asia lng supply options may 2014 - wood mackenzie

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Supply Options for LNG buyers in Asia

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  • Trusted commercial intelligence www.woodmac.com

    Comparing Asias Future LNG Supply Options

    Nicholas Browne

    Senior Analyst, Asia Gas Research

  • Trusted commercial intelligence www.woodmac.com

    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

  • Trusted commercial intelligence www.woodmac.com

    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

  • Trusted commercial intelligence www.woodmac.com

    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

  • Trusted commercial intelligence www.woodmac.com

    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

  • Trusted commercial intelligence www.woodmac.com

    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

  • Trusted commercial intelligence www.woodmac.com

    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

  • Trusted commercial intelligence www.woodmac.com

    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

  • Trusted commercial intelligence www.woodmac.com

    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 )

  • Trusted commercial intelligence www.woodmac.com

    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

  • Trusted commercial intelligence www.woodmac.com

    11

    Conclusions

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

    progress elsewhere

    A project front runne

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