mtoe 15 Primary Energy Demand by Fuel Type (Mtoe) from 26 to CAGR (%) Includes hydro, nuclear, geothermal, wind, tidal, bio-energy and solar energy Source: BP Statistical Review, BCG analysis AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx Renewables 1 Coal Oil Natural gas 5.6% 1.8% 2.9% 5.3% Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

45 Thailand energy outlook counts on renewables and energy efficiency to curb emissions and import dependency Blueprint scenario primary Energy demand Thailand ministry expected to drive this plan around 5 pillars MT of oil equivalents % CAGR (%) 5.35 PLAN Energy Efficiency Plan Objective Decrease energy intensity by 3% vs % 37% 4% 39% 42% Nuclear Hydropower Crude oil Renewables Natural gas Solid fuels Source: Thailand Energy Outlook Alternative Energy Development Plan Power Development Plan Gas plan Oil plan Renewable energy to achieve 2% Improve generation mix keeping a 15% reserve and accounting for environmental cost Reduction in power generation use and improve supply Manage change to biofuels and renewables energy while increasing oil quality standards Copyright 216 by The Boston Consulting Group, Inc. All rights reserved. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 44

46 Natural gas demand in Thailand will be reduced from previous plans towards ~1% growth MMscfd 6, Thailand gas demand forecast % 3% CAGR (%) -5% 14% 1% 4, 5% 15% 11% -5% 21% 2, 23 % 1% 16% 74% 25 Source: PTT Analyst Meeting 1H % 215 NGV Industry Petchem and cooking gas Power 72% 23 3% Copyright 216 by The Boston Consulting Group, Inc. All rights reserved. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 45

47 LNG seem to be the only solution for Thailand to meet natural gas demand Thailand gas supply forecast MMSCFD (1, BTU/cf) 8, 7, 6, +1% 5, 4, 3, 2, 1, LNG 222 West supply Onshore 223 AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx MT JDA 225 Gulf of Thailand 226 Expiring block Note: Assumptions: Base on 5 year plan production, Domestic supply (2P) excluding the expiring blocks (3P+2C), Keep production after end of two majors concession at 1,5 MMSCFD JDA and Myanmar base on keep production expanding to the end of contract Source: Minister of Energy Thailand; Producer Consumer Cooperation towards Developing LNG Market in Asia Copyright 216 by The Boston Consulting Group, Inc. All rights reserved.

48 Low natural gas prices are one of the risks faced to develop new reserves and accomplish gas import plans JKM vs Thailand pooled price recent evolution 2 FSRU terminals proposed to complement Map Ta Phut $/mmbtu QI 214 QII 214 QII 214 QIV 214 QI 215 QII 215 QII 215 QIV 215 QI 216 Pooled gas price JKM QII 216 QII 216 QIV 216 QI 217 QII 217 Source: PTT analyst meeting several presentations, Cedigaz and Bloomberg Samut Prakan 6,6 bcm 224 Songkhla 3 bcm 222 Map ta phut I 8,6 bcm Map ta phut II 1 bcm 222 Copyright 216 by The Boston Consulting Group, Inc. All rights reserved. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 47

49 Contents What is the future role of natural gas globally? What is the natural gas balance in APAC countries? Key questions and discussion Copyright 216 by The Boston Consulting Group, Inc. All rights reserved. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 48

50 Challenges to enhance gas market penetration in APAC region Key questions 1 1. Greater LNG market integration among the world s three main regional gas markets North America, Europe, and Asia will impact price formation and contracts globally How can Asian Ministers cooperate to enhance natural gas liquidity on gas trading hubs? What are the prospects for long-term contracts, destination clauses, and oil indexation in Asia? How will Ministers facilitate cross border and downstream gas infrastructure investment? 2 2. Greater natural gas market flexibility comes with new risks and opportunities How do Asian Ministers evaluate gas market security in terms of storage, connectivity, and spare capacity? What role can the Joint Organization Data Initiative Play to improve natural gas market data transparency? Will greater gas market flexibility result in more volatile gas prices 3 3. Upstream gas sector investment, deeper downstream gas penetration and market security in Asia will continue to depend on well established, and new producer consumer country relations How can the IEF platform be used to advance gas market integration in Asia? Should Ministers set new benchmarks to help industry to retain efficiency gains and lower cost of transportation? How is digitalization affecting gas sector costs and industry performance? 4 4. Despite comparatively high prices for importers, Asia s appetite for natural gas is robust to overcome pollution and capitalize on its versatility across economic sectors How can Ministers strengthen the value proposition of gas in Asian markets? What lessons have been learned from carbon pricing and subsidy reforms? Are synergies between renewables and natural gas markets sufficiently explored? Copyright 216 by The Boston Consulting Group, Inc. All rights reserved. AMER7-Session-2-Natural-Gas-Market-217-IEF.pptx 49