1
The 6th IEEJ/CNPC Seminar
Shale gas revolution and its implication to international gas markets
Yuji MoritaThe Institute of Energy Economics Japan
December 6, 2012
IEEJ:December2012 All Right Reserved
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What is shale gas revolution?
The essence of shale gas revolution is huge expansion and less concentrated distribution of gas resources
(Source) BP Statistical Review of World Energy June 2012、IEA World Energy Outlook 2012
Unit:Tcf
Reserves(end-2011)
ProductionR/P
(Years)Tight Gas Shale Gas
CoalbedMethane Total
E. Europe/Eurasia 2,634 27 98 390 420 710 1,550
Middle East 2,826 19 149 320 140 0 420
Asia-Pacific 592 17 35 740 2,010 570 3,320
OECD Americas 382 31 12 390 1,660 320 2,370
Africa 513 7 73 350 1,060 0 1,410
Latin America 268 6 45 530 1,170 0 1,700
OECD Europe 145 9 16 140 570 70 780
World 7,361 116 63 2,860 7,060 1,660 11,580
Conventional2011
Unconventional(Remaining Technically Recoverable Resources)
(end-2011)
IEEJ:December2012 All Right Reserved
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Natural gas demand, supply, and prices in the US
(Source) DOE/EIA
Demand and supply increasing at 2.3%/y and 4.2%, respectively
Imports declining since 2007, exports increasing Henry Hub price declined rapidly since 2008
Demand/Supply Spot Price@Henry Hub
0
5
10
15
20
25
1994 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 11 2012
WTI @Cushing
Natural Gas @Henry Hub
US$/MMBTU
0
5,000
10,000
15,000
20,000
25,000
30,000
1980 85 90 95 2000 05 2011
TCF ConsumptionProductionImportExport
Production
Consumption
Export
Import
IEEJ:December2012 All Right Reserved
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The US natural gas supply outlook
(Source) DOE/EIA Annual Energy Outlook 2012
Shale gas revolution still ongoing to share half of the gas production in 2035
17.818.6
19.2 18.1
21.623.7
25.226.0 26.8
27.8
0
5
10
15
20
25
30
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
TCF
Shale gasTight gasAlaskaCoalbed methaneAssociated with oilNon-associated offshoreNon-associated onshore
Forecast
23%
26%
21%
49%
21%
9%
IEEJ:December2012 All Right Reserved
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Shale gas revolution aftermath(1)
(Source) DOE/EIA
Production shifting from shale gas to higher-value shale oil Power generators shifting from coal to natural gas
Shale Oil Production(North Dakota) Shift from Coal to Nat. Gas Power Station
728
148
0
100
200
300
400
500
600
700
800
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
×1000 B/D
Bakken
Others0
50
100
150
200
250
300
350
400
450
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug Se
pO
ctN
ov Dec Jan
Feb
Mar
Apr
May
Jun
Jul
Aug Se
pO
ctN
ov Dec Jan
Feb
Mar
Apr
May
Jun
Jul
Aug Se
pO
ctN
ov Dec Jan
Feb
Mar
Apr
May
Jun
Jul
Aug Se
p
2009 2010 2011 2012
TWh
Other
Petroleum
Hydro
Nuclear
Coal
Nat. Gas
IEEJ:December2012 All Right Reserved
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Shale gas revolution aftermath (2)
(Source) DOE/EIA
Increasing shale oil and NBL leading to more LPG and gasoline exports
Coal: lesser imports & more exports Hopefully leading to lowering Japan’s LPG and coal import
costs
Export of LPG and Motor Gasoline Export of Coal
0
1,000
2,000
3,000
4,000
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
×10000 Ton ImportExport
Import
Export
0
5,000
10,000
15,000
20,000
1981 85 90 95 2000 05 10 2012
×1000 BBL
Gasoline
LPG
IEEJ:December2012 All Right Reserved
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LNG export projects in North America
(Source) FERC、Company websites
Sabine(Cheniere, 18MT)
Freeport(Freeport LNG 11-22MT)
GCorpus Christi
(Cheniere, 14MT)
Kitimat(Apache/EOG/EnCana, 5-10MT)
Douglas Channel(BC LNG Export, 2MT)
LNG Canada(Shell/Mitsubishi/KOGAS/CNPC, 24MT)
Lake Charles(Southern/BG, 15MT)
Jordan Cove(Veresen, 9MT)
Cove Point(Dominion, 8MT)
Cameron(Sempra, 12MT)
Gulf Coast LNG(Gulf Coast LNG, 22MT)
Alaska North Slope(ExxonMobil, ConocoPhillips, BP)
Pascagoula(Gulf LNG, 11MT)
Elba Island(Southern LNG, 4MT)
Lavaca Bay(Excelerate, 3MT) Golden Pass
(ExxonMobil/QP, 15.6MT)
Oversupply resulting in many LNG export projects
Export potential close to 200MT/y
Lowering Asian LNG price?
Export authorization as a risk
IEEJ:December2012 All Right Reserved
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Global Shale gas revolution?
(Source)DOE/EIA、World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States、April 5, 2011
Shale gas developments in China crucial for Asia
Imports(Exports)
Europe 10.8 14.6 35% 186.2 639France 0.0 1.7 98% 0.2 180Germany 0.5 3.3 84% 6.2 8Norway 3.7 0.2 -2156% 72.0 83U.K. 2.1 3.1 33% 9.0 20Poland 0.2 0.6 64% 5.8 187Ukraine 0.7 1.6 54% 39.0 42North America 28.0 28.0 0% 346.5 1,931United States 20.6 22.8 10% 272.5 862Canada 5.6 3.0 -87% 62.0 388Asia 5.7 6.3 10%China 2.9 3.1 5% 107.0 1,275India 1.4 1.9 24% 37.9 63Australia 1.7 1.1 -52% 110.0 396Africa 3.6 1.6 -56% 217.1 1,042South Africa 0.1 0.2 63% - 485Libya 0.6 0.2 -165% 54.7 290Algeria 2.9 1.0 -183% 159.0 231South America 1.9 3.4 81% 239.2 1,225Venezuela 0.7 0.7 9% 178.9 11Argentina 1,46 1.5 4% 13.4 774Brazil 0.4 0.7 45% 12.9 226Total of above areas 53.1 55.0 -3% 1,274.0 6,622Total world 106.5 106.7 0% 6,609.0
2009 Natural Gas Market(Tcf) Proved Natural
Gas Reserves(Tcf)
TechnicallyRecoverable
Shale GasResources
(Tcf)Production Consumption
IEEJ:December2012 All Right Reserved
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Japan’s LNG imports
(Source) GIIGNL、Trade Statistics
Gas-fired generation as the major replacement of the lost nuclear capacity, and the LNG demand increasing rapidly
0
10
20
30
40
50
60
70
80
90
Long Term Contracts Actual Imports Long Term Contracts Actual Imports
FY2010 FY2011
Belgium
Yemen
Norway
EQ Guinea
Nigeria
Egypt
Algeria
Peru
Trinidad Tobago
USA
Russia
Australia
Oman
Qatar
Indonesia
Malaysia
Brunei
UAE
MT
65MT
71MT
59MT
83MT
IEEJ:December2012 All Right Reserved
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LNG trade by spot/short-term deals
(Source)GIIGNL、Cedigaz
Spot supplies to Europe since 2009 as one of the reasons for gas pricing changes
61MT (16MT imported by Japan) traded by spot/short-terms deals in 2011
0
10
20
30
40
50
60
70
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0%
5%
10%
15%
20%
25%
30%Middle EastLatin AmericaNorth AmericaEuropeIndiaTaiwanChinaKoreaJapanShare of spot/short-terms deals
MT
IEEJ:December2012 All Right Reserved
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Natural gas demand outlook in Asia
0
300
600
900
1200
1971 1980 1990 2000 2010 2020 2030 2035
China India
Japan Korea
Taipei Indonesia
Malaysia Philippines
Thailand Vietnam
Singapore Hong Kong
Other Asia
China
India
Japan
Mtoe
10%
39%
13%
12%20%
19%
(Source) IEEJ, Asia / World Energy Outlook 2012
2010450MTOE(500BCM)
(LNG 360 Million Ton)↓
20351,280MTOE(1,430BCM)
(LNG 1,040 Million Ton)
Asian demand increasing at 4.3%/y to share 28% of the world demand
AAGR China India Japan Korea Taipe i Singpore
1980-2010 6.9% 13.3% 4.7% - 7.3% -
2010-2035 7.2% 4.6% 1.6% 0.2% 2.8% 2.6%
Indonesia Malaysia Phi l i ppines Thailand Vietnam Other As i a
7.1% 9.2% - - - 6.3%3.0% 3.2% 5.5% 4.7% 3.1% 4.1%
IEEJ:December2012 All Right Reserved
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LNG demand supply outlookWorld Asia/Middle East
Adequate supply potential, but timely investment is the key(Source) IEEJ
0
50
100
150
200
250
300
350
400
450
500
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Divertable from Atlantic
Planning
SPA・HOA signed
Existing
High demand
Low demand
MT
0
100
200
300
400
500
600
700
800
900
2010
2011
2012
2013
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2015
2016
2017
2018
2019
2020
2021
2022
2023
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2025
2026
2027
2028
2029
2030
Planning
SPA・HOA signed
Existing
High demand
Low demand
MT
IEEJ:December2012 All Right Reserved
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International gas prices (2011-2012)
(Source) World Gas Intelligence、DOE/EIA
Price gap between Europe/US and Japan widening
0
2
4
6
8
10
12
14
16
18
202011/4/7
2011/4/22
2011/5/7
2011/5/22
2011/6/6
2011/6/21
2011/7/6
2011/7/21
2011/8/5
2011/8/20
2011/9/4
2011/9/19
2011/10/4
2011/10/19
2011/11/3
2011/11/18
2011/12/3
2011/12/18
2012/1/2
2012/1/17
2012/2/1
2012/2/16
2012/3/2
2012/3/17
2012/4/1
2012/4/16
2012/5/1
2012/5/16
2012/5/31
2012/6/15
2012/6/30
2012/7/15
2012/7/30
2012/8/14
2012/8/29
2012/9/13
Japan LNG spot for North East Asia UK Spain Germany USA
$/MMBtu
IEEJ:December2012 All Right Reserved
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International gas pricings
HubHub--based pricing penetrating into continental Europe, possibly intobased pricing penetrating into continental Europe, possibly into AsiaAsia
? ??
Oil Linked PricingHub PricingOil Linked/Hub Pricing Mixed
IEEJ:December2012 All Right Reserved
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Gas pricing disputes in continental Europe
Oil-link vs Hub Exporters => Oil-link (Investment, both oil & gas
hydrocarbons) Importer => Hub (Competition, price transparency)
Oversupply after the Lehman shock and dual prices Demand destruction in 2009 Shale gas revolution and cheap spot LNG imports Divergence of oil-link and hub prices Huge loss of incumbent importers
E.ON & Gazprom:seeking solution Partial introduction of hub price (2010)
Arbitration (2011)
Price reduction while keeping oil-link as tentative solution(2012)
IEEJ:December2012 All Right Reserved
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LNG imports and prices in North East Asia
(Source) Customs Data
More imports & increasing prices
0
100
200
300
400
500
600
700
800
900
Oct
Nov Dec Jan
Feb
Mar
Apr
May Jun
Jul
Aug Sep
Oct
Nov Dec Jan
Feb
Mar
Apr
May Jun
Jul
Aug Sep
Oct
2010 2011 2012
Import×10000Ton
0
100
200
300
400
500
600
700
800
900
1,000
JapanKoreaChinaJapan (Right Axis)Korea (Right Axis)China (Right Axis)
Import PriceUS$/Ton
IEEJ:December2012 All Right Reserved
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LNG Pricing Options for Asia
• Irrational for gas utilities• Lack of power market liquidity
• Rationality of oil-linked pricing• Gas market balance not reflected
• Higher volatility• Limited liquidity(so far)
• Not yet available• Higher volatility
• Higher volatility• Asia market balance not reflected
Disadvantages
• Rational for power utilities
• Possibly quickest solution
• Already available
• Possible toreflect regional market balance
• Already available• Lower prices (for now)
Advantages
Hubsin Asia
Henry Hub,NBP
Link with other fuels (Electricity,
Coal)
Adjustment within oil-
linked pricingSpot pricing
Hub pricing
IEEJ:December2012 All Right Reserved
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Summary
Shale gas revolution Huge expansion of resource base Less geographical concentration of the resource Affecting oil & coal markets A number of LNG export projects
International gas markets Asian gas demand to increase rapidly Growing LNG demand and widening price gap International gas pricing as the issue in
continental Europe and Asia
IEEJ:December2012 All Right Reserved
Contact: [email protected]