SONATRACH PERSPECTIVES ON ASIAN LNG MARKETS
65% of global gas demand growth by 2030 is expected to come from Asia, with traditional demand centers remaining stagnant Global gas demand by region to 2030 Bcm 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2017 18 19 20 21 22 1.2% p.a. 23 24 25 26 27 28 29 China India ROA 1 Middle East Japan Europe 3 Africa Latin America Russia US ROW 2 2030 CAGR 2017-30, % 6.7% 3.1% 1.2% 0.8% -1.5% 0.3% 2.3% 0.8% 0.1% 0.5% 1.3% Main drivers Asia (especially China) remains the main driver of demand growth: adding 400 bcm of additional demand between 2017 and 2030 Africa will grow at 2.3% p.a. between 2017 and 2030: bringing in approximately 40 bcm of additional demand 0.5% and 0.8% demand growth in the US and the Middle East respectively translates into substantial volume additions (around 50 bcm each) Europe and Russia to remain stagnant, adding altogether around 25 bcm of demand between 2017 and 2030 1 Rest of Asia 2 Rest of World 3 Continental Europe incl. Ukraine SOURCE: Sonatrach Analysis, Energy Insights by McKinsey 1
European gas demand expected to stabilize around 460 bcm in 2020 and to remain flat through 2030 Spain France Germany EU 28+3 1 natural gas consumption by country, bcm 490 28 42 43 65 81 77-0.5% p.a. 464 461 457 23 24 24 46 48 50 34 41 37 62 57 50 85 89 97 72 62 58 154 142 141 143 Turkey Italy United Kingdom Rest of Europe CAGR 2016-30, % Main drivers Demand decline driven mainly by power and industry sectors -1.2 affected by renewable energy s increasing competitiveness and hence growing capacity Fast demand growth in buildings and industry sectors 1.2 due to increasing gas penetration as well as growing urbanization, population and overall economic progress Growth in residential and transportation sectors, where cleaner gas -1.2 will push out traditional fuels, will be offset from 2025 onwards by improving overall energy efficiency -1.8 1.3 Gas to power demand expected to decline due to growing competition from renewables, mainly solar energy Move away from nuclear power and coal-fired generation will further stimulate use of cleaner fuels, including natural gas serving also as a backup for volatile renewables 2016 2020 2025 2030 NB: ca 20 BCM extra demand in power in 2016 due to a) cold winter, b) coal price floor UK and c) high coal prices 1 EU28 + Norway, Switzerland, Turkey -2.0-0.5 New nuclear power generation capacity and renewables expansion to decrease gas to power demand Decline in accessible gas resources to constrain development of gas intensive industries Energy efficiency and renewables additions combined with uncompetitiveness of industry due to high feedstock costs and declining gas-to-power demand will limit underlying demand growth SOURCE: Sonatrach analysis, BP Statistical Review of World Energy 2017, Energy Insights, Rystad Energy, Press search 2
Sonatrach is uniquely positioned - STRENGTHS Close proximity to attractive markets in Europe via pipeline and LNG enabling low cost for marketed gas Strong commercial capabilities in negotiating long-term contracts (SPA) High LNG spare capacity (6 Bcm) with the ability to quickly ramp up production Great flexibility in the calorific value of the gas with ability to modulate supplies Flexible shipping capacity through varying ship sizes allowing to serve both large and small buyers WEAKNESSES OPPORTUNITIES Expiring contracts create opportunities for commercial portfolio restructuring (e.g. expiration of Italian LT contracts in 2019, 37 bcm of contracts) Explore new markets such as Asia LNG (currently representing only 5% of Sonatrach's volumes while ~70% of the Global LNG production goes to Asia) Development of multimodal trading and short term opportunities can change the current market landscape Expand gas available for exports via unconventional resources, domestic demand management 3
Sonatrach s reserves to production ratio is in line with peers at approximately 34 years of production R/P ratio for selected companies 1, Years Qatar Petroleum 193 Saudi Aramco Gazprom 46 69 Sonatrach s R/P ratio is comparable with most peers Shell Total 38 37 Qatar Petroleum, Saudi Aramco, and Gazprom have the highest R/P ratios in the market Eni Chevron 37 36 Qatar and Saudi have relatively large resource bases ExxonMobil Sonatrach OOC (Oman) Kuwait Petroleum Corp (KPC) 34 34 33 30 Gazprom has the highest resource base, as well as the highest production amongst peers Abu Dhabi NOC 22 1 Balance calculated based on 2017 production and reserves levels SOURCE: Rystad Ucube 4
Sonatrach has the fourth largest liquefaction capacity with high spare capacity (~6bcm) LNG terminal utilization rates %, 2017 85% LNG terminal capacity Bcm, 2017 Egypt 15% Algeria 72% Angola 74% Trinidad & Tobago 75% Oman 79% Indonesia 89% Malaysia 89% Peru Australia Brunei UAE Nigeria Norway US Equatorial Guinea Papua New Guinea 93% 95% 95% 98% 104% Qatar 104% Russia 95% 96% 105% 113% 119% NB: utilizations over 100% are occurring from plants operating above nameplate capacity 1 Based of "realised" capacity of 3 trains each for GL1Z, GL2Z Source: Sonatrach Analysis, McKinsey energy Insights 7 23 1 7 21 15 29 41 6 83 10 8 30 6 19 106 15 5 9 Should the LNG market become more attractive, Sonatrach has the ability to ramp up the two modular liquefaction terminals (GL1Z, GL2Z) within two days for additional LNG exports. 5
New VLGC OUGARTA and TESSALA suit more long distance deliveries. Sonatrach s Shipping Capacity, Cm OUGARTA 171,800 TESSALA 171,800 75,000 75,000 138,000 145,000 684,000 126,000 125,000 Post 2017 2017 6
Sonatrach s Exports progressed by 8,8% per year. Sonatrach s natural Gas exports since 1967, Bcm CAGR 1967-2017, % 1964: First cargo sent to the terminal of Canvey Island (UK) from la Camel. 8,8 % p.a. 41 60 64 54 +6,2% 34 +21,2%* 1 12 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 Natural Gas LNG (*): 1979-2017 7
New entrants Africa and Asia are becoming sustainable clients of Sonatrach Sonatrach s gas exports by region : 2000-2017, Bcm CAGR 2000-17, % 3,1% p.a. 57 58 60 60 63 61 59 62 54 56 52 52 47 43 54 54 5%** 32 +2% +13% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (*): Including LNG (**): 2003-17 AFRICA EUROPE AMERICA ASIA 8
LNG expedition to Asia multiplied by 10 in 12 years Sonatrach s LNG exports to Asia: 2003-2017, Thousand cm 4,628 4,419 3,321 3,309 2,674 25 millions cm of LNG exported to Asia, since 2003. 1,401 Sonatrach has supported the Japanese market after the Fukushima incident. 1,009 813 678 781 382 383 127 382 129 2003 2005 2007 2009 2011 2013 2015 2017 KOREA JAPAN CHINA INDIA TAIWAN UNITED ARAB EMIRATES MALAISIA JORDAN KUWAIT SINGAPORE THAILANDE 9
Sonatrach sales to Asia can counter balance the weak demand of the European market during summer. Sonatrach s LNG exports to Europe on monthly basis, January February March April May June July August September October November December 2015 2016 2017 (*): Including LNG (**): 2003-17 10
Future Current challenges Target markets The way forward Free quantities of gas from the expiry of LTC. Spare piped gas capacity. Spare LNG capacity Varying size LNG shipping capacity EUROPE Huge competitive pressure (REN, other competitors, Northern and eastern projects). But a high option value for the short term trading. ASIA Huge growth potential, possibilities to index to oil But, remote markets Decrease in the duration of LTC. Increase in the share of short term trading (less than 2 years), either in Europe or in Asia. More innovation and sophistication in our marketing / trading scheme.