US LNG Marketing Worldwide:

Success or Failure?

Maria Belova, Head of Research

13 April 2017

2

CURRENT CONDITIONS

PROJECTION

Major LNG volumes in 2016 were headed to Latin America

and Asia

3Source: US DOE, VYGON Consulting

US LNG supply structure in 2016

Asia Middle East and Africa Europe Latin America

ǀ HALF-YEAR* ǁ HALF-YEAR

*I half-year is counted from February 24, the date of the first US LNG release

8%

15%

14%64%

36%

13%11%

40%

1 mt 2,8 mt

Most LNG contracts in the US were concluded at the highest

natural gas price differentials

4Source: World Bank, VYGON Consulting

Regional gas prices and the main milestones in the US LNG history

0

2

4

6

8

10

12

14

16

18

1Q20131Q20121Q20111Q2010

$/MMBtu

1Q20171Q20161Q20151Q2014

USA Europe Japan

Conclusion of the largest

contractsDelivery start

US/Eur Diff: 8

US/Jap Diff: 12 US/Jap Diff: 4

US/Eur Diff: 2

The price formulas in the US LNG contracts are moving away

from the traditional oil link

5Source: VYGON Consulting

Typical contract formulas

Henry Hub*1,15 + 3

index

Seller Project Purchaser Price formula Sigh year

USA Sabine Pass BG 2011

USA Sabine Pass BG 2012

USA Corpus Christy Endesa 2014

Australia GLNG Petronas 2011

Australia Ichthys Japan 2012

premium constant

Henry Hub*1,15 + 3

JCC*0,1455

Henry Hub*1,15 + 3,5

JCC*0,1485 + 1

Henry Hub*1,15 + 2,25

Typical

scheme

Company Consumer

The US

scheme

E&P Company LNG plant Purchaser Consumer

Typical LNG delivery scheme has just 2 parties, E&P company

bears risk, in the US it is 4, while the buyer is exposed to risks

6Source: VYGON Consulting

Participants in the LNG supply chain and price risks

Price risk FOB

DES

«liquefy-or-pay»

80% of US LNG is marketed within the long-term contracts

7Source: GIIGNL 2017, Cheniere, VYGON Consulting

Contractual structure of US LNG by plants, conditions and customers, mt

Portfolio

60%

Purchasers

48

S.Korea 7%

Japan

18%

Europe 7%

Other 7%

FOB

89%

DES

11%

48

Delivery basis

Short-term

5%

Long-term

79%

HOA*

16%

Contract type

48

Calcasieu 2%

Jordan Cove 6%

Plants

48

Cove Point 5%

Cameron 10%

Corpus Christi

22%

Sabine Pass

55%

* Heads of Agreement

In 2016 it was unprofitable to export US LNG to Europe

8Source: EIA, FERC, VYGON Consulting

Changes in netback factors of US LNG delivery by region in 2016, $/MMBtu

* Freight cost includes Panama canal fee for Asia

Belgium China Brazil

-0,6

2,3

5,0

5,6

2,8

0,1

0,4

Freight*

Bunkering

and boil-off

Average

LNG price

Profit/Loss

Henry Hub +15% 2,9

Netback price

Liquefaction

cost

FOB price

2,1

2,9

5,0

2,8

7,7

0,4

0,6

8,6 8,0

2,0

2,9

4,9

2,8

7,6

0,1

0,3

LNG tanker spot charter rates fall resulted from excessive

investments in tanker fleet

9Source: Fearnley

LNG tankers average freight rate

th.$/day

Average Spot Rate 155-165k TFDE

5-y Average Spot Rate

10

CURRENT CONDITIONS

PROJECTION

Cove Point 5,25

Elba Island 2,50

Freeport18,3

Corpus Christy13,5 Cameron 20,0

Calcasieu Pass 10,0

Sabine Pass 27,0

Up to date 40 LNG projects filed applications to export 383 mt,

which is 1,5 times higher than global LNG trade

11Source: US DOE, VYGON Consulting

Applications for non-FTA export licenses, mt

383

326

285263

212

94

201520142013 201620122011

20,0 Capacity, mt

Online

Under Construction

Pre-FID

7 LNG plants are under construction, US export capacity will

obtain 78 mt by 2020

12Source: IGU, company data, VYGON Consulting

Planned LNG capacities commissioning in the US by plants by the end of 2019, mt

18 18 18 18 18 18 1823 23

5 5 5 5 5 5 5

5 54 48

12 1216

1620

14

9

5

1313

99

44

99

9

5

5

3

1Q19

3

27

137

51

4Q19

78

23

3Q17

1

2Q18

341

360

68

4Q161Q16

Freeport LNG

Cameron LNG

Cove Point

Sabine Pass

Elba Island LNG

Corpus Christy

Calcasieu Pass

By 2020, the US will catch up with Qatar in terms of LNG capacity

13Source: BP, VYGON Consulting

Top-10 countries by production LNG capacity in 2015 and 2020, mt

7

7

10

12

13

16

21

25

29

78

Yemen

Oman

Russia

Algeria

Trinidad and

Tobago

Indonesia

Nigeria

Malaysia

Australia

Qatar

7

12

13

16

21

28

31

69

78

78

Malaysia

Australia

USA

Qatar

Oman

Algeria

Trinidad and Tobago

Indonesia

Nigeria

Russia

2015 2020

More than half of LNG capacity is contracted

14Source: GIIGNL 2017, company data, VYGON Consulting

Contracted LNG volumes* in the US by 2020, mt

9

1722

28 29

4

4

4 4

9

33

3

2015

1

2018

1

29

2020

11

2019

37

40

10

1

12

1

2017

23

2

1

2016

Chile

Portfolio

S. Korea

Europe

Other Asia

Japan

* Without Heads of Agreement

US natural gas spot price will rise by 2020 in all EIA scenarios

15Source: EIA, VYGON Consulting

Henry Hub gas price scenarios in the US by 2020, $/MMBtu

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

5,5

2012 2013 2014 2015 2016 2017 2018 2019 2020

Reference case

High Oil and Gas

Resource and Technology

Low Oil and Gas

Resource and Technology

Reference case

Low Oil Price

US LNG supply to Europe is dubious, the major volumes will head

towards other regions

16Source: EIA, FERC, VYGON Consulting

Cost plus forecast of US LNG delivery to Europe by 2020, $(2016)/MMBtu

0,40,6

3,2

0

1

2

3

4

5

6

7

8

9

10

11

Max

FreightBunkering

and boil-off

Liquefaction

cost

HH +15%

0,8

Henry Hub

5,4

Min

3,6

Max

LNG price

10,4

Min

8,3

Belgium

Average LNG import price in Belgium

5,6 Fact

6,9 Forecast

US spot price growth with define about 60% delivery price rise

of US LNG to Europe

17Source: EIA, VYGON Consulting

Factors of US LNG price change during its supply to Europe in 2016-20, $(2016)/MMBtu

0,2

0,3

0,5

1,2

8,3Cost plus 2020

Fuel price

growth

Freight

rate growth

Liquefaction

cost growth

HH price rise*

Cost plus 2016 6,1

* based on the AEO EIA 2017 minimum scenario

US LNG supply to Asia will be close to the profitability

in the minimal scenario

18Source: EIA, World Bank, VYGON Consulting

Cost plus forecast of US LNG delivery to Asia by 2020, $(2016)/MMBtu

0,6

0,7

3,2

0

1

2

3

4

5

6

7

8

9

10

11

Henry Hub

Max

Min

3,6

5,4

LNG priceLiquefaction

cost

HH +15%

0,8

Freight*

Max

Bunkering

and boil-off

Min

8,6

10,7

Japan

* Freight cost includes Panama canal fee

6,9 Fact

8-9 Forecast

Average LNG import price in Japan

19

123610

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