asia lng supply options may 2014 - wood mackenzie

Trusted commercial intelligence www.woodmac.com

Comparing Asias Future LNG Supply Options

Nicholas Browne

Senior Analyst, Asia Gas Research


2

There is increasing gas availability

But a lot of the supply remains distant from market

Woodmacs estimate of global remaining commercial gas reserves increased by

37% between 2007 to 2012

Global Gas Resource (by type) 2025 liquefaction capacity by location

US

Australia

Other

Russia

East Africa

Canada

US

Others

East Africa

Australia Canada

Russia

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2007 2012

tcf

Conventional Unconventional Source: Wood Mackenzie Global Gas Service


3

The battle to provide the next wave of LNG supply will be fought

between the US, Canada, East Africa and Russia

US LNG, with flexible, HH+ priced volumes is captivating many buyers, but

its not a panacea and has its issues. The current lack of progress elsewhere creates potential upside

The proposed LNG export projects in Canada are moving slowly, but

crucially they do offer supply diversity to Asian buyers

Russia remains a real wildcard given the political and corporate situation

East Africa now has large volumes of discovered gas, but turning it into

LNG is proving far more challenging than many originally thought

While Australia dominates LNG capacity currently under construction, its

influence beyond that looks increasingly limited, not least by its prior

marketing success

FLNG appear to have momentum in some parts of the world but is not without technical delivery risk

With FLNG playing a niche role


4

There is >100mmtpa of credible low-cost US LNG export potential

Market appetite and competitiveness will determine export volumes, but approvals

impact project credibility and speed to market

Post FID

Sabine Pass T1-4

Potential non-FTA second movers

Freeport T1/2, Cameron

Cove Point, Freeport T3, Corpus Christi, Lake Charles

FTA Pushers

Southern

Low cost options

Sabine Pass T5

Golden Pass

Source: US DoE, FERC, Wood Mackenzie

Notes:

1. Tick ( ) indicates the project has received scheduling notice from the FERC

2. SP stands for Sabine Pass

* FLNG project(s) that will be applying to MARAD instead of FERC

P

US LNG Export Proposals - DOE and FERC Status Frontrunners (100mtpa)

In order of DOE non-FTA processing

0

20

40

60

80

100

120

140

160

180

200

220

240

260

mm

tpa

6 bcfd

FERC received

FERC main filed

12 bcfd

FERC pre-filed

1 2

4 3

5 6

9

7

10

8

13 11 12

14 15

17

No FERC filing

16

P

P P P

P


5

The Canadian LNG export play is building momentum, but it remains

complex and no FIDs are expected until 2015 at the very earliest

An ever growing number of projects have been

proposed / mooted confusing Buyers and complicating things for Government

Three common sites have emerged

Kitimat: BC LNG, Kitimat LNG (Chevron), LNG

Canada (Shell)

Price Rupert: Pacific Northwest (Petronas),

Prince Rupert LNG (BG, and now CNOOC)

Grassy Point: CNOOC (Aurora), Woodside

From a corporate perspective it looks like a

game of musical chairs M&A is rife and the picture will change

Projects are complex to develop all greenfield, major pipelines, First Nations, tax uncertainty,

access to power, pricing debates

but relative stability (politically) and ability to diversify portfolios appeals to buyers

Petronas is emerging as a front-runner, but still

has hurdles to clear


6

Russia has demonstrated the political will to develop new capacity

Source: Wood Mackenzie LNG Service, see Yamal LNG project review

Yamal LNG Offtake

After Yamal LNG, what next in Russia?

East Russia

Vladivostok Sakhalin 2

Expansion

Far East

LNG

Partners

Reserve clarity Liquids at

Sakhalin-3

Insufficient

reserves

Insufficient

non-

associated

gas for 2

trains

Other

Dependencies

China

pipeline

Clarity on

Vladivostok

Ukraine

crisis

More challenging More straightforward

0

2

4

6

8

10

12

14

16

18

mm

tpa

CNPC GNF TOTAL Novatek Yamal LNG

Yamal LNG still

marketing 3.5

mmtpa

Wood Mackenzie

estimates 6.5 mmtpa

portfolio offtake by

Total and Novatek G&P

Publically announced

offtake of 5.5 mmtpa

with CNPC and GNF


7

East Africa has more than enough gas to support significant LNG

exports, but progress towards project sanction is slow

Partner alignment

Multiple monetisation

proposals appear to reflect

stakeholder misalignment:

government, Area 1, Area 4

participants

And M&A activity and potential FLNG adds uncertainty

0

2

4

6

8

10

12

14

0

10

20

30

40

50

60

70

Area 1 Area 4 Blocks 1,3

& 4

Block 2 N

o o

f tr

ain

s

tcf

Reserves May 2013

Additional proven

reserves

Mozambique Tanzania

Regulatory certainty

Mozambique -

Presidential election

due October 2014

with implications for

Decree Law timings

Tanzania - Natural

Gas Act passed in

2013

Proven reserves keep growing


8

8

10

25

13

-

30

60

90

120

150

180

2010 2011 2012 2013

Ave

rag

e O

il &

Ga

s S

ala

ry U

S$

'00

0

Australia Canada US

Australian costs need to decrease before additional capacity can be

developed with confidence

Development of backfill and conventional expansions relatively low cost

Expansions

Gorgon

Wheatstone

CSG

Arrow LNG

AP LNG Expansion

QC LNG Expansion

FLNG

Browse

Bonaparte

Cash/Maple

Greater Sunrise

Scarbourough

Source: Hays salary survey 2010-2013

Backfill by 2025

Darwin

North West Shelf

Increasing

cost

Average Industry Salaries by Location Proposed projects capacity mmtpa

Anecdotal suggestions that costs may be declining in 2014

Development

hurdles include:

- partner

alignment

- reserve

adequacy

- 3rd party gas

access


9

Its too early to call FLNG a game-changer and the involvement of portfolio players will be key to successful developments

Douglas Channel (0.9)

LNG PARTNERS B

B

B

B Barge mounted

^FLNG 2 (1.5)

^ La Creciente (0.5)

^Prelude (3.6)

Browse (3 * 3.6)

Scarborough (6)

Bonaparte (2-3)

Cash/Maple (2) ^ Under construction

Abadi (2.5)

Equatorial zone

Leviathan (2 * 4.5 )

Lavaca Bay (4)

Brazil Pre-Salt (3)

^FLNG 1 (1.2)

(3 * 3.6 ) Multiple vessels

EG (1.5)

Developers

Leveraging FSRU experience

Utilities

Looking for LNG supply

Shipbuilders

Pushing technology

Majors / Super-Majors

Monetising stranded gas

Area 4 Moz.

(Up to 3 TBC )


10

Our analysis suggests that multiple LNG supply sources could be

competitive into Asian markets

Cost control through project execution is a major risk, for some projects in particular

Notes: US projects assume 115% HH (with HH assumption of US$5.2/mmbtu)and liquefaction of US$3.00-4.50/mmbtu and Panama Canal shipping. Canadian projects based on AECO

assumption of US$4.3 /mmbtu plus project specific pipeline and liquefaction costs.

Source: Wood Mackenzie GGS, LNG Tool H114

Canadian costs

uncertainty

Delivered Cost of LNG to Japan

0

2

4

6

8

10

12

14

16

18

20

East Russia US GC East Africa Canada Aus pre-FID FLNG Aus CSG post-FID

US

$/m

mb

tu (

20

14

re

al)

Range


11

Conclusions

The pace of US FIDs looks set to grow as projects benefit from the lack of

progress elsewhere

A project front runner is emerging in Canada, but more to be done before we

see FID on a large project

With Yamal LNG, Russia has demonstrated the political will to develop

new capacity and attention is now focused on east Russia

In East Africa, progress has been slow

A number of FLNG projects are now progressing, but it's too early to call

the technology a game changer

Speaker Biographies



13

Nicholas Browne

Nicholas joined the Gas & Power research team in 2012, covering the gas markets of Japan, South Korea and Taiwan. His primary focus is on understanding the impact of changing policy on these energy

markets and in assessing the corporate dynamics. Nicholas joined Wood Mackenzie in 2007, firstly

working in the Gas & Power consultancy team based in London. He has advised on several major

international infrastructure transactions and project financing engagements, together with completing

projects across the gas value chain such as gas monetization options, transport economics and market

entry strategies.

Nicholas joined Wood Mackenzie from Total, where he worked on the European Gas & Power trading floor. His role involved managing the physical gas position across Europe through prompt trading and

optimising assets such as pipelines, storage, swing contracts and fields. Prior to that he worked as a

marketing analyst in Totals UK Gas & Power division.

Nicholas holds a B.A. from Trinity College Dublin and an M.Sc. from the London School of Economics.

Senior Analyst, Asia Gas Research

E [email protected]

T +65 6518 0803


14

Disclaimer

This presentation has been prepared for Wood Mackenzie Global Gas Forum at the

Peninsula Hotel, Tokyo on 21st May 2014 by Wood Mackenzie Limited. The

presentation is intended solely for the benefit of attendees and its contents and

conclusions are confidential and may not be disclosed to any other persons or

companies without Wood Mackenzies prior written permission.

The information upon which this presentation comes from our own experience,

knowledge and databases. The opinions expressed in this report are those of Wood

Mackenzie. They have been arrived at following careful consideration and enquiry but

we do not guarantee their fairness, completeness or accuracy. The opinions, as of this

date, are subject to change. We do not accept any liability for your reliance upon them.

Strictly Private & Confidential


15

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asia lng supply options may 2014 - wood mackenzie

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