IEEJ：April 2017 © IEEJ2017

Global LNG Outlook
Medium and Long Term

Quarter 1 2017

IEEJ：April 2017 © IEEJ2017

Global LNG Outlook - Agenda
1. Introduction
2. Key Assumptions
A.

Oil and Coal Prices

B.

Demand and Supply

C.

Infrastructure

3. Medium Term Outlook to 2020A.

Demand Trends

B
B.

K LNG Importers
Key
I
t

C.

LNG Export Capacity

D.

LNG Trade

E
E.

Spot and Contract Prices

4. Long Term Outlook – 2020 to 2040
A.

DemandB.

LNG ExportpCapacitypyC.

Asia Pacific Trade FlowsD.

Spot and Contract Prices

5. Wrap Up
A.

Q&A

B.

Detailed Model Output

Global LNG Outlook Medium and Long Term

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Introduction

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IEEJ：April 2017 © IEEJ2017

Introduction
Global 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 animportant 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 JapanWGM solves for spot prices – they are not an assumption or input – based on the marginal cost of supply, competing prices andmarket tightness

Global LNG Outlook Medium and Long Term

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World Gas Model - Overview
Database Assumptions

Raw Outputs

Key Summary Outputs

Production flows

Regional balances

LNG and Regas throughput

Country and nodebalances

Contractual flows

Inter and intra regional flows

PricesSpot Prices

Pipeline trade

Weighted average
import prices

Consumption

Cost Stacks

LNG trade

Demand Response

Production

Pipeline, LNG andStorage
Infrastructure
Oil Price

Contracts:
LNG, Pipe & Transport

Carbon PriceLNG Routes

World Gas Model(Node and Arc with
LP Formulation)

Coal Price
Gas Demand by Sector& Country

Demand Response

Global LNG Outlook Medium and Long Term

Quarter 1 2017

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Regional Definitions – IGU

EuropeFSU

North
America
MiddleEast

Asia

AfricaSouth
America

Global LNG Outlook Medium and Long Term

Asia
Pacific

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Keyy Assumptionsp

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Oil and Coal Prices
Coal Prices

140$$/MMBTu Real 2014 Prices$/bbl REAL 2014 PRICES

120
100
80
60
40
20
0
2005

7.0

140

6.0

120

5.0

100

4.0

80

3.0

60

2.0

40

1.0

20

0.0
2010

2015

2020

2025

Brent Crude Oil
Japan Crude Cocktail

2030

2035

2040

West Texas Intermediate$/Tonne Real 22014 Prices

Oil Prices

0
2005

2010

2015

2020

2025

2030

2035

2040

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 to2014 period, in excess of $100 a barrel, are seen as an aberration. Assumed to rise gradually to $85 a barrel by
2023
Coal prices average out at $80 a tonne in longer term
Global LNG Outlook Medium and Long Term

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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 therecent 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 33.55 tscm in 2014 to almost 55.22 tscm in 2040.
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 aswell 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 torenewables.
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
production
d ti capacity
it available
il bl iin every year off th
the outlook
tl k period
i d without
ith t any recourse tto speculative
l ti 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 pproduction continues to be increasingg driven mainlyy byy development
pof shale ggas. Unconventional ggas,, which
includes coal bed methane as well as shale gas, is also produced in this scenario in Europe, China and otherlocations. Nevertheless, conventional gas (which includes tight gas) continues to provide the majority of world gas
supplyGlobal LNG Outlook Medium and Long Term

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Global Liquefaction Capacity
Liquefaction
que act o Capacity
Capac ty Assumptions
ssu pt o s Global
Gl b l capacity
it risesibby 50% b
betweent2015 andd 20202020, as

1000
900
800
700
BSCM

600
500
400
300
200
100
0
2005

2010

2015

North America
Asia Pacific
Africa2020

2025

EuropeLatin America
Middle East

Global LNG Outlook Medium and Long Term

2030
Asia
FSU

2035

2040

multiple new projects currently under construction enter
service. Final investment decisions for these projects weretaken between 2009 and 2015, when global energy priceoutlooks and gas demand projects were generally stronger.
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, withexpansions of these projects later in the forecast period
period,plus two new Gulf Coast based projects. Canada will launch
three projects, all on the Pacific coast, in the second andthird wave.
 Most Asia Pacific capacity additions are located in Australia
Australia,
although Indonesia, Malaysia, and Papua New Guinea also
contribute.
 The FSU has multiple new sources of LNG, all in Russia. In
the medium
medium-term,
term the Yamal LNG venture currently underconstruction 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
Cameroon,
Guinea, Mozambique and Tanzania
Tanzania,
mainly 2025 on. Offline liquefaction capacity in Egypt is
expected to re-enter full service in 2023.

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Pipeline Capacity
Inter-Regionalte eg o a Pipelinepe e Import
po t Capacity
Capac ty

Inter-Regionalte eg o a Pipelinepe e Export
po t Capacity
Capac ty

700

600

600

500
400

400

BSCM

BSCM

500

300

200

200

100

100
0
2005

300

2010

2015

North
o t America
e caAsia Pacific

2020

2025

Europeu ope
Latin America

2030

2035
Asia
sa
FSU

2040

0
2005

2010

E
Europe

2015

A i
Asia

2020

2025

FSU

2030

Af i
Africa2035

2040

Middl E
MiddleEastt

Main growth in pipeline capacity is out of FSU – Russia, Azerbaijan, Turkmenistan – to Europe and Asia (China)
Middle East also expands out of Iraq and Iran to Europe and Asia (Pakistan)
Global LNG Outlook Medium and Long Term

Quarter 1 201710

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Medium Term Outlook to 2020

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Demand Trends to 2020
G
Globaloba dedemanda dg
grows
o s by sosomee 300 bscbscm oor jusjust

Demande a dG
Growtho t by Region
eg o – 2015
0 5 to 2020
0 0

over 8% to 3,806 bscm
 100 bscm in China and 20 bscm in India
 Middle East evenly spread AsiaA i P
Pacific
ifi ddrivenimainlyi l b
by IIndonesia,di ddeclineli
in Japan UK and Turkey contribute most to Europe

Middle East
AfricaFSU
Latin America
Asia Pacific
Asia
EuropeNorth America
-20

0

20

40

60

80

100

120

140

160

BSCM

Global LNG Outlook Medium and Long Term

Quarter 1 201712

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Europe Supply Gap
 Europe
u ope supp
supplyy gap widens
de s by so
some
e 75
5 bsc
bscm

ChangeCa ge in Europe
u ope Supply
Supp y Demand
e a d – 2015
0 5 to 2020
0 0

Consumption– 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
2020 compared to 2015 – small rise in 2016

LNG Imports

Pipeline Imports

Production
-60

-40

-20

0
BSCM

Global LNG Outlook Medium and Long Term

20

40

60

Quarter 1 201713

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LNG Imports
Changeg in LNG Importsp– 2015 to 2020

China
India
United Kingdom
Indonesia
FrancePakistan
Latin America
Belgium
Malaysia
LNG Bunker Fuel
Spain
Singapore
PolandChinese Taipei
Other Europe
Bangladesh
TurkeyKorea
ThailandMiddle East
Egypt
Japan
North America
-10

-5

0

5

10

15

20

25

30

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

Global LNG Outlook Medium and Long Term

Quarter 1 201714

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LNG Export Capacity
ChangeCa ge in LNG
G Export
po t Capacity
Capac ty – 2015
0 5 to 2020
0 0

60
50
40

BSCM

30
20
10
0
-10
-20
2016

2017

2018

North America

Asia Pacific

Latin America

Global LNG Outlook Medium and Long Term

2019
FSU

Africa2020
Middle East

T erminal
Australia Pacific LNG CBM T rain 1
Sabine Pass 1
Gladstone LNG (CSG) T 2
Gorgon 1
Sabine Pass 2
Australia Pacific LNG CBM T rain 2
Gorgon 2
PFLNG Satu
Petronas LNG 9 Sdn Bhd (PL9SB)
Gorgon 3
Sabine Pass 3 & 4
Wheatstone LNG 1
Sengkang LNG, SulawesiyIchthysPrelude FLNG
Wheatstone LNG 2
Yamal LNG T 1
Cove Point
Elb IIsland
Elbal d
Cameron T rains 1&2
Freeport Phase 1
Yamal LNG T 2 T 3
Corpus Christi T rain 1
Corpus Christi T rain 2
Cameron T rain 3
Sabine Pass 5
Cameroon FLNGPFLNG 2 (Rotan FLNG)

Start Up
2016
2016
2016
2016
2016
2016
2016
2016
2016
2017
2017
2017
2017
2018
2018
2018
2018
2018
2018
2018
2018
2019
2019
2019
2019
2019
2019
2020

Quarter 1 2017

1
1
2
2
3
4
4
4
4
2
2
3
4
1
1
1
2
2
2
3
4
1
1
2
3
3
4
1

15

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Unutilised LNG Export Capacity
U
Unutilised
u sed capac
capacityy largelya ge yUnutilisedU
ut sed LNG
G Export
po t Capacity
Capac ty – 2015
0 5 to 2020
0 0

contractually determined Spot LNG will be shut in if there is notenough demand Algeria has the option to export by
LNG or pipeline – is it reallyunutilised?
 US reflects uncontracted capacity
 Middle East mostly Oman Other in 2019 and 2020 is the slowbuild up of Yamal

80
70

BSCM

60
50
40
30
20
10
0
2015

2016

North America

2017
Australia

Global LNG Outlook Medium and Long Term

2018

2019

Other Africa

Middle East

2020
Other

Algeria

Quarter 1 201716

IEEJ：April 2017 © IEEJ2017

Inter Regional LNG Flows

80

70

70

60

60

50

50

AP to AS

ME to AS

ME to AP

AF to EUNA to AP

AF to AS

ME to EU

AF to APRU to AP

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2020

2019

2018

2017

2016

2015

2014

2013

0

2012

0
2011

10
2010

10
2009

20

2008

20

2007

30

2006

30

2007

40

2006

40

2005

BSC
CM

80

2005

BSC
CM

Key
ey Interte Regionaleg o a LNG
G Flowso s – 2005
005 to 2020
0 0

NA to EU

Middle East exports more to China, India and Pakistan as volumes diverted away from Asia Pacific. Asia Pacificvolumeslalso
l feedf d Asia.
A i US volumeslhead
h d tot EuropeEandd AsiaA i Pacific
P ifi
Global LNG Outlook Medium and Long Term

Quarter 1 201717

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Market Tightness
Marketa et Tightnessg t ess Indicesd ces – 2012
0 to 2020
0 0
1.02
1 00
1.00

Index 2005 = 1

0.98
0.96
0.94
0.92
0.90
0.88
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 Q42017 Q1
2017 Q2
2017 Q3
2017 Q42018 Q1
2018 Q2
2018 Q3
2018 Q42019 Q1
2019 Q2
2019 Q3
2019 Q4
2020 Q1
2020 Q2
2020 Q3
2020 Q4

0.86

North America

EuropeAsia

Asia PacificAsia 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 2017as more LNG export capacity comes on
Global LNG Outlook Medium and Long Term

Quarter 1 201718

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Spot and Contract Prices
Spot anda d Contract
Co t act Prices
ces – 2012
0 to 2020
0 0
20
18
16

$/MMBTU
U

14
12
10
8
6
4
2
0
2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Henry Hub

NBP

Japan Spot

Average LNG Q: Japan
Average_LNG_Q:

Average Pipe Q: China East
Average_Pipe_Q:

Even though Europe and Asia Pacific markets are becoming more supply long, spot prices remain flat – risingcost of supply and rising competing prices offset les tight market. Gap opens up between spot and contract
prices in Japan as oil prices rise
Global LNG Outlook Medium and Long Term

Quarter 1 201719

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Netback Prices to Henry Hub
Netback
etbac Prices
ces – 2012
0 to 2020
0 0
16
14
12
$/MM
MBTU

10
8
6
4
2
0
-2
2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
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

Global LNG Outlook Medium and Long Term

Quarter 1 201720

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Longg Term Outlook
2020 to 2040

21

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Demand Trends to 2040
 Asias a dedemonstrates
o s a es highg ggrowthosuppo
supporteded byDemande a dG
Growtho t by Region
eg o – 2015
0 5 to 2040
0 0

Middle East
AfricaFSU
Latin America
Asia Pacific
Asia
EuropeNorth America
-100
100

0

100

200

300

400

500

600

BSCM
2015-2020
2015
2020

Global LNG Outlook Medium and Long Term

2020-2030
2020
2030

population increases, greater wealth, rural
electrification schemes, and gas’ rising share ofnational primary energy mixes.
 Middle East demand also rises as oil producers
seek alternate fuel sources to increase thevolumes of petroleum available for export.
 Rising North American gas consumption is
supportedt d byb growingi andd competitively-priced
titi li dindigenous gas availability.
 European demand shows some recovery, but
not to the extent of historic highs. Policies
aimed at improving energy efficiency andboosting the share of renewable energy
sources will help contain growth. Recovery ispartly attributable to the fact that demand was
700
so poor between 2011 and 2014; recovery is
the only way forward.

2030-2040
2030
2040

Quarter 1 201722

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Supply Trends to 2040
 With thee eexception
cep o oof Europe,u ope, aall regions
eg o sSupplySupp
yG
Growtho t by Region
eg o – 2015
0 5 to 2040
0 0

Middle East
AfricaFSU
L ti America
Latin
A
i
Asia Pacific
Asia
EuropeNorth America
-200
200

-100
100

0

100

200

300

BSCM
2015-2020

Global LNG Outlook Medium and Long Term

2020-2030

2030-2040

400

show production increases under the BaseCase. Global gas production growth isdominated by unconventional gas output
gains.
 The Middle East records the largest gains
in absolute terms, buoyed by robust
Iranian and Qatari output
 Substantial
S b t ti l N
North
th A
Americani
gains
i supporttits broadening pipeline gas and LNG
export base.
 Projected growth in regions like Africa, the
FSU, and Asia Pacific is largely exportdriven.
 Production growth in Asia, Latin America,yand the Middle East is almost exclusively
500
for domestic use.
 Against the backdrop of recovering
European gas consumption, the region’s
declining output renders Europe
increasingly dependent on natural gas
imports.

Quarter 1 201723

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LNG Imports to 2040
 Asia’ss a s increasingc eas g importance
po a ce as aan LNGGLNG
G Imports
po ts by Region
eg o – 2005
005 to 2040
0 0

900
800
700

BSCM
M

600
500
400
300
200
100
0
2005

2010

2015

2020

2025

2030

2035

North America

EuropeAsia

Asia Pacific

Latin America

FSU

AfricaMiddle East

Global LNG Outlook Medium and Long Term

2040

importer reinforces the region’s significanceas an LNG demand centre. The start-up of
new regasification capacity, and theincreasing utilization of existing facilities,
drives gains in Asian countries like
Bangladesh, China, India, and Pakistan.
 Europe’s LNG imports rise as sources ofsupply are diversified and compensates for
declining domestic production, but its longstanding position as the world’s secondlargest LNG demand centre is superseded by
Asia
Asia.
 Middle Eastern throughput increases as new
terminals are commissioned in the Persian
Gulf, and some existing importers continue toramp up deliveries.
 As a region, Latin America’s throughput levelremains fairly consistent for most of theforecast p
period after 2018, although
g the lineup of countries importing LNG changes.
 The rise of several smaller regional LNG
importers (e.g., Jamaica, Panama, andUruguay) helps compensate for Brazil’s
Brazil s
reduced requirements in the 2020s.
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LNG Exports to 2040
 Postos 20200 0 capac
capacityya
andd throughput
oug pu rise
se in

LNG
G Exports
po ts by Region
eg o – 2005
005 to 2040
0 0
1,000
900
800

BSC
CM

700
600
500
400
300
200
100
0
2005

2010

2015

2020

2025

2030

2035

2040

North America

EuropeAsia

Asia Pacific

Latin America

FSU

AfricaMiddle East

Total LNG Capacity

Global LNG Outlook Medium and Long Termline until 2030, when the market stars totighten.
 North American throughput rises fromvirtually zero in 2015 to over 90 bscm by2030 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 spott price
Hub-NBP-Asiani diffdifferentials
ti l ddo
not fully cover lifting costs.
 There is a rapid increase in Asia Pacificthroughput due primarily to the ramp-up of
new Australian liquefaction facilities. New
capacity in Indonesia, Malaysia, and Papua
New Guinea also contribute.
 African throughput
g p rises rapidly
p y to reflect
the addition of new capacity, especially in
East Africa, and the restoration of offline
Egyptian capacity.
 There is also a rise in FSU throughput toreflect the Yamal LNG start-up, theSakhalin II expansion, and the addition ofgreenfield Far East liquefaction capacity.

Quarter 1 201725

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Unutilised LNG Export Capacity
 After
e 20200 0u
unutilised
u sed capacity
capac y dec
declines,es,

UnutilisedU
ut sed LNG
G Export
po t Capacity
Capac ty – 2015
0 5 to 2040
0 0

although there is greater “slack” in North
America plants and less in Australia –driven by contracts but also by the lesscompetitive 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
the third wave of capacity growth.
 Post 2035 as there are fewer contracts, the“slack” is primarily determined oncompetitivenesstiti
grounds
d

140
120

BSCM
M

100
80
60
40
20
0
2015

2020
North America

2025
Australia

Global LNG Outlook Medium and Long Term

2030

2035

Other Africa

Middle East

2040
Other

Algeria

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LNG Contracts to 2040

 Point to Point – contracts with

LNG
G TOP
O Levelse e s – 2011/12
0 / to 2040/41
0 0/

900
800
700

BSCM

600
500
400
300
200
100
0
-100

Point to Point TOP
P tf li Export
PortfolioEt TOP

Global LNG Outlook Medium and Long Term

Portfolio Import TOP
U
Uncontractedt t d

destination clauses Portfolio import – import terminal
has receipt obligation but supplied
from anywhere Portfolio export – export terminal
has deliver y obligation but can bed lideliveredd anywhere.
hTh
The llevell off
portfolio export in chart is total
portfolio export TOP less portfolio
import TOP
 Market appears over contracted
through 2020 – some contracts will
therefore undertake However, contracts may have more
flexibility and lower TOP as part ofrenegotiations than thought

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Asia Pacific Trade Flows to 2040
 Thee Asia
s a Pacificac c boboth imports
po s aanddAsia
s a Pacificac c Imports
po ts aandd Exports
po ts – 2005
005 to 2040
0 0
250
200

BSC
CM

150
100
50
0
-50
-100
2005

2010

2015

2020

2025

2030

2035

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

LNG Imports from Other Sources

LNG Exports to Asia

Global LNG Outlook Medium and Long Term

2040

exports LNG from/to other regions.
The Asia Pacific also imports small
volumes of Asian pipeline gas.
 The region
region’ss current LNG imports arechiefly sourced from the Middle East,
but this changes dramatically over theforecast period.
 Middle
Middl E
Easternt
LNG importsit aredisplaced by deliveries from North
America, new African LNG projects,
and eventually, flows from expanded
andd new venturestin
i R
Russia’si ’advantageously-located Far East.
 Current inter-regional Asia Pacificpipeline receipts more than double
after 2030, when additional flows from
Myanmar (Asia) commence.
 Inter-regional Asia Pacific natural gas
exports chiefly comprise Australian
LNG flows to Asia. These growsignificantly over the forecast period.
 The Asian market may help
underwrite future expansions ofAustralasian LNG export capacity.
Quarter 1 201728

IEEJ：April 2017 © IEEJ2017

Japan LNG Imports to 2040
Japan LNG
Japa
G Imports
po ts – 2005
005 to 2040
0 0
140
120

BSCM

100
80
60
40
20
0
2005

2010

2015

2020

2025

2030

2035

2040

NorwayPeru
Indonesia West
Australia EastA
Australiali WestW
USA North East
USA Louisiana
USA South West
Canada West
Equatorial Guinea
Yemen
UAE
Qatar
Oman
Nigeria
Egypt
AngolaAlgeria
Russia Far East
Trinidad and Tobago
PNG
Malaysia Borneo
Indonesia East
Brunei Darussalam
Australia North
USA Alaska
Contracted

 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 traditionalysuppliers.
pp
Indonesia and Malaysia
 Demand levels out at 100 bscm – more optimistic than IEA – just under 75 mtpa
Global LNG Outlook Medium and Long Term

Quarter 1 201729

IEEJ：April 2017 © IEEJ2017

Korea LNG Imports to 2040
Korea
o ea LNG
G Imports
po ts – 2005
005 to 2040
0 0
60
50

BSCM

40
30
20
10
0
2005

2010

2015

2020

2025

2030

2035

2040

NorwayPeru
Australia East
Australia West
USA Louisiana
USA South West
Canada West
Equatorial Guinea
Yemen
UAE
Qatar
Oman
Nigeria
Egypt
AngolaAl i
Algeria
Russia Far East
Trinidad and Tobago
PNG
Malaysia Borneo
Indonesia East
Brunei Darussalam
Australia North
Contracted

 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
renewed, but if they were even with different volumes and pricing then supply patterns
would change
Global LNG Outlook Medium and Long Term

Quarter 1 201730

IEEJ：April 2017 © IEEJ2017

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

18
16
Real 2014 $/MM
MBTU

14
12
10
8
6
4
2
0
2010

2015
Henry Hub

2020
NBP

2025
Japan Spot

2030
Average_LNG: Japan

2035

2040

Average_Pipe: China EastLong 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 tightenspg
and more expensivepggas is requiredq
to satisfy
y demand. HH levels
out as around $4 per MMBTU
Global LNG Outlook Medium and Long Term

Quarter 1 201731

IEEJ：April 2017 © IEEJ2017

Netback Prices to Henry Hub
Netback
etbac Prices
ces – 2012
0 to 2040
0 0
14
12

$/MMBT
TU

10
8
6
4
2
0
2012

2014

2016

2018

2020

2022

Henry Hub
Netback from Japan Spot (Marginal)

2024

2026

2028

2030

2032

2034

2036

2038

2040

Netback from Japan Spot (Full)
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.
2030
Global LNG Outlook Medium and Long Term

Quarter 1 201732

IEEJ：April 2017 © IEEJ2017

The Changing European Gas Market

Quarter 1 2017

IEEJ：April 2017 © IEEJ2017

The Changing European Gas Market - Agenda
1. Introduction
1
2. Industrial Structure
3. Europeanp
Gas Pricing
g
4. Removing Destination Clauses
5. TPA in LNG Receiving Terminals

The Changing European Gas Market

Quarter 1 201734

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Introduction

35

IEEJ：April 2017 © IEEJ2017

Introduction
Two ppart presentationp– Changing
g g Europeanp
Gas Market and Global LNG Outlook
Changing European Gas Market – Requested Scope
1. Impacts of market liberalization to industrial structure in Europe (merger to gas & power company, market oligopoly by alimited 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
e LNG
G receivingece
g terminals
tea s area eeexemptede pted fromo TPA regulation).
egu at o )The Changing European Gas Market

Quarter 1 201736

IEEJ：April 2017 © IEEJ2017

Industrial Structure

37

IEEJ：April 2017 © IEEJ2017

Industrial Structure
Impactspof market liberalization to industrial structure in Europep ((merger
g to ggas & ppower company,
p y market oligopolyg p y byy a limited
number 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 the
UK market.
Market liberalisation has led, along with privatisation, to essentially 4 groups of companies:
1 Producers
1.
P d
and
d exporterst
off gas as a commodity
dit
2. Suppliers and traders of wholesale and retail gas
3. Generation, regasification and storage asset owners
4. 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.

The Changing European Gas Market

Quarter 1 201738

IEEJ：April 2017 © IEEJ2017

Industrial Structure – British Gas Case Study• After p
privatisation in 1986 British Gas retained its monopoly
p y of transportationp
and wholesale and retail supply
pp y in the UK market,
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 listedcompanies:
g transmission,, distribution and storageg assets• Transco – covering• 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
production, power generation and gas storage – buying the Roughgas 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
p the Isle of Grain regasificationgfacility,y, separatedp
the distribution network into 8 businesses and sold off
4 – recently sold 2 more
• BG Group recently bought by Shell• Manya y European
u opea companies
co pa es followedo o ed similarsa restructuring
est uctu g anda d unbundlingu bu d g althougha t oug someso e remain
e a whollyo y oro partly
pa t y state oowned.
ed• The main unbundling is splitting the network operations from the wholesale and retail supply – the infrastructure versus thecommodity

The Changing European Gas Market

Quarter 1 201739

IEEJ：April 2017 © IEEJ2017

Europeanp
Gas Pricingg

40

IEEJ：April 2017 © IEEJ2017

European Gas Pricing
How natural ggas pricep
is determined in in sub-regions
gof Europep ((oil pprice link in continental countries, hub link in UK or Belgium,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

The Changing European Gas Market

Quarter 1 201741

IEEJ：April 2017 © IEEJ2017

Europe Wholesale Price Formation – 2005 to 2015

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2005

2007

OPE

GOG

2009

BIM

2010

2012

NET

RCS

2013

RSP

2014

RBC

2015

NP

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

The Changing European Gas Market

Quarter 1 201742

IEEJ：April 2017 © IEEJ2017

Europe Regional Wholesale Price Formation – 2005 to 2015
Central Europe

Northwest Europe

100%

100%

90%

90%

80%

80%

70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%

0%

0%
2005
OPE

2007
GOG

2009

2010

2012

2013

2014

2015

BIM

NET

RCS

RSP

RBC

NP

2005
OPE

2007
GOG

2009

2010

2012

2013

2014

2015

BIM

NET

RCS

RSP

RBC

NP

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

The Changing European Gas Market

Quarter 1 201743

IEEJ：April 2017 © IEEJ2017

Europe Regional Wholesale Price Formation – 2005 to 2015
Southeast Europe

Mediterranean

100%

100%

90%

90%

80%

80%

70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%

0%

0%
2005
OPE

2007
GOG

2009

2010

2012

2013

2014

2015

BIM

NET

RCS

RSP

RBC

NP

2005
OPE

2007
GOG

2009

2010

2012

2013

2014

2015

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 dominatesd i t stilltill ini Mediterranean
M dit– Spain
S i andd Turkey,T k
andd shareshSoutheast
S thtE
Europe with
ith ththe RCS categorytini Romania.
Ri

The Changing European Gas Market

Quarter 1 201744

IEEJ：April 2017 © IEEJ2017

Europe Regional Wholesale Price Formation 2015

Scandinavia & Baltics

Southeast Europe

MediterraneanCentral Europe

Northwest Europe
0%

10%

OPE

20%

GOG

30%

40%

BIM

50%

NET

60%

70%

RCS

RSP

80%

RBC

90%

100%

NP

Snapshot of 2015
Scandinavia and Baltics has some GOG
2016 survey will
ill beb outt ini May
M – expectedt d tot showhfurtherf th move tot GOG

The Changing European Gas Market

Quarter 1 201745

IEEJ：April 2017 © IEEJ2017

Removingg Destination Clauses

46

IEEJ：April 2017 © IEEJ2017

Removing Destination Clauses
Responses
pof market players
p yto the EU's decision of free destination, such as Qatar's acquisitionqand utilization of receivinggcapacity in European market.
In the EU, destination clauses that prevent onward sales within the EU are considered 'hardcore' restrictions of competition andprohibited under the EU competition rules. Alternative mechanisms, such as profit
profit-sharing
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, thegas producers agreed to remove them.
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 apartfrom 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.

The Changing European Gas Market

Quarter 1 201747

IEEJ：April 2017 © IEEJ2017

TPA in LNG Receivingg Terminals

48

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TPA in LNG Receiving Terminals
Actual implementationpand operationpof third party
p y access of LNG receiving
g terminals in Europep (we(understand that some of new
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
land based import terminals, and three are floatingstorage 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.
arrangements Developers of new import facilities andexisting import facilities for which new capacity is being developed may obtain an exemption to such TPA requirements from thenational 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 primaryshippers/customers; however, the national regulator monitors anti-hoarding mechanisms, and ensures that shippers have accessto a sufficiently transparent secondary market.

The Changing European Gas Market

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IEEJ：April 2017 © IEEJ2017

TPA in LNG Receiving Terminals

TPA exempt terminals tightly clustered in Northwest Europe – all are TPA exempt apart from Zeebrugge – the oldest terminal
Rovigo is on Italy east coast
The Changing European Gas Market

Quarter 1 201750

IEEJ：April 2017 © IEEJ2017

TPA in LNG Receiving Terminals
TPA exempt
p terminals are all in or close to the key
y tradingg markets and hubs.
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 theNorth Sea. UK is the key trading market along with Netherlands.
In Spain in contrast,
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
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.

The Changing European Gas Market

Quarter 1 201751

IEEJ：April 2017 © IEEJ2017

Wrapp Upp

52

IEEJ：April 2017 © IEEJ2017

Wrap Up

Q&A

Model Detail

Global LNG Outlook Medium and Long Term

Quarter 1 201753

IEEJ：April 2017 © IEEJ2017

World Gas Model
Overview

Mike Fulwood

February 2017

IEEJ：April 2017 © IEEJ2017

World Gas Model - Overview
WGM is supplied
ppwith a comprehensivep
database on ggas production,p
LNG and p
pipelinepinfrastructure, trade routes as well as longgterm contracts, storage facilities and demand projections
Key outputs include spot and contract prices, production and consumption, trade flows and infrastructure utilisation
programme,g, with an optimiserp
add-in,, and can be run on a standalone laptopp p
WGM is an excel-based linear p
WGM can be accessed by clients in a number of ways:

 Licensed and installed on client’s
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

World Gas Model Overview

February 201755

IEEJ：April 2017 © IEEJ2017

WGM – Inputs and Outputs
Database Assumptions

Raw Outputs

Key Summary Outputs

Production flows

Regional balances

LNG and Regas throughput

Country and nodebalances

Contractual flows

Inter and intra regional flows

PricesSpot Prices

Pipeline trade

Weighted average
import prices

Consumption

Cost Stacks

LNG trade

Demand Response

Production

Pipeline, LNG andStorage
Infrastructure
Oil Price

Contracts:
LNG, Pipe & Transport

Carbon PriceLNG Routes

World Gas Model(Node and Arc with
LP Formulation)

Coal Price
Gas Demand by Sector& Country

Demand Response

World Gas Model Overview

February 201756

IEEJ：April 2017 © IEEJ2017

Functioning of the World Gas ModelFirst Selected Year

KEY

Import Data for
Current Year

Visual Basic
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。

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。

Call What’s Best
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。

Return Result to WGM

Database

WGM

Excel File

Copy raw quarterly results for
current year to light blue tabs

All selected years
optimised
No

Next Select Year

What’s Best!
O i i
Optimiser

Yes

Create Output File

Yes

No

Stop
Option to create output file later

F db k the
Feedbackth spott pricesiOutput file

St
Stop

World Gas Model Overview

February 201757

IEEJ：April 2017 © IEEJ2017

Unique Feature – Modelling Spot Prices
Spotp prices,peither at hubs or for spotp LNG cargoes,g
are considered to be a function of three factors:
 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.

World Gas Model Overview

February 201758

IEEJ：April 2017 © IEEJ2017

Appendix:pp
WGM Specificationsp

59

IEEJ：April 2017 © IEEJ2017

WGM – What it does?

WGM is supplied with a comprehensive database on gas
production, LNG and pipeline infrastructure, trade routes aswell 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
Databaseof interest to their organisations.

Key outputs include spot and contract
prices, production and consumption, tradeflows and infrastructure utilisation
Global Consumption

Spot Price differentials

World Gas Model Overview

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 full
scenario run

Systemrequirementitand run time

WGM

Outputs

Supportto modify

European pipeline imports

WGM runs on a stand‐alone computeror laptop. The Excel interface allows users
inputs easily and incorporate outputs
into other internal programs and systems.

Nexant provides comprehensive support services including
initial installation and training,training regular updates of data andtechnical support. All users benefit from a continuous
programme of model development and enhancements.

February 201760

IEEJ：April 2017 © IEEJ2017

Optimisation – Linear Programming
A linear p
programmegis an optimisationp
problempconsistingg of: 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 terms.
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(e.g.
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)

World Gas Model Overview

February 201761

IEEJ：April 2017 © IEEJ2017

System Requirements
H d
HardwareS ft
SoftwareStandalone computer with 8 GB RAM
recommended

Windows 7 (64-bit)
Office 2010 64-bit (English language version please)
What s Best! Add-in
What's
Add in with the 64-bit
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

World Gas Model Overview

February 201762

IEEJ：April 2017 © IEEJ2017

Accessing the World Gas Model

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

WGAS is a subscription program that provides coherent
forecasts for global, regional and national supply/demandandd pricesi
ffor naturalt l gas and
d LNG
LNG.

WGAS
Licensing Subscripti
on
Products

Bespoke
Clients can consult with Nexant to create
S
Scenariosibespoke scenarios starting with our base case,and then changing key assumptions to generatealternative scenarios and sensitivities.

World Gas Model Overview

Scenario In a Scenario Week – we sit with the clientin their office running the scenarios andWeeksensitivities
iti iti ini reall titime, providing
idi th
the d
data,
t
results andanalysis from each scenario.

February 201763

IEEJ：April 2017 © IEEJ2017

Appendix:pp
Spot
p Price Backcastingg

64

IEEJ：April 2017 © IEEJ2017

North America (Henry Hub)
16
14

$M
MMBTU

12
10
8
6
4
2

Calculated Spot20166 Q3

20166 Q1

20155 Q3

20155 Q1

20144 Q3

20144 Q1

20133 Q3

20133 Q1

20122 Q3

20122 Q1

2011 Q3

2011 Q1

20100 Q3

20100 Q1

20099 Q3

20099 Q1

20088 Q3

20088 Q1

20077 Q3

20077 Q1

20066 Q3

20066 Q1

0

Actual Spot

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

World Gas Model Overview

February 201765

IEEJ：April 2017 © IEEJ2017

Europe Netherlands
18
16

SMM
MBTU

14
12
10
8
6
4
2

Calculated Spot2016 Q
Q3

2016 Q
Q1

2015 Q
Q3

2015 Q
Q1

2014 Q
Q3

2014 Q
Q1

2013 Q
Q3

2013 Q
Q1

2012 Q
Q3

2012 Q
Q1

2011 Q
Q3

2011 Q
Q1

2010 Q
Q3

2010 Q
Q1

2009 Q
Q3

2009 Q
Q1

2008 Q
Q3

2008 Q
Q1

2007 Q
Q3

2007 Q
Q1

2006 Q
Q3

2006 Q
Q1

0

Actual Spot

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

World Gas Model Overview

February 201766

IEEJ：April 2017 © IEEJ2017

Asia (China – Shanghai)
25

SM
MMBTU

20
15
10
5

Calculated Spot2016 Q
Q3

2016 Q
Q1

2015 Q
Q3

2015 Q
Q1

2014 Q
Q3

2014 Q
Q1

2013 Q
Q3

2013 Q
Q1

2012 Q
Q3

2012 Q
Q1

2011 Q
Q3

2011 Q
Q1

2010 Q
Q3

2010 Q
Q1

2009 Q
Q3

2009 Q
Q1

2008 Q
Q3

2008 Q
Q1

2007 Q
Q3

2007 Q
Q1

2006 Q
Q3

2006 Q
Q1

0

Actual Spot

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

World Gas Model Overview

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IEEJ：April 2017 © IEEJ2017

Asia Pacific (Japan)
25%MMNTU20
15
10
5

Calculated Spot2016 Q3

2016 Q1

2015 Q3

2015 Q1

2014 Q3

2014 Q1

2013 Q3

2013 Q1

2012 Q3

2012 Q1

2011 Q3

2011 Q1

2010 Q3

2010 Q1

2009 Q3

2009 Q1

2008 Q3

2008 Q1

2007 Q3

2007 Q1

2006 Q3

2006 Q1

0

Actual Spot

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

World Gas Model Overview

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Nexant Inc.
Nexant,Inc

San Francisco
New York

1 King’s Arms Yard,
London, EC2R 7AF
Telephone: +44 20 7950 1600
Facsimile: +44 20 7950 1550
www.nexant.com

This Report was prepared by Nexant, Inc. (“Nexant”) and is part of the NexantThinking™ suite. Except where
specifically stated otherwise in this Report, the information contained herein is prepared on the basis of
information that is publicly available, and contains no confidential third party technical information to the best
knowledge of Nexant. Aforesaid information has not been independently verified or otherwise examined todetermine its accuracy, completeness or financial feasibility. Neither Nexant, Subscriber nor any person acting
on behalf of either assumes any liabilities with respect to the use of or for damages resulting from the use of any
information contained in this Report.
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y assumed conditions will
come to pass.
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