CHENIERE ENERGY, INC. LNG Market Outlook and US LNG s Function - The Perspective from Cheniere IEEJ 2 October 217 Andrew Walker VP Strategy and Communication
Today s Presentation Update on US LNG projects U.S. Gas Market Overview Impact of U.S. LNG on Global LNG Dynamics Sabine Pass First Cargo: 24 th Feb 216 2
Safe Harbor Statements Forward-Looking Statements This presentation contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical or present facts or conditions, included or incorporated by reference herein are forward-looking statements. Included among forward-looking statements are, among other things: statements regarding the ability of Cheniere Energy Partners, L.P. to pay distributions to its unitholders or Cheniere Energy Partners LP Holdings, LLC or Cheniere Energy, Inc. to pay dividends to its shareholders or participate in share or unit buybacks; statements regarding Cheniere Energy, Inc. s, Cheniere Energy Partners LP Holdings, LLC s or Cheniere Energy Partners, L.P. s expected receipt of cash distributions from their respective subsidiaries; statements that Cheniere Energy Partners, L.P. expects to commence or complete construction of its proposed liquefied natural gas ( LNG ) terminals, liquefaction facilities, pipeline facilities or other projects, or any expansions or portions thereof, by certain dates or at all; statements that Cheniere Energy, Inc. expects to commence or complete construction of its proposed LNG terminals, liquefaction facilities, pipeline facilities or other projects, or any expansions or portions then of, by certain dates or at all; statements regarding future levels of domestic and international natural gas production, supply or consumption or future levels of LNG imports into or exports from North America and other countries worldwide, or purchases of natural gas, regardless of the source of such information, or the transportation or other infrastructure, or demand for and prices related to natural gas, LNG or other hydrocarbon products; statements regarding any financing transactions or arrangements, or ability to enter into such transactions; statements relating to the construction of our proposed liquefaction facilities and natural gas liquefaction trains ( Trains ) and the construction of the Corpus Christi Pipeline, including statements concerning the engagement of any engineering, procurement and construction ("EPC") contractor or other contractor and the anticipated terms and provisions of any agreement with any EPC or other contractor, and anticipated costs related thereto; statements regarding any agreement to be entered into or performed substantially in the future, including any revenues anticipated to be received and the anticipated timing thereof, and statements regarding the amounts of total LNG regasification, natural gas, liquefaction or storage capacities that are, or may become, subject to contracts; statements regarding counterparties to our commercial contracts, construction contracts and other contracts; statements regarding our planned development and construction of additional Trains or pipelines, including the financing of such Trains or pipelines; statements that our Trains, when completed, will have certain characteristics, including amounts of liquefaction capacities; statements regarding our business strategy, our strengths, our business and operation plans or any other plans, forecasts, projections or objectives, including anticipated revenues, capital expenditures, maintenance and operating costs, run-rate SG&A estimates, cash flows, EBITDA, Adjusted EBITDA, run-rate EBITDA, distributable cash flow, and distributable cash flow per share and unit, any or all of which are subject to change; statements regarding projections of revenues, expenses, earnings or losses, working capital or other financial items; statements regarding legislative, governmental, regulatory, administrative or other public body actions, approvals, requirements, permits, applications, filings, investigations, proceedings or decisions; statements regarding our anticipated LNG and natural gas marketing activities; and any other statements that relate to non-historical or future information. These forward-looking statements are often identified by the use of terms and phrases such as achieve, anticipate, believe, contemplate, develop, estimate, example, expect, forecast, goals, guidance, opportunities, plan, potential, project, propose, subject to, strategy, target, and similar terms and phrases, or by use of future tense. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in Risk Factors in the Cheniere Energy, Inc., Cheniere Energy Partners, L.P. and Cheniere Energy Partners LP Holdings, LLC Annual Reports on Form 1-K filed with the SEC on February 24, 217, which are incorporated by reference into this presentation. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these Risk Factors. These forward-looking statements are made as of the date of this presentation, and other than as required by law, we undertake no obligation to update or revise any forward-looking statement or provide reasons why actual results may differ, whether as a result of new information, future events or otherwise. Reconciliation to U.S. GAAP Financial Information The following presentation includes certain non-gaap financial measures as defined in Regulation G under the Securities Exchange Act of 1934, as amended. Schedules are included in the appendix hereto that reconcile the non-gaap financial measures included in the following presentation to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP.
LNG Trade Today A Snapshot 53 years old 264 mt (35 bcf/d) in 216 19 exporting countries 4 importing countries* ~435 trading ships** ~1% of all gas consumed worldwide ~3% of internationally traded gas *including small scale importers; Norway, Sweden, Finland **excludes FSRUs, small vessels, laid-up vessels 4 Source: GIIGNL Annual Report 216, BP Statistical Review of World Energy June 217, Affinity LNG
Today s Presentation Update on US LNG projects U.S. Gas Market Overview Impact of U.S. LNG on Global LNG Dynamics Sabine Pass First Cargo: 24 th Feb 216 5
Cheniere LNG Platform Along United States Gulf Coast Sabine Pass Liquefaction Project Trains 1-4 substantial completion achieved Train 5 is under construction Train 6 is fully permitted, ready to commercialize Land secured for further expansion First operational lower-48 export facility (Sabine Pass) Corpus Christi LNG Terminal Trains 1 and 2 are under construction First LNG expected in late 218 Train 3 is fully permitted and being commercialized Trains 4-5 (or mid-scale equivalent) : Initiated development Land secured for further expansion First greenfield export project under construction (Corpus Christi) 7 train platform (operating / under construction) = 31.5 mtpa Cheniere now the largest gas consumer in the U.S. 6
Sabine Pass Liquefaction Project 7
Sabine Pass Liquefaction 2Q 217 8
Corpus Christi Liquefaction 2Q 217 9
Cheniere LNG Projects: Attractive Features Cheniere LNG SPAs: LNG price tied to Henry Hub, offer destination flexibility, upstream gas procurement services, no lifting requirements SPAs with investment grade off-takers featuring parent as counterparty or guarantor & pricing with HH + fixed fee (no price reopeners) EPC contractor: proven track record of execution; proven liquefaction technology Sabine Pass Customers BG Gulf Coast LNG Gas Natural Fenosa Korea Gas Corporation GAIL (India) Limited Total Gas & Power N.A. Centrica plc Corpus Christi Customers PT Pertamina Gas Natural (Persero) Endesa S.A. Iberdrola S.A. Fenosa Woodside Energy Trading Électricité de France EDP Energias de Portugal S.A. 1
U.S. LNG Capacity Under Construction 7 6 5 Cheniere Export Project Non-Cheniere Export Project Cameron Cameron LNG T3 LNG T3 Cameron LNG T2 Cameron LNG T2 Freeport Freeport LNG T3 LNG T3 Sabine Sabine Pass T5 Pass T5 Freeport Freeport LNG T2 LNG T2 MTPA 4 3 2 Cameron Cameron LNG T1 LNG T1 Corpus Christi T2 Corpus Christi T1-2 Corpus Christi T1 Elba Island Phase 2 Elba Island Phase 2 Freeport Freeport LNG T1 LNG T1 Elba Island Phase 1 Elba Island Phase 1 Cove Point Cove Point 1 Sabine Pass T1-4 Sabine Pass T1-4 - Jan-16 Jan-17 Jan-18 Jan-19 Jan-2 Source: Cheniere Research estimates for first export. Actual start dates may differ depending on construction schedules 11
US LNG - A Wide Range of Customers MTPA 35 3 25 Portfolio Composition of Major Buyers (22) Non-US Supply US Supply % US supply Share of US supply in net portfolio 1% 9% 8% 7% US FOB off-takers by type Asian end-user e.g. Chubu 33% European end-user e.g. Iberdrola 9% 15% European buyer; domestic / portfolio 2 15 1 6% 5% 4% 3% Asian reseller e.g. Mitsui 17% 26% e.g. Shell e.g. GNF Portfolio player 5-2% 1% % ~5% sold to Asian entities ~42% sold to end-users Of 58 % sold to resellers; at least 57% resold / allocated Source. Cheniere interpretation of Wood Mackenzie Data (217). Top 15 portfolios shown. Volumes are net of re-sales. 12
Current Status of US LNG Projects Note: Excludes Alaska FERC Status (as of September 217) 4 35 3 25 16 Corpus Christi 4-5 G2 LNG Jordan Cove * Fourchon Commonwealth 33 Gulf LNG Venture Global (Calcasieu) Texas LNG Brownsville Rio Grande LNG Annova LNG Port Arthur LNG Eagle LNG Venture Global (Plaquemines) Driftwood LNG Freeport 4 13.5 mtpa online 53.5 mtpa under construction over 3 mtpa proposed mtpa 2 15 1 391 129 Lake Charles CC T3 SP T6 Cameron T4/5 Magnolia Golden Pass 56 SP T1-5 Cameron T1-3 Freeport T1-3 Cove Point CC T1-2 Elba 5 67 Total No FERC filing Pre-filed Formal filing Approved FID Source: US FERC, US DOE, and press reports *Previously denied by FERC and had to re-file 13
Projected Company Ranking by LNG Sales in 22 On Track to Be a Top-5 Seller Less Than 5 Years After First Cargo 6 Projected Top LNG Suppliers by Company - 22 Volumes for Projects Existing and Under Construction 5 4 mtpa 3 2 1 Source: Cheniere Research, Wood Mackenzie Note: volumes include equity LNG, third-party offtake and own project offtake. Tolling facility production reflected in offtaker volumes. 14
Today s Presentation Update on US LNG projects U.S. Gas Market Overview Impact of U.S. LNG on Global LNG Dynamics Sabine Pass First Cargo: 24 th Feb 216 1 5
Shale Gas has Doubled U.S. Natural Gas Resources Since 26 Total U.S. future gas supply (reserves + resources) stands at record 3,141 Tcf Represents 1+ years of current domestic needs U.S. future supply of natural gas 35 3141 3 2691 2884 Tcf 25 2 1532 28 222 Shale accounts for 64% of U.S. Gas Resources 15 1 5 26 28 21 212 214 216 Date of outlook Non-shale Shale EIA Proved Reserves 16 Source: Potential Gas Committee, 217; EIA (Proved Reserves)
And Has Fundamentally Reset Price Expectations Break-even price at Henry Hub for North American natural gas resources Henry Hub Natural Gas Price 12 14 Average break-even Henry Hub price ($/MMBtu) 9 6 3-3 -6-9 8 Tcf @ <$3./mmBtu = 25 years supply at 215 production levels $/MMBtu 12 1 8 6 4 2 Futures -12 5 1, 1,5 2, Tcf Actuals Source: EIA Historical Henry Hub to Oct. 217, NYMEX Henry Hub Futures as of Oct.11, 217 17
U.S. Natural Gas Production Total U.S. Natural Gas Marketed Production 216: 78 Bcf/d 8 7 6 1972: 62 Bcf/d -1 Bcf/d +26 Bcf/d 25: 52 Bcf/d Shale Shale Wells Supplied 51% of US Gas in 216 5 Bcf/d 4 3 Non-Shale 2 1 19 191 192 193 194 195 196 197 198 199 2 21 Source: EIA Natural Gas Monthly Sept. 217 18
Supply and Demand since 25 Supply Consumption Bcf/d Shale Gas Production (Bcf/d) 4 3 2 1-1 -2 45 4 35 3 25 2 15 Marketed Production Growth 25 to 216 37 (3.4 pa) Other Shale Marcellus+Utica Haynesville (LA & TX) Eagle Ford (TX) Fayetteville (AR) Barnett (TX) Woodford (OK) Bakken (ND & MT) (annual average growth 25-216) (-1. pa) -11 Unconventional Conventional Net Shale Gas Production 26 (2.4 pa) Bcf/d 15 13 11 9 7 5 3 1 Incremental natural gas consumption 25-216 11.3 4.1 3.1.3 1 5-1 -1.3 Source: EIA -3 Residential Industrial Power Pipeline Exports *Base Year 25 LNG Exports 19
Dry Gas Growth Will Be Driven By Marcellus/Utica, Permian & Haynesville Cumulative Production Growth from mid-217 11 9 Nearly 9 Bcf/d net growth expected through year-end 219 Haynesville 7 Bcf/d 5 Permian 3 1 Marcellus, Utica (1) all other (3) Jul-217 Nov-217 Mar-218 Jul-218 Nov-218 Mar-219 Jul-219 Nov-219 2 Source: Spring Rock; Cheniere Research
Current Production Growth Supported By Prices Below $3.5 Henry, $6 Oil US Gas Rigs vs. NYMEX cal-218 Henry Hub strip US oil rigs vs. NYMEX cal-218 WTI strip 3.4 3.3 Henry Hub 218 Calendar Strip US Gas Directed Rig Count 19 65 6 WTI 218 Calendar Strip US Oil Directed Rig Count 8 75 3.2 17 7 Henry Hub (USD/MMBtu) 3.1 3. 2.9 15 13 Rig Count WTI (USD/Bbl) 55 5 45 65 6 55 5 Rig Count 2.8 11 4 45 2.7 2.6 9 35 Permian oil rig deployments support associated gas production 4 35 2.5 7 Jan-16 Jul-16 Jan-17 Jul-17 3 3 Jan-16 Jul-16 Jan-17 Jul-17 Source: NYMEX, Baker Hughes 21
Northeast Output Will Soon Be Unconstrained By Pipeline Infrastructure Incremental pipeline projects will provide up to 7 Bcf/d of additional market access by early 218 Additional 6 Bcf/d takeaway capacity is expected to enter service from mid-218 through year-end 219 Northeast US Dry Natural Gas Production vs. Pipeline Takeaway Capacity Marcellus/Utica production in New York, Ohio, Pennsylvania, West Virginia 4 35 Production Pipeline Capacity Production temporarily constrained 3 Bcf/d 25 2 15 1 5 5.7 Bcf/d growth projected from mid-218 to year-end 219 28 29 21 211 212 213 214 215 216 217 218 219 22 Source: Spring Rock; Cheniere Research
EIA U.S. Outlook to 24 Gas production outlook Gas consumption outlook EIA base case sees dry gas growing 31 Bcf/d from 216 U.S. Gas demand grows at 1.5% CAGR Shale gas will be 67% of total dry gas production Incremental Natural Gas Consumption by 24 Gas production grows at 1.5% CAGR through 24 Forecasted U.S. Dry Gas Marketed Production 12 Shale EIA Forecast Non-Shale 1 8 14 12 1 8 Residential demand has peaked; population shift to warmer climates & efficiency gains Industrial; low prices stimulate.9% demand CAGR Power at forecast prices; gas displaces coal in power gen. driving.4% CAGR. 11.8 Bcf/d 6.5 Bcf/d 6 6 4.8 4 4 2.6 2 2.3 25 21 215 22 225 23 235 24 Source: EIA AEO 217 - Residential Industrial Power Pipeline *Base Year 216 Exports LNG Exports 23
EIA Price Outlook for Henry Hub and WTI 3 25 EIA Forecast $/MMBtu (nominal) 2 15 WTI AEO 216 AEO 217 1 5 HH AEO 216 AEO 217 21 212 214 216 218 22 222 224 226 228 23 24 Source: EIA Annual Energy Outlook 216,217; Note: Actuals to 216 from EIA
U.S. Natural Gas Production Continues to Evolve Recent evolution Larger wells: average initial production (IP) rates have more than tripled since 29 Longer laterals: average horizontal feet drilled in Marcellus have doubled since 29 Multi-stage fracking: producers have increased number of stages used in hydraulic fracturing process Innovation: operational efficiencies improving drill times Future evolution - continued technological advances to reduce costs and increase efficiencies Data processing, better software modelling and real time monitoring to help with well spacing, space staging, completion engineering Enhanced recovery factors by experimenting with pump fluids and recovery methods Targeted and steered drilling to make more precise cuts into deep terrain Extracting from multiple benches of production within same play Non-intrusive technologies such as micro-seismic geophones and electromagnetics. 25
Today s Presentation Update on US LNG projects U.S. Gas Market Overview Impact of U.S. LNG on Global LNG Dynamics Sabine Pass First Cargo: 24 th Feb 216 2 6
LNG: A High Growth Industry 3 LNG trade growth by importing region Other 25 North America 2 Europe Asia Pacific CAGR 9% / 16 mtpa mtpa 15 CAGR 7% / 9 mtpa 1 CAGR 8% / 4 mtpa 5 1965 197 1975 198 1985 199 1995 2 25 21 215 Source: IHS Markit (217) 27
Commercial Evolution Underway in Contract Length LNG trade by contract length 3 Bilateral deals Slow evolution Growing flexibility 25 2 Spot & short-term trade* Prompt ** (15% - 18%) 28% mtpa 15 1 5 Mid & long-term contract trade 72% 1965 197 1975 198 1985 199 1995 2 25 21 215 * Contract duration of 4 years or less (GIIGNL) ** Prompt = delivered within 3 months of transaction date Source: CEDIGAZ World Outlook for 1965 1985 (assumes no spot volume), Poten and Partners 1985 2 (21), GIIGNL 2-216 (216) 28
Europe s Balancing Role in the LNG market mtpa 3 Market loosening Market tightening Market Stable 25 Supply outpacing Asia demand growth Asia demand growth outpacing supply LNG volumes flow in Europe Europe decants volumes 241 242 Europe 266 2 MENA Latin America 15 1 Asia Pacific 5 US/Canada 28 29 21 211 212 213 214 215 216 Source: Cheniere interpretation of IHS Waterborne data (Apr 216), delivered volumes 29
LNG Supply vs. Demand to 23 5 1 8 Production capacity 215/ 22 [1] 22 LNG trade forecast 215 to 23 CAGR(%) = 4.4 4 mtpa 6 4 2 215 New supply USA mtpa 3 Australia 2 Qatar Supply: existing and under construction 1 2 25 21 215 22 225 23 Source: Cheniere Research estimates; Woodmac for historical figures 3
LNG Import Outlook by Region mtpa Asia and Middle East mtpa Atlantic Basin 4 Bunkers Asia 4 Bunkers Atlantic 35 3 25 Middle East Other Asia China India JKT Other Asia 35 3 25 Africa Europe N. America S. America 2 China 2 15 India 15 1 1 5 JKT 5 Europe 25 21 215 22 225 23 S. America 25 21 215 22 225 23 Source: Cheniere Research, Cheniere interpretation of Wood Mackenzie data (Q4 216) 31
Opportunities and Challenges for Gas and LNG in Asia Opportunities Demand for gas in Asia set to nearly triple over coming decades New markets, new buyers and new demand segments for LNG emerging in the region A more liquid and more responsive global LNG trade will make gas more attractive But gas growth in Asia should not be taken for granted.. Bcm 6 5 4 3 Gas Demand* Asia Growth vs. 214 ~16% Challenges Demand uncertainty a common theme across Asia as energy transition and market liberalisations gather pace 2 1 Rest of World Europe, Latin America. MENA, N. America, Sub- Saharan Africa ~4% Some new markets will require help with the commercial or technical aspects of LNG Coal likely to remain cheap and tempting 214 22 23 24 25 26 WEC Energy Outlook ( Modern Jazz Scenario) Gas needs to prove it is affordable, reliable and secure 32 * Source WEC Energy Scenarios 216
Market Context Market context for LNG buyers has been evolving in recent years Growing Supply Availability Increasing market length through 219 (+) Some portfolio players looking to reduce own length Expectations of growing liquidity / spot availability Healthy slate of potential new supply projects Growing Price Uncertainty Reducing Oil Indexation Levels;.16 at peak falling to ~.115 now Oil price uncertainty Inversion of Spot, Oil-indexed and HH-indexed prices; Growing Demand Uncertainty Liberalising markets: new players, increasing market competition Changing fuel mix outlook: fall of nuclear and coal, rise of renewables Domestic gas balance; maturing fields, unconventional gas uncertainty Buyers looking to rebalance their purchase portfolios to include greater spot / ST volumes 33
Contracting behaviour reacting to changing market environment Lower Overall Sales ACQ (mmtpa) 5 4 3 2 1 Market Length 28 29 21 211 212 213 214 215 216 H1 217 43-65% Reaction to 15 Full year? Shorter Duration Contracts ACQ (mmtpa) 5 4 3 2 1 Reaction to Market Uncertainty 28 29 21 211 212 213 214 215 216 H1 217 < 5 years 5-1 years 2 years Mov. Av. (RHS) 14 13 12 11 1 9 8 Average length (yrs) Lower HH Sales ACQ (mmtpa) 2 15 1 5 28 29 21 211 212 213 214 215 216 H1 217 Henry Hub Share of total Reaction to Price Uncertainty 45% 35% 25% 15% 5% -5% Share of total (%) Smaller Volume Contracts ACQ (mmtpa) 5 4 3 2 1 Reaction to Market Uncertainty 28 29 21 211 212 213 214 215 216 H1 217 <1 mmtpa 1 to <2 mmtpa 2 years Mov. Av. (RHS) 1.2 1.1 1..9.8.7.6 Average volume (mmtpa) Source: Cheniere interpretation of Wood Mackenzie data (217) Are these changes structural or cyclical? 34 34
LNG trade is diversifying and fragmenting Supply Markets BG Group interpretation of Wood MacKenzie and IHS data (215) *each country considered a single supplier / buyer. Market categories for HHI: US Department of Justice 35
U.S. LNG Exports Driving Change in the Industry Destination-free, flexible volumes Growing liquidity FOB and DES hub formation New markets facilitated by abundant, competitively priced gas A more responsive, more competitive more diverse and more resilient LNG trade system 36
Benefits of U.S. LNG exports Largescale resource base with strong Government support for exports Tcf 3 2 1 U.S. Future Supply of Natural Gas (1) 1532 28 222 2691 2884 Diversification from oil indexation 3141 26 28 21 212 214 216 Non-shale Shale EIA Proved Reserves LNG Contracts by Price Index (3) 7+ flexible U.S. cargoes per month by 22 - underpinning growing industry liquidity Cargoes / Month 8 6 4 2 U.S. Supply & FOB Customers (2) US Cargoes / month (Left Axis) No of companies lifting US LNG (Right Axis) J A J O J A J O J A J O J A J O J A J O 216 217 218 219 22 Inter-project competition driving innovation 3 25 2 15 1 5 No. of FOB Customers mtpa 4 3 2 Henry Hub Europe gas Hybrid Oil LNG demand LNG trade forecast HH index 1 Oil index Mid-scale trains 2 25 21 215 22 225 Visualization of possible mid-scale trains at Corpus Christi - Source: Cheniere U.S. LNG driving change in the industry 37 Source: (1) Potential Gas Committee, 217; EIA (Proved Reserves), (2) Cheniere Research, Primary FOB Customers Only, 1% UF, 17, cm vessel (3) Cheniere interpretation of Wood Mackenzie data (Q1 217)
Destination of Sabine Pass Cargoes Since Start Up, More than 19 Cargoes Loaded and Delivered to 25 Countries London, U.K. Houston, TX Washington, DC Mexico Dominican Republic Poland, Lithuania, Netherlands, United Kingdom Portugal, Spain Italy, Malta, Egypt, Turkey, Jordan Kuwait, UAE, Pakistan Beijing, China India, Thailand China, Taiwan Singapore Japan, South Korea Tokyo, Japan Santiago, Chile Brazil EUROPE 14% MENA 15% ASIA 3% Chile LATIN AMERICA 41% Cheniere LNG Facility Cheniere Office Cargo Delivery Destination Argentina Sabine Pass Exports By Destination Region (Since Startup (1) ) Sources: Cheniere Research, Kpler MENA Middle East North Africa (1) Date reflects cargo loading date until September 28, 217, representing all cargoes that have loaded and discharged.
LNG Trade Figures H1 217 Regional imports balance H1 217 (Year-over-year) 8 Growth by Supply Country H1-217 (YoY) 7.8 Top 5 growth Bottom 5 growth 18 6 5.59 16 14 16. 13.1 mtpa 4 2 1.55 1.43.67 12-2 -.2 -.6 -.6 -.8 -.86 1 Australia US Angola Nigeria Malaysia Oman UAE Norway Trinidad Indonesia mtpa 8 6 4 2.5-2 -4 Supply Asia MENA Source: Waterborne IHS data, delivered volumes -.7.1 Lat Am N.America 4.9 M.Europe -1.8 N.Europe mtpa 6 4 2-2 -4 Growth by Import Country H1-217 (YoY) 4.2 China Top 4 growth 3.1 3. Japan S.Korea 3.3 M.Europe Spain Italy Portugal France -.3 -.4 -.6 Argentina Bottom 4 growth Lithuania Brazil -2.1 UK 39
Global Gas Prices (as of 1/1/217) 25 Q4 17 Q1 18 Cal. 18 2 Asia Spot LNG Asia L-T Contract Proxy Brent $56 /bbl $56 /bbl $56 / bbl JKM $7.72 $8.6 $6.95 TTF $6.21 $6.36 $5.97 HH $2.99 $3.19 $3.2 Forward Curves 15 15 $/MMBtu 1 Oil parity 1 TTF 5 5 Henry Hub 214 215 216 217 218 219 Note: Asia L-T Contract Proxy = 14.85% Japan Crude Cocktail (3-month average)+ $.5/MMBtu; same formula is used with Brent crude oil prices for forward curves 4 Source: Bloomberg, CME, ICE, Platts, Japan Ministry of Finance, Cheniere Research
Global LNG balance 215 to Aug 217 MT/month 8 7 6 5 4 3 2 1 Rising supply not yet overflowing into N. Europe Supply: Australia + US 214 215 216 217 Imports: UK + Netherlands + Belgium Where did the incremental global supply go? ~6 MT Source: Waterborne Data, Graph based on Akos Losz/ Teddy Kott CGEP (217) Incremental imports since 214 Others +ve China Egypt India Jordan Pakistan Spain Thailand Taiwan UAE Italy France Others -ve Mexico South Korea Brazil Japan -2-1 1 2 MT imported Jan 215 to Aug 217 above 214 levels Note: countries with less than +/-3 mt increment were aggregated +1 MT -4 MT Net ~6 MT 41
1 Ways U.S. LNG is Changing the Global Market 1. Significant new supply source reduces the market power of incumbents 2. Competitive cost sets price marker for new LNG supplies 3. Transparent pricing improves price discovery 4. Destination flexible supply reduces the rigidity of current trade 5. Growth in liquidity will result in development of trading and risk management tools 6. and aid the formation of LNG trade hubs in Asia 7. Volume flexibility provides buyers a safety valve on supply commitments 8. HH indexed pricing weakens the influence of oil price on the global gas market 9. HH pricing construct reduces pricing volatility 1. Increasing influence of US energy diplomacy Flexibility Liquidity Transparency A more competitive and resilient trade system 42
Will a Liquid Hub for LNG Form Over the Next Decade? Drivers Significant supply at open market location (USGC) LNG & gas hub initiatives in Asia New players interested in new instruments Increase in flexible supply Any significant disconnect between spot and term prices Inhibitors Limited buyer-seller alignment Current low industry liquidity Lack of consensus on location for an Asian LNG hub Market access Deregulated Pricing Multiple Buyers / Sellers Existing long-term contracts Established pricing indexes Quality constraints Storage constraints Financing secured through long-term oil indexed / HH-plus contracts Inhibitors will likely not stop Asian hubs from forming but will determine pace and location of hub developments 43
Slowdown in FIDs mtpa 5 45 4 35 3 25 2 15 1 5 FIDs per annum Qatar Hiatus Australia US Hiatus 24 25 26 27 28 29 21 211 212 213 214 215 216 217 Other Aus US Qatar 44 Source: Cheniere interpretation of Wood Mackenzie data (Q1 217)
U.S. LNG Advantaged by Low Costs Break-even price at Henry Hub for North American natural gas resources 12 $3, Liquefaction plant EPC* costs Reported Planned Grassroots Average break-even Henry Hub price ($/MMBtu) 9 6 3-3 -6-9 8 Tcf @ <$3./mmBtu = 25 years supply at 215 production levels Specific EPC Cost (216 $/tpa) $2,5 $2, $1,5 $1, $5 Expansion Australia FLNG USA Canada -12 5 1, 1,5 2, Tcf 1994 1996 1998 2 22 24 26 28 21 212 214 216 218 FID Date *Engineering, procurement and construction costs for liquefaction plant. Does not include upstream development, pipelines or financing and owner s costs. Source: IHS Energy : Shale Gas Reloaded (216) Source: Poten & Partners 45
Long-Term LNG Price Outlook (EIA) 25 Actual 217-18 = forward curve Industry Consultant Forecasts Oil Volatility Indicator $/mmbtu (nominal) 2 15 1 JKM Spot Price US LNG Range of prices: 21-16 Oil Linked LNG* JKM 5 HH *midpoint of range 21 215 22 225 23 235 Note: prices are annual averages 46 Sources: Actuals - Platts, Heren, IPE, Petroleum Association of Japan and Bloomberg (Apr 216); Forecasts EIA, Wood Mackenzie, IHS CERA, and PIRA (216)
Benefits of US LNG for Asian Buyers Price competitiveness Largescale, low-cost gas resource HH-plus price structure De-linked from oil Price stability Reduced volatility from fixedcomponent Buyer control Destination flexible volumes to manage demand uncertainty and / or build trading platform Sabine Pass First Cargo: 24 th Feb 216 Reliability Largescale, nationwide resource base 47
New LNG Market Realities New market realities Fragmenting / Evolving market place Globalising / Commoditising industry with regional nature Supplier challenge: how to lower cost, innovate & create new markets will require new commercial solutions but will also have to be financeable New contract structures: price index, term, flexibility 48
Summing Up Flexible U.S. LNG ramping up and responding to global market signals U.S. LNG has already changed the industry. Providing buyers with; Price diversification and transparency Destination flexibility Increased supply availability and market competition A sustainably low-cost supply over the long-run And is set to drive further change Growing liquidity / hub formation / price discovery Resulting in a more competitive and more resilient trade system Buyers can enjoy and capitalize on these functions of U.S. LNG in a direct manner But Buyers and Sellers will have to work together to achieve the commercial bargain required to bring on new supply under current low-price conditions Cheniere able to move quickly to expand its platform with two permitted brownfield trains, plus enough land at both sites to allow for significant further expansion 49
Thank You 5 Contact :report@tky.ieej.or