Global LNG Outlook - 一般財団法人日本エネルギー経 …eneken.ieej.or.jp/data/7283.pdfGlobal LNG Outlook - Agenda 1. Introduction 2. Key Assumptions A. Oil and Coal Prices

Global LNG Outlook

Medium and Long Term

Quarter 1 2017

IEEJ：April 2017 © IEEJ2017

Global LNG Outlook - Agenda1. Introduction2. Key Assumptions

A. Oil and Coal PricesB. Demand and SupplyC. Infrastructure

3. Medium Term Outlook to 2020A. Demand TrendsB K LNG I tB. Key LNG ImportersC. LNG Export CapacityD. LNG TradeE Spot and Contract PricesE. Spot and Contract Prices

4. Long Term Outlook – 2020 to 2040A. DemandB. LNG Export Capacityp p yC. Asia Pacific Trade FlowsD. Spot and Contract Prices

5. Wrap UpA. Q & AB. Detailed Model Output

1Global LNG Outlook Medium and Long Term Quarter 1 2017


Introduction

2


IntroductionGlobal LNG Outlook comes from the Nexant Base Case sent out to licensees of Nexant’s World Gas Model (WGM). Licensees ( )receive updates each quarter.

Decisions to invest in new supply and infrastructure are not solely based on economics but political and regulatory issues play an important part – the WGM user decides on supply and infrastructure start up dates – the model does not build capacity.important part the WGM user decides on supply and infrastructure start up dates the model does not build capacity.

Pipeline and LNG contracted flows take priority up to TOP levels. Most contracts expire at end of contractual term but some key ones assumed to be extended under the same terms and conditions e.g. Russia to Germany, Qatar to Japan

WGM solves for spot prices – they are not an assumption or input – based on the marginal cost of supply, competing prices and market tightness



World Gas Model - Overview

Raw Outputs Key Summary OutputsDatabase Assumptions

Production flows Regional balances


LNG and Regas throughput Country and nodebalances

Production

Pipeline, LNG andStorage

Oil Price

World Gas Model

Contractual flows Inter and intra regional flows

Storage Infrastructure

Contracts: LNG, Pipe & Transport

Carbon Price

Coal Price

(Node and Arc withLP Formulation)

Prices Spot Prices

Weighted average

LNG Routes

Pipeline trade

Consumption

Weighted average import prices

Cost Stacks

Gas Demand by Sector& Country

Consumption

LNG trade

Cost Stacks

Demand Response

Demand Response



Regional Definitions – IGU

FSUEurope

Asia

North America

AsiaMiddle East

Africa

AsiaPacificSouth

Africa

PacificSouthAmerica



Key Assumptionsy p

6


Oil and Coal PricesOil Prices Coal Prices

120

1401407.0

80

100

120

14 P

RICE

S

80

100

120

4.0

5.0

6.0

2014

Pric

es

2014

Pric

es

40

60

$/bbl

REA

L 20

40

60

2.0

3.0

$/Ton

ne R

eal 2

$/MMB

Tu R

eal

0

20

2005 2010 2015 2020 2025 2030 2035 2040

0

20

0.0

1.0

2005 2010 2015 2020 2025 2030 2035 2040

$Brent Crude Oil West Texas IntermediateJapan Crude Cocktail

Cent App $/mmbtu NW Europe $/mmbtu

Japan $/mmbtu Ave OECD Import $/Tonne

Oil prices are not assumed to rise above $100 a barrel in real terms – the levels seen in 2008 and in the 2011 to 2014 period, in excess of $100 a barrel, are seen as an aberration. Assumed to rise gradually to $85 a barrel by 2023


2023Coal prices average out at $80 a tonne in longer term


Demand and Supply

Demande a d Global demand through 2040 reflects a broad consensus view – close to the IEA’s New Policies Scenario and also the

recent BP, GECF and ExxonMobil base scenarios. These all suggest around 1.6% per annum growth in global gas demand between 2015 and 2040. World natural gas consumption growth rises from over 3 5 tscm in 2014 to almost 5 2 tscm in 2040 World natural gas consumption growth rises from over 3.5 tscm in 2014 to almost 5.2 tscm in 2040. Projected growth is strongest in developing countries where gas still has a relatively low share of Total Primary Energy

Supply. This is particularly true of China where growth in gas consumption will be determined by economic growth as well as by switching from other fuels to gas in the energy mix; Average annual growth is fastest in Asia followed by Africa and the Middle East. Demand is weakest in Europe and the FSU where gas already has a large share of the total primary energy share

(TPES) and growth is limited by economic difficulties, improvements in energy efficiency, and a commitment to renewables.

Supply Potential capacity is based largely on proven and probable reserves, although possible reserves are included for North

America, together with assumptions about production profiles and costs. On this basis, there is more than adequate d ti it il bl i f th tl k i d ith t t l tiproduction capacity available in every year of the outlook period without any recourse to speculative reserves.

The World Gas Model schedules production based on lowest cost, taking into account the cost of transport to market, by pipeline or LNG, as well as the cost of production, subject to contractual obligations US production continues to be increasing driven mainly by development of shale gas. Unconventional gas, which p g y y p g g ,

includes coal bed methane as well as shale gas, is also produced in this scenario in Europe, China and other locations. Nevertheless, conventional gas (which includes tight gas) continues to provide the majority of world gas supply



Global Liquefaction Capacity

Liquefaction Capacity Assumptions Gl b l it i b 50% b t 2015 d 2020que act o Capac ty ssu pt o s Global capacity rises by 50% between 2015 and 2020, as multiple new projects currently under construction enter service. Final investment decisions for these projects were taken between 2009 and 2015, when global energy price outlooks and gas demand projects were generally stronger

1000outlooks and gas demand projects were generally stronger. There is a second wave of projects between 2024 and 2030

and a third wave from 2035 The U.S. is expected to host six projects up to 2020, with

expansions of these projects later in the forecast period700

800

900

expansions of these projects later in the forecast period, plus two new Gulf Coast based projects. Canada will launch three projects, all on the Pacific coast, in the second and third wave. Most Asia Pacific capacity additions are located in Australia

400

500

600

BSCM

Most Asia Pacific capacity additions are located in Australia, although Indonesia, Malaysia, and Papua New Guinea also contribute. The FSU has multiple new sources of LNG, all in Russia. In

the medium term the Yamal LNG venture currently under100

200

300

the medium-term, the Yamal LNG venture currently under construction and an expansion of the existing Sakhalin II venture provide incremental sources of regional supply In Africa, new liquefaction capacity is assumed in Angola,

Cameroon Equatorial Guinea Mozambique and Tanzania

02005 2010 2015 2020 2025 2030 2035 2040

North America Europe AsiaAsia Pacific Latin America FSU Cameroon, Equatorial Guinea, Mozambique and Tanzania,

mainly 2025 on. Offline liquefaction capacity in Egypt is expected to re-enter full service in 2023.

Asia Pacific Latin America FSUAfrica Middle East



Pipeline Capacity

Inter-Regional Pipeline Import Capacity Inter-Regional Pipeline Export Capacityte eg o a pe e po t Capac ty te eg o a pe e po t Capac ty

700 600

500

600

400

500

300

400

BSCM

200

300

BSCM

100

200

100

200

02005 2010 2015 2020 2025 2030 2035 2040

North America Europe Asia

02005 2010 2015 2020 2025 2030 2035 2040

E A i FSU Af i Middl E t

Main growth in pipeline capacity is out of FSU – Russia, Azerbaijan, Turkmenistan – to Europe and Asia (China)

o t e ca u ope s aAsia Pacific Latin America FSU Europe Asia FSU Africa Middle East


Middle East also expands out of Iraq and Iran to Europe and Asia (Pakistan)


Medium Term Outlook to 2020

11


Demand Trends to 2020

Demand Growth by Region – 2015 to 2020 Global demand grows by some 300 bscm or just e a d G o t by eg o 0 5 to 0 0 G oba de a d g o s by so e 300 bsc o jusover 8% to 3,806 bscm 100 bscm in China and 20 bscm in India Middle East evenly spread

A i P ifi d i i l b I d i d liMiddle East

Asia Pacific driven mainly by Indonesia, decline in Japan UK and Turkey contribute most to Europe FSU

Africa

Asia

Asia Pacific

Latin America

North America

Europe

Asia

-20 0 20 40 60 80 100 120 140 160

BSCM



Europe Supply Gap

Change in Europe Supply Demand – 2015 to 2020 Europe supply gap widens by some 75 bscmC a ge u ope Supp y e a d 0 5 to 0 0 u ope supp y gap de s by so e 5 bsc– 20 bscm already happened in 2016 Pipeline imports up 15 bscm – already 10

bscm higher in 2016 LNG imports up by 50 bscm doubling by LNG imports up by 50 bscm – doubling by

2020 compared to 2015 – small rise in 2016Consumption

LNG Imports

Pipeline Imports

Production

-60 -40 -20 0 20 40 60BSCM



LNG ImportsChange in LNG Imports – 2015 to 2020g p

United KingdomIndia

China

MalaysiaBelgium

Latin AmericaPakistan

FranceIndonesia

United Kingdom

Other EuropeChinese Taipei

PolandSingapore

SpainLNG Bunker Fuel

Malaysia

EgyptMiddle East

ThailandKorea

TurkeyBangladesh

Other Europe

-10 -5 0 5 10 15 20 25 30North America

JapanEgypt

BSCM

China and India growth is key to increase in LNG imports. UK imports partly “re-exported” to continental Europe. Indonesia imports are mainly from “East” to “West”. Start of use of LNG as bunker fuel. Japan imports decline



LNG Export Capacity

Change in LNG Export Capacity – 2015 to 2020 Terminal Start UpC a ge G po t Capac ty 0 5 to 0 0Australia Pacific LNG CBM Train 1 2016 1Sabine Pass 1 2016 1Gladstone LNG (CSG) T2 2016 2Gorgon 1 2016 2Sabine Pass 2 2016 3

60Sabine Pass 2 2016 3Australia Pacific LNG CBM Train 2 2016 4Gorgon 2 2016 4PFLNG Satu 2016 4Petronas LNG 9 Sdn Bhd (PL9SB) 2016 4

30

40

50

Gorgon 3 2017 2Sabine Pass 3 & 4 2017 2Wheatstone LNG 1 2017 3Sengkang LNG, Sulawesi 2017 4Ichthys 2018 110

20

30

BSCM

yPrelude FLNG 2018 1Wheatstone LNG 2 2018 1Yamal LNG T1 2018 2Cove Point 2018 2Elb I l d 2018 2

-10

0

Elba Island 2018 2Cameron Trains 1&2 2018 3Freeport Phase 1 2018 4Yamal LNG T2 T3 2019 1Corpus Christi Train 1 2019 1

-202016 2017 2018 2019 2020

North America Asia Pacific Latin America FSU Africa Middle EastCorpus Christi Train 2 2019 2Cameron Train 3 2019 3Sabine Pass 5 2019 3Cameroon FLNG 2019 4PFLNG 2 (Rotan FLNG) 2020 1


PFLNG 2 (Rotan FLNG) 2020 1


Unutilised LNG Export Capacity

Unutilised LNG Export Capacity – 2015 to 2020 Unutilised capacity largely U ut sed G po t Capac ty 0 5 to 0 0 U u sed capac y a ge ycontractually determined Spot LNG will be shut in if there is not

enough demand Algeria has the option to export by

80 Algeria has the option to export by

LNG or pipeline – is it really unutilised? US reflects uncontracted capacity50

60

70

M

Middle East mostly Oman Other in 2019 and 2020 is the slow

build up of Yamal20

30

40BSC

0

10

20

2015 2016 2017 2018 2019 20202015 2016 2017 2018 2019 2020

North America Australia Other Africa Middle East Other Algeria



Inter Regional LNG Flows

Key Inter Regional LNG Flows – 2005 to 2020ey te eg o a G o s 005 to 0 0

70

80

70

80

40

50

60

CM 40

50

60

CM

20

30

40

BSC

20

30

40

BSC

0

10

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

0

10

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

AP to AS ME to AS ME to AP AF to EU NA to AP AF to AS ME to EU AF to AP RU to AP NA to EU

Middle East exports more to China, India and Pakistan as volumes diverted away from Asia Pacific. Asia Pacific l l f d A i US l h d t E d A i P ifi


volumes also feed Asia. US volumes head to Europe and Asia Pacific


Market Tightness

Market Tightness Indices – 2012 to 2020a et g t ess d ces 0 to 0 0

1 00

1.02

0.96

0.98

1.00

= 1

0.92

0.94

Inde

x 200

5 =

0.86

0.88

0.90

0.86

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

2017

Q1

2017

Q2

2017

Q3

2017

Q4

2018

Q1

2018

Q2

2018

Q3

2018

Q4

2019

Q1

2019

Q2

2019

Q3

2019

Q4

2020

Q1

2020

Q2

2020

Q3

2020

Q4

North America Europe Asia Asia Pacific

Asia markets tighten as demand rises sharply. Europe tightened in 2015 as production declined but market eases as import supply increases. North America tightens as LNG exports rise. Asia Pacific eases again in 2017



as more LNG export capacity comes on


Spot and Contract Prices

Spot and Contract Prices – 2012 to 2020Spot a d Co t act ces 0 to 0 0

18

20

12

14

16

U

6

8

10

$/MMB

TU

0

2

4

2012 Q1

2012 Q3

2013 Q1

2013 Q3

2014 Q1

2014 Q3

2015 Q1

2015 Q3

2016 Q1

2016 Q3

2017 Q1

2017 Q3

2018 Q1

2018 Q3

2019 Q1

2019 Q3

2020 Q1

2020 Q3

Henry Hub NBP Japan Spot Average LNG Q: Japan Average Pipe Q: China East

Even though Europe and Asia Pacific markets are becoming more supply long, spot prices remain flat – rising cost of supply and rising competing prices offset les tight market. Gap opens up between spot and contract

Henry Hub NBP Japan Spot Average_LNG_Q: Japan Average_Pipe_Q: China East


prices in Japan as oil prices rise


Netback Prices to Henry Hub

Netback Prices – 2012 to 2020etbac ces 0 to 0 0

1416

81012

MBTU

0246$/M

M

-20

2012 Q1

2012 Q3

2013 Q1

2013 Q3

2014 Q1

2014 Q3

2015 Q1

2015 Q3

2016 Q1

2016 Q3

2017 Q1

2017 Q3

2018 Q1

2018 Q3

2019 Q1

2019 Q3

2020 Q1

2020 Q3

Henry Hub Netback from Japan Spot (Full) Netback from Japan Spot (Marginal) Netback from Japan Contract (Full)

Netback from Japan is higher than Henry Hub on a marginal basis. From end 2018 the netback from average Japan LNG contracts is higher than Henry Hub as oil prices rise



Long Term Outlookg

2020 to 20402020 to 2040

21


Demand Trends to 2040

Demand Growth by Region – 2015 to 2040 Asia demonstrates high growth supported by e a d G o t by eg o 0 5 to 0 0

Middle East

s a de o s a es g g o suppo ed bypopulation increases, greater wealth, rural electrification schemes, and gas’ rising share of national primary energy mixes. Middle East demand also rises as oil producers

Latin America

FSU

Africa Middle East demand also rises as oil producers

seek alternate fuel sources to increase the volumes of petroleum available for export. Rising North American gas consumption is

t d b i d titi l i d

Asia

Asia Pacific

Latin America supported by growing and competitively-priced indigenous gas availability. European demand shows some recovery, but

not to the extent of historic highs. Policies

100 0 100 200 300 400 500 600 700

North America

Europe aimed at improving energy efficiency and boosting the share of renewable energy sources will help contain growth. Recovery is partly attributable to the fact that demand was

-100 0 100 200 300 400 500 600 700

BSCM

2015-2020 2020-2030 2030-2040

so poor between 2011 and 2014; recovery is the only way forward.

2015 2020 2020 2030 2030 2040



Supply Trends to 2040

Supply Growth by Region – 2015 to 2040 With the exception of Europe, all regions Supp y G o t by eg o 0 5 to 0 0 e e cep o o u ope, a eg o sshow production increases under the Base Case. Global gas production growth is dominated by unconventional gas output gains.Middle East gains. The Middle East records the largest gains

in absolute terms, buoyed by robust Iranian and Qatari output S b t ti l N th A i i tL ti A i

FSU

Africa

Substantial North American gains support its broadening pipeline gas and LNG export base. Projected growth in regions like Africa, the Asia

Asia Pacific

Latin America

FSU, and Asia Pacific is largely export-driven. Production growth in Asia, Latin America,

and the Middle East is almost exclusively 200 100 0 100 200 300 400 500

North America

Europe

yfor domestic use. Against the backdrop of recovering

European gas consumption, the region’s declining output renders Europe

-200 -100 0 100 200 300 400 500BSCM

2015-2020 2020-2030 2030-2040 declining output renders Europe increasingly dependent on natural gas imports.



LNG Imports to 2040

LNG Imports by Region – 2005 to 2040 Asia’s increasing importance as an LNG G po ts by eg o 005 to 0 0 s a s c eas g po a ce as a Gimporter reinforces the region’s significance as an LNG demand centre. The start-up of new regasification capacity, and the increasing utilization of existing facilities,

900increasing utilization of existing facilities, drives gains in Asian countries like Bangladesh, China, India, and Pakistan. Europe’s LNG imports rise as sources of

supply are diversified and compensates for500600700800

M supply are diversified and compensates for declining domestic production, but its long-standing position as the world’s second-largest LNG demand centre is superseded by Asia200

300400500

BSCM

Asia. Middle Eastern throughput increases as new

terminals are commissioned in the Persian Gulf, and some existing importers continue to

0100200

2005 2010 2015 2020 2025 2030 2035 2040ramp up deliveries. As a region, Latin America’s throughput level

remains fairly consistent for most of the forecast period after 2018, although the line-


Latin America FSU Africa Middle East p gup of countries importing LNG changes. The rise of several smaller regional LNG

importers (e.g., Jamaica, Panama, and Uruguay) helps compensate for Brazil’s

24Global LNG Outlook Medium and Long Term

Uruguay) helps compensate for Brazil s reduced requirements in the 2020s.

Quarter 1 2017


LNG Exports to 2040

LNG Exports by Region – 2005 to 2040 Post 2020 capacity and throughput rise in G po ts by eg o 005 to 0 0 os 0 0 capac y a d oug pu seline until 2030, when the market stars to tighten. North American throughput rises from

virtually zero in 2015 to over 90 bscm by9001,000

virtually zero in 2015 to over 90 bscm by 2030 and continues to rise. This suggests that U.S. buyers will exercise

their rights to take cargoes even if Henry H b NBP A i t i diff ti l d500

600700800

CM Hub-NBP-Asian spot price differentials do not fully cover lifting costs. There is a rapid increase in Asia Pacific

throughput due primarily to the ramp-up of 200300400500

BSC

new Australian liquefaction facilities. New capacity in Indonesia, Malaysia, and Papua New Guinea also contribute. African throughput rises rapidly to reflect

0100

2005 2010 2015 2020 2025 2030 2035 2040g p p y

the addition of new capacity, especially in East Africa, and the restoration of offline Egyptian capacity. There is also a rise in FSU throughput to

North America Europe Asia

Asia Pacific Latin America FSUThere is also a rise in FSU throughput to reflect the Yamal LNG start-up, the Sakhalin II expansion, and the addition of greenfield Far East liquefaction capacity.

Africa Middle East Total LNG Capacity



Unutilised LNG Export Capacity

Unutilised LNG Export Capacity – 2015 to 2040 After 2020 unutilised capacity declines, U ut sed G po t Capac ty 0 5 to 0 0 e 0 0 u u sed capac y dec es,although there is greater “slack” in North America plants and less in Australia –driven by contracts but also by the less competitive US gas as Henry Hub prices

140competitive US gas as Henry Hub prices rise As more plants come online in 2030 “slack”

rises again principally in North America but rising demand quickly reduces this prior to

100

120

M rising demand quickly reduces this prior to the third wave of capacity growth. Post 2035 as there are fewer contracts, the

“slack” is primarily determined on titi d40

60

80

BSCM

competitiveness grounds

0

20

40

02015 2020 2025 2030 2035 2040

North America Australia Other Africa Middle East Other Algeria



LNG Contracts to 2040

LNG TOP Levels – 2011/12 to 2040/41 Point to Point – contracts withG O e e s 0 / to 0 0/ Point to Point contracts with destination clauses Portfolio import – import terminal

has receipt obligation but supplied 800900

from anywhere Portfolio export – export terminal

has deliver y obligation but can be d li d h Th l l f500

600700800

delivered anywhere. The level of portfolio export in chart is total portfolio export TOP less portfolio import TOP200

300400500

BSCM

import TOP Market appears over contracted

through 2020 – some contracts will therefore undertake-100

0100

However, contracts may have more flexibility and lower TOP as part of renegotiations than thoughtPoint to Point TOP Portfolio Import TOP

P tf li E t TOP U t t dPortfolio Export TOP Uncontracted



Asia Pacific Trade Flows to 2040

Asia Pacific Imports and Exports – 2005 to 2040 The Asia Pacific both imports and s a ac c po ts a d po ts 005 to 0 0 e s a ac c bo po s a dexports LNG from/to other regions. The Asia Pacific also imports small volumes of Asian pipeline gas. The region’s current LNG imports are200

250

The region s current LNG imports are chiefly sourced from the Middle East, but this changes dramatically over the forecast period. Middl E t LNG i t

100

150

CM Middle Eastern LNG imports are displaced by deliveries from North America, new African LNG projects, and eventually, flows from expanded

d t i R i ’

0

50BSC

and new ventures in Russia’s advantageously-located Far East. Current inter-regional Asia Pacific

pipeline receipts more than double -100

-50

2005 2010 2015 2020 2025 2030 2035 2040

after 2030, when additional flows from Myanmar (Asia) commence. Inter-regional Asia Pacific natural gas

exports chiefly comprise Australian

Pipeline Imports from Asia LNG imports from N America

LNG imports from Latin America LNG imports from FSU

LNG Imports from Africa LNG imports from ME exports chiefly comprise Australian LNG flows to Asia. These grow significantly over the forecast period. The Asian market may help

underwrite future expansions of

LNG Imports from Africa LNG imports from ME

LNG Imports from Other Sources LNG Exports to Asia


underwrite future expansions of Australasian LNG export capacity.

Quarter 1 2017


Japan LNG Imports to 2040

Japan LNG Imports – 2005 to 2040Japa G po ts 005 to 0 0

140NorwayPeruIndonesia WestAustralia EastA li W

100

120 Australia WestUSA North EastUSA LouisianaUSA South WestCanada WestEquatorial Guinea

60

80

BSCM

YemenUAEQatarOmanNigeriaEgypt

20

40EgyptAngolaAlgeriaRussia Far EastTrinidad and TobagoPNGMalaysia Borneo

02005 2010 2015 2020 2025 2030 2035 2040

Malaysia BorneoIndonesia EastBrunei DarussalamAustralia NorthUSA AlaskaContracted

Japan heavily contracted through 2020, even some undertakes on contracts. As Qatar contracts fall away, Australia and USA fill the gap. USA especially later in the period. Less from traditional

Indonesia and Malaysia suppliers.


y pp Demand levels out at 100 bscm – more optimistic than IEA – just under 75 mtpa

Quarter 1 2017


Korea LNG Imports to 2040

Korea LNG Imports – 2005 to 2040o ea G po ts 005 to 0 0

60NorwayPeruAustralia EastAustralia West

40

50USA LouisianaUSA South WestCanada WestEquatorial GuineaYemenUAE

20

30

BSCM

UAEQatarOmanNigeriaEgyptAngolaAl i

10

20 AlgeriaRussia Far EastTrinidad and TobagoPNGMalaysia BorneoIndonesia East

02005 2010 2015 2020 2025 2030 2035 2040

Brunei DarussalamAustralia NorthContracted

Demand expected to recover over time from current lows – consistent with IEA As contracts fall away Russia takes bigger share of market, with PNG supply also Assumes most contracts not renewed but if they were even with different volumes and pricing then supply patterns


Assumes most contracts not renewed, but if they were even with different volumes and pricing then supply patterns would change

Quarter 1 2017


Spot and Contract Prices

Spot and Contract Prices – 2010 to 2040Spot a d Co t act ces 0 0 to 0 0

18

12

14

16

MBTU

6

8

10

Real

2014

$/MM

0

2

4

02010 2015 2020 2025 2030 2035 2040

Henry Hub NBP Japan Spot Average_LNG: Japan Average_Pipe: China East

Long term contract prices in Japan and China steady at $12 per MMBTU at $85 oil. There is a large gap between spot and contract prices in 2020 which narrows over time as the market tightens and more expensive gas is required to satisfy demand. HH levels


p g p g q yout as around $4 per MMBTU


Netback Prices to Henry Hub

Netback Prices – 2012 to 2040etbac ces 0 to 0 0

12

14

8

10

12

TU

4

6

8

$/MMB

T

0

2

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

Henry Hub Netback from Japan Spot (Full)Netback from Japan Spot (Marginal) Netback from Japan Contract (Full)

Netback to HH from Japan contract more than covers the full cost of delivery at oil prices over $70 a barrel. The netback from Japan Spot covers the full cost around 2030


netback from Japan Spot covers the full cost around 2030.


The Changing European Gas Market

Quarter 1 2017


The Changing European Gas Market - Agenda

1 Introduction1. Introduction2. Industrial Structure3. European Gas Pricingp g4. Removing Destination Clauses5. TPA in LNG Receiving Terminals

34The Changing European Gas Market Quarter 1 2017


Introduction

35


IntroductionTwo part presentation – Changing European Gas Market and Global LNG Outlookp p g g p

Changing European Gas Market – Requested Scope

1. Impacts of market liberalization to industrial structure in Europe (merger to gas & power company, market oligopoly by a limited number of large companies, etc)

2. How natural gas price is determined in in sub-regions of Europe (oil price link in continental countries, hub link in UK or Belgium, etc)

3. Responses of market players to the EU's decision of free destination, such as Qatar's acquisition and utilization of receiving capacity in European market.

4. Actual implementation and operation of third party access of LNG receiving terminals in Europe (we understand that some of new LNG receiving terminals are exempted from TPA regulation).e G ece g te a s a e e e pted o egu at o )

36Quarter 1 2017The Changing European Gas Market


Industrial Structure

37


Industrial StructureImpacts of market liberalization to industrial structure in Europe (merger to gas & power company, market oligopoly by a limitedp p ( g g p p y g p y ynumber of large companies, etc)

The old model saw large producers selling gas to merchant gas transmission companies who then sold on the gas to LDCs who were the main sellers to end users. In some countries the gas transmission company also owned the LDCs e.g. British Gas in thewere the main sellers to end users. In some countries the gas transmission company also owned the LDCs e.g. British Gas in the UK market.

Market liberalisation has led, along with privatisation, to essentially 4 groups of companies:1 P d d t f dit1. Producers and exporters of gas as a commodity2. Suppliers and traders of wholesale and retail gas3. Generation, regasification and storage asset owners4. Network owners and operators – transmission and distribution

A number of companies are involved in more than one element of the chain – a few in all of the first three.

Companies also move into other commodities, especially electricity, wholesaling and retailing both gas and electricity. In addition network owners and operators, such as National Grid in the UK, cover both electricity and gas networks. What network owners and operators generally cannot do is to become involved in the commodity side of the business wholesaling and retailing of gas.

Network operators, however, are often also owners of regasification assets in particular and storage assets and sometimes generations assets.



Industrial Structure – British Gas Case Study• After privatisation in 1986 British Gas retained its monopoly of transportation and wholesale and retail supply in the UK market, p p y p pp y

as well as gas storage assets• As the market moved to full liberalisation British Gas divided itself into 3 separate entities, eventually as fully stock market listed

companies:• Transco – covering transmission, distribution and storage assetsg , g• Centrica – wholesale and retail supply plus the Morecambe Bay gas field• BG Group – all exploration and production plus all other international assets – transmission and distribution

• Transco was bought by National Grid – the electricity transmission operator• Centrica expanded internationally and into more upstream production power generation and gas storage – buying the RoughCentrica expanded internationally and into more upstream production, power generation and gas storage buying the Rough

gas storage facility from Dynegy, who had previously bought it from Transco. Centrica also almost invested in nuclear power in the UK

• BG Group developed international LNG business comprising liquefaction, regasification, shipping and portfolio trading• National Grid developed the Isle of Grain regasification facility, separated the distribution network into 8 businesses and sold off p g y, p

4 – recently sold 2 more• BG Group recently bought by Shell

• Many European companies followed similar restructuring and unbundling although some remain wholly or partly state owned.a y u opea co pa es o o ed s a est uctu g a d u bu d g a t oug so e e a o y o pa t y state o ed• The main unbundling is splitting the network operations from the wholesale and retail supply – the infrastructure versus the

commodity



European Gas Pricingp g

40


European Gas PricingHow natural gas price is determined in in sub-regions of Europe (oil price link in continental countries, hub link in UK or Belgium, g p g p ( p getc)?

IGU Wholesale Price Survey has been monitoring prices and price formation mechanisms since 2005

European gas pricing has gone through a transformation in last 10 years



Europe Wholesale Price Formation – 2005 to 2015

80%

90%

100%

50%

60%

70%

80%

20%

30%

40%

50%

0%

10%

2005 2007 2009 2010 2012 2013 2014 2015

OPE GOG BIM NET RCS RSP RBC NP

Continued rise in GOG – 15% in 2005 to 64% in 2015 at expense of OPE



Europe Regional Wholesale Price Formation – 2005 to 2015

Northwest Europe Central Europe

100% 100%

Northwest Europe Central Europe

60%70%80%90%

60%70%80%90%

20%30%40%50%

20%30%40%50%

0%10%

2005 2007 2009 2010 2012 2013 2014 20150%

10%

2005 2007 2009 2010 2012 2013 2014 2015

OPE GOG BIM NET RCS RSP RBC NPOPE GOG BIM NET RCS RSP RBC NP OPE GOG BIM NET RCS RSP RBC NP

GOG dominates in Northwest Europe with a 92% share in 2015Largest share at 56% in Central Europe

43

Largest share at 56% in Central Europe.

Quarter 1 2017The Changing European Gas Market


Europe Regional Wholesale Price Formation – 2005 to 2015

Mediterranean Southeast EuropeMediterranean Southeast Europe

100% 100%

60%70%80%90%

60%70%80%90%

20%30%40%50%

20%30%40%50%

0%10%

2005 2007 2009 2010 2012 2013 2014 20150%

10%

2005 2007 2009 2010 2012 2013 2014 2015

OPE GOG BIM NET RCS RSP RBC NP OPE GOG BIM NET RCS RSP RBC NP

Elsewhere GOG shares are smaller – some 32% in Mediterranean (principally in Italy)Almost non-existent in Southeast Europe.

OPE d i t till i M dit S i d T k d h S th t E ith th RCS t i R i

44

OPE dominates still in Mediterranean – Spain and Turkey, and shares Southeast Europe with the RCS category in Romania.



Europe Regional Wholesale Price Formation 2015

Scandinavia & Baltics

Southeast Europe

Central Europe

Mediterranean

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Northwest Europe

OPE GOG BIM NET RCS RSP RBC NP

Snapshot of 2015Scandinavia and Baltics has some GOG

2016 ill b t i M t d t h f th t GOG

45

2016 survey will be out in May – expected to show further move to GOG



Removing Destination Clausesg

46


Removing Destination ClausesResponses of market players to the EU's decision of free destination, such as Qatar's acquisition and utilization of receiving p p y q gcapacity in European market.

In the EU, destination clauses that prevent onward sales within the EU are considered 'hardcore' restrictions of competition and prohibited under the EU competition rules. Alternative mechanisms, such as profit-sharing mechanisms (PSMs) have beenprohibited under the EU competition rules. Alternative mechanisms, such as profit sharing mechanisms (PSMs) have been permitted where the LNG is sold on a delivery ex ship (DES) basis.

Destination clauses were removed for pipeline contracts more than 10 years ago when, following legal proceedings by the EU, the gas producers agreed to remove themgas producers agreed to remove them.

The enforcement of destination clauses in DES contracts, especially by Algeria to Spain, prompted the rise in the re-export market.

Qatar (as QP) really only holds actually capacity in South Hook which it owns and at Zeebrugge – a 20 year contract. It sells LNG to Edison who have the capacity at Rovigo and to PGNIG in Poland and also to Spain and France on contracts. The buyers of Qatar LNG at these plants will be the capacity holders.

Qatar also sells LNG on a spot basis into the European market, and in terms of the way it uses South Hook in the UK is that apart from a contract with Centrica – which doesn’t actually require LNG to be delivered as they can source it at the NBP – they self contract into the UK market, bringing cargoes in and selling the regasified gas on a daily, weekly or monthly basis.



TPA in LNG Receiving Terminalsg

48


TPA in LNG Receiving TerminalsActual implementation and operation of third party access of LNG receiving terminals in Europe (we understand that some of new p p p y g p (LNG receiving terminals are exempted from TPA regulation).

There are currently 25 large-scale LNG import terminals in Europe. Of these, 23 are in EU countries (and therefore subject to EU regulation), two are in Turkey (which is a candidate for EU membership), 22 are land-based import terminals, and three are floatingregulation), two are in Turkey (which is a candidate for EU membership), 22 are land based import terminals, and three are floating storage and regasification units (FSRUs).

The Third Gas Directive anticipates a system of regulated third-party access to LNG receiving terminals, and requires LNG terminals in the EU to provide transparent and nondiscriminatory access arrangements Developers of new import facilities andterminals in the EU to provide transparent and nondiscriminatory access arrangements. Developers of new import facilities and existing import facilities for which new capacity is being developed may obtain an exemption to such TPA requirements from the national regulator if the project satisfies certain criteria. So far, exemptions to the TPA regime have been granted to six of the EU’s operating LNG regasification terminals: three in the United Kingdom (Grain LNG, Dragon LNG and South Hook LNG), one in France (Dunkerque), one in Italy (Rovigo) and one in the Netherlands (Gate).

The conditions and tariffs of third-party access (TPA) to regulated LNG terminals must be published by terminal operators, as well as approved by the national regulator.

Where a TPA exemption has been granted, the owner of the LNG terminal can negotiate contracts directly with its primary shippers/customers; however, the national regulator monitors anti-hoarding mechanisms, and ensures that shippers have access to a sufficiently transparent secondary market.



TPA in LNG Receiving Terminals

TPA exempt terminals tightly clustered in Northwest Europe – all are TPA exempt apart from Zeebrugge – the oldest terminal

50

Rovigo is on Italy east coast



TPA in LNG Receiving TerminalsTPA exempt terminals are all in or close to the key trading markets and hubs.p y g

Notable that 2 recent terminals – in Poland and Lithuania are not TPA exempt.

In the UK market, the LNG terminals were regarded as being similar to the beach terminals where gas was brought ashore from the North Sea. UK is the key trading market along with Netherlands.

In Spain in contrast the terminals are much older and would probably not have been eligible for TPA exemption but Spain is aIn Spain in contrast, the terminals are much older and would probably not have been eligible for TPA exemption but Spain is arelatively isolated market with no real liquid trading hub, although there are multiple terminals.

In the TPA regulated terminals usually plenty of primary capacity is available, but in the TPA exempt terminals the primary capacity is often all booked e g in South Hook in UK an affiliate of the owners has booked all the capacity but there is a strong secondaryis often all booked e.g in South Hook in UK an affiliate of the owners has booked all the capacity but there is a strong secondary capacity market.



Wrap Upp p

52


Wrap Up

Q & A

Model Detail



World Gas Model

Overview

Mike Fulwood

February 2017


World Gas Model - OverviewWGM is supplied with a comprehensive database on gas production, LNG and pipeline infrastructure, trade routes as well as long pp p g p p p gterm contracts, storage facilities and demand projections

Key outputs include spot and contract prices, production and consumption, trade flows and infrastructure utilisation

WGM is an excel-based linear programme, with an optimiser add-in, and can be run on a standalone laptopp g , p , p p

WGM can be accessed by clients in a number of ways:

Licensed and installed on client’s own computers, with quarterly updates from NexantLicensed and installed on client s own computers, with quarterly updates from Nexant Customised scenarios of client’s choosing Intensive scenario weeks Subscribe to quarterly World Gas Analytics Service

55World Gas Model Overview February 2017


WGM – Inputs and Outputs


Production flows Regional balances


LNG and Regas throughput Country and nodebalances

Production

Pipeline, LNG andStorage

Oil Price

World Gas Model

Contractual flows Inter and intra regional flows

Storage Infrastructure

Contracts: LNG, Pipe & Transport

Carbon Price

Coal Price

(Node and Arc withLP Formulation)

Prices Spot Prices

Weighted average

LNG Routes

Pipeline trade

Consumption

Weighted average import prices

Cost Stacks

Gas Demand by Sector& Country

Consumption

LNG trade

Cost Stacks

Demand Response

Demand Response



Functioning of the World Gas Model

First Selected Year

KEY

First Selected Year

Visual Basic

Import Data forCurrent Year

Return Result to WGM

イメージを表示できません。メモリ不足のためにイメージを開くことができないか、イメージが破損している可能性があります。コンピュータを再起動して再度ファイルを開いてください。それでも赤い x が表示される場合は、イメージを削除して挿入してください。

Excel File


Database


WGM

Call What’s Best

Visual Basic

Excel File

What’s Best!O i i

Copy raw quarterly results for current year to light blue tabs

All selected years optimised

YesNo Optimiser

Create Output FileNext Select Year

Yes No

F db k th t iOption to create output file later

Stop

Output file

Feedback the spot prices

St


Stop


Unique Feature – Modelling Spot PricesSpot prices, either at hubs or for spot LNG cargoes, are considered to be a function of three factors:p p p g The marginal cost of supply; Prices of competing fuels; and The tightness of the market which includes local production capacity as well as the availability of pipeline and LNG supply.

The level of market tightness for the particular market determines whether the forecast spot price is closer to the marginal cost of supply or to the competing price.

The tighter is the market then the closer the spot price is to the competing price. In a less tight market the spot price might be expected to be closer to the marginal cost of supply.



Appendix: WGM Specificationspp p

59


WGM – What it does?

WGM is supplied with a comprehensive database on gas production, LNG and pipeline infrastructure, trade routes as well as long term contracts, storage facilities and demand

WGM is based on excel and with the system configuration below:• Win 7 (8 GB RAM)/ Win 10 (16 GB RAM) [64 bit systems)• Office 2010 / Office 13 [64 bit versions]• Linear Programming solver – What’s Best (64 bit)Run time: We have optimised run time to under 10 min for a fullwell as long term contracts, storage facilities and demand

projection. All data needed to run the model is supplied by Nexant and users are free to add or overwrite the supplied assumptions to construct scenarios Database

System i t

Run time: We have optimised run time to under 10 min for a full scenario run

assumptions to construct scenarios of interest to their organisations.

Database requirement and run time

WGM

WGM runs on a stand‐alone computer or laptop. The Excel interface allows users

to modify inputs easily and incorporate outputs

SupportOutputs

Key outputs include spot and contract prices, production and consumption, trade flows and infrastructure utilisationGlobal Consumption to modify inputs easily and incorporate outputs

into other internal programs and systems.

Nexant provides comprehensive support services including initial installation and training regular updates of data and

Spot Price differentialsEuropean pipeline imports

initial installation and training, regular updates of data and technical support. All users benefit from a continuous programme of model development and enhancements.



Optimisation – Linear ProgrammingA linear programme is an optimisation problem consisting of:p g p p g input assumptions constraints Physical variables such as production and flows by pipeline and LNG are constrained by capacity assumptions. Gas and LNG contracts are modelled using constraints to represent contract volume termsGas and LNG contracts are modelled using constraints to represent contract volume terms.

Objective: Objective function is to minimise costs including energy price assumptions and infrastructure and production LRMCs (which include both capex and opex)

Solving this linear programme leads to forecasts of: gas production at each source of supply (e g gas fields) gas production at each source of supply (e.g. gas fields) flows spot prices

Conceptually, the WGM LP is expressed as a network: Nodes - containing the demand, production, storage, LNG and regas assumption Arcs - representing connections between the nodes (pipelines and shipping routes and also used to model LNG and pipeline contracts)



System Requirements

H d S ftHardware SoftwareStandalone computer with 8 GB RAMrecommended

Windows 7 (64-bit)recommended

Office 2010 64-bit (English language version please)

What's Best! Add in with the 64 bit Extended Base What s Best! Add-in with the 64-bit Extended Base Version as minimum

Some clients have moved to Windows 10 and Office 2013. The model runs fine in this environment but as Windows 10 takes up a lot more RAM than Windows 7, 16 GB of RAM would be recommended



Accessing the World Gas Model

WGAS is a subscription program that provides coherent forecasts for global, regional and national supply/demand d i f t l d LNG

The World Gas Model (WGM) is available to the clients to use under license on their own systems. The clients benefit from the database containing detailed Information about and prices for natural gas and LNG.from the database containing detailed Information about production, infrastructure and contracts, continuous support and global coverage in WGM.

LicensingWGAS

SubscriptiLicensing Subscription

Products

Clients can consult with Nexant to create

Bespoke

S i

Scenario Week

In a Scenario Week – we sit with the client in their office running the scenarios and

iti iti i l ti idi th d tClients can consult with Nexant to createbespoke scenarios starting with our base case,and then changing key assumptions to generatealternative scenarios and sensitivities.

Scenarios sensitivities in real time, providing the data, results and analysis from each scenario.



Appendix: Spot Price Backcastingpp p g

64


North America (Henry Hub)

16

12

14

16

8

10

12

MMBT

U

2

4

6$M

0

2

6 Q1

6 Q3

7 Q1

7 Q3

8 Q1

8 Q3

9 Q1

9 Q3

0 Q1

0 Q3

Q1

Q3

2 Q1

2 Q3

3 Q1

3 Q3

4 Q1

4 Q3

5 Q1

5 Q3

6 Q1

6 Q3

2006

2006

2007

2007

2008

2008

2009

2009

2010

2010

2011

2011

2012

2012

2013

2013

2014

2014

2015

2015

2016

2016

Calculated Spot Actual Spot

Tracks changes pretty well – 2011 and 2012 actual less than calculated



Europe Netherlands

141618

101214

MBTU

468SM

M

02

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3

2006

Q

2006

Q

2007

Q

2007

Q

2008

Q

2008

Q

2009

Q

2009

Q

2010

Q

2010

Q

2011

Q

2011

Q

2012

Q

2012

Q

2013

Q

2013

Q

2014

Q

2014

Q

2015

Q

2015

Q

2016

Q

2016

Q


Tracks changes pretty well – since 2011 calculated level generally less than actual level



Asia (China – Shanghai)

25

20

25

15

MMBT

U

5

10SM

0


2006

Q

2006

Q

2007

Q

2007

Q

2008

Q

2008

Q

2009

Q

2009

Q

2010

Q

2010

Q

2011

Q

2011

Q

2012

Q

2012

Q

2013

Q

2013

Q

2014

Q

2014

Q

2015

Q

2015

Q

2016

Q

2016

Q


Tracks changes pretty well – since 2011 calculated level slightly less than actual levelChina spot LNG a pretty thin market though



Asia Pacific (Japan)

20

25

15

MNTU

5

10%M

0


2006

2006

2007

2007

2008

2008

2009

2009

2010

2010

2011

2011

2012

2012

2013

2013

2014

2014

2015

2015

2016

2016


Tracks changes pretty well since 2008 (spot market thin before that) – but post-Fukushima calculated level generally slightly less than actual level



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San Francisco

New York

Houston

Washington

London

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Documents

Global LNG Outlook - 一般財団法人 日本エネルギー経 …eneken.ieej.or.jp/data/7283.pdfGlobal LNG Outlook - Agenda 1. Introduction 2. Key Assumptions A. Oil and Coal Prices

Global LNG Outlook - 一般財団法人日本エネルギー経 …eneken.ieej.or.jp/data/7283.pdfGlobal LNG Outlook - Agenda 1. Introduction 2. Key Assumptions A. Oil and Coal Prices