Natural Gas Pricing Uncertainty - Implications for Asian Importers - The Changing Fundamentals of Global Gas Markets Europe as the Battleground? Carnegie Endowment For International Peace Washington, DC October 12, 2010 Hidehiro Nakagami Tokyo Gas Co., Ltd. Agenda Demand and supply Global LNG flows and natural gas pricing Summary 2 1
LNG demand and supply in Asia 350 300 250 million tons 200 150 100 Existing SPA/HOA 50 Porfolio Planned Low Demand High Demand Reference Demand 0 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Ample supply potential Source: IEEJ Portfolio LNG to balance Asian demand and to make an impact on pricing mechanism 3 LNG demand in traditional Asian market (Unit : MTPA) Source: IEEJ estimate based on METI forecast and Mizuho Research Institute 4 2
LNG demand in China and India China Massive potential, but domestic production and pipeline gas imports to prevail? India Uncertain due to unclear domestic production capability 5 Supply potential: conventional gas Yamal 1.0-1.1Tcf Chayanda 700Bcf Vladivostok LNG? Ample supplies from conventional gas sources Diverted cargoes from Atlantic market Asia Oceania (3.3Tcf<) - Pluto - Gorgon - Wheatstone - Ichthys - PNG LNG - Dongi-Senoro - Sengkang - Masela - Tangguh T3 etc 6 Pipeline gas into China 3.5Tcf? Sakhalin 3 & 5 Floating LNG for smaller fields? 3
Supply potential: unconventional gas CBM Resource base: 3,017Tcf - Slater Dome Basin - Powder River Basin - Raton Basin - San Juan Basin - Appalachian Basin - Black Warrior Basin Shales in Europe Resource base: 548Tcf - Poland - France - Austria "Shale Gas Revolution" Resource base: 3,840Tcf - Barnett - Fayetteville - Haynesville - Marcellus - Woodford - Antrim - New Albany Shales in China Resource Base: 100Tcf - Chongqing - Sichuan - Guizhou - Jiangsu CBM based LNG Capacity: 60MT (3Tcf) - Queensland Curtis - Gladstone - GLNG - Australia Pacific - Shell Australia - Sun CBM based LNG Capacity: 3.5MT (0.2Tcf) Rapidly expanding unconventional gas developments world wide 7 Global LNG flows 0.1 8 1 0.7 6 29 7 0.4 15 35 0.3 0.1 4.7 66 Unit: Million Tonnes Existing Flow New Flow Still not so much interaction between Asian and Atlantic markets However, price differential between them to encourage inter-regional trades more 8 4
Current pricings of natural gas Socal Henry Hub Hub-based Pricing NBP Oil-link Pricing Hub-based pricing penetrating into continental Europe 9 Changes in natural gas pricing at Europe European LNG Imports MTPA Million Tonnes 60 Spot & and Short Term Contracts 50 Mid & and Long Term Contracts 40 30 20 10 0 2007 2008 2009 European buyers shifted to hub-based spot and term LNG Major pipeline gas exporters partially accepted hub-based pricing 10 5
Summary Future ample supplies from not only conventional but also unconventional sources Pricing changes in Continental Europe resulting in downward pressure on term contract prices 20-35MTPA surplus to exist in Atlantic for some more years Not all of the surplus to be absorbed in Asia 11 Summary Current traditional pricing in Asia, however, has not been necessarily reflected by demand-supply balance at a certain given time Spot based pricing to timely bring some influence also on Asian market while oil-linkage pricing to prevail in Asia due Cross regional trading from Atlantic to Asian market as a catalyst Good opportunities for LNG sellers in Atlantic market who has little sales to Asia LNG flows from Atlantic to stimulate healthy price competition If prices being adjusted in Asia, more natural gas demand in downstream, thus more LNG sales by suppliers 12 6
Thank you Paris Tokyo New York Kuala Lumpur Perth 13 13 7