17 th INTERNATIONAL CONFERENCE & EXHIBITION ON LIQUEFIED NATURAL GAS (LNG 17) 17 th INTERNATIONAL CONFERENCE & EXHIBITION ON LIQUEFIED NATURAL GAS (LNG 17) Key Challenges for the Development of LNG in Emerging <Title Markets: of Presentation> Medium and Long <Title of Presentation> By: By: <Author Term Name>, Outlook <Organization> By: Dr. Fereidun Fesharaki, <Date> FACTS Global Energy (FGE) April 18, 2013
Longer-Term Oil Market: A Range to Consider 200 Brent in US$/bbl 180 160 Ceiling US$150/bbl 140 120 100 80 60 40 Floor US$80/bbl 20 0 2 2010-2012 are actuals. Forecasts in $2013
mmt Global LNG Trade: Asia is Still King 275 250 Global LNG Trade: 2000-2012 2000 2012 5% 8% 1% -2.6% 225 200 175 23 % 72 % 21 % 70 % 150 125 100 75 50 25 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Asia Europe Americas Middle East 3 Note: 2000-2012 data are actual.
mmtpa Asia Overview: Imports and Uncontracted Demand 70 60 50 New Markets Uncontracted Demand India Uncontracted Demand China Uncontracted Demand Taiwan Uncontracted Demand Korea Uncontracted Demand Japan Uncontracted Demand LNG Uncontracted Demand Likely uncontracted demand including contract renewals. 40 30 20 10-2013 2014 2015 2016 2018 2020 Besides Japan and Korea, who will be under pressure to secure additional supplies, new demand is emerging from Southeast Asian importers. 4
mmtpa New Markets Add Substantially to the Demand Pie 70 Singapore Thailand Indonesia Malaysia Others* 60 50 40 New Southeast Asian markets of Thailand, Malaysia, Indonesia, and Singapore coupled with potential other new markets could add around 32 mmtpa by the end of this decade. Add Middle East to the picture and there could be a further 15 mmtpa of demand by 2020. 30 20 10 0 2011 2012 2013 2014 2015 2020 2025 2030 5 *Vietnam, Pakistan, Bangladesh, and Philippines.
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 2030 mmtpa Middle East: From Exporter to Importer Despite the region s massive petroleum reserves, gas production in almost all Middle East countries is struggling to keep abreast with demand, especially in the industrial and power sectors. Middle Eastern energy market dynamics shifted seismically in 2009 with the commencement of Kuwaiti LNG imports. Kuwait and subsequently Dubai s status as LNG importers illustrates the Middle East s growing dependence on natural gas and the rapidly increasing gap between supply and demand. 30 25 20 15 10 5 0 Middle East LNG Imports Saudi Arabia Israel Bahrain UAE (Northern Emirates) UAE (Dubai) Kuwait Other countries like the UAE and possibly Bahrain will also use LNG to augment domestic gas supply in the coming years. The gap between gas supply and demand is therefore not confined to one or two Middle Eastern countries; it is truly regional. 6
Domestic Gas Prices Vary US$/mmBtu 25 JLC** Oil Parity** 20 15 10 ~ 70% market share 5 ~ 70% market share 0 China^ India Thailand Malaysia Indonesia Singapore * Range based on retail prices to date of city gas (residential, commercial, industrial) and power sectors. ** 2012 JLC and JCC levels. ^Estimated from average prices paid by various sectors across China. 7
Pacific Region to Stay Mostly Oil-Linked Incremental supplies* (mmtpa) 500 Incremental volumes will be driven by new USGC/Canada/East Africa projects. 400 300 Incremental volumes sold mainly on oilindexation are driven by new Australian projects. 200 100 Existing While, Most USGC volumes = Hub-Indexation Canada/East African projects => Small % Hub-Indexation; Majority % Oil-Linked => Due to high development costs. 2012 2015 2016 2017 2018 2019 2020 2025 2030 and beyond Oil-Indexation Hub-Indexation *Supplies targeting East of Suez, up to Speculative Projects 8
Massive Australasian Budget Blowouts Oil-Linked Pricing Cannot be Broken! Pluto Gorgon PNG QCLNG GLNG APLNG* % Complete % Over-budget 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% * Origin Energy changed currency at Train 2 FID in July 2012 at the time, the Australian company said that capital costs in US$ had increased but this was solely due to foreign exchange movements. However, in Feb 2013, they upped the A$ cost to $24.7 bn, a 7% increase in A$ terms. This new total is equivalent to US$25.5 billion, or a 26.5% increase on the original US$20 bn estimate. 9
Will There be an Asian Hub? Indigenous Production LNG Importer LNG Exporter Pipeline Importer Pipeline Exporter Japan* South Korea* Taiwan* China India Thailand Indonesia Malaysia Singapore * Neligible small volumes of production Most new LNG importers have alternative gas supply sources which may help soften the impact of an LNG supply disruption. Buyers that have adopted a portfolio player role can cope more readily with supply and pricing issues. 10
DES Price, US$/mmBtu Direct Purchases From the US not always cheaper but does provide some savings at high oil 20 prices 18 Hypothetical US LNG Price (FOB HH @ US$4-8/mmBtu)* 14.5% + Shipping LNG Price (assumed to Japan) 13% + Shipping 16 14 12 10 8 * FGE forecast HH prices for period 2015-2030 Note: Liquefaction + Shipping assumed around 6 50 60 70 80 90 100 110 120 Oil Price Scenario (US$/bbl) 11
Hub Pricing vs Oil Indexation There is no such thing as cheap LNG, whatever the source. The price of LNG has a cost-based floor. Ultimately, the price of LNG indexed to Henry Hub is not very different to the price of oil-indexed LNG in a lower oil-price environment (in the US$80/bbl range). US$10-11/mmBtu or around US$70/bbl oil price is the minimum breakeven price for most new LNG projects, whether they are from the US, East Africa, or Australia, whether they are conventional or nonconventional. Hub pricing in one way or the other will enter new LNG contracts. We expect many suppliers of US LNG will end up selling at Hub-related prices plus a margin. There are benefits to Hub-related pricing for both sellers and buyers. It is not possible to insist that buyers should ignore Hub pricing and only use conventional oil indexation. Buyers simply will not accept this argument. There is a reasonable middle ground for both sides and deals can be construed to benefit both sides by sharing the risk. 12
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