Atlantic LNG: Has the boat sailed? Is the US out of the LNG trade and what are the implications for Europe? James Osten Principal North American Energy Markets
LNG Trade Different for U.S. Than Europe U.S. and European gas markets are similar in size but vary in dependence upon imports U.S. natural gas pricing is independent of petroleum products and independent of European pricing U.S. Supply and Demand Imbalance is Closing! Shale gas supply increase Volumetric considerations for arbitrage The U.S. can give up from 10 to 25 BCM of LNG supply under the right circumstances The U.S. can absorb from 10 to 20 BCM of LNG supply if the price is right!
Large Gas Markets, Dependent Upon Trade, 800 700 U.S. and Europe Have Similarly Sized Natural Gas Markets (billion cubic metres) U.S. is 85% self sufficient, 98% with Canada and Mexico 600 500 400 300 200 100 0 U.S. Demand Europe U.S. Supply Europe U.S. Reserves Europe Demand Production Pipeline Imports LNG Imports Reserves divided by 10
Natural Gas Prices Track Crude Oil, Somewhat 25 20 15 (Dollars per million Btu) Henry Hub at $6.61 for 2009 72% of Crude Oil Ethane indicates lower natural gas prices ahead: Obtained from natural gas and used as feedstock When priced at parity to natural gas, indicates low demand, excess supply and lower gas prices ahead 10 5 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Henry Hub West Texas Intermediate Ethane Mt. Belvieu
U.S. is Dependent Upon Trinidad Elba Island LNG Cargo Price 2007/2008 14 (dollars per million Btu) 13 12 11 10 9 Elba Pricing: Tracks Henry Hub 8 7 6 5 4 1/1/07 4/1/07 7/1/07 10/1/07 1/1/08 4/1/08 7/1/08 10/1/08 Henry Hub Trinidad-BG-Short Term Trinidad-BG-Long Term Egypt-BG-Long Term Eq Guinea-BG-Long Term
Everett Receives All of Its LNG from Trinidad Everett LNG Cargo Price 2007/2008 (dollars per million Btu) 14 12 10 Everett Pricing: Premium market and priced above Henry Hub 8 6 4 2 1/1/07 4/1/07 7/1/07 10/1/07 1/1/08 4/1/08 7/1/08 10/1/08 Henry Hub Trinidad-Distrigas-Short Term Trinidad-Distrigas-Long Term
U.S. Natural Gas Production Increasing 7% in 2008 400 U.S. Natural Gas Supply Growing Rapidly Lowering Imports (trade in billion cubic metres ) (Supply and Demand in billion cubic metres) 800 350 700 300 600 250 500 200 400 150 U.S. Imports Decrease in 2008, 2009 300 100 200 50 100 0 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 Pipeline - Canada LNG Production Demand
Shale Gas Growing 50% per year, 2005 to 2008 80.0 (billion cubic metres) U.S. Shale Gas Production 70.0 60.0 U.S. drilling is expected to decrease by 15% in 2009 slowing shale gas development 50.0 40.0 30.0 20.0 10.0 0.0 2005 2006 2007 2008 2009 Barnett Fayetteville Woodford Haynesville
U.S. Capability to Divert or Absorb LNG In 2008, LNG Imports are down 54% or 11 BCM LNG diverted to higher value markets In future from 10 to 20 BCM of LNG could be diverted The U.S. needs LNG in isolated corners of country New England, Southeast and California Absorption capacity of 10BCM to 20 BCM depends upon low price Local demand Storage fill Pipeline constraints
The U.S. Could Send LNG Elsewhere 9 Possible LNG Diversions from U.S. Market Could Reach 25 BCM by 2011 (billion cubic metres) 8 7 6 2008 Diversions reflect change from 2007, future diversions depend upon size and nature of commitment to U.S. market 5 4 3 2 1 0 Trinidad Qatar Eq. Guinea Egypt Nigeria Algeria Yemen Norway Diversions -2008 Divertable - 2011
The U.S. will Import LNG from Many Countries U.S. Imports LNG From Diverse Sources 100.00 (billion cubic metres) 80.00 60.00 40.00 20.00 Qatar s Role as U.S. supplier will expand Other West Africa Asia Algeria Middle East Qatar Eqypt Nigeria Trinidad 0.00 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 2032 2035
U.S. Could Absorb (Import) More LNG in Summer! U.S. LNG Imports Peak in Summer (LNG Imports at annual rate in billion cubic metres) 40 35 Summer 2007: Imports nearly triple from 2006 30 25 Summer 2008: U.S. shale gas production surges, storage nears full 20 15 10 5 0 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Summer Jul-09 Oct-09 Jan-10 Winter Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12
Most LNG is consumed within 300 kilometres of Terminal 60.00 50.00 40.00 30.00 U.S. LNG Imports to Diverse Regional Markets (billion cubic metres) New England Steady, Small Imports East Coast is premium, growth market but no new LNG terminals Gulf Coast has surplus shale gas supply, huge LNG terminal capacity West Coast will use Energia Costa Azul in Baja Mexico 20.00 10.00 0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 New England East Coast Gulf Coast West Coast
U.S. Will Absorb Limited Arbitrage Volumes The U.S.Could Absorp Up To 20 BCM of Short Term LNG During April to October 6.00 (billion cubic metres) 5.00 4.00 Louisiana and East Texas: large markets, unfilled storage, low utilization of existing terminals 3.00 2.00 East Coast: small markets, little storage 1.00 0.00 Everett Elba Island Irving Cove Point Freeport LNG Golden Pass Sabine Pass Lake Charles
U.S./Europe Pricing: Cyclical and Seasonal Seasonal LNG to U.S. during summer storage fill (U.S. absorption) LNG to Europe and Asian during winter (U.S. diversion) Cyclical LNG to U.S. when oil prices are low, U.S. demand strong or oversupply of LNG LNG to Europe when oil prices are high, U.S. demand weak or limited LNG supply Uncertainties Relative carbon mitigation policies, U.S. versus Europe Relative cost of carbon mitigation as carbon capture and sequestration
Thank you! James Osten Principal, North American Energy Markets jim.osten@globalinsight.com