Will the growth of LNG create a global gas market? Chris Evans Vice President Global LNG Supply Shell Gas & Power FLAME, Amsterdam 25 th February 25
Increasing choice for consumers and producers Environmental issues enhance value of gas Cost of moving gas has fallen relative to its price More supply and demand nodes Choices now span the globe Long-term contracts remain vital Short-term/spot business has smoothed out lumpy growth. Spot prices have been linked - but not always Delivery to multiple markets assists project startup These factors increase interconnection of markets
Robust future for gas Long-term, vital role in sustainable energy future Not resource constrained Global LNG growth boom Dawn of GTL industry
bcf/d 4 Gas Demand Growth: The Growing Role of LNG 3 2 27% 15% 4% LNG % Increase over 2 Pipeline imports Indigenous 1 2 21 22 Sources: Cedigaz, bp statistical review 24, Shell
6 5 4 3 2 1 Global LNG Demand Growth Other India China Korea Japan Europe US MTPA 24 25 26 27 28 29 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225
LNG: Changing Competitive Position 8 US supply sources pipeline imports 6 new unconventional fields bcf/d 4 2 new conventional fields existing fields LNG imports new conventional existing wells 2 25 21 215 22 225 Source: adapted from National Petroleum Council, Balancing Natural Gas Policy Fueling the Demands of a Growing Economy, 23 Source: Global Insights Note: Europe includes EU 15, Norway, Switzerland, E. Europe, Turkey
LNG: Changing Competitive Position 8 US supply sources 8 European supply sources pipeline imports 6 new unconventional fields 6 LNG imports bcf/d 4 2 new conventional fields existing fields LNG imports new conventional bcf/d 4 2 Pipeline imports Indigenous pipeline existing wells 2 25 21 215 22 225 Source: adapted from National Petroleum Council, Balancing Natural Gas Policy Fueling the Demands of a Growing Economy, 23 2 25 21 215 22 225 Source: Global Insights Note: Europe includes EU 15, Norway, Switzerland, E. Europe, Turkey
LNG: Changing Competitive Position bcf/d 8 6 4 2 US supply sources pipeline imports new unconventional fields new conventional fields existing fields LNG imports new conventional existing wells 2 25 21 215 22 225 12 1 8 6 4 2 bcm 199 European supply sources LNG Imports Pipeline Imports Indigenous Production 1995 2 25 21 215 22 225 23 Source: adapted from National Petroleum Council, Balancing Natural Gas Policy Fueling the Demands of a Growing Economy, 23 Source: Global Insights 25 EU 31 Note: Europe 31 includes EU 15, and Eastern Europe
North America LNG regas projects Russia North American LNG regasification terminals Existing Permitted Permits filed Publicly announced Scouting Russia Norway Algeria Egypt Indonesia Nigeria Australia Peru Bolivia Venezuela Equatorial Guinea Trinidad and Tobago Middle East
Terminal capacity in the Atlantic Basin Total Net Regasification Capacity in the A-Med, mmtpa 3 25 Terminals Existing / Under Construction (25) 2 Total Planned Capacity by 21 15 1 5 Cheniere ExxonMobil SEMPRA BP ENAGAS GdF Conoco Phillips Shell Qatar Petroleum Dominion Suez Energy Intl.* National Grid Transco Chevron BG McMoran Exploration Oxy Anadarko Depa Gas Natural El Paso Source: PFC Energy mmtpa
China: A Big, Uncertain Growth Engine 3. 25. 2. LNG MT\PA 15. 1. 5. Pipeline. 2 25 21 High economic growth > power generation, city gas & industrial sectors Energy diversity to mitigate significant pollution problems 215 22 225
China LNG Import Terminals (Under construction & Proposed) Beijing Tianjin Dalian Shandong, Sponsor: Sinopec Jiangsu Rudong Shanghai Zhejiang Under construction Being proposed / under development Conceptual Macao / Zhuhai Fujian 2.6mtpa 27/8 Sponsor: CNOOC Source: Tangguh Guangdong 3.7mtpa 26/7 Sponsor: CNOOC Source: NWS Provincial government > more proactive role in developing regas terminals to fill the natural gas/electricity demand gap
Average distance travelled by gas molecules 3 2.5 2 1.5 1.5 New LNG ship price ($/m 3 ) 21 $ nominal 199 1995 2 1 2 3 4 5 6 7 8 9 1 11 12 13 miles 2 148 Tcf 15 89 Tcf 35 Tcf 197 21 22 1
LNG Fleet size @ Sept. 25 Vessels 35 3 25 2 15 1 5 (Assumes no scrapping) 1996 1998 2 22 24 26 28 Delivered On order
LNG Vessel Supply and Demand The market remains long shipping to 21 as new build vessels enter the fleet before projects are ready to utilise them. Demand for new ships including speculative builds has seen prices rise and all slots filled well into 29. No significant retirements have been announced. 5 4 Qatar Effect LNG Fleet Count 3 2 1 24 25 26 27 28 29 21 211 212 Older than 3 yrs Newer than 3 yrs On Order Newbuild Capacity Expected Demand Worst Case Best Case
Evolution of Gas Markets LNG flows Greater interconnectedness 199 bcf/d 2 2 2 1.3% * 199 N. America LNG Imports 1 6% 199 Europe LNG Imports 1 65% 199 Asia LNG Imports Korea, Japan, Taiwan, India and China * Share of gas supply Sources: Cedigaz, bp statistical review 24, Shell
Evolution of Gas Markets LNG flows Greater interconnectedness 199 24 bcf/d 2 2 2 1.3% 2% 199 23 N. America LNG Imports 1 8% 6% 199 23 Europe LNG Imports 1 62% 65% 199 23 Asia LNG Imports Korea, Japan, Taiwan, India and China * Share of gas supply Sources: Cedigaz, bp statistical review 24, Shell
Evolution of Gas Markets LNG flows Greater interconnectedness 199 24 22 bcf/d 2 2 2 5% 1 14% *.3% 2% 199 23 22 N. America LNG Imports 1 17% 8% 6% 199 23 22 Europe LNG Imports 1 62% 65% 199 23 22 Asia LNG Imports Korea, Japan, Taiwan, India and China * Share of gas supply Sources: Cedigaz, bp statistical review 24, Shell
Plant Capacities (mtpa) 5 45 4 35 Middle East 3 25 2 15 1 5 Asia Pacific Atlantic Basin 1975 198 1985 199 1995 2 25 21
Features of the Interconnected Market Market: demand 2.5% pa, LNG 7-1% pa; firm prices; long term contracts Globalisation: new trade flows Customers: seeking security, diversity, flexibility Suppliers: seeking customer access Financers: seeking secure long-term cash flows
Pricing complexity US: 1% exposure to gas price EU: linked to oil prices to varying extent Traditional Asian markets: link to crude oil New Asian markets: low link to crude oil Increasing number of players Growth of demand and supply nodes Increased complexity of netbacks available to suppliers
Price comparisons for Middle East 6. 5.5 5. US$/MMBtu 4.5 4. 3.5 3. 2.5 Older Cont. Older Cont. Older Cont. 2. 1.5 Brent $2 HH $4. Brent $3 HH $5.3 Brent $5 HH $8.
Price comparisons for Middle East 6. 5.5 5. 4.5 4. 3.5 3. 2.5 2. 1.5 Newer Cont. Older Cont. Newer Cont. Older Cont. Newer Cont. Older Cont. Brent $5 HH $8. Brent $3 HH $5.3 Brent $2 HH $4. US$/MMBtu
6. 5.5 5. 4.5 4. 3.5 3. 2.5 2. 1.5 Price comparisons for Middle East New Asia Newer Cont. Older Cont. New Asia Newer Cont. Older Cont. New Asia Newer Cont. Older Cont. Brent $5 HH $8. Brent $3 HH $5.3 Brent $2 HH $4. US$/MMBtu
New Asia Newer Cont. Older Cont. USGC New Asia Newer Cont. Older Cont. USGC New Asia Newer Cont. Older Cont. 6. 5.5 5. 4.5 4. 3.5 3. 2.5 2. 1.5 Price comparisons for Middle East USGC Brent $5 HH $8. Brent $3 HH $5.3 Brent $2 HH $4. US$/MMBtu
Price comparisons for Middle East US$/MMbtu 8. 6. USEC UK 4. Far East 2. Belgium. Nov-1 May-2 Nov-2 May-3 Nov-3 May-4 Nov-4 May-5 Nov-5 May-6 Nov-6 May-7
14. 12. 1. 8. 6. 4. 2. Price comparisons for Middle East US$/MMBtu UK Belgium USEC Far East Jan-5 Feb-5 Mar-5 Apr-5 May-5 Jun-5 Jul-5 Aug-5 Sep-5 Oct-5 Nov-5 Dec-5
What price flexibility? US: fully priced via spot market Many storage options EU: increasingly priced Increasing storage options Low pipeline flexibility Asia: increasingly demanded, but undervalued Few storage options Strong seasonality Value becoming apparent
Based on temporary spare capacity Spot market In growing market capacity is quickly sold but beware overshoot Reflects the balance between GAS demand and supply Links regions via arbitrage Is not necessarily cheap!
From managing market growth with multiple small trains. 4.5 4 3.5 3 2.5 2 1.5 1.5 mtpa 1 2 3 4 5 6 7 8 Year
. to managing wedges - placing large trains in several markets 8 mtpa 7 6 5 4 3 2 1 1 2 3 4 5 6 Year
Evolving LNG markets Long term Take or Pay contracts Mainly long term ToP Some mid and short term No spot market Limited spot market around 1% Major regional price differences Towards global price interconnectedness
Remaining vital Relationships Long-term contracts Reliability and safety
Increasing choice for consumers and producers Environmental issues enhance value of gas Cost of moving gas has fallen relative to its price More supply and demand nodes Choices now span the globe Long-term contracts remain vital Short-term/spot business has smoothed out lumpy growth. Spot prices have been linked - but not always Delivery to multiple markets assists project startup These factors increase interconnection of markets