Atlantic Basin LNG Dynamics

8/4/2019 Atlantic Basin LNG Dynamics

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Atlantic Basin LNG Dynamics

Howard V Rogers, Senior Research Fellow OIES

EPRG Winter Research Seminar

10th December 2010


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OIES* Natural Gas Research Programme

WE ARE: a gas research programme at an independent academic

institute, part of Oxford University, specialising in fossil fuel research

WE ARE NOT:

consultants

sellers of exclusive, high price business reports

WE PRODUCE: independent research on national and international gas

22

issues

WE ARE FUNDED BY: sponsorship by companies and governments in gas

producing and consuming countries

*Oxford Institute for Energy Studies is an educational charity

Information about our Institute, our Programme andits publications can be found on our website:http://www.oxfordenergy.org/gasprog.shtml


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Roadmap

Analytical Framework & Methodology

Current Gas Market Status and Outlook

UK Gas Market Future Challenges.

LNG trade-flows in the Atlantic Basin, trends and discontinuities, Howard

Rogers March 2010, http://www.oxfordenergy.org/pdfs/NG41.pdf


4/26

LNG

European Supply Dynamics

Annual Contract Quantity

Contract Flexibility

Take or Pa Quantit

PipelineIm ortsPipeline

DomesticProduction

mportsuropean

MonthlyDemand


5/26

Global LNG System -1

Niche Markets(Dominican Rep.,Costa Rica, SAmerica etc.)

Asian Markets

GlobalLNG

Supply

Normal Storage

Inventory Level

, ,

Taiwan, China,India)

North America

DomesticProduction

Europe

DomesticProduction

Take or Pay Quantity



PipelineImports

PipelineImports


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Global LNG System - 1


Asian Markets

GlobalLNG

Supply

Normal Storage

Inventory Level

Relative Flow between Europeand North America determined byarbitrage with (oil indexed)pipeline gas imports to Europe(within flexibility limits).

, ,





EuropeNorth America

DomesticProduction

DomesticProduction

PipelineImports

Arbitrage has lead to convergence betweenUS Price and European Oil Indexed Price Optimal for European Gas Importers.

PipelineImports


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Asian Markets

GlobalLNG

Supply

Normal Storage

Inventory Level

Relative Flow between Europe

and North America determined byarbitrage with (oil indexed)pipeline gas imports to Europe(within flexibility limits).

, ,




Contract Flexibility PipelineImports

EuropeNorth America

DomesticProduction

DomesticProduction

PipelineImports

More Pipeline Import to Europe = StorageOverfill in US Henry Hub de-links and is

lower than European Prices Sub-Optimalfor European Gas Importers.


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Asian Markets

GlobalLNG

Supply

Normal Storage

Inventory Level



, ,





EuropeNorth America

DomesticProduction

DomesticProduction

PipelineImports

Lower Pipeline Imports to Europe = StorageUnderfill in US Henry Hub de-links and is

Higher than European Prices. Sub-Optimalfor European Gas Importers.

PipelineImports


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Asian Markets

GlobalLNG

Supply

Global LNG System Long

Normal Storage

Inventory Level



, ,





EuropeNorth America

DomesticProduction

DomesticProduction

PipelineImports

US Storage Overfill; HH de-linked and belowEurope oil-indexed prices. Europe Pipeline

imports at minimum. Best Outcome withinConstraints

PipelineImports


10/26



Asian Markets

GlobalLNG

Supply

Global LNG System Short

Normal Storage

Inventory Level



, ,




Contract Flexibility PipelineImports

EuropeNorth America

DomesticProduction

DomesticProduction

PipelineImports

US Storage Underfill; HH de-linked andAbove Europe oil-indexed prices. Europe

Pipeline imports at Maximum. BestOutcome within Constraints


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Gas Prices 2007 - 2010

AGIP Proxy15

20

25

btu

Brent

Sources: Argus, BAFA, EIA, Own analysis

AGIP = Average German Import Price (Oil Indexed Gas)NBP = UK National balancing Point PriceHH = Henry Hub US Price

AGIP

HH

NBP

0

5

10

Jan - 07 Jul - 07 Jan - 08 Jul- 08 Jan- 09 Jul- 09 Jan- 10 Jul- 10

$/m

NBP

HH

AGIP

AGIP Proxy


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European LNG Imports Jan 2005 Oct 2010

200

250

300

European LNG Imports

UK

Portugal

Source: Waterborne LNG

0

50

100

150

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

mmcm/day

Italy

Greece

Belgium

Turkey

France

Spain


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2,500

3,000

North Atlantic LNG Balance 2008 - 2013

Demand

North America LNG Imports

Europe Supply & Demand

StorageInj./Withdrawal

0

500

0

500

1,000

1,500

2,000

mmcm/day

LNG Imports

% of TOP level achievedSources: IEA Monthly Data, Waterborne LNG, Own analysis

Domestic ProductionPipeline ACQ

Pipeline TOP

@85% of ACQ

Pipeline imports (Russia, N Africa, Azerbaijan & Iran)

CY 08/09 CY 09/10 CY 10/11 CY 11/12

92% 102%98% 99%

CY 12/13

111%


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Global Factors Influencing the European Market


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European Domestic Production to 2000 - 2025

250

300

350

400

Others

Romania

0

50

100

150

200

Italy

Germany

Denmark

Netherlands

Norway

UK

bcm

Sources: IEA, WoodMackenzie, National Grid, Dutch Ministry of Foreign Affairs, Energi Styrelsen, Own Analysis


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Shale Gas - Dynamics

European Rig-Count - 2000 - 2010

10

20

30

40

50

60

70

80

RigCount

Gas Rig Count

Oil Rig Count

800 Shale Gas Wells/Year

0

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Sources: IEA WEO 2009, Baker Hughes


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Global LNG Supply Assumptions

2008 - 2025

500

600

700

Yemen

Venezuela

USA

Trinidad

Russia

QatarPeru

Papua New Guinea

Oman

Norway

Nigeria

Qatar

0

100

200

300

400

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

bcm

a Malaysia

Libya

Iran

Indonesia

Guinea

Egypt

Brunei

Bolivia

Australia

Angola

Algeria

Abu Dhabi

Sources: Waterborne LNG, Company Reports, Own analysis

Australia

Nigeria


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250

300

350

a

Asian LNG Import Assumptions

China

Korea CAGR2010 - 2025

9.8%

11.6%

Total 3.5%

Japan

0

50

100

150

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

bc

Taiwan

Sources: IEA, WoodMackenzie, Own analysis

0.9%

1.7%

1.3%Japan

South Korea


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Competing Sources of New Supply for Europe ?

3

4

5

6

7

8

9

10

$/mmbtu

Export Tax

Uncertainty Range

Upstream and

Transportation

19

0

12

Regas

Transportation

Liquafaction

Upstream

*WEO2009, p482 plus 30% export tax.

**WEO2009, p481 plus regas @$0.60/mmbtu.*** Broad estimate.


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The Gas Exporters Conundrum

Export projects at

international prices

for govt revenue.

DomesticLow cost

Investment terms

for foreign

companies

tightened

Domestic Price rise

politically

Domestic supply

quota a

disincentive to

further export

investment as dev.costs rise.

power sectorsdeveloped at low

gas price.

gasreserves

discovered

Relatively low

number of skilled

jobs created.

unacceptable, may

need to import

some gas at

international prices.

Potentially valuedestructive if

creates glut of

petrochemicals

Demand booms at

low regulated prices

Industrial Sector

developed for

added value and

skilled

employment.

TimeTime

Gas exports

constrained


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UK Future Supplies and Import Infrastructure

60

80

100

120

140

160

bcma

Actual Modelled

-60

-40

-20

0

20

40

2005 2010 2015 2020 2025

Production Norway Netherlands IUK imports LNG Ireland Exports IUK exports Demand

NB. Assumes storage in existing & under construction categories only (i.e. 5.7 bcm by 2014)

Sources: IEA, DECC, Waterborne LNG, own analysis


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IUK

Flows20

05-2025

-100

-50 0

50

100

150

200

Jan-05

Jun-05

Nov-05

Apr-06

Sep-06

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

Apr-11

Sep-11

Feb-12

Jul-12

Dec-12

May-13

Oct-13

Mar-14

Aug-14

Jan-15

Jun-15

Nov-15

Apr-16

Sep-16

Feb-17

Jul-17

Dec-17

May-18

Oct-18

Mar-19

Aug-19

Jan-20

Jun-20

Nov-20

Apr-21

Sep-21

Feb-22

Jul-22

Dec-22

May-23

O t 23

mmcm/day

BasedonGlobalBalanc

ewithUKSto

rage5.7bcm

in2014+

Ac

tual

Modelled

-150

-150

-100

-50 0

50

100

150

200

Jan-05

Jun-05

Nov-05

Apr-06

Sep-06

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

Apr-11

Sep-11

Feb-12

Jul-12

Dec-12

May-13

Oct-13

Mar-14

Aug-14

Jan-15

Jun-15

Nov-15

Apr-16

Sep-16

Feb-17

Jul-17

Dec-17

May-18

Oct-18

Mar-19

Aug-19

Jan-20

Jun-20

Nov-20

Apr-21

Sep-21

Feb-22

Jul-22

Dec-22

May-23

mmcm/day

So

urces:IEA,DECC,WaterborneLNG,ownana

lysis

UKStorage5.7bcmin2014,risingto10.7bcmby2

018

Ac

tual

Modelled


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Wind Intermittency Impact on Gas Fired Generation

Hourly wind speed

data at 15 UKlocations from

historical database

Generation

algorithm usingstandard turbine

output curve

Impact on gas and

other generation

fuels/technologies

using future demandand generation view.

Database of

existing and future

wind farms

capacity, location

start-up timing

Constructdifferent future

capacity cases

Impact on short termgas demand

Requirement for

additional salt cavern

storage


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HourlyWindGeneration

2009,2015and2

15

20

25

30

35

/hour0 5

10

1

170

339508

677

846

1015

1184

1353

1522

1691

1860

2029

2198

2367

2536

2705

2874

3043

3212

3381

3550

3719

3888

4057

4226

4395

4564

4733

4902

5071

5240

5409

5578

5747

5916

6085

62546423

6592

6761

6930

7099

2009

2015

2020

GW

Ho

urs


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Conclusions

Global LNG System Model valid but recession and US Shale gas growth (minimal LNG imports) has

eliminated trans-Atlantic arbitrage for time being.

Analytical framework still highly useful for exploring European balance (LNg vs Pipelineimports ) as domestic production declines.

Medium Term Outlook De-linkage of Henry Hub and NBP could remain until 2014/15, with NBP arbitraging on

coal and oil-indexed price. However balance could soften periodically and thereforeexpect prices to be volatile.

2015 + system tightening due to Asian demand growth, European domesticproduction decline.

Will US shale growth plug the gap between demand and declining US and Canadianconventional gas ?

Outlook for new sources of long distance gas trade uncertain; incremental newsupplies will not be low cost.

UK Market Uncertainty on demand levels but rise in imports inevitable. Space heating market will require significantly more seasonal storage capacity. Wind power intermittency will require fast response from CCGTs and more salt

cavern storage.


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Questions Welcome.

Thank You

or your attent on.Howard V Rogers

Senior Research Fellow ,OIES Natural Gas Programme

[email protected]

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Atlantic Basin LNG Dynamics

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