Asian Natural Gas: A Softer Market is coming

Presented at the U.S. EIA’s International Natural Gas Workshop

August 23, 2012

Robert Smith Principal Consultant, FGE Dubai

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0

25

50

75

100

125

150

175

200

225

250

275

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

mm

t

Asia Europe Americas Middle East

Global LNG Trade: 2000-2012 6%

Global LNG Trade: Asia is Still King

72%

23%

5%

2000

64%

27%

8% 1%

2011

Note: 2000-2011 data are actual, 2012 is forecast.

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Regional LNG Import Outlook (mmtpa)

Europe

Middle East

Asia Americas

87 123 152

2015 2020 2030

192 243

313

2015 2020 2030

18 20 19

2015 2020 2030

6 14 30

2015 2020 2030

World’s Total: 401 mmtpa by 2020, 514 mmtpa by 2030

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0

50

100

150

200

250

300

Japan, South Korea and Taiwan India and China New Markets (ID, MY, SG, TH)

81%

18%1%

2012

58%32%

10%

2030

Forecast of Asian LNG Trade

2011-2030 AAGR: JKT: 1.3% CN+IN: 6.9% New Markets: 21.5%

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(8.0)

(6.0)

(4.0)

(2.0)

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10.0

12.0

14.0

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22.0

24.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2020

mm

tpa

Asia Pacific LNG Imports by Country (Year-on-Year Change)

New Markets*

CN+IN

JKT

* Indonesia, Malaysia, Singapore, and Thailand.

New terminals and long-term contracts

startups

Longer-Term Outlook: Who Leads the Growth?

‘Shrinking’ demand

Recovery in LNG demand

Industrial sector gas demand; cost competitiveness;

seasonality drivers

New terminals startups;

domestic gas supply deficits

Nuclear start-up aids in reducing growth

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Snapshot of Japan’s Nuclear Power Situation: Most Affected

• Operating units: Kansai Electric’s 1.18 GW Ohi Units 3 and 4

100%

76%

100% 100% 100% 100% 100%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

2

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18

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TEPCO Kansai E Chubu E Kyushu E Tohoku E JAPCO Hokkaido E

Capacity Outages (GW) Total Capacity (GW) % Outages (RHS)

Japan Nuclear Operating Rate 4.8%

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10

20

30

40

50

60

70

2012 2013 2014 2015 2020

mm

tpa

LNG Uncontracted Demand

Likely New Markets Uncontracted Demand

India Uncontracted Demand

China Uncontracted Demand

Taiwan Uncontracted Demand

Korea Uncontracted Demand

Japan Uncontracted Demand

Likely uncontracted demand including contract renewals.

Asia Overview: Imports and Uncontracted Demand

Top two countries that will be under pressure to secure additional supplies are Japan and Korea.

*Includes Indonesia, Malaysia, Singapore, and Thailand (started importing LNG in 2011). ** Other Potential Markets include Pakistan, Vietnam, Bangladesh, and Philippines.

Asia Pacific LNG Base Case Import Forecasts Scenarios (mmtpa)

Year Japan South Korea Taiwan India China Likely New Markets*

Total Asia

Mature Markets

Emerging Markets

Other Potential

Markets**

Total Asia Pacific

Potential

2009 64.6 25.8 8.6 9.1 5.5 0.0 99.0 14.6 0.0 113.6

2010 70.1 32.6 10.8 8.9 9.4 0.0 113.5 18.3 0.0 131.8

2011 78.5 36.7 12.0 13.5 12.2 0.7 127.2 26.4 0.0 153.6

2012 82.2 38.0 12.3 14.8 15.0 2.0 132.5 31.8 0.0 164.3

2015 84.3 39.5 13.1 18.3 25.8 11.3 136.9 55.4 0.0 192.3

2020 88.5 43.5 14.6 24.5 42.0 22.6 146.6 89.0 7.7 243.3

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Other Markets to Keep an Eye on…

Singapore 18%

Thailand 37%

Indonesia 18%

Malaysia 27%

Southeast Asia LNG Import Forecast (2020) 23 mmtpa

UAE (Dubai) 23%

UAE (Northern Emirates)

12% Kuwait

23%

Bahrain 22%

Saudi Arabia

20%

Middle East LNG Import Forecast (2020) 14 mmtpa

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Regional LNG Supply Capacity Outlook (mmtpa)

Atlantic Basin

Middle East Pacific Basin

Med Basin

World’s Total: 302 mmtpa by 2015, 543 mmtpa by 2020, and 651 mmtpa by 2030

51

134 195

2015 2020 2030

110

252 289

2015 2020 2030

41 47 44

2015 2020 2030

100 109 123

2015 2020 2030

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Soft Market Expected to Emerge Later This Decade (Potential Pressure Points?)

100

150

200

250

300

350

2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 2030

mm

tpa

Demand*

Total Supply Capacity Targeting Asia**

*Base case scenarios (JKTIC + New markets)**Includes potential LNG exports to Asia from Pacific Basin, Middle East, US and Canada

Perceived market tightness in near term up to 2016

Market condition is expected to ease later this decade, with highest surplus occurring in around 2020.

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Outlook for LNG Prices

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• Used by Qataris and others with global portfolios

• Buyers need mid-term volumes until next rush of supply

• Sellers want to lock away long-term demand

• Tranche pricing

Buy Long-Term Higher, Get Mid-Term Lower

Now 2016

2016 ------- 2035

Mid-term = lower price

Long-term = higher price

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Hybrid Pricing—What Buyers Want?

(%*HH) (%*JCC) LNG Price

Minor %

Majority %

• Majority of supplies locked-in for security of supplies + traditional oil indexation.

• Minor supplies output are Hub-related; subjected to price volatility but preferred with associated flexibilities?

• Same tranche of volumes but at a basket of oil-indexed and Hub-related pricing?

Contract

Volumes

(mmtpa)

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Projected Price of New Asian LNG Contracts vs HH, NBP, and JCC (US$2011)

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50 60 70 80 90 100 110 120

DES

Pri

ce, $

/mm

Btu

Oil Price Scenario ($/bbl)

Hypothetical US LNG Price (FOB HH @ $4-8/mmBtu)*

14.5% + Shipping LNG Price (assumed to Japan)

13% + Shipping

* FGE forecast HH prices for period 2015-2030 Note: Liquefaction + Shipping assumed around $6.50/mmBtu

Direct Purchases From The US … not always cheaper but does provide some savings at high oil prices

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Thank You