The Energy Contract Company

Market shifts and the impact on LNG

Presentation to European Gas Conference 2012, Vienna
24th January 2012

Niall Trimble
Managing Director
Market shifts and the impact on LNG

> Gas/LNG Demand Forecasts

> Impact of Shale Gas
> LNG Pricing
> Conclusions

2 24 January 2012
Gas/LNG Demand Forecasts

3 24 January 2012
Key role of Fukushima – short term

> Fukushima disaster in March 2011

• Nuclear plants generated 26.9% of electricity in 2010
• Japan nuclear plants largely shut down
• Big increase in gas fired generation
• 15-20% increase in Japan LNG imports from Q2 2011
• (5-7% increase in world LNG demand)
> Most LNG on long term contract
• 80 % of total LNG trade
• Unaffected by short term market shifts
> Japan s increase is around 25-35 % of short term trade
• Big impact on spot prices
• Japan spot LNG price
• $10/mmbtu in March
• $17/mmbtu in October

4 24 January 2012
Restart of Japan nuclear fleet will affect LNG market

> Most Japan nuclear power still

available
• 61% could be back on soon
• Likely restart in summer 2012
• Reduction in gas demand by 14-15 bcm
> Big impact on LNG market ?
• 5% of 2010 World LNG demand
operating Under  construction • 20-25 % of Short term Trade ?
Temp  shut  down closed
> Spot LNG price may moderate in late
2012?

5 24 January 2012
New LNG liquefaction plants under construction

New  LNG  Plants  under  Constructon

Plant Capacity On  s tream  
(MTA)

Skikda 4.5 2012

> Next few slides refer to conventional
Gassi  Touill 4.7 2012 LNG
Angola 5.2 2012
> Other projects
Donggi  Senoro 2 2014
Sengkang 2 2013 • Varying status from Conceptual to
PNG 6.6 2014 FEED
Pluto 4.3 2012
• 94 projects
Wheatstone 8.9 2017
Prelude 3.5 2016 • Capacity - 276 MTA
Gorgon 15 2014 • LNG capacity at end 2011 - 270 MTA
Q  Curtis 8.5 2015
Gladstone 7.8 2015
APLNG  1 4.5 2015
Total   77.5

6 24 January 2012
LNG Supply Demand Forecasts (MTA)
GdF Suez/ CERA

7 24 January 2012
LNG Supply Demand Forecasts
NCG UK

800

700

600

500
bcm/y

400

300

200

100

0
2010/2011

2011/2012

2012/2013

2013/2014

2014/2015

2015/2016

2016/2017

2017/2018

2018/2019

2019/2020

2020/2021
Japan Asia (Excluding Japan) Europe
Rest of the World North America Current Liquefaction
Proposed Liquefaction 50% Proposed Liquefaction

8 24 January 2012
LNG Market Outlook
> Generally shows fairly comfortable market position
• Once Japan Nuclear position resolved
> Possible tight period around 2014 to 2015?
> Possible variations
• Weaker market
• Lower economic growth/Global Financial uncertainty
• Reduces gas/LNG demand
– Spain gas demand down 7% in 2011
– UK gas demand down 8% in 2011
• Unconventional Sources
• Stronger market
• Project delays, especially in Australia
• Replacement for nuclear?
– Longer term issue e.g. Germany from 2022
> Overall still comfortable once Japan nuclear fleet restarts

9 24 January 2012
Shale Gas

10 24 January 2012
Impact of Shale Gas in the United States

> Until 2008

• US gas production in decline
• US expected to emerge as major LNG
importer

> In 2011
• Massive growth in shale gas output*
• 2010 – 23% of US gas production
• 2035 – 46% of US gas production
Source: EIA

Huge impact on US gas prices*

11 24 January 2012
US Gas Production 2009 to 2035 (bcm/year)

800

700

600

500

400

300

200

100

0
2009 2015 2020 2025 2030 2035

12 24 January 2012
 13
10.00
12.00
14.00
16.00

0.00
2.00
4.00
6.00
8.00
Jan-­‐2007
Apr-­‐2007
Jul-­‐2007
Oct-­‐2007
Jan-­‐2008
Apr-­‐2008
Jul-­‐2008
Oct-­‐2008
Jan-­‐2009

NYMEX
Apr-­‐2009
Jul-­‐2009
Oct-­‐2009
NBP
Jan-­‐2010
Apr-­‐2010
Jul-­‐2010
Oct-­‐2010
Jan-­‐2011
Apr-­‐2011
Jul-­‐2011
Oct-­‐2011
US and UK gas prices 2007 to 2011 ($/mmbtu)

24 January 2012
 Shale Gas resources are potentially significant

> Conventional Gas

World Gas Resources
• Reserves 187000 bcm
500000
450000
• Resources 266000 bcm
400000
350000 > Shale Gas
300000
250000
• Resources are still very uncertain
200000 • Largely undrilled
150000
100000 • Resources 189000 bcm
50000
0
• Source US EIA 2011
Shale  gas Conventional  gas
> Location of resources is
reserves resources
significant

14 24 January 2012
Shale gas resources located in gas consuming countries
Distribution  of  s hale  gas  resources  (bcm)
Continent Country 2009 Shale    Gas
Demand   Technical  
Resources

Europe France 49 5097

Netherlands 49 481
Norway 5 2350
UK 88 566
Poland 16 5295
Ukraine 44 1189
Other  Europe 163 3115
Sub  Total 414 18094

N  America USA 646 24409

Canada 85 10987
Mexico 61 19284
sub  total   792 54679

S.  America 96 34688

Asia China 87 36104

India 53 1784
Pakistan 39 1444
sub  total   179 39332

Australasia Australia 31 11213

Africa 46 29506

Total  for  above  countries 1557 188645

World  t otal   3021

15 24 January 2012
Overall assessment of Shale Gas

> A lot of uncertainty

• Largely undrilled outside the US
> Could have major impact on potential LNG importers
• UK was expected to import 20-25 MTA LNG by 2020
• Recent discovery of shale gas in Lancashire
• 9 other shale gas basins in the UK
• UK may not be a material LNG Importer post 2020!
• China may develop shale gas in preference
• Sinopec investing in US shale gas with Devon Energy

16 24 January 2012
LNG Pricing

17 24 January 2012
 18
10
15
20
25

0
5
August
October

2007
December
February
April
June

2008
August
October
December
2007 to 2012 ($/mmbtu)

February
April
June

2009
August

spot  Price
October
December
February
April
expected

June
2010
Price of LNG Spot Cargos into Japan

August
October
December
February
April
June
2011

August
October
December
February
2012

24 January 2012
Term Contract Prices

> Term contract prices for new contracts

• High in period 2003 to 2008
• Very depressed 2009 to early 2011
• Big boost by Fukushima
• No formal link to long term but major psychological link
• Price for new term contracts up 10-20% on 2010 level
• Lower prices for new Gulf of Mexico projects
• 20% below others?
> Future Prices
• Should be lower in 2-3 years time
• Will depend on restart of Japanese nuclear plant
• Longer term might be slightly lower
• Dependant on shale gas production

19 24 January 2012
Conclusions

> Market currently tighter than 1 year ago

• Due mainly to short term Fukushima effect
> Good future for LNG
• but not as rosy as producer portray it
• unlikely to be shortages of LNG
• Many conventional projects
• Good potential for Shale gas

> Better reserve prospects for gas

• Gas R/P ratio 62 years (Conventional only)
• Oil R/P ratio 43 years
• Additional gas reserves from Shale gas?
> Gas market likely to be less tight than oil
• Possible break in oil/gas price link in future?
• Already happened in European Gas market

20 24 January 2012
21 24 January 2012