OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights Reserved

The Outlook for LNG
Andy FlowerSenior Research Fellow
Tokyo 27th September 2011

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights Reserved

LNG has been in a Strong Growth
Phase in 2010 and 2011
• Supply increased by 39.2mt (21.6%) in 2010
• It is on course to increase by a further 22mt (10.9%) in2011• This compares with the historic growth rate of 7.7% perannum 1980 to 2009
• Qatar has been the main source of growth accounting for
50% of the increased supply in 2010 and 75% of theincrease in 2011
• The other sources of increased supply since 2009 havebeen new projects in Russia (Sakhalin), Yemen, Peru andIndonesia (Tangguh)

LNG Imports by Region in theFirst Half of 2009, 2010 and 2011
140120in million tonnes

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights Reserved

1008060
40200
1H09Asia

1H10EuropeAmericas

1H11Middle EastOXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights ReservedImpact on the LNG Market of theFukushima Nuclear Crisis• The main impact has been in Japan with LNG purchases by thepower utilities up by 3.84mt between April and August comparedwith the same period of 2010
• Elsewhere Governments have set in motion safety inspections andstress tests on nuclear plants• Only Germany has taken immediate action permanently closing
seven older plants and one plant that had technical problems andannouncing that all nuclear plants will be closed by 2022
• Germany does not import LNG so any impact on the LNG market
will be indirect• In other countries the development of nuclear power will bedelayed or abandoned which will have an impact on LNG demand inthe longer term

The Increase in LNG Imports into Japan isHaving an Impact on the UK ‐ Monthly
LNG Imports January to August 2011
2.5

in million tonnes per month

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights Reserved

21.5

10.5

0
Jan-11

Feb-11Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Qatar

Algeria

Trinidad

EgyptNigeria

NorwayYemen

USA Re-exports

thhJapan/UK DifferenceJapanUK

16dth2nlylyn

Se

pt

11

1111111111111t1

Aug

JuJuJunay

111r1111r1ayJuM

M

ApAp

111111111111prar

arbbnn

Se
ph

nd
5t

22h

th

th8t

24

10th

27th

29thth

13

M

M

FeFe

Ja

JatA

151s

18h

th4t

18h

st4t

21

7t

In $/MMBtu

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights Reserved

ICIS Heren Assessment of WeeklyPrices for Delivery of LNG to theUK and Japan20151050

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights Reserved

Expected Start‐up Times forCapacity
Under Construction in Sept 2011
PNG T1PNG T2Indonesia Donggi‐Senoro
Australia‐Pluto

Australia Gorgon T1
Algeria – Arzew 3

Angola LNG

Gorgon T2
Australia (Curtis) T1

GorgonT3

Curtis T2
Algeria ‐Skikda Rebuild
Australia Gladstone T1
Gladstone T2
Australia – APLNG2012201320142015

2016

The left‐hand end of the bar denotes expected start‐date
66.7mtpa of capacity scheduled to come on stream between 2011 and 2016of which 43.7mtpa in Australia

AustraliaPrelude

2017

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights Reserved

Planned Liquefaction Capacity –September 2011 (in mtpa)
Pacific Basin

Middle East

Indonesia (Tangguh T3) 3.8
Indonesia (Masela)
5.0
Australia (APLNG Exp) 13.5
Australia (Pluto T2/3)
8.6
Australia (Ichthys)
8.4
Australia (Wheatstone) 8.9
Australia (Browse)
12.0
Australia (Sunrise)
4.0
Australia (Pilbara)
6.0
Australia (LNG Ltd)
3.0
Australia (Bonaparte)
2.0
Australia (GorgonT4/5) 10.0
Australia (Shell CBM) 12.0
Australia (Curtis T3)
4.3
Russia (Sakhalin T3)
4.8
Russia (Vladivostok) 10.0
PNG (Elk/Antelope)
4.0
Canada (Kitimat)
5.0
Canada (BC LNG)
1.8
Canada (Prince Rupert) 10.0
Canada (Petronas)
7.4

Qatargas Debotlle
RasGas Debottle
Iran (Iran LNG)

Atlantic Basin
8.0
4.0
10.0

Total

Nigeria (Brass)
10.0
Nigeria (OK)22.0
Nigeria LNG T7
8.5
Cameroons
2.6
Norway (Snohvit T2) 4.2
Equatorial Guinea T2 4.4
Russia Shtokman
15.0
Russia Yamal
15.0
Russia Pechora
2.6
USA (Freeport)
9.0
USA (Sabine Pass) 16.0
USA (Lake Charles) 14.0
USA (Cove Point)
8.0

Other possible new projects include:
Israel (Leviathan)Mozambique
Tanzania
West Coast of USA

297.8

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights Reserved

Liquefaction Capacity Summary –September 2011 (in mtpa)

OperatingUnder
Construction

Planned

Total

Pacific Basin

93.5

52.3

144.5

290.3

Middle East100.90.022.0

122.9

Atlantic Basin

78.1

14.4

131.3

223.8

TOTAL

272.5

66.7

297.8

637.0

RegionForecast Production in 2011: 245mt

Final Investment Decisions (FIDs) on
Liquefaction Capacity 2005 to 2011
605040?

3020102008

2009

2010Australia

Indonesia

YemenPeruAlgeria

20112007

Qatar

2006

02005

In mtpa

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights ReservedAngola

PNG

Liquefaction Plant Capital Costs
1600
1400
1200

$10 / tpa Capacity

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights Reserved

Range

1000
800
6004002000

1965-70

1971-75

1976-80

1981-85

1986-90

1991-95

96-2000

2001-05

NewProjects

Plants for which FID Taken 2006 to 2011

The LNG Cost/Price Challenge

2005

141H2011

12108

In $/MMBtu

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights Reserved

6420

Nigeria-USA Nigeria-UK
Average
Price

Upstream

Australia- Nigeria-USA Nigeria-UK
Japan
Liquefaction
Shipping

AustraliaJapanRegas

IEEJ: 2011 October All Rights Reserved

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

US Terminals Planning LNG
Production and Exports

Marcellus Shales
Cove Point (Maryland) 7.8mtpa
Texas and Louisiana Shales
Sabine Pass (Louisiana) – 8 + 8 mtpa

Freeport (Texas) 9mtpa

13Lake Charles (Louisiana) 15mtpa

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights Reserved

US LNG Exports – Plans (1)•Sabine Pass– The owner and operator Cheniere announced plans for up to four 4mtpa trains at
the Sabine Pass receiving terminal– Non‐binding agreements for bi‐directional flow (i.e. export and import) have beensigned with Morgan Stanley Capital 1.7mtpa, ENN (China) 1.5mtpa, Gas Natural(Spain) 1.5mtpa, EdF (France) 0.7 to 1.4mtpa. Sumitomo (Japan) 1.5mtpa and
ENEL‐Enarsa (1.5mtpa)– Cheniere also has a deal to supply 0.6mtpa for power generation in the Dominican
Republic and to work with Lithuania on LNG supply– However, Cheniere has now said it plans to offer companies the opportunity topurchase LNG on an FOB basis at a price of Henry Hub plus $2 to $3/MMBtu– Cheniere has DoE approval for exports to members of WTO. It will also need FERCapproval– It is targeting FID in early‐2012 and start‐up in 2015
– Shale gas producers, including, Chesapeake have expressed interest in supplying
gas but not in participating in the projectOXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights Reserved

US LNG Exports – Plans (2)• Freeport– Freeport LNG in association with Macquarrie has applied for apermit to produce and export up to 1.4Bcf/d (about 9mtpa aftertaking into account fuel use)
•Cove Point− The owner and operator, Dominion Resources, has said it is talking

to shale gas producers in the Marcellus Basin about the possibilityof adding liquefaction trains• Lake Charles– Southern Union, the owner of the terminal, and BG, which has
committed to the entire import capacity, have been granted permission
by the US Department of Energy to export up to 2Bcf/d (17.6mtpa) tocountries with which the US has a Free Trade Agreement

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research ProgrammeIEEJ: 2011 October All Rights Reserved

US LNG Exports ‐ Economics••••••••The existing terminals have infrastructure in place (site, berths,unloading/loading facilities and storage tanks) which typically account for 25
to 35% of the cost of a new liquefaction plant
They will have access to local sub‐contractors and a skilled work‐force
Capital costs could be under $600/tpa of capacity compared with a current
benchmark of $1,000/tpa
If this cost can be achieved liquefaction costs will be $1.75 to $2/MMBtu
At a Henry Hub price of $5/MMBtu, the cost of the gas used in the plant willbe around $0.60/MMBtu
The shipping cost USA‐Japan will approximately $2.50/MMBtu (the wideningof the Panama Canal will reduce the cost by around $0.80/MMBtu but what
will be the canal fee?)
Total cost for liquefaction and shipping will be $4.75 to $5/MMBtu
The issue for investors is will there by a systematic differential of $4.75 to$5/MMBtu between US gas prices and prices in other markets?

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research ProgrammeIEEJ: 2011 October All Rights Reserved

Exports from the West Coast ofCanada•••••••••Apache and EOG Resources are planning a 5mtpa LNG plant at Kitimat in British
Columbia to export Canadian gas to Asia
Gas supply will come mainly from shale gas reserves in the Monteney and Horn Riverbasins
FEED work has started and the project is targeting FID by early 2012 with start‐up in2015
No off‐take agreements have yet been signed
The project has the advantage of being closer to Asian markets (around 24 round daysvoyage) compared with the Gulf of Mexico (with or without the widened PanamaCanal)
However, as a green‐field project construction costs will be higher and new pipelines
will be needed to transport the gas to the plant
Apache has said that oil‐linked Asian prices will be needed to make to project economic
BC LNG, a joint venture between LNG Partners and the Haisla First Nation is planning a
1.8mtpa plant close to Kitimat
Other companies including Shell (with Asian buyers as partners) and Petronas arecarrying out studies on the feasibility of exporting LNG from British Columbia

Global LNG Supply 2010‐2025
Average Annual Growth Rates
1980‐2010 7.7%pa
2010‐2015 5.5%pa
2015‐2025 5.6%pa

600500400300200

In Operation in Sept 2011Under Construction in Sept 2011

2520242023202220212020201920182017201620152014201320122011201010020in mtpa

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PlannedOXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights ReservedFirm and Flexible Demand• Firm– Markets which have to have the LNG supply and will
pay the price needed to secure cargoes– Asia, southern Europe (Turkey, Spain, southern France,Portugal), Latin America, Caribbean• Flexible– Markets with alternative pipeline gas supplies whereprice will determine whether LNG is imported– USA, UK, Belgium, Netherlands

LNG Demand in Firm Markets andLNG Supply 2010 – 2020
Available for Flexible
Markets500
400in mtpa

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights Reserved

300200100012001201120212031204AsiaEurope
Impact of Fukushima

120512061207Middle EastAmericas
Supply120812092200Jan08
Apr-08Jul-08O
ct-08
Jan09
Apr-09Ju
l-09O
ct-09
Jan10
Ap
r-10
Ju
l-10O
ct-10
Jan11
Apr-11Ju
l-11

In $/MMBtu

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights Reserved

Natural Gas and LNG PricesJanuary 2008 to July 2011

2520151050US (Henry Hub)GermanyJapanBrentUK-NBPPrice Range in New Contracts
in Asia 2008 to 201125

Crude OilParityPriceRange for NewContracts in 2008

20

LNG Price in $/MMBtu

OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

IEEJ: 2011 October All Rights Reserved

15

10

Price Range for
New Contracts
2009‐115030

40506070

8090100110

120

Oil Price in $/bbl

n-0
Ap 8r -0
Ju 8l- 0
Oc 8t -0
Ja 8n0
Ap 9r -0
Ju 9l- 0
Oc 9t -0
Ja 9n10Apr -1
Ju 0l- 1
Oc 0t -1
Ja 0n1
Ap 1
r -1Ju 1l- 11Jain thousand US dollars per day

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IEEJ: 2011 October All Rights Reserved

LNG Ship Short-term CharterRates Jan 2008 to Sept 2011

120100806040200Orders for New LNG Ships

70

Number of Ships

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6050Speculative

4030201002002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Percentage Changes in Shipping
Capacity & LNG Production
2000 to 201630%25%20%
15%10%
5%0%Shipping Capacity

LNG Production

162015201420132012201120102009

2008

2007

2006

2005

2004

2003

2002

2001

2000-5%20

Percentage Change

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IEEJ: 2011 October All Rights Reserved

IEEJ: 2011 October All Rights Reserved

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