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Developments in global gas markets & the impact on Asia LNG ‐ my flexible friend in the face of uncertainty Neil Semple – Singapore Round Table October 2013
Developments in global gas markets & the impact on AsiaLNG ‐my flexible friend in the face of uncertaintyNeil Semple – Singapore Round Table October 2013
The Lantau Group
Key takeaways
• Post Fukushima Japan has been a sledgehammer on the LNG market – Huge value on flexibility
– Big player in the diversion market
– Buying power to gain access to US LNG supplies
• US LNG is entering a new phase in terms of potential impact on Asia– Not as cheap as might be expected
– But very flexible
• Flexibility is becoming much more important and valuable throughout Asia– China and India are still behind, but
– SE Asia is poised to reap benefits if regulatory and policy settings will allow
1
The Lantau Group
That thing that everyone now knows? Well, its still around….
Who will be the first to make global LNG markets work?
2 Source: NYMEX, UK DECC, TLG
0
2
4
6
8
10
12
14
16
18
20
Henry Hub
NBP
Asia LNGprice assuming 13.85 slope
USD/MMBtu
The Lantau Group
JAPAN?
3
The Lantau Group
Why Japan?
• Huge impact on the diversions market
• Increase in volumes last two years mostly from short-term LNG
• Going after US LNG export capacity – which is delinked from oil
• Faces almost unheard of fuel procurement uncertainty
• Premium on flexibility
4
The Lantau Group
Trend in short term cargoes
• The recent rise in short term cargoes has been driven by the need by Japan for LNG and the decline in demand for LNG in Europe.
• This was to a large extent forced on the industry but does highlight what we believe will be a growing trend.
• This is driven on the supply side by US LNG which is call on the very large pool of US gas.
• And on the demand side by uncertainty on the level of demand by buyers.
5
0
50
100
150
200
250
300
2009
2010
2011
2012
mmtpa
Short term Long term
The Lantau Group
Will some of Japan’s nuclear units restart? If so, how many and when?
6
• The nuclear reactors that have applied to restart so far are all on the west coast and total 10.6GW
– Tomari
– Takahama
– Ohi
– Ikata
– Sendai
• In addition TEPCO has aired the possibility that it would like to restart its Kashiwazaki-Kariwa facility which is also on the West coast
Source:earthyissues.com
The Lantau Group
The more nuclear restarts, the less LNG imports require – flexibility on LNG is key
• Half of Japan’s post Fukushima fuel response has come from LNG and a quarter from fuel oil and a quarter from crude oil
– Japan has turned LNG into a flexible fuel source like oil
• For every ~10 GW of nuclear restarts LNG import requirements fall by about 4 mmtpa
• But how much and when?
• Uncertainty requires flexibility!
7
Nuclear capacity and change in LNG demand
‐18
‐16
‐14
‐12
‐10
‐8
‐6
‐4
‐2
010 20 30 40
mmtpa
GW
The Lantau Group
Japan’s renewables uptake is another story
• Avoiding higher oil and LNG import costs makes renewables more attractive
• Factoring in environmental benefits –particularly carbon – can make more renewable projects throughout SE Asia economic if the renewables output displaces at least some oil or LNG through peaking units
• Japan has proceeded aggressively – having attracted 3.5 GW of solar power to date
• While these have extra value due to environmental and a fuel displacement economics – they also require flexible system support
• More uncertainty and more need for flexibility!
8
Power generation by fuel type
0
200
400
600
800
1,000
1,200
2015 2020 2025 2030
TWh
Nuclear Coal Gas
Oil Biomass Wind
Geothermal Solar Hydro
The Lantau Group
US LNG: THE “FLEXIBILITY ENABLER”
9
The Lantau Group
The many LNG export projects planned in the US and Canada could further disrupt global LNG pricing, depending on timing and demand
US
Canada
Alaska
Cove Point by Dominion Cove Point – 7.8 mmtpa
Lake Charles by BG & Southern Union – 15 mmtpa
Cameron by Sempra –12.4 mmtpa
Sabine Pass T1-4 by Cheniere – 18 mmtpa, with T5-6 adding another 9 mmtpa
Freeport by Freeport LNG and Macquarie Energy – 9 mmtpa;Expand by another 10 mmtpa by using FLNG
Jordan Cove by Jordon Cove Energy – 8.7 mmtpa
Gulf Coast LNG by Gulf Coast LNG Exports– 23 mmtpa
Kitimat LNG Chevron, Apache – 10 mmtpa
LNG Canada Shell, KOGAS, Mitsubishi, CNPC and Petrochina 12 mmtpa
Pacific Northwest -Petronas and Inpex -12 mmtpa
Douglas Channel Energy Partnership proposed a 0.9 mmtpa
Valdez LNG by Alaska GaslinePort Authority and others – 18 mmtpa
Existing terminals with proposed liquefaction
Greenfield proposed liquefaction
10
West Coast Canada –ExxonMobil - 10 mmtpa project, expansion to 30 mmtpa
Prince Rupert –BG - 14 mmtpa project
Pieridae Energy 10 mmtpa
The Lantau Group
Brent and Henry Hub forecast
• Key commodities– Brent futures indicate a fall in real terms to 2020
due to a rise in oil production and exports from the USA. But we forecast a recovery from 2020 onwards.
– Henry Hub slowly makes a recovery to a level to justify investment in non-liquids shale gas, that will be needed to supply local and export markets.
– These two somewhat divergent trends have an impact on LNG price scenarios.
11
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Brent USD Barrel Henry Hub USD MMBtu
The Lantau Group
US LNG is cheaper than oil-linked LNG, but not perhaps as cheap as often thought
• High Case– This reflects the premium that we believe
reliable safe established sellers such as Qatar and Australia will aim to achieve: a slope of near 15 linked to Brent. Australia also needs this kind of price formula to justify investment in new LNG plant.
• Mid Case– This is set by suppliers such as East Africa who
will be new to the game will have to price themselves into the market. We assume a 13.5 slope half linked to Brent and the other half to Henry Hub.
• Low Case– This is Gulf Coast USA Henry Hub times 1.15
and liquefaction of USD 3 mmbtu. For shipping we have assumed half goes via Panama and half goes east. This Low Case rises through to the middle of next decade as Henry Hub recovers even as Brent falls.
12
8.0
10.0
12.0
14.0
16.0
18.0
20.0
2013
2015
2017
2019
2021
2023
2025
2027
2029
Real USD
MMBtu
High
Mid
Low
Both the mid case and low case after regasification would give piped gas to Singapore gencos a run for its
money
The Lantau Group
US LNG – it’s not about the price as much as it is about the flexibility….
A NEW MODEL
US LNG buyers contract for liquefaction capacity. When they want LNG they buy it at Henry Hub prices. Then they can take it anywhere they want – resell or for own use. Tap can be turned on and off at will. The LNG price is not linked to oil.
AROUND FOR THE LONG TERM
US domestic demand for natural gas is close to 24 Tcf/year and the nation has recoverable resources of some 2,200 Tcf, according to EIA data.
NOT EASILY REPLICATED
This contrasts with the Western Canadian LNG projects which are more typical in that they specify a source of gas, will build dedicated new long pipelines to get the gas to the coast, and develop liquefaction plants and then sell the LNG. Projects have some buyer participation but at the moment are led by traditional LNG majors and aspirants. Pricing might be oil linked or linked to AECO (Canadian version of Henry Hub).
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The Lantau Group
0
5
10
15
20
25
30
35
2013 2014 2015 2016 2017
Liqu
efac
tion
capa
city
, mm
tpa
Australia USA Others
Australia developing traditional LNG for Asia, with US LNG coming a few years later
14
• Angola T1• Skikda GL2K
• Arzew GL3Z• PNG LNG• Donngi-Senoro• QC LNG T1
• Gorgon T1-3• QC LNG T2• AP LNG T1• GLNG T1• Petronas FLNG1
• AP LNG T2• GLNG T2• Wheatstone T1-2• MLNG T9 and Petronas FLNG2• Sabin Pass T1-2
• Ichthys T1-2• Prelude FLNG• Sabine Pass T3-4
LNG liquefaction projects under construction/reached FID, 2013-2017
Source: TLG analysis
• The near term LNG capacity will be mainly from Atlantic basin, which used to export LNG to Europe and US. With the low demand in Europe and no demand in US, most of the new Atlantic LNG is expected to be directed to Asia.
• Large amount of new committed LNG volumes from Australia will start to enter the market from 2015 onwards.
• US LNG will start to export to Asia from 2016
The Lantau Group
Out of the total of about 200 mmtpa of capacity applied to the DOE, 46 mmtpahas been approved for export to non-FTA countries
15
DOE application FERC application Capacity, mmtpaGroup Project Requested
volume, bcfd
FTA approved
Non-FTA application submitted
Non-FTA approved / DOE order
Pre-f illing completed
Filing completed
Filing approved
Terminal total
Group total
Sabine Pass 1-4 2.2 18.0Freeport 1-2 1.4 8.8Lake Charles 2.0 15.0Dominion Cove Point 1.0 4.6Freeport 3 1.4 1 4.4Cameron 1.7 2 12.0Jordan Cove Point 1.2 3 6.0Oregon LNG 1.3 4 9.6Corpus Christi 2.1 5 13.5Excelerate 1.4 6 8.8Southern 0.5 8 2.5Gulf LNG 1.5 9 2.1Sabine Pass 5-6 Total 0.3 14 2.0Sabine Pass 5-6 Centrica 0.2 15 1.8Sabine Pass 5-6 Uncommitted 0.9 pending 19 5.3CE FLNG 1.1 10 8.0Gulf Coast 2.8 7 20.6Golden Pass 2.6 11 15.6Pangea 1.1 12 8.0Main Pass 3.2 13 24.0Venture 0.7 pending 16 5.0Waller 0.2 1.3Magnolia 0.5 4.0Gasfin 0.2 1.5
Non-FTA approved 46.4
Non-FTA pending, f iled w ith FERC
Non-FTA pending, pre-filed w ith FERC
Non-FTA pending, no FERC pre-filing
Only applied for FTA license
45.5
30.4
73.2
6.8
The Lantau Group
The flexible and swing segment of the Asian LNG market reaches nearly 30% of new capacity by 2017
16
LNG liquefaction projects under construction/reached FID, 2013-2017
Note: Portfolio players’ share exclude the volumes that are committed to buyers in a specific projectSource: TLG analysis
• Portfolio players (such as BG, BP, Shell and Total etc) have contracted 18.1 mmtpa of LNG from the committed LNG capacity, which have no firm destination.
• 20.5 mmtpa of LNG is also uncommitted for the committed LNG liquefaction capacity.
• All these could lead to more flexible LNG trading in the future
Likely increase the flexibility and
dynamics of LNG trading in the future
36.0
109.422.5
12.3
18.1
20.5
0
20
40
60
80
100
120
Committed toJapan, Koreaand Taiwan
Committed toChina and
India
Committed toothers
Portfolioplayers*
Uncommitted Total
Liqu
efac
tion
capa
city
, mtp
a
The Lantau Group
LNG Liquefaction Capacity, mmtpa
Under Constructionor reach FID (2013-2017)
Likely projects (2018-2025)
Other announced
projects
Australia 61.8 12 36.0
US 18 53.8 130.5
Canada 17 52.6
Africa 30 41.4
Other countries 29.6 15 134.8
Total 109.4 127.8 395.25
The North America LNG projects in 2018-2025 are poised to amplify the disruptive influences of Japan (demand uncertainty) and Australia, East Africa (new supply)
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• US LNG exports will be free on board and so be more flexible on destination restrictions and allowing re-exports and diversions.
• Canadian LNG exports will be more like traditional LNG projects with developers investing from upstream, pipelines and liquefaction plant.
• Buyers have bought 30% in the Mozambique LNG (2x10 mtpa) project
The large volume of potential flexible Henry Hub-linked LNG from US and maybe Canada could have disruptive force in long term LNG trading, new contract negotiation and re-negotiation of existing
contracts.
The Lantau Group
FORCING CHANGES
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The Lantau Group
With uncertainties in future fuel mix, regulation and domestic gas production, most Asia countries are looking at LNG
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China and India: • Domestic unconventional gas
production• Scale of imports of piped gas• Possible entry of new domestic
LNG buyers• Rate of push for more gas in
power generation
JKT:• Rate of nuclear restarts in
power generation• Liberalization of gas
sectors which allow more players to procure LNG
ASEAN:• Need for LNG in power
generation• Domestic gas production
could be incentivised• Regional Hub LNG trading
There are many inherent uncertainties in the buyers’ domestic gas sector, which could incentive the buyers to negotiate for more volume flexible and shorter term LNG contracts
• LNG Demand uncertainties. In countries that have significant domestic gas production such as China and India, LNG demand in the long term would depend on how successful their unconventional gas production will be, and also by piped gas imports.
• Liberalization of the gas sector in the domestic buyers’ market. It is possible that some buyers will have a more liberalized gas and power sectors in the medium and long term, which allow more domestic players to procure LNG. Thus, the risks of over-contraction could be high for the current incumbent LNG buyers committed to a 20 or 25 years long term contract with little volume flexibility.
The Lantau Group
But in many cases there is still domestic gas in the ground that would happily leap to market if it could access the Asian LNG price…..
• Across many parts of the developing world and in Asia there is often the cry “shortage of gas”.
• But more often than not it is due to a breakdown in the pricing signals, or sometimes due to the incumbent monopoly blocking gas transportation.
• Or else a strong adverse reaction by the local government to lift local prices to encourage production.
• Often we see dis-continuous price / cost curves all across Southeast Asia, with the exception of Singapore.
• How quickly will they disappear?
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Supply
Cos
t/Pric
e (U
SD m
mbt
u)
Domestic Supply Curve
LNG Supply
RentForegone
Value
Potential Domestic
Supply Curve
Demand
The Lantau Group
Huge volume uncertainties for which emerging LNG supply infrastructure capability is poised to assist
• Thailand could probably delay the steep rise in LNG imports by offering a higher price for domestic piped gas.
• Philippines might start importing limited quantities by 2020 which would be affected by seasonality and rate of coal build which would require flexibility in supplies.
• Malaysia demand could be hampered by delays in domestic gas pricing reform.
• New supplies of LNG to Singapore might undercut the price of contracted supplies.
• All of which adds up to uncertainty which will require flexibility.
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0
10
20
30
40
50
60
70
2015
2020
2025
2030
mm
tpa
Thailand Indonesia Philippines
Malaysia Singapore Vietnam
LNG demand by country
The Lantau Group
New markets for LNG can even take higher LNG prices if necessary – the key is flexibility and lower volumes
• Indonesia– There is about 2,000 MW of effective diesel-
fired power plants outside the island of Java. – These consumer the diesel equivalent of over
3 mmtpa of LNG – If only the infrastructure could serve them, the
savings against diesel would likely pay for smaller scale and break-bulking type operations
• Philippines– The Philippines has 3,000 MW of on-grid diesel
and fuel oil power stations – Furthermore, off-grid and micro-grid capacity
exists given the isolated nature of some regions – These oil-fired plants consume the equivalent of
nearly 1 mmtpa of LNG.
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M I N D A N A O
L U Z O N
V I S A Y A S
MINDANAO
LUZON
The Lantau Group
China is learning quickly about the price of gas – but it has a long way to go to develop the full required infrastructure and arrangements needed
US$/MMBtu
10.1-10.5
10.6-11.0
11.1-11.5
11.6-12.0
12.1-12.5
12.6-13.0
13.1-13.5
13.6-14.0
14.1-14.5
14.6-15.0
10.3
10.8
11.2
11.2
11.6
11.9
12.5
12.512.6
12.8
12.8
13.1
13.1
13.7
14.0
14.0
14.0
14.2
14.0
14.0
14.1
14.1
14.2
14.9
14.5
14.0
14.9
14.9
14.9
East Siberia – ChinaWest Siberia to China
Note: City gate prices for incremental gas supplies under the new pricing mechanism, USD/MMBtu
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The Lantau Group
China’s power sector is not poised to be a big gas player until power sector reforms take place – we still see this as years away (it’s a big job)
• Demand could accelerate further especially from power generation.
• If power pricing is reformed to give mid-merit gas fired power a price that makes them profitable then demand for gas should rise.
• A further push could come from policy response to lessen pollution in cities coupled with carbon pricing.
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0
100
200
300
400
500
600
2010
2015
2020
2025
2030
Bcm
a
Commercial Transport
Industry Power Generation
Residential Export to Hong Kong
Others
2020 2025 2030Bcma 23.1 34.7 49.2mmtpa 17.0 25.5 36.1
Natural gas demand by sector
The Lantau Group
Summary
• Post Fukushima Japan has been a sledgehammer on the LNG market – Huge value on flexibility
– Big player in the diversion market
– Buying power to gain access to US LNG
• US LNG is entering a new phase in terms of potential impact on Asia– Not as cheap as might be expected
– But very flexible
• Flexibility is becoming much more important and valuable throughout Asia– China and India are still behind, but
– SE Asia is poised to reap benefits if regulatory and policy settings will allow
25
The Lantau Group
Thank you
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By phone+852 2521 5501 (office)
By mail4602-4606 Tower 1, Metroplaza223 Hing Fong Road, Kwai Fong, Hong Kong
Onlinewww.lantaugroup.com
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