Global LNG:New Supplies, Growing Demand

Jay Cuclis | Vinson & Elkins LLPMarch 7, 2012

Jay Cuclis | Vinson & Elkins LLPMarch 7, 2012

© 2012 Vinson & Elkins LLP

LNG Export Terminals

2012LNG Terminals

Operational (34)

2012LNG Terminals

Operational (34)

Under Construction/Planned (56)

Total (estimated): 90

© 2012 Vinson & Elkins LLP

LNG Imports by Country (2010)LNG Imports by Country (2010)

LNG Imports by Country (2010)

Importer Mmtpa

Japan 70.6

S Korea 34.1

Spain 20.5

UK 14.2

Taiwan 11.6

France 10.5

China 9.5

India 9.3

US 8.5

Italy 6.7

Turkey 5.9

Belgium 4.5

Mexico 4.4

Chile 2.3

Portugal 2.2

Kuwait 2.1

Brazil 2.0

Canada 1.5

Argentina 1.3

Other 1.1

Total Imports 223.8

Asia represents >60% of LNG imports

© 2012 Vinson & Elkins LLP

Asian LNG MarketsAsian LNG Markets

• Lack of sufficient indigenous energy resources has driven LNG demand

• Japan: Concerns raised by Fukushima have increased focus on LNG

• Strong government support for LNG purchases

• New LNG buyers emerging in Asia (e.g., Thailand, Malaysia, Indonesia)

• Potential for shale gas development in Asia, particularly in China, Indonesia and India

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New Sources of LNG SupplyNew Sources of LNG Supply

• Continuing expansion of the Australian gas supply, including potential shale gas

• Development of major new gas projects around the world, including in Russia, East Africa, the Mediterranean and South America

• Emergence of North America as a potential LNG exporter

• Greater deployment of floating LNG facilities, creating potential to “un-strand” gas reserves

© 2012 Vinson & Elkins LLP

Source: Federal Energy Regulatory Commission

North American LNGNorth American LNG

2005LNG Import Terminals

Operational Import Terminals (4)

2005LNG Import Terminals

Operational Import Terminals (4)

Proposed/Planned Import Terminals (55)

Total (estimated): 59

2012LNG Import Terminals

Operational Import Terminals (14)

2012LNG Import Terminals

Operational Import Terminals (14)

Proposed Export Terminals (10)

Existing Export Terminal (1)

Total Import Terminals: (14)

Total Export Terminals: (11)

© 2012 Vinson & Elkins LLP

North American LNGNorth American LNG

Canada

• Several new LNG export projects under development

• Canadian gas currently being exported to the US may find better markets in Asia

• Recent political issues in the US (e.g., Keystone) likely to increase and accelerate Canadian interest in Asian markets

United States

• New shale gas discoveries have vastly increased domestic supply, reducing LNG imports and creating the potential for LNG exports

• Government approvals needed from DOE and FERC– At least 8 companies currently seeking LNG export rights – To date, one approval for export to non-FTA countries granted by DOE

(Cheniere/Sabine Pass)– LNG from Cheniere contracted to be sold to Gas Natural Fenosa,

GAIL, KOGAS and BG – Denial of export permit requires finding that exporting LNG would not be in

the public interest

© 2012 Vinson & Elkins LLP

Legal Issues Affecting Supply and Demand Legal Issues Affecting Supply and Demand

Complexity of Project DevelopmentComplexity of Project Development Key Sales Terms often Contentious

LNG Sales DocumentationLNG Sales Documentation Additional IssuesAdditional Issues

Long lead time to develop projects, achieve FID

Complex JVs, typically including multiple parties from various countries

Government approvals

Pricing mechanisms and price reviews Term of contract, volumes committed Transportation terms and LNG vessels Supply source flexibility for seller;

destination flexibility for buyer Demand by buyers for equity positions

Lengthy period to negotiate, commonly a year or more

Some efforts to standardize, but still typically bespoke

Legal regimes in new supply sources Sanctions or other political

considerations impacting “free market flow” of natural gas/LNG

LNG Supply & Demand

© 2012 Vinson & Elkins LLP

For More Information, Please Contact Jay Cuclis, Vinson & Elkins LLP

For More Information, Please Contact Jay Cuclis, Vinson & Elkins LLP

James L. Cuclis, PartnerHong Kong • +852.3658.6410Houston • +1.713.758.3415 jcuclis@velaw.com

Jay's practice involves the representation of clients in international mergers and acquisitions, energy matters, and project development and finance transactions. During the last 30 years, he has worked on transactions in more than 50 countries throughout the Americas, Asia, Europe, the Middle East, and Western Africa, with a particular focus on the energy industry. Jay worked in Europe for five years, in the London office from 1990-1992 and in the Moscow office from 1992-1995. Jay is a member of V&E's Management Committee and serves as Head of the Corporate Department, International Coordinator of the firm's Asia practice, and Managing Partner of the Hong Kong office.