month 2008 © poten & partners 2008 confidential will non-oil indexation be the liberator of...

MONTH 2008

© POTEN & PARTNERS 2008 CONFIDENTIAL

Will Non-oil Indexation be the Liberator of Asian Buyers?

MARCH 2014

Ming Cai, Senior LNG & Gas Analyst

Prepared for China International NC/CNG/LNG Distribution Conference

MONTH 2009


© POTEN & PARTNERS

MARCH 2014

Poten & Partners 简介• 全球 LNG 和天然气行业的权威专

家• 40 位专家 , 5 位权威顾问，总共超

过 600 年的能源行业经验• 自 2005 年起，在 54 个国家，完成超

过 400 个咨询项目

• Poten 的专家曾在相关行业的各大领先企业担任高层决策者

• 全方位的产业链服务——最好的技术与商业结合

上游开采液化工厂船舶运输再气化终端及下游应用

REGIONAL MANAGER

EXPLORATION & PRODUCTION MANAGER

VICE PRESIDENT & CFO, (CABOT LNG)

SENIOR LNG PROCESS ENGINEER

VICE PRESIDENT, OPERATIONS & TECHNOLOGY

MANAGER, INTERNATIONAL GAS

GENERAL MANAGER, COMMERCIAL

GENERAL MANAGER, LNG OPERATIONS, STASCO

GENERAL MANAGER, NLNG & BGT

SENIOR VICE PRESIDENT, NATURAL GAS BUSINESS

BECHTEL

CHEVRON

NOW GDF SUEZ

KBR

KOGAS

MARATHON

NORTH WEST SHELF

SHELL

TOTAL

MITSUBISHI

MONTH 2009


© POTEN & PARTNERS

MARCH 2014

提供世界一流的专业技术分析和精确详尽的成本分析

• Poten 通过与 Merlin Associates 的并购整合，正式成立了 Merlin Advisors

• 结合两家全球顶级的 LNG 行业咨询服务提供商强大的技术力量和人脉网络， Merlin Advisors 可为客户提供最专业最全面的技术分析支持

• Merlin Advisors 可为客户提供如下五大类专业咨询服务• 项目的技术可行性分析• 项目资本 / 成本性分析• 项目的技术 / 商业 / 船运的尽职调查• 项目各类技术评估• 项目技术 / 商业方面的基准化分析（ Benchmark Analysis ）

• 通过与多个项目的成本数据进行对照比较， Merlin Advisors 可以为客户提供精确度在 ± 10% 以内的项目成本分析

MONTH 2009


© POTEN & PARTNERS

MARCH 2014

涵盖全球超过 75% 的 LNG 项目融资相关的尽职调查

MONTH 2009


© POTEN & PARTNERS

MARCH 2014

我们的服务涵盖了液化天然气的整个产业链

上游

中游

下游

项目公司

国际性油气企业

各大国有油气企业

燃气与电力企业

贸易公司

金融机构

政府

合同商

工业用户

其他机构

项目开发支持

企业战略

合同谈判

尽职调查

地区的政策分析

LNG船运分析

天然气开发策略

市场分析

技术评估

市场销售以及采购策略

企业类别咨询项目类别产业链

包括天然气的储运1

1

MONTH 2009


© POTEN & PARTNERS

MARCH 2014

Pricing in world gas markets is fragmented

Oil Products

Henry Hub/ NBP / Brent

JCC/Brent

NBP

Oil-linked marketsGas-on-gas markets

? ??

Shale gas driven Henry

Hub

East Africa

?

Current Regional LNG Prices

OIL PARITY

Asia LT*($16.0/MMBtu)

UK ($11.4/MMBtu)

USA ($4.2/

MMBtu)

Note*: Represented by Japanese average LNG price in December, 2013.

Source: Poten & Partners

MONTH 2009


© POTEN & PARTNERS

MARCH 2014

0

5

10

15

20

25

J an-04 J an-05 J an-06 J an-07 J an-08 J an-09 J an-10 J an-11 J an-12 J an-13

$/M

MBtu

Recent divergence among regional gas prices

Gas and Oil Price History

Oil-linked LNG

prices

Gas-on-gas

market prices

JCC

Japan LNG

NBP

Henry Hub

Pre shale gas revolution Post shale gas revolution

Major trends• Shale

revolutions in US• Oil price boom

in the world market

• Fukushima nuclear crisis

• Diversion of available LNG volumes from the Atlantic Basin to Asia Pacific


MONTH 2009


© POTEN & PARTNERS

MARCH 2014

• HH price averaged $5.8/MMBtu from 2004-08 (hereafter, the “Historical High” case)• This is higher than average JCC price

for the period

• For a 20-year, 1 MMt/y contract, the Historical High average price would yield a $5.9 billion loss for a buyer who purchased LNG under HH-linked price rather than oil-linked price

.

HH-linked price is not “cheap” historically

0

5

10

15

20

Current Base(2009-2013)

Historical High(2004-2008)

$/M

MBtu

J KT LNG New signed oil-linked Hybrid HH-linked

2.9

-5.9

-10

-5

0

5

10

Current Base(2009-2013)

Historical High(2004-2008)

bill

ion

$ fo

r 20

yea

r

Major pricing comparisons under Current Base case and Historical High case

$2.8 ($5.8)


MONTH 2009


© POTEN & PARTNERS

MARCH 2014

• HH price has been below $5/MMBtu since early 2010

• However, HH price has exceed $8/MMBtu twice in February 2014• This is equivalent to $12.7/MMBtu LNG

FOB price.

• HH volatility never ends, especially in the winter peak season!!!!

Volatility has recently returned to US gas market

0

3

6

9

12

15

18

$/M

MB

tu

$8.1/MMBtu

Historical HH spot price

Source: EIA

MONTH 2009


© POTEN & PARTNERS

MARCH 2014

254

3364

203

0

50

100

150

200

250

300

ApprovedFTA

PendingFTA

ApprovedNon-FTA

PendingNon-FTA

MM

t/y

Huge potential for US LNG exports

Planned US LNG export volume by region

• About 290 MMt/y of announced US liquefaction capacity in total in DOE’s list

• Only two trains at Sabine Pass are under construction, totaling 9 MMt/y capacity• Freeport LNG & Expansion, Lake Charles ,Cove Point and Cameron have got DOE approval to

export LNG to non-FTA countries, but are still waiting for approval from the Federal Energy Regulatory Commission (FERC).

MONTH 2009


© POTEN & PARTNERS

MARCH 2014

• EIA forecasts for HH in 2035 range from $11/MMBtu to $6/MMBtu

• HH-linked price DAP Asia could range between $13/MMBtu and $19/MMBtu by 2035

Uncertainty exists among future HH forecasts

0

5

10

15

20

2015 2020 2025 2030 2035

2013

$/M

MBtu

HH-linked High

HH-linked Base

Oil-linked*

HH-linked Low

HH High

HH Base

HH Low

*oil-linked price based on average oil price of $94.4/bbl during the period from 2009 to 2013;

HH-linked price forecast based on EIA’s forecast


MONTH 2009


© POTEN & PARTNERS

MARCH 2014

• Heavy-weighted HH-linked portfolios (P7, P11,P12) show different characteristics under different market environment• Historical High (2004-2008): low volatility, high price.• Current Base (2009-2013): low volatility, low price.

Portfolio performance varies towards price environment

0

2

4

6

8

10

12

14

16

- 1 2 3 4

$/M

MBtu

Standard Deviation

P11P12

P7

0

2

4

6

8

10

12

14

16

- 1 2 3 4

$/M

MBtu

Standard Deviation

P11

P12P7

Price analysis of alternative portfolios of HH and oil-indexed contracts – average vs. standard deviation

Historical High (2004-2008) Current Base (2009-2013)


MONTH 2009


© POTEN & PARTNERS

MARCH 2014

Three scenarios used to test 2004-13 portfolio prices

Oil-linked HH-linked NBP-linked0

5

10

15

20

LN

G p

rice

($

/MM

Btu

)

Base, high and low cases used for our demonstrative portfolio simulation

High

Base

Low

• Low & Base case: Price Oil-linked < Price HH-linked

• High case: Price Oil-linked > Price HH-linked


• Base: Historical average prices (JCC/HH/NBP)

• Low: Base prices - 1.5 sigma

• High: Base prices + 1.5 sigma

MONTH 2009


© POTEN & PARTNERS

MARCH 2014

Optimal goal to move towards efficient frontier

11.0

11.5

12.0

12.5

13.0

13.5

- 1 2 3 4

$/M

MBtu

Standard Deviation

Optimization approachHeavy-weightedHH-linked

Heavy-weightedoil-linked

Better-distributedportfolio

Efficient frontier

Better-distributedportfolio including NBP

Portfolio efficient frontier: average price vs. standard deviation

• Minimize risk at a given expected price; or

• Achieve the best (lowest) expected price at a given risk level.


• Heavy-weighted oil-linked portfolio: lower price but high volatility• Add more HH-linked contracts to significantly reduce its volatility

• Heavy-weighted HH-linked portfolio: higher price but low volatility• Add more oil-linked contracts to reduce its portfolio price

Efficient frontier

MONTH 2009


© POTEN & PARTNERS

MARCH 2014

Multi-tranche approach to pursuit optimized portfolio

0

1

2

3Profitability

Price VolatilityProject Risks

0

1

2

3Profitability

Price VolatilityProject Risks

• Start with lower supply risk supply to guarantee base requirement is met

• As portfolio diversifies, move toward a more balanced approach

• A more detailed practical approach is required to take more real world factors into account and help Asian buyers to design a customized procurement strategy – Poten has developed real practices on this

Multi-tranche approach to pursuit optimized portfolio


MONTH 2009


© POTEN & PARTNERS

MARCH 2014

• Recent high oil prices and low HH prices have spurred Asian buyers to seek non-oil indexation in Asia Pacific

• However, Asian buyers face large risks in accessing non-oil linked supplies

• Portfolio price performs differently (price & risk) under different market conditions

• Asian buyers are required to optimize their portfolio price• Minimizing the overall price risk under different market prospects and• Achieving the lowest LNG portfolio price at a similar risk level

• In their pursuit of an optimized portfolio, Asian buyers should consider:• Current position;• Future expectation;• Ability to take / mitigate risks;• Ability to secure LNG via non-oil linked contracts and negotiate with a lower oil-linked contracts.

Conclusion

MONTH 2009


© POTEN & PARTNERS

MARCH 2014

General Disclaimer

This material has been compiled by gathering market intelligence from various public and industry sources which is subject to limited validation procedures and may include estimates or judgments. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. To the maximum extent permitted by law, Poten & Partners (Australia) Pty Ltd, together with its affiliates and their respective officers, directors, employees and agents disclaim any liability (including without limitation any liability arising from fault or negligence) for any loss arising from any use of this presentation or its contents or otherwise arising in connection with this presentation. This presentation should not be distributed or otherwise reproduced.

MONTH 2009


© POTEN & PARTNERS

MARCH 2014

NATURAL GAS & LNG CONSULTING CONTACTS:

AMERICAS (NEW YORK)Contact: Jim Briggs

Email: [email protected]: +1 212 230 2000

EUROPE, M. EAST, AFRICAContact: Graham Hartnell


ASIA PACIFICContact: Stephen Thompson


AMERICAS (HOUSTON)Contact: Daryl Houghton


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