POST EVENT EXECUTIVE SUMMARY

Written byPaul Lim

EditorTPS

Produced by: A dmg :: information company

Organised by

The Asia Pacific region holds much promise for

small and mid-scale liquefied natural gas (LNG)

developments, given the geographical diversity,

and the various stages of developments of the

economies in the region. In contrast, large-scale

LNG infrastructure may not be economically-sound

due to the region’s widely interspersed, small and

stranded demand centers.

The Asia Pacific region is marked by a number of

characteristics:

1. Some parts lack comprehensive gas and power

distribution networks;

2. Gas production is far from consumption centers;

3. There are limited economical hydroelectric

power solutions;

4. Energy demand is expected to grow strongly.

Demand for natural gas in Asia Pacific is expected

to grow by 250 billion cubic meters (bcm) between

2014 and 2020, with demand expected to reach

790 bcm in 2015. Demand for LNG is expected to

track these increases, where growing economies

like Indonesia and the Philippines, will be major

contributors to the rise in natural gas consumption.

A focus on energy security by countries looking to

diversify their energy mix will also see more demand

for LNG.

Meanwhile, the establishment of infrastructure,

trading and services hubs in countries like Singapore

will contribute to the scope and liquidity of the LNG

market in the region.

dmg :: events, organisers of Gastech and ADIPEC, held the 4th Annual Asia Pacific Small & Mid-Scale LNG

(APAC LNG) Forum from 13 to 15 May in Singapore. Over 120 international and regional practitioners and

experts gathered to share their insights and discuss the trends and challenges in shaping the future of Asia’s

small-mid LNG landscape.

EXECUTIVE SUMMARY

ASIA PACIFIC SMALL & MID-SCALE LNG FORUM 2015

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ASIA RIPE FOR SMALL AND MID-SCALE LNG DEVELOPMENTS

Detailed themes from the conference

1. The impact of lower oil prices on gas and LNG prices 3

2. Challenges of unlocking stranded gas 3

3. Up-and-coming players in Southeast Asia 4

4. Best solutions for on and offshore LNG transport 7

5. Small and mid-scale players’ entry into the LNG market 8

6. Small and mid-scale LNG for power generation 8

This report has been produced by dmg :: events and TPS. All of the following are the writer’s personal comments and understanding of the presentations and panel discussions at the APAC LNG Forum. The writer accepts no liability for any reliance placed upon the above by any person whatsoever, neither does it constitute any recommendation for business purposes.

If you have any feedback on this report or require further information, please contact Samantha Ling at samanthaling@dmgevents.com or call +44 (0) 203 772 6087. Registered office: Northcliffe House, 2 Derry Street, London, W8 5TT | Registered in England & Wales: Company no. 2246951 VAT number: GB 494 1614 3Registered Office in Singapore: 19 Cecil Street, #03-01, The Quadrant, Singapore 049704

1) The impact of lower oil prices on gas and LNG prices

Falling crude oil prices since Q4 2014 has seen

an estimated fall in LNG Delivered Ex-Ship (DES)

prices by $4.00/MMBtu, to $11.10/MMBtu. The lower

crude prices have also put a temporary brake on

interests in LNG projects, with customers shying

away from entering into final investment decisions.

But common agreement that crude will continue on

a gentle upward climb will see LNG regaining much

of its relevance in time to come.

However, the impetus remains to build a cost-

effective LNG supply chain to drive down costs

further so that small and mid-scale LNG players

can still maintain sufficient margins to switch

over from liquid petroleum. According to energy

consultants Galway Group, the current low crude

oil price has lowered the profit margin for using

natural gas slightly. However, this also means that

the cost of using LNG as feedstock is also lower,

thus benefitting small and medium-sized projects.

Based on a Brent crude price of $60/b and a liquid

fuel cost of $18/MMBtu, the profit margins for

natural gas producers were lowered slightly by 3%

to $6.84/MMBTU, Galway Group said, compared

to $7.03/MMBtu when Brent crude was at $100/

b and liquid fuel at $23/MMBtu. There remains a

substantial upside to using LNG as a substitute for

fuel, especially when coupled with reductions of up

to 80% in capital costs for small and mid-scale LNG

projects compared to large-scale ones.

Economic and environmental benefits of using

LNG will still drive the development of this industry.

More gas extraction projects coming online in North

America and Asia Pacific by the end of the decade

will increase global LNG supply and possibly drive

prices down further.

2) Challenges of unlocking stranded gas in Asia Pacific

Many mature gas fields have been thoroughly

probed and unlocked, but there still remains

stranded gas fields in the Asia Pacific region

which have not been fully explored. Players

seeking to monetize stranded gas will face

technical and social challenges.

Many stranded gas fields are located where access

is very much limited by climate and geography of

the area, distance from the market and availability

of dedicated infrastructure.

For instance, to access stranded gas in shallow

waters, dedicated shallow-draft vessels with higher

levels of manoeuvrability are needed, but largely

lacking.

There will be a need to build an entirely new supply

chain, including greenfield infrastructure in locations

where there are no dedicated gas pipelines or

overland transport routes like roads or highways.

There will also be a need for on-site power sources

to operate small and mid-sized LNG projects.

Inclement weather can inhibit access to stranded gas

fields, as well as delay exploration and production

works. A workforce will need to be extremely

dedicated and compensated appropriately for

irregular working conditions.

Other issues include social and environmental

disruption. Indigenous inhabitants at stranded gas

locations may not welcome disruptions to their

traditional way of life. For example, aborigines in

British Columbia have not consented to LNG exports

from the port city of Prince Rupert. There can also

be stringent governmental regulations which reduce

the number of options available for transportation

and sales of natural gas.

While these obstacles can seem daunting at first,

players will reap long-term returns if they can

mitigate these issues upfront.

ASIA PACIFIC SMALL & MID-SCALE LNG FORUM 2015

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Southeast Asia is expected to increase its demand

for fossil fuels by about 4% annually as energy

consumption increases due to economic and

population growths. The unique geographical make-

up of the region also calls for unique small and

mid-scale LNG solutions to feed scattered demand

centers. There is also a lack of an established gas

pipeline infrastructure.

Southeast Asian governments and utility companies

are now more sensitive to fuel oil prices, and are

working to diversify their energy mix. Among

them, Indonesia and the Philippines will be among

the biggest markets for small and mid-scale LNG

developments, given their archipelagic make-up and

energy demand.

ASIA PACIFIC SMALL & MID-SCALE LNG FORUM 2015

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The Philippines requires a huge amount of energy to sustain its growing economy and high population growth rate of 2% a year - about 2 million people are added to its population each year.

About 40% of electricity supplied to high population density areas like Luzon is from natural gas, yet natural gas makes up just 8% of its energy mix presently. The Philippines’ sole gas field, Malampaya in northwest Palawan, is expected to be depleted by 2024. Small oil and gas fields will be depleted within five and seven years. Gas is seen as the “greenest” fossil fuel around compared with coal, which is regarded as an unacceptable alternative.

It will face huge demand for energy in the future for both power and transport. Other than the need to import LNG from other sources, it will also need economically-efficient, small-sized gas plants to feed its power stations. Small and mid-scale LNG facilities are thus ideal for feeding the Philippines’ expected spurt in energy demand.

The Philippines National Oil Company is looking at LNG very closely, and plans to increase its usage in power generation. It will concentrate on small and mid-scale LNG projects and security LNG supply, while pushing forward the Batangas to Manila (BatMan) gas pipeline.

SPOTLIGHT: THE PHILIPPINES

3) Up-and-coming players in Southeast Asia

Gas production has dominated since 2001, with

oil on a steady downward decline of between

2-12% between 1995 and 2012. Oil has only started

a slow revival from 2013 while gas utilization has

continued on a gentle upward trend since 2003.

Domestic natural gas usage has increased 35%

to 4,560 billion Btu per day (BBtu/d) in 2014,

up from 3,379 BBtu/d in 2010. Domestic usage

volumes exceeded export volumes in 2013, with

domestic consumption taking up 3,774 BBtu/d of

natural gas, compared to exports of 3,402 BBtu/d.

Indonesia will need LNG imports to meet

domestic demand. It is projected to start

facing gas shortages by 2018; it could also start

becoming a net gas importer by 2024. The

country has a diverse geographical makeup –

Indonesia is made up of numerous small islands

with stranded demand centers more than 400

miles away from supply sources. These demand

centers include power and mining industries

in the north and east of the country. Small and

mid-scale LNG is well-suited to meet its needs,

perhaps even going as far as to replace the

traditional fossil fuels used in long-haul trucking,

coal trucking, and passenger ferries.

Major Indonesian firms such as Humpuss LNG

and PGN LNG are continually working to enhance

their gas and LNG capabilities in preparation for

these new demands.

SPOTLIGHT: INDONESIA

ASIA PACIFIC SMALL & MID-SCALE LNG FORUM 2015

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THAILAND

CAMBODIA

VIETNAMPHILIPPINES

Tangguh

Abadi FLNG

Donggi-Senoro

Sengkang

Flores

Papua

Seram

Sulawesi

Sumbawa

Pasuruan

BallLombok

SuranayaJava

West Java

Natuna

Senipah

Kalimantan

Jurong Isl.Sumatra

Dumal

ArunNATUNA SEA

GULF OFTHAILAND

SOUTH CHINASEA

CELEBES SEA

MOLUCCA SEA

BANDA SEA

JAVA SEA

Existing gas pipeline

Planned or under construction gas pipeline

Gas production area

LNG liquifaction plant

Planned/under const. LNG liquifaction plant

LNG regasification terminal

Planned/under contr. LNG regasification terminal

PA C I F I C O C E A N

I N D I A N

O C E A N

EAST TIMOR

BRUNEI

Bontang

Senipah

JAKARTA

SINGAPORE

M A L A Y S I A

Natural gas infrastructure map

Based on IEA data from the ENERGY SUPPLY SECURITY Emergency Response of partner countries 2014 Indonesia © OECD/IEA 2014, IEA Publishing; modified by dmg :: events. Licence: https://www.iea.org/t&c/termsandconditions/

3) Up-and-coming players in Southeast Asia

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Potential supply forecast

Projected supply forecast

BC

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Existing supply forecast

Indigenous production

Natural gas production (1970-2012) and projection (2013-2028)

ASIA PACIFIC SMALL & MID-SCALE LNG FORUM 2015

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Based on IEA data from the ENERGY SUPPLY SECURITY Emergency Response of partner countries 2014 Indonesia © OECD/IEA 2014, IEA Publishing; modified by dmg :: events. Licence: https://www.iea.org/t&c/termsandconditions/

3) Up-and-coming players in Southeast Asia

ASIA PACIFIC SMALL & MID-SCALE LNG FORUM 2015

4) Transport: Best solutions for on and offshore LNG transport

With small and mid-scale LNG developments comes

a need for more advanced models of transportation.

These models will come into play after bulk import

LNG cargoes are broken down into smaller-sized

cargoes for distribution. A “spoke-and-hub” system

forms the basis for these models.

In Asia Pacific, both the on-shore and off-shore

transport solutions are ideal, depending on location

and geographical makeup of the market.

On-shore distribution is efficient in bringing LNG

resources to places where there is short supply. Such

distribution, including trucking and railway, does not

require advanced technology. It is also reliable and

requires less capital and operational expenditure,

and has a smaller footprint on the environment. Less

equipment is needed for such models and transport

vehicles can be re-directed easily to other locations.

Lesser time can be spent on construction and

execution, especially if modular systems are used.

Off-shore solutions such as modular systems or

dedicated tankers are also ideal for small and mid-

scale LNG. They can move flexibly to multiple

locations and reach stranded and smaller gas fields.

Floating LNG (FLNG) platforms optimized for small

and mid-scale projects is especially applicable to

Asia Pacific, as it is ideally suited for the diverse

scopes and geographical diversity in the region.

It also combines liquefaction and distribution

capabilities to serve end-users in an economical way.

Dedicated tankers for “milk runs” to distribute LNG

throughout a smaller geographical area, or ships

with built-in ISO-tanks can also be part of offshore

distribution solutions. These vessels have leaner

crew strength and require less maintenance and

ports of call to operate.

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ASIA PACIFIC SMALL & MID-SCALE LNG FORUM 2015

5) Small and mid-scale players’ entry into the LNG market

The majority of the LNG deals signed in the last five

years have been mainly among big players such as

the oil supermajors and big utilities firms.

But now, with an increase in LNG production in

Indonesia, Australia and the United States, the

market will see more supply liquidity which in turn,

may keep LNG prices depressed. Lower LNG prices

can be considered a boon for small and mid-sized

players, allowing them to access markets with lower

levels of credit.

Increase in supply and access to cheap credit have

given rise to new small and mid-sized buyers such

as those in Pakistan and the Philippines, and small

utilities in China. These players can buy LNG in

smaller volumes for use as bunker fuel and power

plants. There are also new import markets in Egypt

and Jordan. These buyers will be attractive to mid-

sized sellers, who can sell of smaller quantities which

major players may not be interested in.

But economies of scale still affect smaller and mid-

sized players. They may feel the cost squeeze,

especially when alternative fuels like coal and

petroleum are still proving to be cost-competitive.

In the meantime, a liquid LNG market may still

eventually emerge, once there are sufficient buyers

and sellers in the market and new supply continues

to come online. Smaller players may also have lesser

ability to participant in capital-intensive projects or

invest in new technologies to convert incumbent

facilities to take in natural gas.

6) Small and mid-scale LNG for power generation

Falling LNG prices have increased the business case

for small and medium-sized power plants taking in

natural gas as feedstock.

Lower terminal effect on gas prices can incur sizable

improvements in operating costs, with lower FOB

prices reducing the overall terminal effect. Other

than the cost factor, greenfield LNG plants with

natural-gas fired boilers can supersede fuel oil-based

power plants in terms of reliability and efficiency.

Due to the smaller scale of the regasification set up,

there is no need for additional maritime or offshore

construction works. Power plant operators can

continue to use existing harbor facilities.

However, power plant operators must take into

account set-up, maintenance and operations costs.

They must also be aware of the consumption rate

of LNG, depending on the capacity factor as it will

affect their LNG refill intervals. In addition, they need

to maintain a “safe” level of inventories which can

last about seven days.

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The next decade promises exciting opportunities for small and mid-scale LNG industry players in Asia

Pacific. Global gas markets are on the verge of new transformation, and the region is well-poised to

benefit from these changes. Not every player will take the same route and this will be what makes the

regional LNG market dynamic and vibrant.

As the region’s economic growth continues, and governments look to natural gas as the best candidate

for alternative fuels in the future, LNG developments will continue to grow. Small and mid-scale players

will ride on this boom, especially as big-scale projects mature and settle down into a steady rhythm.

They will sketch out previously unmapped opportunities and engage with super majors and utilities

firm to meet a new kind of market demand.

Infrastructure, services and trading hubs will become more established in the region, and with them,

liquidity for spot trading and arbitrage opportunities will increase.

CONCLUDING REMARKS

ASIA PACIFIC SMALL & MID-SCALE LNG FORUM 2015

ABOUT THE WRITERPaul Lim, Editor – The Petrochemical Standard

ABOUT THE PETROCHEMICAL STANDARD (TPS)

Paul Lim has been with The Petrochemical Standard

since its first year of inception. His interest and

experience in LNG are examining global trade

flows and discovering new patterns in unmapped,

emerging markets.

He has held a variety of senior editorial positions

with various business and commodity publications,

and presented at international conferences. He

has also written academic papers on energy and

political economy.

He holds a Master of Science degree in Political

Economy from the S. Rajaratnam School of

International Studies, with a focus on energy

security and political risks.

LNG has always played an important role in the

world of petrochemicals. With the resurgence in

shale gas production, connecting the LNG dot

to petrochemicals becomes even more vital. The

Petrochemical Standard’s coverage of this vital

link aims to assist industry players to understand

the state of play between gas feedstocks and

downstream liquid products.

TPS is a global price assessment and analysis

agency set up by a team of pricing veterans in

Q4 2013. Its primary focus is assessing the prices

of major petrochemicals and feedstocks by tying

the trading information to market fundamentals.

TPS provides vital analysis of these markets by

leveraging its experience and market expertise with

proprietary data.

TPS editorial offices in Singapore, London and

Houston also provide bespoke analytical services

as well as in-depth studies and market trends on

various commodities.

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