Global gas markets: the aftermath of the global recession www.woodmac.com Jen Snyder Wood Mackenzie CSIS 28 October 2009 Delivering commercial insight to the global energy industry
The deep global recession continues to frame and reshape expectations GDP growth falters and the rebound takes hold only slowly 8% 6% 4% %GDP growth 2% 0% -2% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Asia Pacific Europe North America -4% -6% * * Originally signed in Sep-02 Source: Wood Mackenzie estimates, DES prices 2
cutting into global gas demand growth; the outlook is significantly less favourable than pre-economic crisis 450 Gas Demand Outlook (Q3 09 vs Q2 08) 400 CAGR 3.9% CAGR 2.8% 350 300 bcfd 250 200 150 Destruction of approx 20 bcfd of latent gas demand to 2020 100 50 0 Source: Wood Mackenzie Global Gas Service (Base Case) 2008 2010 2012 2014 2016 2018 2020 3
...just as large volumes of LNG from new projects are being introduced into the global gas market over the next few years 14.0 12.0 10.0 New Global LNG Capacity Availability From Post FID* Projects bcf/d (s) 8.0 6.0 4.0 Skikda Rebuild Arzew GL3-Z Qatargas-2 Qatargas-3 Qatargas-4 RL 3 Sakhalin 2 2.0 Yemen LNG - 2009 2010 2011 2012 2013 2014 2015 Angola Pluto Tangguh Algeria Ango la A ustralia Indo nesia Peru Qatar Russia East Yemen Peru LNG Source: Wood Mackenzie LNG Service *FID: Final Investment Decision Source: Wood Mackenzie LNG Service 4
Asia s draw on Atlantic Basin LNG has diminished 2.0 Atlantic to Pacific Basin LNG Flows (2003 - H1 2009) bcfd 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 Lack of supply proximate to Pacific markets necessitated large volumes of LNG to be transported from the Atlantic to meet demand But Atlantic Basin LNG will now need to seek market closer to home - 2003 2004 2005 2006 2007 2008 2009 Egypt Algeria Nigeria Eq. Guinea Norw ay Trinidad Source: Wood Mackenzie LNG Service 5
North American shales negate need for North America to import LNG www.woodmac.com Currently Commercial Shale Production Forecast From Key Plays Existing & Emerging Shale 18,000 16,000 mmcfd 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Montney Horn River Marcellus Haynesville Woodf ord Fayetteville Barnett 0 2005 2007 2009 2011 2013 2015 Source: Wood Mackenzie Global Gas Service 6
Our base case anticipates that major Europe sellers will show restraint to maintain oil indexed contract pricing Export Utilisation of Major Europe Sellers (Base Case) Recent Actions & Statements From Major Sellers Support This Potential Utilisation (%) 100% 95% 90% 85% 80% "The advantage of our contracts is in price predictability it doesn't make any sense to halve prices to see offtake picking up by, let's say, 3 percent". (Gazprom s Alexander Medvedev, June-09) The UK market is now saturated and we believe it will remain so in the short term (Qatargas Faisal al-suwaidi, June-09) 75% 2009 2010 2011 2012 2013 2014 Algeria Netherlands Norway Russia West The days of cheap gas are over.we are in the process of joining the GECF ". (Netherland s Minister of Economic Affairs, March-09) Source: Wood Mackenzie Global Gas Service (Base Case) 7
But in the near term, those measures are insufficient to reinstate indexation. A lack of new supplies could impact Europe in the longer term Atlantic Price Outlook Over-supply results in Europe prices being dragged down to North America price levels 14 12 Results in disconnect between spot prices and oil indexed prices in Europe Europe over-supply likely to ease post-2012 North America prices remain driven by indigenous unconventionals US$/mmbtu 10 8 6 4 2 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 NBP European Oil Indexed Contract USA Henry Hub Source: Wood Mackenzie Global Gas Service 8
And even if suppliers hold back, the LNG market still needs North America North America and forecast imports 3.5 5.0 3.0 North America 4.5 4.0 bcfd 2.5 2.0 1.5 Middle East Latin America FSU Europe Africa bcfd 3.5 3.0 2.5 2.0 1.0 1.5 1.0 0.5 0.5 0.0 2007 2009 2011 2013 2015 0.0 2003 2005 2007 2009 2011 2013 2015 US-Qatar US-Other Supplies Mexico Canada Source: Wood Mackenzie Global Gas Service (Base Case) 9
There remains pricing support for gas under long-term contracts in the Pacific for now www.woodmac.com Pacific market tightness from 2012 Led by China demand growth 25.0 Asia Pacific LNG Demand* & Supply Multiple buyers competing for LNG between 2013-15 providing froth in the market In part due to expiry of existing contracts 20.0 15.0 But as the likelihood of FID on new projects crystallises so the strength of sellers deteriorates bcf/d (s) 10.0 5.0 * Available Pacific supply & demand associated with Asian markets east of India incorporating Japan, Korea, Taiwan, China, Singapore, Thailand, Java. Note, year from April to March. - 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Available Pacific LNG Pre-FID LNG Demand Source: Wood Mackenzie Global Gas Service 10
Putting the demand and supply outlooks together creates an interesting picture mmtpa 500 450 400 350 300 250 200 150 100 50 Market is soft as a result of significant new supply and weaker demand Some supply may be held back Liquid markets likely to absorb the surplus (particularly the US) Market tightens through 2012/14 because of limited FIDs in 2006 to 2008. Delays to FIDs expected in 2009/10 will tighten it further by pushing the Probable supply to the right Longer-term potential excess capacity www.woodmac.com Mere perception of over-supply could adversely impact prices via supply competition Development of some capacity will be deferred 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Onstream Under Construction Probable Possible Speculative Demand Source: Wood Mackenzie LNG Tool, August 2009 2013 to 2015 remains a key market window 11
Global gas price prognosis longer-term disconnect between Europe and North America while Asia prices retain a premium 12 Global Gas Prices Global over-supply results in global spot price convergence in the near-term 10 8 In the medium term a lack of sufficient proximate supply in Asia will enable a premium to Europe $/mmbtu 6 4 In the medium term supplier behaviour results in Europe prices being disconnected from US 2 0 2008 2010 2012 2014 2016 2018 2020 2022 2024 Belarus Japan UK US (Henry Hub) Note: Calendar Year Source: Wood Mackenzie Global Gas Model 12
A number of key moving pieces will impact the medium term outcome www.woodmac.com Extent of demand elasticity Major pipe exporters sales strategy & tactics Upside in China demand Pace of shale gas growth Qatar s sales strategy & tactics Pace of growth of Australian LNG projects Pace of growth of West Africa LNG projects Extent of competition between buyers of long-term gas Pace of global economic recovery 13
Contact Information We will shortly be hosting a webcall introducing the Global Gas Service. To register, please visit http://www.woodmac.com/energy/ggswebcall For more information please contact: Noel Tomnay Head of Global Gas, Gas Research E: noel.tomnay@woodmac.com T: +44 (0)131 243 4511 Jen Snyder Principal, North American Gas E: jen.snyder@woodmac.com T: 617 535 1050 14
Strictly Private & Confidential This report has been prepared by Wood Mackenzie Limited. The report is intended solely for the benefit of The 3rd ICIS Heren Gas Conference and its contents and conclusions are confidential and may not be disclosed to any other persons or companies without Wood Mackenzie s prior written permission. The information upon which this report is based has either been supplied to us or comes from our own experience, knowledge and databases. The opinions expressed in this report are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them. 15
Wood Mackenzie Kintore House 74-77 Queen Street Edinburgh EH2 4NS Global Offices Global Contact Details Europe +44 (0)131 243 4400 Americas +1 713 470 1600 Asia Pacific +65 6518 0800 Email energy@woodmac.com Australia - Canada - China - Japan - Malaysia - Russia - Singapore - South Africa - United Arab Emirates - United Kingdom - United States Wood Mackenzie has been providing its unique range of research products and consulting services to the Energy industry for over 30 years. Wood Mackenzie provides forward-looking commercial insight that enables clients to make better business decisions. For more information visit: www.woodmac.com 16