Commercializing gas value chains to create and enhance demand for LNG

Ken Sauer | Commercial 3 | July 13, 2017

The company

Risco-AG&P: a snapshot

• RISCO-AG&P is a diversified oil and gas Infrastructure company

• RISCO-AG&P is backed by a strong Indonesian businessman with a proven track record in owning, managing and

operating oil and gas assets in Indonesia

• World-class engineering and fabrication capabilities

• World-class oil and gas operational safety standards and awards

• Delivering standardized, modular oil and gas infrastructure assets to our customers

• Aligning with the needs of the power, bunkering, mining, transportation and industrial sectors

• Focusing on midstream and downstream LNG infrastructure assets

• Engaging and providing end-user customer support from the early stage of the project’s life

• Investing in logistics, storage and associated infrastructure

Leadership • Senior LNG leadership team

• Proven operating and technical capabilities

• Strong deal origination ability, proprietary and captive deal control

• In-house design, fabrication, development and operations

• Unrivalled engineering and fabrication capabilities

Strategy

2

3

“BMP” big market players – A to B trade

LNG trade 10 years ago

Natural Gas Markets

LNG Flows

Pipeline Flows

•Stable, long-term GSA and SPA contracts

•A to B deliveries on large scale with creditable counterparties only

•Limited inter-regional trade and breaking down of cargoes

•Segmented pricing regimes

•Limited new demand markets

Henry Hub/

NYMEX

European Gas

(oil-linked)

pricing

Russian Gas

(Brent-linked) pricing

JCC-linked

pricing

Challenges and opportunities

4

Demand

Small and stranded demand centers

Not comfortable with supply consistency

Customer reluctant to switch fuel source

No access to technology

Infrastructure

Very bad regional pipeline network

No medium or small receiving terminals

No current dynamic end-user support

platforms

No medium or small storage centers

No early stage development platform provider

Geography Some demand centers are isolated and have

geographic challenges

Size of demand points are expensive and do

not show good economic cases for

investment and development

Challenges

Demand

Indonesia’s PLN plan to develop gas IPP

and some need small gas solutions

Regional power players gas growth

Captive power users switching to gas fired

Industrial retail growth (already used in mining

trucks and vessels)

Infrastructure

Existing large regasification facilities can be

easily retrofitted for break-bulk facilities

Regional medium-small opportunities

Maritime bunker shuttle developments to

enhance infrastructure tolling scheme

Geography Maritime solutions that give maximum

optionality will be the solution for region

Break bulk modularized asset developments

will be solution for region

Opportunities

Midstream

and

Downstream

LNG

Solutions

5

Medium to small stranded demand centers

How to solve the Indonesian LNG market dilemma?

Namlea 10MW

MPP Maluku (Ambon) 70MW

PLTMG Ambon Peaker 30MW

Seram Peaker 20MW

Saumlaki 10MW

PLTMG Langgur 20MW

PLTMG Dobo 10MW

MPP Manokwari 20MW

Bintuni 20MW

Fak Fak 10MW

Biak 15MW

Serui 10MW

Nabire 20MW

Timika Peaker 10MW

MPP Tobelo 10MW

Malifut Peaker 5MW

MPP Sofifi 10MW

MPP Malut (Ternate) 30 MW

Minahasa Peaker 150MW

MPP Subagut 100MW

Tahuha 10MW

Gorontalo Peaker 100MW

MPP Kolaka Utara 5MW

MPP Sultra Kendari 50MW

MPP Bombana 10MW

MPP Wangi Wangi 5MW

Bau Bau 30MWSelayar 10MW

MPP Sulsel 50MW

Makasar Peaker 450MWSulsel Peaker 450MW

MPP NTT (Kupang) 30MW

Kupang Peaker 40MW

Alor 10MWMaumere Peaker 40MW

MPP Flores 20MW

Waipangu 10MW

Bima 50MW

Lombok Peaker 150MW

Sumbawa 50MW

Nunukan 2, 10MW

Malinau 6MWTanjung Selor 15MW

Senipah ST 35MW-IPP

Bangkanai 140MW

Kaltim Peaker 2, 100MW

Kalsel Peaker 1 200MW

MPP Kaltim 30MW

Kalsel Peaker 2 100MW

MPP Kalselteng 100MW

MPP Kalselteng 100MW

Pontianak Peaker 1, 100MW

MPP Kalbar 100MW

Natuna 2, 25MW - IPP

Tahuna 10MWSabang 4MW

Sumabagut 2 Peaker 250MW

Sumabagut 3 Peaker 250MW - IPP

Sumabagut 4 Peaker 250MW - IPP

Sumut 250MW

MPP Bangka 50MW

MPP Nias 25MW

Riau 150MW-IPP

Bengkalis 18MW - IPP

Tanjung Pinang 2, 30MW-IPPSelat Panjang 15MW - IPP

Riau Peaker 200MW-IPP

Riau 160MW-IPP

MPP Sumbagsel 100MW

Jambi Peaker 100MW-IPP

Bangka Peaker 2X50MW - IPP

Belitung Peaker 30MW - IPP

Sewa Lampung 2x100MW - IPP

Lampung Peaker 200MW- IPP

Peaker Jawa Bali 2, 500MW - IPP

Karimun Jawa 4MW

Jawa 3, 800MW - IPP

Grati 150MW

Peaker Jawa Bali 1, 400MW - IPP

Peaker Jawa Bali 4, 150MW - IPP

Muara Tawar 650MWMuara Karang 500WJawa 2, 800MW

Peaker Jawa Bali3, 500 MW - IPP

Grati 300MW

MPP Lombok 60MW

Bangkanai 155MW

Muara Jambi 100MW - IPP

Indonesia current LNG infrastructure: can’t feed stranded demand

6

6

6

Existing liquefaction LNG

Planned liquefaction LNG

Existing FSRU/Regasification

Planned FSRU/Regasification

Existing gas pipeline

Planned gas pipeline

Arun Import TerminalLocation: Arun

Capacity: 3 mtpa

Operator: PT Perta Arun

Gas (Pertamina)

FSRU Jawa BaratLocation: Jakarta bay

Capacity: 3 mtpa

Operator: PT Nusantara Regas

(JV Pertamina and PGN)

FSRU LampungLocation: Labuhan Maringgai,

Lampung

Capacity: 3 mtpa

Operator: PGN LNG

FSRU CilacapLocation: Cilacap – Central Java

Capacity: 3 mtpa

Operator: Pertamina

Onstream : 2016

FSRU SemarangLocation: Semarang –

Central Java

Capacity: 3 mtpa

Operator: Pertamina

Badak LNGLocation: Bontang

Capacity: 21.6 mtpa

Operator: PT Badak LNG

(Pertamina)

Donggi SenoroLocation: Banggai, Central

Sulawesi

Capacity: 2 mtpa

Operator: PT Donggi Senoro LNG

(JV Pertamina, Medco,

Mitsubishi, Korea Gas)

Tangguh LNGLocation: West Papua

Capacity: 7.6 mtpa

Operator: BP

Sengkang LNGLocation: South Sulawesi

Capacity: 2 mtpa

Operator: Energy World

Corporation

Masela FLNGLocation: Abadi gas field

Capacity: 4.5 mtpa

Operator: Inpex Masela

(JV Inpex and Shell)

LNG at a glance

Understanding the old ways to break it down

LNG project assessment

• Super majors as developers, large utilities as off-takers with back-to-back contracts

• Major player game

• Highly capital Intensive stick-built construction of liquefaction and receiving terminals

• Only players with proven track record and very risk averse to project finance

• Plain vanilla financing structures

• Historically, very long and complex development stage

• Medium-to-small players unable to survive the long project development window

• Costly process for medium and smaller owners and developers

• Project finance delayed and tough to align with project execution timeline

• Between FEED and FID, a make-or-break period for many developers

• Consequence – failure in development and building of new value chains

LNG contracts• Long-term oil linked pricing mechanism

• Major players offering long-term supply agreements with little flexibility or optionality

• Market contracts very structured and standardized

• Trades flows of LNG very “known” – Japan, Korea, Taiwan

• Direct and first-hand negotiations

7

Dynamic new frontier for LNG

8

• Bringing functions like engineering in-house speeds up pre-development phases

• Investing in companies with gas applications and technologies to develop value chain solutions

• Build-to-lease approach offering standardized solutions to support the end-user

• End-to-end solutions including design, manufacturing, financing, leasing, operations and maintenance of modular

energy infrastructure to deliver lower cost gas to the end-user

The new LNG market is opening up to a dynamic new field of minds, technology and standardized approaches

Benefits of integration: removing nervousness

9

• Shortens delivery schedule - no lead times on engineering

• Raises quality - standardized products allow for high quality work due to repeatability and experience of installation

• Drives cost down - designs and equipment technologies are standardized

• Builds references and increases the ability to look at smaller and medium project scopes for future demand points

• Ultimately this enhances the mindset shift to move to LNG and development smaller and medium value chain and

in turn drive demand for LNG

• Removes the nervousness for smaller and medium project developers to switch to LNG

The new LNG frontier

10

LNG at a glance

• New technology advancements and innovation in the sector

• Standardized technology and modular concepts that allow for a somewhat plug and play approach

• Transport volumes have changed

• In-house platform advancements have lowered costs

LNG contracts

• No longer only long term oil linked pricing mechanism

• Traders have entered the market

• Spot market has become more open and liquid

• Supply agreements have become more flexible and increased spot contracts

• Trades flows of LNG are opening up the “unknown” – Pakistan, India, Indonesia, Caribbean, etc.

• LNG brokers have emerged removing a portion of the once direct firsthand negotiations

LNG project assessment

• Working to tailor solutions to customers’ needs

• Design, build, finance - many market participants are now offering “total package solutions”

• Medium to small players don’t survive the long project development window

• Costly process for medium and smaller owners and developers

• Project finance is delayed and tough to align with project execution timeline

The LNG tipping point…

11

Market is at a

dynamic period

• The Asian market players and consumers are all moving towards cleaner energy fuels

• Governments and policy are changing to sustain economic growth

• Maritime policies are changing to enhance usage of LNG

• Power players are looking for cleaner and better solutions to providing electricity

• Industrial users are seeking alternative fuels such as LNG

LNG demand

• Steadily increasing over the next 5-7 years

• Customers becoming more “in the know” surrounding LNG usage

• LNG technology advancements and innovations are growing

• More market participants are now involved in LNG - traders, banks, etc.

12

New dynamic structures are breaking into trade flows

LNG trade in 2017

Markets

LNG

Pipeline

Henry Hub/

NYMEX

NBP & Other

Hubs

Brent (85%), NBP

(15%)Long Term: JCC

Short Term: NBP/Other

Hubs

South

America

(TBD, but some deals to HH

& Brent)

•Off take contracts becoming more flexible and adding options

•Liquid markets of US & Europe enable flexible volumes

•Regional two-tier pricing formulas are emerging and allowing for resales

•Increased LNG traders developing new markets and pricing trends

•Alternative fuels star to become an option-switch from diesel to gas

13

Regional compartment and point to point trade

LNG trade10 years ago

Natural Gas Markets

LNG Flows

Pipeline Flows

•Stable, long-term GSA and SPA contracts

•A to B deliveries on large scale with creditable counterparties only

•Limited inter-regional trade and breaking down of cargoes

•Segmented pricing regimes

•Limited new demand Markets

•Siloed LNG suppliers, buyers and infrastructure players

Henry Hub/

NYMEX

European Gas

(oil-linked)

pricing

Russian Gas (Brent-

linked) pricing

JCC-linked

pricing

14

New demand centers are emerging

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Million tons

Red = Replacing other gas supplies

Green = Replacing oil/coal

Southeast Asia is driving point behind new LNG flows

15

Why LNG? Indonesia gas balance declining

National gas imbalance between supply and demand

2.7 bcfd gap in 2020 to be met through LNG imports

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Potential Demand 34 220 308 419 560 974 1187 1342 1624 1886 2171 2460 2773 3104 3458 3859 4266

Ekspor (Committed) 156 195 32 229 521 521 522 521 509 436 446 508 45 120 41 29 12

Domestic (Committed) 1346 1863 2303 2586 3774 4315 4824 5128 5482 5624 5927 5877 6053 6072 6146 6158 6178

Ekspor (Contracted) 3409 2711 2537 2444 2013 1977 1895 1517 1526 1151 845 770 653 617 625 384 357

Domestic (Contracted) 4549 4624 4275 4130 3282 2746 2466 2189 1744 1534 1071 962 761 753 641 331 331

Projection of Exploration Discovery 0 0 0 0 27 59 300 631 996 1248 1628 2045 2699 3021 3320 3391 3515

Potential Supply 0 1 15 41 61 59 59 60 23 1020 1020 1020 1020 1020 1020 1015 1012

Project Supply 206 910 1571 2231 3124 3910 4084 3970 3869 3480 3060 2717 2305 2022 1555 1178 1048

Existing Supply 6764 6658 6318 5694 5197 4476 3771 3350 2902 2557 2246 2010 1694 1594 1378 1290 1278

0

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2.7 bcfd

Conclusion

16

• Demand centers in the region are growing

• LNG pricing continues to become more and more dynamic and flexible

• Oil has put LNG to sleep. Only recently has LNG become not as competitive to oil due to the downturn in oil

prices. Which has led to a decrease in industrial fuel prices making customer hesitant to switch

• The region is not suitable for huge growth in pipeline business leaving medium and small infrastructure the

only solution

• Standardization and modular solutions are to provide turn key solutions to customers is the key link to

enhance future demand for LNG

Region presents good opportunities

www.agp.ph