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DI SPUTES & I NVEST I G ATI ONS • ECONO MI CS • F I NANCI AL ADVI SORY • MANAGEMENT CONSULT I NG
©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy.
Bob Gibb, Associate Director
September 13-14, 2012
North American LNG Exports
Alaska LNG Summit 2012Valdez, Alaska
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Important Notice
This presentation was prepared by Navigant Consulting, Inc. exclusively for the benefit
and internal use of the Alaska LNG Summit 2012 and its attendees . No part of it may be
circulated, quoted, or reproduced for distribution without prior written approval from
Navigant. This presentation is incomplete without reference to, and should be viewed
solely in conjunction with the presentation provided by Navigant.
September 13-14, 2012
©2012 Navigant Consulting, Inc. All rights reserved. Navigant is not a certified public accounting firm and does not provide audit, attest, or public accounting services. See www.navigantconsulting.com/licensing for a complete listing of private investigator licenses. Investment banking, private placement, merger, acquisition and divestiture services offered through Navigant Capital Advisors, LLC., Member FINRA/SIPC.
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Company Overview
Navigant is a specialized consulting firm:
North American Dispute &
» Publicly traded since 1996 (NYSE: NCI)» Combination of technical skills and deep
industry knowledge» Large engagement capability – more than
1,800 consultants in 40 offices globally» 2011 revenues of $785 million; EBITDA: $98
million» Nationwide platform, international presence» Independent – rigorously objective; no audit
opinions to defendNorth American
Dispute & Investigative
Services
Fraud, Forensic & Accounting
Investigations
Commercial Litigation
International Arbitration
Electronic Discovery
Government Contracting
Construction Disputes
Economic Consulting
Antitrust
Securities
Labor
Valuation and M&A
Forensic & Accounting Investigations
Commercial Litigation / Intellectual
Property
North American Business
Consulting
Energy
Healthcare
Financial Services
Restructuring
Valuations
International Consulting
Construction Disputes
Financial Services
Public Services
International Arbitration
Commercial Litigation
Energy
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Navigant’s Energy Practice
About Navigant » Energy Practice
Our Energy Practice includes more than 330 staff and works with companies and agencies in the natural gas and electric industries to create, deliver, and protect value in the face of uncertainty and change. We bring deep, industry-focused expertise to the development and implementation of innovative strategies …
» Natural gas market assessment and modeling
» LNG services and market support
» Fuel services» Regulatory processes
and litigation support» Customer strategies» Resource
procurement» Operations and
performance improvement
» Asset transaction support
» Energy technology and technology management
» Business planning and strategy
» Renewables» Energy efficiency and
sustainability» Greenhouse
gas/climate change» Clean energy» All aspects of
generation and transmission
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3 The Road Ahead
2 Role of LNG Exports
1 North American Gas Supply and Demand
Table of Contents
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3 The Road Ahead
2 Role of LNG Exports
Section 1 – North American Gas Supply and Demand
1 North American Gas Supply and Demand
8©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y
World Recoverable Shale Gas Resources
Top 20 CountriesTechnically Recoverable Shale Gas Resources
(trillion cubic feet)
China 1,275 Poland 187
United States
862 France 180
Argentina 774 Norway 83
Mexico 681 Chile 64
South Africa 485 India 63
Australia 396 Paraguay 62
Canada 388 Pakistan 51
Libya 290 Bolivia 48
Algeria 231 Ukraine 42
Brazil 226 Sweden 41
Total 6,429Source: U.S. Energy Information Administration
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14,000
15,000
16,000
17,000
18,000
19,000
20,000
21,000
22,000
23,000
24,00019
73
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
Bcf
According to the EIA, U.S. annual average natural gas production at the end of 2011 was at its all time high, exceeding the previous high of 21.7 in 1973 by 1.3 Tcf.
U.S. Historical Annual Average Dry Gas Production
21.7 Tcf
23.0 Tcf
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Shales cover much of North America.
North American Shale Map
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Industry/governmental associations* have confirmed what Navigant first identified in 2008.
1. The potential supply of natural gas is far greater than thought just a few years ago.
2. The potential supply of oil is also far greater than previously thought.
3. The US needs the oil and gas resources even as efficiency reduces demand and alternatives become more economically available on a larger scale.
4. To gain the benefits of natural gas and oil will require environmentally responsible development.
* National Petroleum Council (Sept. 15, 2011)
Shale Abundance Confirmed
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Throughout 2011 and halfway through 2012, U.S. total gas production was increasing, although there is some flattening.
U.S. Historical Monthly Average Dry Gas Production
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Production is up as total gas drilling has declined• time to drill a well• completion efficiency• associated gas
U.S. Historical Rig Count
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Navigant expects strong gas shale production growth to continue - towards a 56% share of total production by 2020 from 3% in 2006 – only 15 Years.
Navigant’s U.S. Forecast Gas Shale Production to 2020
Source: Navigant Fall 2011 Reference Case Gas Forecast
0
10
20
30
40
50
60
70
80
ShaleShaleShaleShaleShaleShaleShaleShaleShaleShaleShaleShaleShaleShaleShale
Con-ven-
tional
Con-ven-
tional
Con-ven-
tional
Con-ven-
tional
Con-ven-
tional
Con-ven-
tional
Con-ven-
tional
Con-ven-
tional
Con-ven-
tional
Con-ven-
tional
Con-ven-
tional
Con-ven-
tional
Con-ven-
tional
Con-ven-
tional
U.S. Dry Production by Type
Bcfd
Conventional
56% Shale44% Conventional
3% Shale97% Conventional
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In an era of abundant supply, natural gas total demand is forecast to remain relatively flat at 1-2% annual growth to 2020 – only EG gas demand will remain strong at about 4% annual growth.
Navigant’s Forecast of North American Gas Demand is Flat
0
10
20
30
40
50
60
70
80
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Bcf
d
U.S. Natural Gas Demand
Res/Com/Veh
Industrial
Electric Power
Lease & Plant / Pipe Fuel
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Coal to Gas Switching of Existing Power Plants
Coal to gas switching will continue with abundant gas supply and low prices, contributing to increased demand for natural gas in power generation.
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» Even though coal to gas switching in the electric generation market is occurring …. gas production growth has been even stronger – even though some early signs indicate production is flattening at current levels and low prices.
» This leaves a market still looking for ‘balance’ - of supply to demand in order to provide a greater assurance of stable prices and less price volatility.
» LNG exports could become as important as the EG coal-to-gas displacement market.
Balancing the Market…
Despite Coal to Gas Switching – Not Enough to Balance the Market
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2 Role of LNG Exports
The Road Ahead3
Section 2 - Role of LNG Exports, Facility Update
1 North American Gas Supply and Demand
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» All 50 reactors in the country idled, with 2 returned
» Increased LNG demand by 10-12 mtpa (1.3-1.6 bcfd)
» KEPCO warns 15% less power than that needed to meet peak demand
» Japanese PM quoted without nuclear power “Japanese society cannot survive”
» 2020 demand estimated at 60-90 mtpa (7.9-11.8 bcfd) [currently 79 mtpa (10.3 bcfd)]
» At $5-6 in U.S., European exports marginal
Japanese Market
Role of LNG Exports, Facility Update
Source: All – CWC LNG News
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The New Paradigm – LNG Exports from North America?
Source: Canadian National Energy Board
» Gas shale potential is situated across North America, including Canada which should experience the first new LNG project to export LNG from North America at Kitimat, BC.
» Cheniere Energy’s Sabine Pass announced sale to its 4th major customer Korea Gas in Jan ‘12 following announced sales to BG, GAIL and Gas Natural Fenosa and is likely to be the first LNG export project on-line in 2015/16 in the U.S.
» LNG exports should support the oversupplied North American market as coal retirements begin to slow.
» Currently 16 U.S. (2 West Coast, 2 East Coast, 11 Gulf, 1 Alaska) and 3 Canadian projects with combined capacity of nearly 29 Bcfd are going through the export and construction approval process.
» Not all projects are likely to go ahead.
LNG Exports
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Recent EIA figures show the U.S. (and by extension, North America) becoming a net natural gas exporter by 2022.
Role of LNG Exports
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
50
55
60
65
70
75
80
85
90
Figure 1: U.S. a Net Natural Gas Exporter by 2022
U.S. Dry Production U.S. Consumption
Bcfd
Source: Navigant/EIA
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» Proliferation of emerging gas shale resources around the world, including large resources in many countries in Europe and in the Asian Pacific region.
» Existence of plentiful gas supply and LNG resources in Qatar and Australia. In Qatar gas is produced at very low or zero cost due to value of being associated with high value oil production.
» Impact of the Panama canal expansion likely being limited by passage rates tied to arbitrage value of commodity going through the canal.
» Possible de-linkage of international LNG prices to oil over long term.
In the end, the development of LNG export projects in the U.S. will be constrained by a number of factors.
Not All LNG Export Projects Will Materialize
All things considered, Navigant estimates that ultimately the total U.S. LNG exports will be in the range of 5-6 Bcfd spread widely around the country and served from the Atlantic, Pacific, and Gulf Coast.
An Alaska LNG project will be driven by factors in addition to these and its viability driven primarily by those factors.
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» Navigant’s view is that if Producers stay on track, there is at least 10 Bcfd of room to increase demand without causing excessive prices.
» Can they stay on track?—Yes, likely.
» What if demand grows more than the highest case or something happens to slow supply development?
o DOE is clearly being careful in its permitting process for non-FTA nations (the real market) for LNG exports.
o EIA has been directed to study the same overall supply-demand issues as addressed by Navigant. Early studies from EIA however have been disappointing.
o For Cheniere LNG Export project at Sabine, the DOE left room to trim back the authorization if supply/demand became too tight. Recently the DOE have provided clarification on this and suggested they would not re-regulate.
The Bottom Line – There’s enough supply responsiveness for a lot of demand.
Role of LNG Exports
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13
North American LNG Exports—At DOE 21.3 Bcfd FTA Countries, 14.56 Bcfd non-FTA under consideration1
23
4
65 7
8
9
11
12
14
1013
Navigant has assisted in analysis for 8 out of 16 US LNG export projects (highlighted)
No. Project Location Capacity (Bcfd) Project Sponsor Regulatory Status
1 Kitimat, BC 0.75 / 1.5 Apache Canada Ltd. Approved by NEB
2 Douglas Island, BC 0.23 BC LNG Export Cooperative Approved by NEB
3 Kitimat, BC 3.4 Shell Filed w/ NEB
4 Cameron Parish, LA 2.2 Cheniere - Sabine Pass LNG DOE Non-FTA Approved, FERC Approved5 Freeport, TX 2.8 Freeport LNG (2) Filed w/ DOE
6 Corpus Christi, TX 1.8 Cheniere - Corpus Christi LNG Filed w/ FERC
7 Lake Charles, LA 2.0 Southern Union Filed w/ DOE
8 Cove Point, MD 1.0 Dominion - Cove Point LNG Filed w/ DOE
9 Coos Bay, OR1.2 FTA/
0.8 non-FTAJordan Cove Energy Project Filed w/ DOE
10 Hackberry, LA 1.7 Sempra - Cameron LNG Filed w/ DOE
11 Brownsville, TX 2.8 Gulf Coast LNG Export LLC Filed w/ DOE
12 Warrenton, OR 1.25 Oregon LNG Filed w/DOE
13 Pascagoula, MS 1.5 Gulf LNG Liquefaction Company, LLC Filed w/DOE (FTA)
14 Elba Island, GA 0.5 Southern LNG Company Filed w/DOE (FTA)
15 Calhoun County, TX 1.38 Excelerate Liquefaction Solutions I, LLC Filed w/DOE (FTA)
16 Sabine Pass, TX 2.6 Golden Pass Products LLC Filed w/DOE (FTA)
1516
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The Road Ahead3
2 Role of LNG Exports
Section 3 - The Road Ahead
1 North American Gas Supply and Demand
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Challenges Ahead for North American LNG Exports
Potential issues for U.S. and Canadian LNG export projects.» Regulatory Approvals: The review process is strenuous
with no guarantee of approval.
» Capital Requirement: Project capital costs for liquefaction plants range from $1.5 to $10 billion dollars.
» Commercial Commitment: Project sponsors seeking financing or board approval to move ahead with building these facilities typically seek long-term (20 year) terminal use agreements to ensure adequate future revenues to recover the capital costs associated with the project.
» Timing: Liquefaction plants are complex engineering projects and take around five years to build.
» Market Conditions: Project sponsors face a variety of market risks related to growth in LNG demand, economics of competing facilities, and the price of natural gas.
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Implications of North American LNG Exports
» LNG exports appear to be able to offer a ‘solution’ to the current market upset as a result of the ‘success’ of the gas shale.
» By assisting the ongoing development of gas shale resources, LNG exports appear at the right time and the right place for a North American gas market in need of sustainable markets offering promise to both domestic consumers and producers.
Challenges Ahead for North American LNG Exports
KeyC O N T A C T S
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KeyC O N T A C T S
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KeyC O N T A C T S
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KeyC O N T A C T S
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28
E N E R G Y
Gordon Pickering | DirectorRancho Cordova, CA [email protected]
Gordon Pickering | DirectorRancho Cordova, CA [email protected]
Rick Smead | DirectorHouston, TX [email protected]
Rick Smead | DirectorHouston, TX [email protected]
Bob Gibb| Associate DirectorAustin, TX [email protected]
Bob Gibb| Associate DirectorAustin, TX [email protected]