LNG Market Globalization: Impact on commercial arrangements and prices Jean Marc HOSANSKI Senior Vice President LNG GasTech 2005 - Bilbao, Thursday 17 th March 2005
General trends on the LNG planet The 40+ $/b oil price environment generates optimism and activity ty - Foster Liquefaction Projects frenzy : at 7 $/MMBtu, launching a new project is easier - Increase appetite for LNG on all markets : flurry of receiving terminals projects towards a new cycle? The cost reduction paradigm is no longer a given - High level of activity + strong economic growth in China costs increases at the corner? LNG slowly becomes a commodity thanks to LT contracts - Short Term & Spot : 9% of 2003 LNG Trade main sources of spot volumes will be LT contracts with free destinations The globalization of markets is now a reality - Trans Atlantic, Trans-Suez Trans Pacific emergence of the Middle East as a key East-West swing producer 2 GasTech 2005 - Bilbao, Tuesday 15th March 2005
The weight of Middle East gas reserves Central Asia 40 Europe 42 Russian Federation 290 North America 44 Asia Pacific 77 South & Central America 43 Africa 72 Middle East 341 Proved Reserves : 949 Bboe Gaz (Source BP 2002) 3 GasTech 2005 - Bilbao, Tuesday 15th March 2005
The share of Middle East LNG will increase on all markets Atlantic Med. Asia Pacific 1990 2003 2010 Middle East % % of world LNG Prod. from ME 5% 21% 30% MT 140 Middle East LNG outlets 120 100 80 60 WEST OF SUEZ 40 20 EAST OF SUEZ 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 4 GasTech 2005 - Bilbao, Tuesday 15th March 2005
Emergence of new LNG players in Asia has significant effects Economic growth and new gas uses new importing countries, highly price sensitive India China 250 200 150 Asia LNG Growth Perspectives (Internal Demand Forecast) Other forecasts range* Deregulation in existing markets end of regional monopolies Competitive bidding as a new contracting tool Pressure for new, innovative contractual terms : Reduction in contract volume size Price reviews Buyers options More flexible destination clauses FOB vs DES : shipping control by buyers 100 50 0 2003 2010 2015 *: CERA High/Low Scenario, Cedigaz High/Low Scenario, Energy Information Administration, Abare Pressure on prices Lower slopes Ceiling and floor mechanisms No longer 100% crude parity basis 5 GasTech 2005 - Bilbao, Tuesday 15th March 2005
Regas terminals development promotes LNG trading Bcm 100 Bcm 160 80 60 40 20 0 15 72 Everett Cove Point Elba Island 95 2003 2010 2015 Canada LNG TRADING 140 120 100 80 60 40 20 0 2003 2010 2015 Milford Haven Zeebrugge South Hook Isle of Grain Montoir El Ferrol Sines Huelva 40 Bilbao Barcelona Fos Sagunto Cartagena 63 134 La Spezia Rovigo Brindisi Marmara Livorno Izmir Revithoussa Baja Cal W. Mexico GoM Altamira Lake Charles Bahamas Andes Puerto Rico Regas Capacity Existing Decided/Under construction Probable Projects *: CERA High/Low Scenario, Cedigaz High/Low Scenario, Energy Information Administration, Abare 6 GasTech 2005 - Bilbao, Tuesday 15th March 2005
US LNG market added flexibility to Atlantic trade: price signal does work Cargoes US LNG Imports versus Henry Hub Henry Hub ($/M 35 Everett Lake Charles 10.0 30 Elba Island Henry Hub Cove Point 9.0 8.0 25 7.0 20 6.0 5.0 15 4.0 10 3.0 2.0 5 1.0 0 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 2002 2003 2004 0.0 7 GasTech 2005 - Bilbao, Tuesday 15th March 2005
Asia still remains different from Atlantic Basin Limited domestic gas production and underground storage : China : only consuming country in East Asia with substantial gas reserves Russia : only significant source of pipeline gas in N.E. Asia "ASEAN Gas Grid" : a pipe dream? Liberalization underway in Japan/Korea but still some way to go : Limited TPA to LNG import facilities and gas networks No obvious location for an Asian regional gas hub : Geography & history do not favour extensive gas regional integration Absence of significant gas network limits liquidity at one single point Asian LNG markets will hardly be as transparent as Atlantic markets 8 GasTech 2005 - Bilbao, Tuesday 15th March 2005
The LNG Price Map Atlantic Basin Asia Yesterday US Spot HH Europe Pgas = f(poil products) Strong crude indexation (JCC) Today Spot HH North : Spot NBP South : Pgas = f(pbrent) Crude disconnect (low slopes + ceilings) Tomorrow Spot HH but with : Spot Short term correlation : HH/NBP Long term correlation : HH/WTI NBP/Brent New Markets vs Arbitrage Crude Reconnect?? Crude Disconnect 9 GasTech 2005 - Bilbao, Tuesday 15th March 2005
Total s s response to the globalization of the LNG market Worldwide LNG capacity (2004) Alaska Trinidad Algeria Libya Malaysia Nigeria 9.0 Mt/y Australia Abu-Dhabi Indonesia 5.6 Mt/y Oman (Arun) 7.1 Mt/y Rasgas Brunei Qatargas Indonesia 8.2 Mt/y (Bontang) Plant with participation o 22.2 Mt/y TOTAL : LNG Plant: Existing Project Regas.. Capacity: Decided Project Majors markets 10 GasTech 2005 - Bilbao, Tuesday 15th March 2005