IEEJ: October 2005

Future Perspective of LNG Markets&Changes in Value Chain Management
Northeast Asia Petroleum Forum
Sep. 22nd , 2005 Seoul

Yutaka KUNIGOTokyo Gas Co., Ltd.

IEEJ: October 2005

High Supply & Demand Potential in Asia-Pacific- Diversification & Emergenceof LNG Source & MarketAlaska Kenai

Irkutsk
Alaska North Slope
Qatar & Expansion
Sakhalin I , II
Turkmenistan

China

Iran
Abu Dhabi

India

Oman & Expansion

Yemen

Arun

Singapore
Indonesia

Malaysia I, II, IIIJapan
Korea
TaiwanNatuna

USWC

BruneiBadak & Expansion
Donggi
TangguhExisting MarketEmerging Market
Existing LNG Project
New & Expansion ProjectGreater Sunrise

NWS & Expansion

Bayu-Undan

GorgonBrowse BasinIEEJ: October 2005

LNG Supply & Demand Outlook in Asia-Pacific Market
250
199(Unit: mil t)

200
85
150

157

27 135
109

100

84

34

50

91

91

84

2003

2010

2020

340
existing projects

projects with HOA/SPA

demand (low)demand (high)Source: IEEJ, Tokyo Gas Estimatesplanning projects

IEEJ: October 2005

Influential Events for Supply and Demand Balance
Demand side

NWS-exp, Malaysia-III

2004
2005

India (Dahej)
Korea (Kwangyang), India (Hazira)

Rasgas II

Supply side

2006

China (Guandong), India (Dabhol)
Japan (Mizushima)

2007

China (Fujian)

2008

Taiwan (Taichu), Indonesia
China (many proposed terminals)

2009

NWS (7.5mtpa re-contract)

Gorgon2010

Indonesia (12mtpa re-contract)

Iran (4 projects)

2011

Browse, Greater Sunrise,Donggi

2011~

DarwinSakhalin-II
Tangguh, Yemen

SingaporeIEEJ: October 2005

Changes in Natural Gas Trade Flow
Oil Products

JCC

Henry Hub

New Flow
Existing Flow

Atlantic

Eurasia

The PacificAtlanticIEEJ: October 2005

The Gas Price Transition($/b)
54($/mmbtu)
8.549

7.5US(Henry Hub)

6.5
5.5443934

Crude Oil (JCC)

29

4.524

LNG (Japan)

3.519

2.5

14

1.5

92 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 2 402

03

Source: World Gas Intelligence, Trade Statistics, etc.

04

05

IEEJ: October 2005

Changes in Natural Gas Business
Sources
Project Development
Finance
Upstream Evolution

Long-term Contract
Price linked to JCC & ICP
T/P, Supply Obligation
High Demand Potential

Markets
Regulated Market
Energy Security
Liberalization

Diversification of Sources & Markets in LNG TradeCompetitiveFlexible•Emergence of Trading Market––•

Tailoring Pricing Mechanism–––•

Short-term, Spot, Swap, Backhaul, Arbitrage
Strategic Transportation
Gentle slope, Fixed price, Oil-product link, Power link
New Entrants
P/L vs. LNG

Players––Marketers, Traders, Aggregators
Value Chain Management

Risks & Opportunities for Sustainable LNG Market

IEEJ: October 2005

Conventional LNG Value Chain Model
Sellers’ Modelnote:

Not participated

E&P
Liquefaction
Shipping

IssuesDestination restriction
Access to receiving terminal
Buyers’ Model
Shipping
Re-gasification
City Gas & PowerIEEJ: October 2005

Changes in LNG Value chain model
Aggregator
Model

To launch new project by combining demand
E&P
Liquefaction
Shipping
Re-gasification
City Gas & Power

Integrator
Model

To pursue scale merit & consistent management
E&P

Liquefaction

Shipping

ReCity Gas &gasification PowerIEEJ: October 2005

Buyer’s Strategy Example ~ Upstream ~Dili

LPG/Condensate (FSO)

EAST TIMOR

Submarine PL (500km)
Darwin LNG (1 train)

Suai

AUSTRALIA[Total Cost USD 3bil]

0k25m

JP
DA

BAYU-UNDANResources
Natural Gas 3.4TCF(100bcm)
LPG Condensate 400mil. bbl

TopicsDec. ’03: LPG SPA(Jul. ’04~’05)

Melville Is.

Area 03-12500km

Feb. ’04: 1st Condensate
and shipped in Mar.

Area 03-13

LNG Sale and Purchase (SPA)
Conoco Phillips (US) 56.72% (Operator)
Eni (Italy)
12.04%
Santos (Au)
10.64%INPEX (JPN)
10.53%TEPCO/Tokyo Gas 10.08% (TE:TG= 2 : 1)

on Aug. 8, 2005
Seller:Darwin LNG
Buyer:TEPCO, Tokyo Gas
Volume: 3mtpa(TE 2mtpa, TG 1mtpa)
Period: Jan. 2006~ (17years)
Shipping: FOB

WESTERN
AUSTRALIADARWIN050KILOMETRESNORTHERNTERRITORY100

IEEJ: October 2005

Buyer’s Strategy Example ~ Transportation ~Purpose of FOB/Owing Ship
1. Increase of Trading Opportunities• for spot trading by Master Agreement• for cargo diversification based on SPA
2. Transportation for other Buyers• North West Shelf Expansion:transportation by Tokyo Gas
for co-Buyers

1. Two LNG Tankers owned by Tokyo LNG Tanker• 145,000 m3 Moss type• Shipyard: Kawasaki Shipbuilding• Operator: Mitsui O.S.K. Lines (MOL)• Service In: Energy Frontier - Sep.2003 / Energy Advance - Mar. 2005
2. Third (2006) and Fourth Ship (2008)* Line: Malaysia-I, M-III (Short-term), North West Shelf Expansion,Darwin, Sakhalin-II, Spot, and new projects (?)

IEEJ: October 2005

Feature & Structure in LNG Industry
Huge Investment
E&P, liquefaction, transportation, storage
Role & requirement
Stability for supply, procurement, priceEnvironmental friendliness, security of supply
Delivery structure
Lack of flexibility
small gap Æ huge impact (esp. spot trade)

Commodity in the future?
Two markets; spot trading & long-term market (NE Asia)

Confusion on LNG S/D outlook
Difference between short-term and long-term view

IEEJ: October 2005

Requirement & Business Innovation for LNG Development
Supply and demand gap minimization
Requirement for precise demand prediction
Well-timed launching new & expansion project
Information sharing among sellers & buyers, B & B
Requirement for LNG growthCompetitiveness & stability
Indispensable for natural gas growth in NE Asia

Volatility mitigation
Significance of long-term contract with price formula

Contractual arrangement
Flexibility in long-term contract (DQT / UQT /Destination)Innovative price formulaIEEJ: October 2005

Significance of Buyers’ Cooperation
S/D balance optimization
Risk share & market development
Brown field expansion & green field launching
Cooperation between sellers and buyers

Shipping & delivery arrangement through cooperation
Seasonal swap, ACQ transfer (only within co-buyers)
Need for contractual flexibility in order for shipping &delivery cooperation
Significance of cooperation in the future
Buyers’ cooperation in all aspects
Significance of value chain participation for buyers
Sharing of market strategy
Reinforcement of bargaining power

Buyerscooperation
for LNG market growth in NE Asia
Contact: report@tky.ieej.or.jp