IEEJ: January, 2015. All Rights Reserved.

The dynamism of LNG markets as seen from the business
front

For the IEEJ
Patricia Roberts Director LNG – Worldwide Ltd
9th January 2015

LNG –Worldwide Ltd

IEEJ: January, 2015. All Rights Reserved.

CONTEXT : Japan is and will remain the largest LNG importing country
through the next decade – but has a lot of uncertainties to manage
§
§
§

Committed to “Getting the import price right”
Driving commercial changes in LNG procurement
Structural changes in the downstream utilities sector
What Japan does next
Affects the wider
Global LNG businessJapan§ Japanese LNG demand uncertainties
Nuclear restarts when and how many ?
18Mtpa of Australian projects – uncertain start up efficiency
16Mtpa US LNG projects - start up, economics, how much for Japan?
30Mtpa of expiring contracts need to be managed§Oil price development

GlobalUncertainty§ Global LNG supply: demand: pricing fundamentals more unpredictable2020 LNG§ Will change significantly !
More market liquidity

Business
environment

Much more uncertainty
More LNG competitors

Different motivations

More players – Japan will have several new competitors
More commercial choices
More commercial risks to evaluate© Patricia Roberts LNG Worldwide Ltd 2015

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IEEJ: January, 2015. All Rights Reserved.

Structure of the presentation

1 The current business environment
2 Global LNG supply and demand “Base Case”
3 Supply issues - detail4. Demand issues - detail
5 Trends in regional prices, impact on the Asian Hub concept
6 Are these changes good for Japan’s LNG industry?

© Patricia Roberts LNG Worldwide Ltd 2015

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IEEJ: January, 2015. All Rights Reserved.

1 The Current Global Business Environment
Fallen 49% in last 6 months

Unstable outlook - Current planning range appears:$45-75/bbl in 2015$70-120/bbl longer term

Higher than demand

Weakening global economy - No immediate plans to cut back supply

No significant cutbacks

Up 1.2Mbd in 2014, global demand only up 0.8Mbd

Holding output up

Projected to be 1Mbd higher than its 2015 demand

Relaxed ban on condensate exports

Congress would need to lift it

Oil Price

Oil supply
US Shale
OPEC

US export
policyThese will target Asia and compete the oil price lower
Short term

Effects oflower prices

Longer term

May not result in more demand – but allows Governments to reduce subsidies
New markets intending to switch from oil may not be incentivised
New markets with Govt support to switch to gas may start to grow quickly
Who will ultimately set the oil price?

Oil pricesettingmechanism

Unclear

i)

OPEC?

ii)

Independent US shale oil producers ?

How long will it take to get to a stable mechanism?

© Patricia Roberts LNG Worldwide Ltd 2015

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The effects of low / unstable oil prices on LNG
Low oil prices short term are good for buyers, big loss of early cash flow for new LNG start-ups

Short term

$70/bbl oil priceGood for buyers

1. Term Asian DES LNG ~ $10/MMbtu
NBP ~ $8/MMbtu
2. LNG Plants will operate at full capacity
3. Start up of new Australian / Asian LNG- helps balance Asia
- downward pressure on short term LNG prices.
- regional market prices tend to converge

DES market prices( $/MMbtu) converging in 2015

© Patricia Roberts LNG Worldwide Ltd 2015

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The effects of low / unstable oil prices on new LNG development
Low and uncertain oil prices slow down at least 30Mtpa of new projects from taking FID

2015/16 FIDs
Conventional projects

2015/16 FIDs
US tolling projects

Big negative impact

Advanced projects
RobustSponsors/ lenders likely to test economics at $50-75/bbl oil
Most DES cost stacks marginal at $75/bbl oil
Greenfield projects worst affected – delays or cancellations expected
Brownfield expansions – likely to be robust
Equity off-take model is the most robust

Projects with signed SPAs and well advanced with permitting likely to proceed.
Less mature projects face delay / cancellation
Less buyers willing to take oil:HH oil spread risks and large volumes

2015/2016 FIDs for new supply capacity are impacted© Patricia Roberts LNG Worldwide Ltd 2015

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IEEJ: January, 2015. All Rights Reserved.

2

Global Supply demand “Base Case” 2015 – 2020

Several supply and demand uncertainties to consider
New Capacity FIDs in 2015

52Mtpa Expiring contracts

135 Mtpa LNG supply start ups include
14 Australian trains (61.8Mtpa)§

42Mtpa expiring in Asia by 2020

§

54Mtpa potential – only half on stream by 2020§

10 USLNG trains ( 45.6Mtpa)§

10Mtpa expiring in the Atlantic Basin by 2020§USLNG looks set to dominate§

3 Russian trains ( 16.5Mtpa)§

Rolled over – remarketed- or retained domestically§

Brownfield expansions likely§Will Canada & Mozambique take the plunge ?

§

Mtpa

Nuclear competition

Coal and pipeline gas
competition

Japanese LNG demand

Chinese LNG demand

S. Korean LNG demand© Patricia Roberts LNG Worldwide Ltd 2015

Oil switching demand

Price sensitive LNG demand“Sudden” LNG demandLess incentive to switch to
LNG at lower oil prices

India and Indonesia could
grow quickly (10Mtpa each) if

Eu response to any Russian
pipeline disruptions

Govt. supported

Severe weather effects

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3 Global Supply:- an unprecedented build up of 135 Mtpa new capacity
Exact phasing uncertain
Not all committed long term , > 50Mtpa can be diverted by the buyer/ off-taker
Delays will increase Asian short term demand - Japan has committed to 35Mtpa from Australia and up to 14Mtpa from the US

Curtis T1

Our current
Curtis T2adjusted viewGorgon T1
Gorgon T2

Gladstone T1

Possible 2015 New FIDs
Start up 2019-2021

PreludeGolar FLNGVYamal T3

Wheatstone T1

APLNG T1
APLNG T2

MLNG T9
Donggi
SenoroYamal T2

Yamal T1

Gorgon T3

Gladstone T2

Wheatstone T2

Cove Point

Ichthys T1

Cameron T1

MLNG FLNG 1

Ichthys T2

Sabine Pass T1

Cameron T2

MLNG FLNG 1

Cameron T3
Freeport T1

Sabine pass T2

Colombia

Q1

Q2

Q3

Q4

Q1

Q2

Q3

2015

2016

Aus trains

US trains

Q4

Q1

Q2

Q3

Q4

Q1

FLNG

Q2

Q3

Q4

2018

2017

Other trains

Freeport T2

Sabine Pass T4

Sabine Pass T3

Possible 2015
Fids

Q1

Q2

Q3

2019

Q4

Q1

Q2

Q3

Q4

2020

Note: left edge of box shows earliest start date

1st cargo loaded end December 2014
© Patricia Roberts LNG Worldwide Ltd 20158

IEEJ: January, 2015. All Rights Reserved.

Global Supply:- 52mtpa of expiring contracts before end 2020
Japan has ~30Mtpa of term contracts expiring before the end of 2020. Malaysia and Indonesia account for approximately half of the volumes
Seller’s will want to re-contract available volumes – but US and flexible contracts mean much more LNG- on –LNG competition
Some sellers will retain the gas for domestic use

Malaysia
Satu/ Dua

Malaysia
Satu/Dua

MLNG

Our current adjusted view
Japan ~30Mtpa
expiring contracts
Bontang

Bontang
Oman &
Qalhat LNG

ADGAS

Tangguh
Pluto

MLNG Dua
Kogas

Other Asian countries
12Mtpa expiring

NWS

NWS

NWS

BGKogasGDFSPetronas

NWSKogas

BontangKogas

Rasgas Kogas

Tangguh –
Kogas

NWS

Brunei –
Kogas

ENI–
Kogas

RasGasCPC

BontangCPCGDFSCNOOC

Atlantic Basin countries
10Mtpa expiring

MLNGJovo

SonatrachSpain

SonatrachFrance

ALNG –
Spain &US
Q1

Q2

Q3
2015

Q4

Q1

Q2

Q3

Q4

2016

© Patricia Roberts LNG Worldwide Ltd 2015

Q1

Q2

Q3

2017

Q4

Q1

Q2

Q3

2018

Q4

Q1

Q2

Q3

2019

Q4

Q1

Q2

Q3

Q4

2020

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Global Supply:- By 2020 the LNG supply pool has a lot of new flexibility
New supply models have flexible features – but pass on several operational and pricing risks to buyers/ off-takers
See more LNG on LNG competition in the regional markets.
We will have to learn how to quantify and value flexibility in new LNG contracts

30-40Mtpa
Equity offtakeagreements

45-70Mtpa
of US tollingsales

Amortisedprojects
allow more
flexible newsales

2020 Global supply pool~ 400Mtpa
100Mtpa of new flexible LNG controlled directly by buyers, portfolio players and LNG
sellers who can be more flexible in their sales
Pool may grow - depending on success of 2015 FIDs

© Patricia Roberts LNG Worldwide Ltd 201510

IEEJ: January, 2015. All Rights Reserved.

4

Global demand:- China’s LNG demand is a big issue to watch

Mature Asia’s new LNG demand falls significantly by 2020, whereas China’s grows
MT

JKT demand gaps vs. Growing China LNG demand gaps ( base case)Big change: Dominant Asian buyer is likely to be China

Big responsibility for the Chinese Government to§

Leverage large Government - Government energy deals§Elect which countries/ companies to support to develop new LNG supply and when

What China does will impact the rest of the Global LNG business© Patricia Roberts LNG-Worldwide Ltd 201511

IEEJ: January, 2015. All Rights Reserved.

China’s Geopolitics will have a strong influence on its LNG development

RussiaCanada§

CNOOC acquire Nexen§

CNPC stake in Canada LNG§Sinopec stake in PNWUS Exports
tangled withdomestic issues§Russian – Chinese energy
cooperation§

CNPC equity in Yamal LNG andfinancing§

Pipelines will compete with LNG
38bcma Pipeline deal,
expandable to 62bcma
30bcma Altai Pipeline HOA

PeruAustralia

Mozambique§

CNPC acquired Petrobras
oil and gas assets§

CNPC buys equity stakefrom ENI§

CNOOC equity in QCLNG§Sinopec equity in APLNG§HOAs with China for LNG
purchase from Moz LNG§CNPC/ Shell Arrow JV§SPAs from other Aus projects

China has the biggest single country LNG demand growth to 2020 which is as yet
un-contracted (approx 15Mtpa).
Its procurement is directed by geopolitics and preference for an equity off-take
LNG business model – Note the lack of direct engagement with USLNG© Patricia Roberts LNG-Worldwide Ltd 201512

IEEJ: January, 2015. All Rights Reserved.

Global demand:- Other new demand growing in Asia

Mostly price sensitive demand – India and Indonesia are the ones to watch if DES Asia prices stay around$10/MMbtu .
MT

India, New Asian markets and ME potential LNG demand gaps

New competitors for Japan also include India and Indonesia

Big decisions for the Indian and Indonesian governments regarding
their commitment to long term LNG imports at full international prices.
Currently the base case does NOT include the full effects of their demand potential© Patricia Roberts LNG-Worldwide Ltd 201513

IEEJ: January, 2015. All Rights Reserved.

Global demand:- Changing characteristics of new LNG buyers
Generally new buyers will become more challenging for Sellers
Mature Markets characteristics

Mature Buyers in Asia have helped the industry grow using abalanced risk reward investment model

New and emerging markets characteristics

Markets displacing oil may pay higher prices
Markets with State Owned co may be credit worthy

But have committed most of their new demand to US andCanadian projects
Innovative commercial contracts will be needed to supply
these new buyers© Patricia Roberts LNG-Worldwide Ltd 201514

IEEJ: January, 2015. All Rights Reserved.

Global Demand:- By 2020 LNG buyers are more diverse and demandmuch more flexibility
New LNG tolling models have more flexible features – but pass on several operational and pricing risks to buyers/ off- takers
Overall , they are likely to create more LNG on LNG competition in the regional markets.
We will have to learn how to quantify and value flexibility in new LNG contracts

Mature Asia
mainly balancedChina expected
to be growing –through equity
investments andshort term
balancingMay be trading
and optimising
their portfolios

Pricesensitive
markets need
Govt support
to commit to
LNG
contracts

Sellers need to respond to the new characteristics of buyers.
They will look for niche markets ( in Asia , S . America, Europe)
but ready to trade short term
N.WE likely to be the balancing market for marginal LNG© Patricia Roberts LNG Worldwide Ltd 201515

IEEJ: January, 2015. All Rights Reserved.

might regional LNG pricing head ?
5 WherePricing History
Trends2015

2020

DES market prices $/MMbtu$US /MMbtu

DES Asia

DES N.WE$10-12/MMBtu Term
$7-12/MMbtu Spot

$ 6-9/MMbtu$3-5/MMbtu
DES US

Assumptions
LNG supply demand base case ( Slide 7)

Oil price minimum $45/bbl ( 2015 short term low)
Rising to $80/bbl by 2020

© Patricia Roberts LNG-Worldwide Ltd 2015

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Do we need an Asian LNG hub – or simply a more dynamic Asian price?
More market liquidity is developing
More short term transactions likely
More operational flexibility likely from sellers competing for sales

Base Case
assumptions

Dynamic, market responsive pricing is the key
for Asian buyers
The market dynamics are now pushing in thisdirection

A lower oil price world does not easily support the economics
of entrepot storage/ reloading of vessels
A HUB location-

Better to freight directly to end user markets-

Arbitrage plays generally reduce as market balances-

Expect short term imbalances and weather effects-

Terminal reloads capability can promote arbitrage trading

New pricing
indexes

Current 2020
Outlook

US FOB LNG quotation likely to develop if US LNG becomes
traded-New Asian indices also likely-

Europe is the natural LNG trading hub-

Pipelines / LNG infrastructure - flexible sinks or source of LNG
N.WE already has market liquidity
N.WE has secondary markets to clear gas daily© Patricia Roberts LNG Worldwide Ltd 2015

May not be needed formally
But Singapore offers operational flexibility

A virtual hub with a spot Asia LNG price such
as JKM or OTC quotation is achievable
A desired ‘Normal “ range of prices would be
NBP+$1/MMbtu (minimum) to
Term Asia DES price ( maximum )May see companies taking Eu regas capacity
as a global LNG trading option

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6

Are the changes good for Japan’s LNG industry?

Risk
Success

1

Oil price fall2

Oil price instability

3 Short term sales
4

Long term sales

5

LNG on LNG competition

6 New Business Models
7•

More diverse LNG community

Overall perspective

Impact on Marketing✔

For Japanese buyers✖

Japanese Equity investors• Will delay or cancel at least 30Mtpa projects in 2015
• Can Canada or Mozambique launch without price floors?
• Short term US not affected – difficult to find sales for 2016+ FIDs✖

Global capacity growthSlows down *• Confidence in liquidity - leads buyers more short term
• Amortised projects can sell short term✔

• Good short term for buyers• Damages early cash flow for new projects• Industry needs LT sales around $12-15/MMbtu for new projects• Buyers will need more responsive pricing/ operational• Innovation from sellers to secure sales to top tier buyers.
Flexibility is NOT free - will be quantified – costed into transaction• More choices for buyers – but BEWARE the risks!!
• US Tolling Model will be a significant component of new LNG sales• Some buyers will become global portfolio players• Equity off-take model appears attractive both for sponsors and buyers
•
•
•
•
•

New Asian buyers more dominantMore Buyers assuming the portfolio player role
More LNG tradersMore risk managers
More transparency

More liquidity to manage
short term imbalances✔ Unclear how many new LT
sales Japan needs – but
can leverage its position✔

Asian price ranges
Floor : NBP linked
Ceiling: Term contract linked✔

Japanese buyers need to
manage their supply
more dynamically✔

Good for large energy
Companies✖ Small, inflexible, inexperienced
Players disadvantaged

Can a slowdown force innovations to LNG construction costs??

© Patricia Roberts LNG Worldwide Ltd 201518

IEEJ: January, 2015. All Rights Reserved.

LNG- Worldwide Ltd Activities / Experience

Support and advice to
NOC’s /IOCs/Utilities /New market entrants

LNG supply / demandand pricing
Analysis andForecasting

LNG Commercial
agreements – advice,negotiation andevaluation

CWC – School for Energy
Commercial skills
Lead trainer

Expert witness forcommercial disputes

CWC Group LNG World
Series conferencesChairman and associate
Director

CASS business school
LondonLecturer / Examiner
MSc Energy/ Trade/Finance

Tullett Prebon LNG
Trading consultancy
And co-author to subscription
Monthly market reports

Disclaimer
The conclusions set forth herein are the results of the exercise of the author’s best professional judgment, based in part upon independent
research, publicly available materials, and information obtained from the author’s analysis.
The author accepts no liability of any kind whatsoever to any party, and no responsibility for damages, if any, suffered by any party as a result ofdecisions made, or not made, or actions taken, or not taken, based on this presentation.
Patricia Roberts Director (BSc, PhD )LNG-Worldwide Ltd UK
January 201519

© Patricia Roberts LNG-Worldwide Ltd 2015

LNG –Worldwide Ltd
Contact: report@tky.ieej.or.jp19