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TRANSCRIPT
12/13/2011
1
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Future Gas Supply & Pricing: The Importance of Asian Demand and North American Supply
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DIES Natural G
as Demand and North American Supply
Howard V Rogers
Centre for Energy Economics 2011 Annual Meeting & ForumCentre for Energy Economics 2011 Annual Meeting & Forum
7th & 8th December 2011
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Themes
• Current Market Situation
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• Major Future Global Gas Uncertainties
• Scenario Modelling OutcomesBased on the Following Research:
‘LNG trade-flows in the Atlantic Basin, trends and discontinuities’, Howard Rogers, March 2010, http://www.oxfordenergy.org/pdfs/NG41.pdf
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FO ‘Can unconventional Gas Be a Game Changer in European Gas Markets?’, Florence Geny, December
2010, http://www.oxfordenergy.org/wpcms/wp-content/uploads/2011/01/NG46-CanUnconventionalGasbeaGameChangerinEuropeanGasMarkets-FlorenceGeny-2010.pdf
Shale Gas – the Unfolding Story’ – Article in Oxford Review of Energy Policy, Volume 27, Issue 1, Pp. 117-143http://oxrep.oxfordjournals.org/content/27/1/117.short?rss=1
‘The Interaction of LNG and Pipeline Gas Pricing: Does Greater Connectivity Equal Globalisation? (Forthcoming 2011)
12/13/2011
2
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me Europe’s Hybrid Gas Market – UK & German Gas
Prices Jan 2001 – September 2011
16
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6
8
10
12
14
$/m
mb
tu BAFA
NBP
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0
2
4
6
Source: BAFA, Platts
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European Trading Hubs & Connectivity
Norwegian
NW Europe Trading Hubs
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NBP
PEGNCG
TTF
Zee
Supply
Domestic Supply
LNG
GASPOOL
Volume up to Annual
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Trading HubTake-or-Pay Volume
Spot Gas FlowOil Indexed Contract
Gas Flow
Storage Facility
Contract Quantity
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Demand in Key Global LNG Markets
Europe Gas Demand Asia LNG Imports
2008
20102010
day
2011
2,000
2,500
3,000
500
600
700
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US, Canada & Mexican Gas Demand
2010
2009 vs 2008: - 5.6%
2010 vs 2009: + 8.1%
2011 vs 2010 YTD: - 6.3%
2008
2009
2009 vs 2008: - 3.9%
2010 vs 2009: + 17.8%
mm
cm/d
ay
2008
2009
mm
cm/d
2011 vs 2010 YTD: + 13.2%
2011
Niche and New LNG Market Imports
-
500
1,000
1,500
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec-
100
200
300
400
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
3,000
3,500
80
90
100
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Source: IEA Monthly Data, EIA, Waterborne LNG
2009
2010
2009 vs 2008: - 1.1%
2010 vs 2009: +5.6%
2011 vs 2010 YTD: + 2.6%
mm
cm/d
ay
2008
mm
cm/d
ay
2011
-
500
1,000
1,500
2,000
2,500
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec‐
10
20
30
40
50
60
70
80
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2011
2010
2009
2008
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me Asian LNG Prices – 2004 – September 2011
20
25
Abu Dhabi ‐ Japan
Algeria ‐ Japan
Australia ‐ Japan
Brunei ‐ Japan
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as
10
15
$/m
mbtu
Eq Guinea ‐ Japan
Indonesia ‐ Japan
Malaysia ‐ Japan
Nigeria ‐ Japan
Oman ‐ Japan
Qatar ‐ Japan
US ‐ Japan
Australia ‐ China
Malaysia ‐ China
Qatar ‐ China
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0
5
Mar‐04
Jun‐04
Sep‐04
Dec‐04
Mar‐05
Jun‐05
Sep‐05
Dec‐05
Mar‐06
Jun‐06
Sep‐06
Dec‐06
Mar‐07
Jun‐07
Sep‐07
Dec‐07
Mar‐08
Jun‐08
Sep‐08
Dec‐08
Mar‐09
Jun‐09
Sep‐09
Dec‐09
Mar‐10
Jun‐10
Sep‐10
Dec‐10
Mar‐11
Jun‐11
Sep‐11
Indonesia ‐ S. Korea
Malaysia ‐ S. Korea
Qatar ‐ S. Korea
Indonesia ‐ Taiwan
Malaysia ‐ Taiwan
JCC
JCC 6 Months Rolling Average
Source: Argus Global LNG
12/13/2011
4
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me Asian LNG Spot Prices vs NBP and JCC
Jan 2010 – December 2011
JCC20
25
Asian Spot LNG Prices
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JCC 6 month rolling average
High
Average
Low
NBP
10
15
20
$/m
mb
tu
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Source: ICIS Heren
0
5
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11
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Global LNG Deliveries: Jan 2010 – Oct 2011
1000
1200
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400
600
800
mmcm
/day North America
New markets
Asia
UK
Rest of Europe
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Source: Waterborne LNG
0
200
Jan‐10
Feb‐10
Mar‐10
Apr‐10
May‐10
Jun‐10
Jul‐10
Aug‐10
Sep‐10
Oct‐10
Nov‐10
Dec‐10
Jan‐11
Feb‐11
Mar‐11
Apr‐11
May‐11
Jun‐11
Jul‐11
Aug‐11
Sep‐11
Oct‐11
12/13/2011
5
s Research Program
me The Future: Major Uncertainties
• Asian Natural Gas and LNG Demand.R ENER
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as • US Future Shale Gas Production Growth and potential scale of North American LNG exports.
• Timing/slippage of new non‐North American LNG projects.
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• Production versus pricing policy for European pipeline gas suppliers post oil‐indexation.
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Asian Demand Growth
700
800
900
Taiwan LNG Imports
Taiwan Production
South Korea LNG Imports
South Korea Production
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200
300
400
500
600
700
bcma
Japan LNG Imports
Japan Production
India LNG Imports
India Production
China LNG Imports
Russian Imports
Myanmar Imports
Turkmen Imports
China Production
Taiwan Demand
South Korea Demand
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0
100
2005 2010 2015 2020 2025
South Korea Demand
Japan Demand
India Demand
China Demand
Low Demand Growth(IEA WEO 2010 New Policies Scenario Demand)
High Demand Growth(IEA Golden Age of Gas Scenario Demand)
12/13/2011
6
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me Asian LNG Imports
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me EIA Outlook to 2035 – US Gas Supply
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12/13/2011
7
s Research Program
me US Shale Production by Play
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s Research Program
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Importance of ‘Sweet Spots’
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Source: Arthur E Berman
12/13/2011
8
s Research Program
me Break‐Even Henry Hub Price For North American Gas
Operators R ENER
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Source: Deutsche Bank
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North American Gas Production – January 2008 – August 2011
1600
1800
2000
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400
600
800
1000
1200
1400
mmcm
/day
USA
Canada
Mexico
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Source: EIA, IEA
0
200
Jan‐08
Mar‐08
May‐08
Jul‐08
Sep‐08
Nov‐08
Jan‐09
Mar‐09
May‐09
Jul‐09
Sep‐09
Nov‐09
Jan‐10
Mar‐10
May‐10
Jul‐10
Sep‐10
Nov‐10
Jan‐11
Mar‐11
May‐11
Jul‐11
12/13/2011
9
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me US Production Hypothetical Trajectories
Optimistic PessimisticR ENER
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Potential North American LNG Export Projects
Terminal/Project ‐ US Commercial partners Capacity (bcma) DoE Status FERC Status Possible Start‐up
Sabine Pass Cheniere 22 Approved Under Review 2015
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as Freeport Freeport LNG, Macquerie 12.5 Approval Expected 2011 Under Review 2016
Lake Charles Southern Union, BG 19.3 Approved Not Yet Applied 2016+
Cameron Sempra 24 Not Yet Applied Not Yet Applied 2016+
Cove Point Dominion 11 Not Yet Applied Not Yet Applied 2016+
Jordan Cove Jordan Cove Energy, First Chicago 12 Not Yet Applied Not Yet Applied 2016+
Sub‐total 100.8
Terminal/Project ‐ Canada Commercial partners Capacity (bcma) Environmental Approval Other Approvals Possible Start‐up
Kitimat Apache, EOG Resources 6.9 Approved Underway 2015
BC LNG LNG Partners, Haisla First Nation 2.5 Not Yet Applied Not Yet Applied 2016+
Prince Rupert Shell 13.8 Not Yet Applied Not Yet Applied 2016+
Petronas Petronas 10.2 Not Yet Applied Not Yet Applied 2016+
Sub‐total 33.4
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Total US & Canada 134.2
Source: Waterborne LNG, A. Flower OIES
12/13/2011
10
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me LNG Supply 2005 – 2025
(Excluding Possible US & Canadian Projects)
800
900
Yemen
Other
US Kenai
Trinidad
Russia
Unrisked
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300
400
500
600
700bcm
aRussia
Qatar
Peru
Papua New Guinea
Oman
Norway
Nigeria
Malaysia
Libya
Israel
Iran
Indonesia
Eq. Guinea
Risked
Existing and Low Risk
@ 50%
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Source: Waterborne LNG, D. LeDesma, Own Analysis
0
100
200
300
2005 2010 2015 2020 2025
Egypt
Cameroon
Brunei
Brazil
Australia
Angola
Algeria
Abu Dhabi
Risked
Unrisked
Existing& Low Risk
s Research Program
me Global LNG System Low US Production
Niche Markets
Global LNG Supply
Global LNG System Balanced, North America Imports LNG
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as (Dominican Rep., Costa Rica, S
America etc.)
Asian Markets (Japan, Korea, Taiwan, China,
India)
Upstream Sellers
European LNG Buyers & Suppliers of Flexible LNG
Hub‐Indexed Pipeline Contracts / direct hub sales
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‘Normal’ Storage Inventory Level
EuropeNorth America
Domestic Production
Domestic Production
Pipeline Imports
Arbitrage has lead to convergence between US Price and European Price
PipelineImports
Additional Capacity
Minimum Supply Floor
12/13/2011
11
s Research Program
me Low US Production, High Asian Demand
Global LNG Consumption North American LNG Imports/Exports
50% probability of uncertain future non-North American projects
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Russian Pipeline Exports to Europe Regional Prices
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Asian LNG Spot
NBP
Henry Hub
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Low US Production, Low Asian Demand, European Pipeline Suppliers maintain Price Target
Global LNG Consumption North American LNG Imports/Exports
50% probability of uncertain future non-North American projects
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Russian Pipeline Exports to Europe Regional Prices
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FO Japan LNG Contracts (JCC)
Asian LNG Spot
NBP
Henry Hub
12/13/2011
12
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Low US Production, Low Asian Demand, European Pipeline Suppliers Maintain Export Target
Global LNG Consumption North American LNG Imports/Exports
400
500
600
700
a
North America
Europe
New markets
40% probability of uncertain future non-North American projects
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Russian Pipeline Exports to Europe Regional Prices
0
100
200
300
2008 2010 2012 2014 2016 2018 2020 2022 2024
bcm
a
India
China
Taiwan
Korea
Japan
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Asian LNG Spot
NBPHenry Hub
s Research Program
me Low US Production Scenarios
• With High Asian Demand:
– Russia comfortably above today’s Take or Pay level to 2025
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– US prices rise to above NBP around 2015 (to attract LNG imports)
• With Low Asian Demand:
– To maintain hub prices, Russia shuts in exports to
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below today’s ToP level, or
– Maintaining today’s ToP level results in periodic low European, US and Asian LNG spot prices.
12/13/2011
13
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me Global LNG System 2015+ High US Production
NicheMarkets
Global LNG Supply
Global LNG System Balanced, North America Exports LNG
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as Niche Markets(Dominican Rep., Costa Rica, S
America etc.)
Asian Markets (Japan, Korea, Taiwan, China, India)
Upstream Sellers
European LNG Buyers & Suppliers of Flexible LNG
US Producers
Hub‐Indexed Pipeline Contracts / direct hub sales
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Minimum Supply Floor
Additional Capacity
EuropeNorth America
Domestic Production
Pipeline Imports
PipelineImports
p
US Exports LNG provided price difference between HH and other markets is > circa $3.50/mmbtu. Flow reduces as Storage level falls. Incremental supply ends up in Europe.
‘Normal’ Storage Inventory Level
Domestic Production
US Liquefaction
s Research Program
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High US Production, High Asian Demand, European Pipeline Suppliers Enforce Price Target
Global LNG Consumption North American LNG Imports/Exports
50% probability of uncertain future non-North American projects, plus North American LNG
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Russian Pipeline Exports to Europe Regional Prices
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Asian LNG SpotNBP
Henry Hub
12/13/2011
14
s Research Program
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High US Production, High Asian Demand, European Pipeline Suppliers Maintain Export Target
Global LNG Consumption North American LNG Imports/Exports
400
500
600
700
a
North America
Europe
New markets
50% probability of uncertain future non-North American projects
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Russian Pipeline Exports to Europe Regional Prices
0
100
200
300
2008 2010 2012 2014 2016 2018 2020 2022 2024
bcm
a
India
China
Taiwan
Korea
Japan
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Asian LNG Spot
NBP
Henry Hub
?
s Research Program
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High US Production, Low Asian Demand, European Pipeline Suppliers Enforce Price Target
Global LNG Consumption North American LNG Imports/Exports
50% probability of uncertain future non-North American projects
R ENER
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DIES Natural G
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Russian Pipeline Exports to Europe Regional Prices
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FO Japan LNG Contracts (JCC)
Asian LNG Spot
NBP
Henry Hub
12/13/2011
15
s Research Program
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High US Production, Low Asian Demand, European Pipeline Suppliers Maintain Export Target
Global LNG Consumption North American LNG Imports/Exports
20% probability of uncertain future non-North American projects
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Russian Pipeline Exports to Europe Regional Prices
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FO Japan LNG Contracts (JCC)
Asian LNG Spot
NBP
Henry Hub
?
s Research Program
me High US Production Scenarios
• With High Asian Demand:
– North America exports LNG, rising to 70 bcma by 2025. Henry Hub rises to $3.50 below European hub price levels.
– To maintain European hub prices Russia exports to Europe
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as – To maintain European hub prices, Russia exports to Europe fall below today’s ToP levels post 2020.
– If Russian maintains exports at ToP levels, European, US and Asian LNG spot prices fall post 2020 and North American LNG exports stop, US prices depressed.
• With Low Asian Demand:
h b h b l
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– Maintaining today’s ToP level results in low European, US and Asian LNG spot prices from 2015 onwards. Threat to JCC Asian LNG contract pricing. No incentive to start North American LNG exports, US prices depressed.
12/13/2011
16
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If Oil Indexation Survives ?
• Economic Viability of Midstream buyers of R i lik l f ll i i
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as Russian gas unlikely on following scenarios:
– Low US Production, Low Asian Demand (2015+).
– High US Production, High Asian Demand (2020+)
– High US Production Low Asian Demand (2015+)
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s Research Program
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• The Past: European Gas Security of Supply = focus eastward on Russian supply capability and transit issues.
• The Future: What happens to US Production and Asian LNG
R ENER
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as • The Future: What happens to US Production and Asian LNG Demand is at least as important.
• And these factors also challenge:– Russia (in a post oil‐indexation world – price vs volume)
– Midstream buyers of Russian Gas if oil indexation survives
– In the ‘High US, Low Asian Demand Scenario’ – the sustainability of the JCC paradigm for Asian LNG contracts
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• The recent surge of LNG which ‘rattled’ the European market a foretaste of things to come ?
• NB These are scenarios to explore system dynamics; not predictions.
12/13/2011
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Thank You
for your attention.
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Howard V RogersDirector,
OIES Natural Gas [email protected]