Presentation for Ashgabat International Energy Charter Forum 30 May 2017 Yoshikazu Kobayashi The Institute of Energy Economics Japan 2 LNG is natural gas in its liquid form Natural gas condenses to a liquid if it is cooled to minus 162 degrees Celsius ID: 816525
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Slide1
Perspectives from Global LNG Market
Presentation for
Ashgabat International Energy Charter Forum
30 May 2017
Yoshikazu Kobayashi
The Institute of Energy Economics, Japan
Slide22LNG is natural gas in its liquid form.
Natural gas condenses to a liquid if it is cooled to minus 162 degrees Celsius.
In its liquid state, LNG is a clear liquid with a density about half that of water.
LNG requires massive capital investment, and thus needs to ensure long-term revenue guarantee. Because of this characteristics, LNG supply chain has been traditionally developed based on long-term contract with destination restriction and oil price linked pricing formula.
What is LNG?
LNG supply chain and its cost components
Source: IEA
Feed gas
Liquefaction
Shipping
Regasification
32%
47%
13%
8%
Slide33LNG is still a minor form of natural gas supply and trade; but its share has continued to grow in recent years.
For some regions and countries such as Europe and China, LNG is
an
option of natural gas import, while for other countries such as Japan or Korea, LNG is the only means to import natural gas.
LNG in natural gas market
World natural gas supply
World natural gas traded volume
Source: BP
Slide44The world LNG demand has steadily increased, mainly in emerging countries in Asia and Middle East.
Japan is the largest LNG importer although its demand seems to have peaked.
China and other Asian countries will lead the demand growth
in the coming decade.
European “demand” will grow by supply push in the near future.
World LNG importers
Historical world LNG imports
LNG importers as of 2016
Source: GIIGNL
Slide5FSRU: a new technology to promote LNG introduction
Floating Storage and Regasification Unit (FSRU) has lowered a hurdle to start LNG imports for emerging countries.
No need to secure land, shorter construction period, flexible to move,
etcCurrently more than 20 FSRU units are in operation worldwide.Total FSRU receiving capacity reaches over 50 million
tonnes.
5
World FSRU capacities
Source: Business Korea; IEEJ
Slide66LNG supply
sources have
become more diversified from Southeast Asia to Middle East and Australia.
Qatar is by far the largest LNG exporter though Australia and US will catch up in the next decade.
World LNG exporters
Historical world LNG exports
LNG exporters as of 2016
Source: GIIGNL
Slide77LNG trade used to be regionally concentrated.
Major trade flow was from Southeastern Asia to JKT (Japan, Korea, Taiwan).
Emergence of Qatar in supply side and a number of
newly importing countries in demand side makes the world LNG trade more global.
US shale-based LNG will further accelerate the globalization process.
LNG trade
World major natural gas trade flows as of 2014
Source: GIIGNL
Slide8LNG demand – supply balanceMarket balance will remain loose until the mid 2020s.Both sellers and buyers overestimated demand in the early 2010s.
Higher oil price environment enabled proactive investment decisions.
Current supply surplus discourages new investments.
The number of FID projects declined significantly in recent years.
8
Long term LNG demand – supply balance
Investment decisions in new LNG projects
Source: IEEJ
Slide99
Deferred investments increases a risk of supply crunch in the long run.
How to share the risk associated to new LNG projects?
LNG is a “Long Negotiation Game.”Buyers’ participation of upstream equity?Sellers’ participation in downstream gas and power business?Enhance collaboration among companies?
Ensuring sustainable investments in LNG capacity
Source: IEEJ
Canada
Douglas Channel LNG by
Altagas
and Idemitsu was cancelled in February 2016.LNG project in
Canaport by Repsol was cancelled in March 2016.
Shell announced that it will discontinue Prince Rupert LNG project in March 2017.
USOregon LNG Project was cancelled in April 2016.
FID of Lake Charles LNG by Shell and Energy Transfer was deferred to 2017 or later in July 2016.
Australia
Woodside changed the plan to develop Browse LNG with 3 FLNG units, and explore alternative development plan.
Africa
FID of Fortuna FLNG project was postponed to 1H of 2017 in November 2016. FID of ENI’s Mozambique LNG was postponed in November 2016.
Project deferrals and cancellations
Slide10Industrial consolidation and allianceMega-players are emerging to enhance operational flexibility, optimize cargo allocations, and build a balanced and competitive asset portfolio.
Industrial consolidation continues while new market players enters the market.
Will this industrial consolidation contribute to FID amid growing uncertainty?
10
Recent major M&A and asset acquisitions
JERA
：
Integrated fuel procurement and transportation businesses of TEPCO and Chubu in October 2015. Other fuels businesses including upstream, overseas power generation businesses, and energy infrastructure businesses were also integrated in July 2016. JERA also entered into an MOU with
Kogas
and CNOOC for cooperation in LNG business.
Shell-BG
：Completed its merger in June 2016 to realize synergies in global natural gas and LNG businesses.
Qatar Petroleum (QP)
：
Announced that its subsidiaries
RasGas and
Qatargas will be integrated in December 2016.
ExxonMobil
：
Acquired InterOil that has a LNG business in PNG in July 2016.
Total
：
Acquired 23% of Tellurian Investments that plans Driftwood LNG in the US in December 2016.
Source: IEEJ
Slide11LNG pricingLNG pricing are different across regions.
Asian LNG is linked to crude oil price while US and European LNG is linke
d to hub benchmark.
Price of LNG = a x crude oil price + b.LNG used to be a substitute of oil in traditional Asian LNG markets. Difference of price reference caused a large price gap (“Asian Premium”) in the past.
Asian buyers sought to de-link LNG price from oil price.Oil link is no longer reasonable from consumer perspective. Yet, creating another price index is difficult.
Active spot trading is required to create a reliable price benchmark. Destination flexibility needs to be ensured to improve trading liquidity of LNG market.
11
World natural gas prices
Source: IEEJ based on various sources
Slide12Increasing role of LNG in energy securityPhysical flexibility
Easier to secure alternative / incremental supply in case of emergency.
Enhanced tradability
Emergence of US “destination-free LNG” and growing demand by buyers to relax / remove destination restriction of LNG trade.It is expected spot trade will be activated .Diversification effect
Diversification of geographical supply sources.Diversification of supply routes to reduce dependence on a specific choke point or avoid issues along pipeline
transit routes. Abundant supply (for the moment)Emergence of US shale based LNG may drastically change the supply picture of the future world LNG market.
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Source: NYK; Tokyo Gas