Northeast Asia Petroleum Forum 2009

Trends of Northeast Asia NaturalGas Market after Financial Crisis
Lin Shuxin单击此处编辑副标题October 2009

IEEJ: November 2009IEEJ: November 2009

Outline

Situations of Northeast Asian natural gas market
1、 Overview of World Natural Gas Industry in 2008
2、 Consumption of Northeast Asia's major gas consumer countries
3、Share of natural gas in China's energy consumption structure

The Impact of Financial Crisis
1、The impact of financial crisis
2、Supply & demand of LNG

Outlook of Natural Gas Industry
1、 Trends of Global Natural Gas Market
2、 Outlook of China’s Natural Gas MarketNatural Gas Cooperation in Northeast Asia
1、 Cooperation between major consumption countries
2、 Cooperation with Russia

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Situations of Northeast Asian natural gas market
1、Overview of World Natural Gas Industry in 2008
 In 2008 the total global proven reserves of natural gas are
185.02 trillion cubic meters, Russia, Iran and Qatar
accounting for more than 53% of the total provenreserves.
 natural gas output in 2008 totaled 3065.6 billion cubicmeters, increasing 3.8% from the previous year, higher
than the 3% average of the last decade, mainly due to thedevelopment of unconventional gas resources in US and
the increase of gas production by pipeline in Qatar.

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Situations of Northeast Asian natural gas market
1、Overview of World Natural Gas Industry in 2008
 On average, Natural gas accounted for 24.1% in world
primary energy consumption structure, and consumptionof natural gas grew by 2.5% over the previous year, lower
than the average level of the last decade.
 On the basis of equal calorific value, the spot price of
natural gas is still much lower than the price of oil.
 In 2008, the Top3 LNG exporter are Qatar, Malaysia andIndonesia.

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Situations of Northeast Asian natural gas market
2、Consumption of Northeast Asia's major gas consumer countries
2004－2008 Consumption of China, Japan and South Korea（billion cubic meters）

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Situations of Northeast Asian natural gas market
2、Consumption of Northeast Asia's major gas consumer countries

Changes of natural gas consumption in China, Japan and South
Korea, and their proportions of total world consumption.

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Situations of Northeast Asian natural gas market

2、Consumption of Northeast Asia's major gas consumercountries
 Major natural gas suppliers to Northeast Asia are Middle
East countries, Indonesia, Brunei, Malaysia, Australia and Russia.
 In 2008, Japan and South Korea remains the largest LNG
importers, importing 92.13 billion cubic meters, and 36.55 billion
cubic meters, and increasing 3.6% and 2.8% respectively. China
Taiwan imported 12.07 billion cubic meters, the fifth in the world.
 China is becoming a emerging LNG importing country inNortheast Asian region.

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Situations of Northeast Asian natural gas market
2、Consumption of Northeast Asia's major gas consumer countries
In 2008, The importation of Japan, South Korea, China Mainland and China
Taiwan for LNG, totaled 145.19 billion cubic meters, accounting for 64.1% of total
global volume of 226.51 billion cubic meters.

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Situations of Northeast Asian natural gas market
3、Share of natural gas in China's energy consumption structure
 the share of natural gas in China's energy consumption is far
below the world averageIn 2008, China output 76.1 billion cubic meters of naturalgas, ranking ninth in the world, and consumed 80.7 billion cubic
meters of natural gas. However, the share of natural gas inChina's energy consumption is only 3.4%, far below the world
average of 24%.

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Situations of Northeast Asian natural gas market

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Situations of Northeast Asian natural gas market
3、Share of natural gas in China's energy consumption structure
Five Main Energy consumption structures in China, Japan, South Korea and the world respectivelyWorld Energy Consumption Structure in 2008

China Mainland Energy Consuption Structure in 2008

7.0%

6.0%

70.2%

28.4%

32.1%
0.8%

3.6%
18.8%

26.5%

Oil

Natural Gas

coal

Nuclear Energy

Oilhydropower

Japan Energy Consumption Structure in 2008

Natural Gas

25.4%

Nuclear Energy

Hydropower

South Korea Energy Consumption Structures in 2008
0.4%

14.2%

3.1%

11.2%

Coal

6.6%

43.0%

43.7%
27.5%

16.6%

14.9%

Oil

Oil

Natural Gas

Coal

Nuclear Energy

Natural Gas

Coal

Nuclear Energy

Hydropower

Hydropower

Note: only including the five main fuels. The actual proportion of the energy consumption may be slightly lower.

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Situations of Northeast Asian natural gas market
3、 Share of natural gas in China's energy consumption
structure China has potential to increase natural gas proportion inenergy consumption.
In 2008, natural gas accounted for 24.1% in global energy
consumption structure, and oil 34.8%, coal 24.2%. In China, coalaccounted for 69%, oil 20%, and natural gas 3.4%, and hydropower, wind
power, nuclear energy, mainly hydropower accounted for 7%.
It'll be a long and arduous task to improve China's energy structure,and is expected that by 2030 natural gas consumption in China will reach
400 billion cubic meters, and the proportion of natural gas in primaryenergy consumption remains low, only about 6%.

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The impact of financial crisis
1、The impact of financial crisis on the market
 On demand, Asia-Pacific LNG consumption declines
widely, especially for industrial users.
Japan: due to the slowdown of demand and record high inventory level, many
companies have canceled this year‘s stock purchase plan, and try to fulfill thelong-termed import contracts in the way of minimal purchasing volume.
South Korea: LNG imports in 2009 is clearly downward. With a very highinventory level, Companies are forced to negotiate with exporters to achieve
implementation of the minimum import volume
China Mainland: LNG imports in 2009 is expected to 6.4 million tons. Fujian
terminal will launch to import 2.7 million tons per year from Indonesia, while
Shanghai LNG terminal may be postponed until the end of year.
China Taiwan: Has canceled six vessels of LNG imports from Indonesia. 80% ofLNG imports in Taiwan is for electricity generation, electricity demand decline
was the main reason leading to decline in LNG imports.

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The impact of financial crisis
1、The impact of financial crisis on the market
 On Supply, the total global designed LNG capacity in 2009
will sum to 240 million tons.
LNG plants to start-up in 2009, mostly locate in the Middle East,
Qatar and Yemen are expected to add 23 million tons per year and 6.7
million tons per year production capacity by the end of this year
In the background of the financial crisis, natural gas resource
countries adopt a more flexible marketing measures, reduce the output,
stop or postponed construction some projects; and enhancecooperation to maintain their interests.

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The impact of financial crisis
2、Supply & demand of LNG
 On short term, supply of natural gas in Northeast Asia is in asituation of supply exceeding demand.

This year up to now, demand slowdown and price fall are generalon Asia, Europe and North America three major natural gas markets,
Especially in USA, due to its unconventional natural gas resource
development, demand for natural gas in the Middle East decreasing.
Drops in demand and new LNG capacity from Qatar and Russia will
significantly ease the tight supply situation in 2010.

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The impact of financial crisis
2、Supply & demand of LNG
 On long-term, postponement of new projects due to financial crisis maylead to re-emergence of LNG tight supply situation.

Before the financial crisis, a number of upstream mining project wasdelayed because of financing difficulties in the global natural gas
industry, financial crisis exacerbated the problem. Although the next twoyears many LNG plants are put into operation, there will be not enoughcapacity for the next few years, and it is likely to reverse the current
situation of short-term buyer's market to return to a seller's market.

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Outlook of Natural Gas Industry
1、Trends of Global Natural Gas Market
 The increasing globalization of the natural gas market
With the rapid growth of cross-country pipeline transport and LNG trade, theglobalization of the natural gas market is accelerating. Prices of North America,Europe, Asia-Pacific natural gas market have been showing some similarity.

 The price will be higher on long term.
Rigidity growth of the long-term demand, increasing difficulty to explore anddevelop oil and gas resources, more complex geological conditions of natural gas
reserves and the huge investment of new projects will drive natural gas price higher.

 LNG trades will be more diversified
With the rapid demand growth for natural gas, new LNG trade patterns continue
to emerge. The form of combinations of short-term contracts and long-term contracts
will be increasingly adopted by LNG buyers, with long-term contracts for basic
demand, and short-term contracts for additional demand or seasonal changes.

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Outlook of Natural Gas Industry
2、Outlook of China's Natural Gas Market
 Rapid growth of output, and great potential to increase
China's natural gas industry is just at the early stage, with low exploration anddevelopment level of domestic natural gas, and has great potential and broad prospects
to increase.

 Consumption continues to grow, and structure gradually
optimized.
In recent years, China has strong growth in natural gas consumption. On long-term,
China's natural gas consumption will continue to grow.

 Low prices to adjust soon.
Judging from the current practical point of view, China's natural gas prices are lower
than market value, and long-term trend is to rise gradually. At present, the governmentis preparing to reform natural gas prices.

 Pipeline Gas dominates natural gas imports, LNG in second
place
According to location of natural gas resources in China Mainland, pipeline gas will
dominate foreign natural gas imports in China, and LNG in second place. In the shortterm, the potential countries and regions to introduction of pipeline gas, are mainly
Central Asia, Myanmar and Russia.

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Natural Gas Cooperation in Northeast Asia
1、 Cooperation between major consumption countries
 cooperation to win, and competition leading to loss. Enhancing energy
cooperation will help to maintain stability and facilitate development inNortheast Asia.
 In recent years, North-East Asia is one of the most promising areas in theworld. At present, Northeast Asia's energy consumption accounts forabout one-fifth of the world's total, while China, Japan, South Korea'senergy consumption accounts for more than 98% in Northeast Asiaregional.
 China, South Korea and Japan rely heavily on energy imports, but lack ofmechanisms to protect common interests leads to a weak position in theinternational oil pricing system, forced to take “Asian premium.” 。

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Natural Gas Cooperation in Northeast Asia
1、 Cooperation between major consumption countries
 Northeast Asian energy consumer countries/regions can establish oilcooperation mechanisms in different ways, changing excessivecompetition to healthy competition.
 Northeast Asian Energy Cooperation can exists in many areas, including
building a common market in Northeast Asia, establishment of Northeast
Asia Energy Agency, cooperation between national energy companies inNortheast Asia, constructing regional pipeline network, as well as
extensive cooperation on environmental protection.

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Natural Gas Cooperation in Northeast Asia
2、Cooperation with Russia
 In Northeast Asia, oil and gas production of Russia and oil and gas consumptionof China, Japan and South Korea constitutes are complementary to each other.
 At present, emphases of Russia's energy policy is gradually shifting from theEuropean countries to Northeast Asia. Experts expected that with the strategicchange of Russian oil exports, by 2020, share of Asia-Pacific countries in theRussian oil and gas exports will rise from the current 3% to 30%.
100 million cubic meters

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Natural Gas Cooperation in Northeast Asia

2、Cooperation with Russia
 Although there emerges some new trends for the energycooperation of Russia and Northeast Asia countries, ingeneral the energy cooperation in Northeast Asia is still inthe start-up and early stage, and confined to bilateral
cooperation.
 In order to further optimize the allocation of resources, lower
the cost of development, and boost regional economic
development, it is a urgent need to build a multilateral
cooperation system.

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