EU RO PEA N FU EL PRI CE CO N FEREN CE 12 European Gas Sources and Supply Costs Graham Freedman Principal European Energy Global Insight
Outline Sources of Gas Pipeline Considerations LNG Considerations Comparison of Cost Economics Copyright 2005 Global Insight, Inc. 2
Potential Sources of Gas for Europe 2.4 TCM 2.7 TCM 57 TCM Russia + Eurasia Norway 5yrs UK/NL 5yrs Russia+Eura sia 110 yrs Middle East 150 yrs Africa 25yrs 12.9 TCM North Africa + Nigeria 72.8 TCM Middle East Source: BP Statistical Review 2005 Copyright 2005 Global Insight, Inc. 3
Sources for Europe to 2020 800 700 600 bcm / year 500 400 300 200 100 0 1990 1995 2000 2005 2010 2015 2020 Domestic EU Norway Algeria Russia Other non-eu Copyright 2005 Global Insight, Inc. 4
Where will LNG Supplies come from? Base Case: LNG Supplies by Country bcm 140 120 100 80 60 40 20 LNG UAE LNG Algeria LNG Qatar LNG Nigeria LNG UAE LNG Algeria LNG Non specified LNG Trinidad & Tobago LNG Qatar LNG Oman LNG Nigeria LNG Libya 0 LNG Egypt 1990 1994 1998 2002 2006 2010 2014 LNG Egypt Copyright 2005 Global Insight, Inc. 5
Outline Sources of Gas Pipeline Considerations LNG Considerations Comparison of Cost Economics Copyright 2005 Global Insight, Inc. 6
Pipeline Considerations Best over short distance Less than 2500km Economies of scale important -18-25bcm/yr Quick demand build up needed Costs dependant on steel price Limited flexibility Transit issues Copyright 2005 Global Insight, Inc. 7
Typical Pipeline Costs 2004 $/in km 36" $(000's)/km 48" $(000's)/km 56" $(000's)/km Pipeline costs dependant on steel prices Material Labour Misc. 8300 7900 3500 299 284 126 398 379 168 465 442 196 Large increase in price in 2005 R.O.W Total 700 600 900 20600 32 742 Cost of Carbon Steel $/tonne 43 989 50 1154 Forecast to drop back in 2006/7 Prices also depend greatly on terrain 500 $/tonne 400 300 200 100 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Copyright 2005 Global Insight, Inc. 8
Typical Pipeline Project Cost Breakdown Pre & Post-Tax Cost of Pipeline Gas with TPA from Yamal, Russia to German Border, $/mmbtu (Zero debt) 5.00 4.00 Resource Gas Cost Transport to Torschok Transport Torschok to Germany Liquid Credit Transit Fee Belarus/Poland 3.00 US$/mmbtu 2.00 1.00 0.00 Yamal Peninsula -German Border Pre-Tax Yamal Peninsula -German Border Post-Tax -1.00 Copyright 2005 Global Insight, Inc. 9
Outline Sources of Gas Pipeline Considerations LNG Considerations Comparison of Cost Economics Copyright 2005 Global Insight, Inc. 10
LNG Considerations Best over longer distance - 2500km + Economic with relatively small volumes 4-8bcm Works well with new CCGTs Good for incremental gas markets Flexible destinations Supply security Copyright 2005 Global Insight, Inc. 11
Liquefaction Typical Headline Cost Train size growing 3mt- 7.5mt (4.1-9.1bcm) Trinidad T1 (2000)-$225/bcm Qatargas II (2005)-$190/bcm Egyptian Liquefaction Liquefaction Plant Costs Storage/Loa ding 12% Utilities 18% General Facilities 30% Process Units 40% Copyright 2005 Global Insight, Inc. 12
LNG Transport Typical Headline Cost Tanker size growing - Technology improving Standard size 138,000m3 - $150-$180m Qatar 210,000m3 - $230 inc. liquefaction Typical LNG Tanker Copyright 2005 Global Insight, Inc. 13
Re-gasification Typical Headline Cost Train size growing to match liquefaction capacities Qatargas $66m/bcm, previously $80m/bcm Cheapest component of the chain facilitating arbitrage Lake Charles Re-gas Copyright 2005 Global Insight, Inc. 14
Typical LNG Cost Breakdown Damietta Egypt T1, Egypt to Spain and the US 3.5 3.0 2.5 $/mmbtu 2.0 1.5 1.0 0.5 0.0 Sagunto Resource Gas Cost Liquefaction Cost Re-Gasification Cost Lake Charles Gas Gathering Transport Cost Shipping & Port Cost Copyright 2005 Global Insight, Inc. 15
Planned Pipeline & LNG Supply Projects Constructed pipelines/recently finished Capacity expansion Snohvit - LNG 6 bcm/yr Proposed Pipelines Possibility of further extension LNG terminals Planned LNG terminals Ormen Lange Pipe - Norway to UK, 22 bcm/yr Norway Sweden Finland Trans - European Gas pipeline - 20-30 bcm/yr Russia, to northern Germany Under Construction LNG plants Yamal pipeline -Russia Polish section - capacity expansion to 33 bcm/yr Qatar LNG - Qatargas Trains 3-4 & Rasgas train 3 ALNG Trinidad Train 3,4 and 5 NLNG - From Nigeria Train 4 - Ireland UK - Belgium Interconnector Increase reverse flow to 23.5bcm/yr 2006 Medgaz pipe - 8 bcm/yr Algeria to Spain Spain UK France BBL- 16 bcm/yr Pipe Neth to UK Netherlands Belgium Algeria to Italy pipe - Via Sardinia Germany Italy Austria Baltic Sea Poland Hungary Egyptian LNG - Train 1 Greece Belarus Romania Bulgaria Ukraine Turkey - Greece - Italy Interconnector 22bcm/yr Black Sea Turkey Nabucco Pipeline - Turkey To Austria Arab gas pipeline to Turkey Blue Stream - 16 bcm/yr Pipe Russia to Turkey, under Black Sea Trans Caspian Gas Pipe Shah Deniz Pipe - Azerbaijan to Turkey T- he Iranian Line Iran to Turkey from Egypt Copyright 2005 Global Insight, Inc. 16
Outline Sources of Gas Pipeline Considerations LNG Considerations Comparison of Cost Economics Copyright 2005 Global Insight, Inc. 17
Rule of Thumb! LNG vs Pipeline Analysis $/mmbtu 6 5 4 3 2 10% real ROR, Unleveraged LNG (7.8 million tonne) 9.4 bcm (2005) LNG (3 million tonne) 4.1 BCM (2000) 36 inch 10 BCM 48 inch 18 BCM 56 inch 25 BCM 1 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 Distance to market kms Copyright 2005 Global Insight, Inc. 18
Current Delivered Costs to Europe Current Gas Costs to Europe Nigeria (LNG) Egypt (LNG) Trinidad (LNG) Algeria (LNG) Russia Norway UK Algeria (pipe ) Netherlands 0 0.5 1 1.5 2 2.5 3 $/mmbtu Copyright 2005 Global Insight, Inc. 19
Future Gas Costs to Europe Future Gas Costs to Europe Russia Norw ay (LNG) Qatar (LNG) Algeria (LNG) Nigeria (LNG) Trinidad (LNG) Egypt (LNG) Norw ay (pipe) Turkmenistan Libya Algeria (pipe) Netherlands 0 0.5 1 1.5 2 2.5 3 3.5 $/mmbtu Copyright 2005 Global Insight, Inc. 20
Be Aware of Rising Costs! High costs of materials High gas prices encourages increased margins along the gas chain Higher transit fees Higher take by governments Higher prices for liquefaction Lower value of the Dollar Higher capital cost for shipping Longer lead delivery times Copyright 2005 Global Insight, Inc. 21
Conclusions Plenty of gas available on Europe s doorstep LNG is becoming more popular as it s unit costs fall and facilitates arbitrage Cost of gas unlikely to go much above $3.2/mmbtu in the long term Upward pressure on costs evident Copyright 2005 Global Insight, Inc. 22
EU RO PEA N FU EL PRI CE CO N FEREN CE 12 Thank you! Thank You Name Title E-mail: first.last@globalinsight.com Graham Freedman Principal European Energy E-mail: graham.freedman@globalinsight.com Copyright 2005 Global Insight, Inc. 23