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AUSTRALIA CHINA
LNG TRAINING
PROGRAM
Topic: An Examination of the likely impact on the LNG industry of the current drop in oil price
Presenter: Meng Xianlong Zhao Jiasheng Zhao Yu Ma Zhonghua Ou Yingjun
Date: 31/07/2015
2
CONTENTS
CONCLUSION
PRACTICAL RESEARCH
OIL AND GAS PRICE PREDICTION
OUTLOOK OF LNG INDUSTRY FROM ENERGY ORGANIZATIONS
IEA IGU IOC
RECENT LNG DEMAND AND SUPPLY
Asia Demand Australia Supply
Ma Zhonghua (Michael)
Ou Yingjun
(Candy) Zhao Yu
(Joey)
Meng Xianlong (Salman)
Zhao Jiasheng (Jason)
01
RECENT LNG
DEMAND AND SUPPLY
Gas consumption increased gradually in the past 10 years,
growth slowed down 2013-2014
Asian countries account for the biggest part of LNG import
In 2014, Asian countries imported 242.7 bcm LNG, nearly 73% of
the whole world import volume of LNG
LNG DEMAND IN ASIA
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Asia Pacific Africa Middle East
Europe S. & C. America North America
0
100
200
300
400
500
600
700
800
900
1000
NorthAmerica
S. & C.America
Europe MiddleEast
Africa AsiaPacific
total
LNG import pipeline import
Gas Consumption in the past 10 years Gas Import in 2014
bcm bcm
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
0
20
40
60
80
100
120
2006 2007 2008 2009 2010 2011 2012 2013 2014
LNG price LNG Consumption growth rate of GDP
influence of Fukushima
bcm
international financial risk
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0
10
20
30
40
50
60
2006 2007 2008 2009 2010 2011 2012 2013 2014
LNG price LNG Consumption growth rate of GDP
bcm
international financial risk
South Korea
LNG DEMAND IN ASIA
LNG consumption is normally related with the economic growth and energy
security concerns
For Japan, 1%~2% economic growth expected in 2015
For South Korea, not promising as 2014 because of weakness of export and
negative influences of MERS outbreak
Japan
Relationship between LNG consumption, LNG price and economic growth
0%
5%
10%
15%
20%
25%
30%
0
20
40
60
80
100
120
140
160
180
2006 2007 2008 2009 2010 2011 2012 2013 2014
LNG price Gas Consumption
LNG Import growth rate of GDP
bcm
international financial risk
China is experiencing
the high economic growth
Energy restructuring
leads to the rapidly
increasing demand on gas
and LNG
China
LNG DEMAND IN ASIA
Relationship between LNG consumption, LNG
price and economic growth
Brief Conclusion: Considering the LNG pricing mechanism in
Asia, the demand of LNG is more influenced by the economic
growth, energy security and energy restructuring than LNG price
AUSTRALIA CHINA LNG TRAINING
PROGRAM 7
LNG SUPPLY FROM AUSTRALIA
The Australia LNG Export Direction The Australia LNG Export Proportion, 2014
02 OUTLOOK OF
LNG INDUSTRY
FROM MAIN ENERGY
ORGANIZATIONS
AUSTRALIA CHINA LNG TRAINING
PROGRAM 9
Global Natural Gas Demand
• Remained weak in 2014
• Global natural gas demand will re-accelerate over the
next five years
• The growth will fall short of previous forecasts and amid
growing uncertainties
THE OUTLOOK FROM IEA
Global economy recovery
Carbon emission deduction requirement
Global gas price lower
Substitutes like cheap coal
Oil price drop
Weaker gas demand in Asia ( imported gas price high, economy growth slow down)
Global Natural Gas Supply
Low oil prices
Gas demand growing uncertainties
Undermine competitiveness of gas
Make prices of gas lower
Costly and low-return LNG projects will be delayed or even cancelled
SUPPLY GROWTH WILL SLOW DOWN OVER THE NEXT FIVE
YEARS
Projects under Construction lower oil prices raise little risk to the timing of these projects
New Projects
struggle to get off the ground at the current price
Global LNG export capacity to increase by more than 40% by 2020, 90% of the additions
coming from Australia and the United States of America
IEA presumes that LNG markets could start to tighten up by 2020, if current low prices persist
THE OUTLOOK FROM IEA
AUSTRALIA CHINA LNG TRAINING
PROGRAM 11
Global Liquefaction Plants Locations, 2014
Global LNG Receiving Terminal Locations ,2014
Asia-Pacific will be the
most active region for
LNG import and export.
10.5 MTPA
increased
290.7 MPTA
31 MTPA
increased
693 MTPA
An outstanding increase
of export in Australia and
import in China and India.
THE OUTLOOK FROM IGU
AUSTRALIA CHINA LNG TRAINING
PROGRAM 12
THE OUTLOOK FROM IGU
285
134
0
326
345
142
0
50
100
150
200
250
300
350
400
US CAN AUS
2014 2015
Ca
pa
city, M
TP
A
The IGU LNG report edition
2013, 2014 and 2015
reviewed.
75 projects Proposed
(nearly 810 MTPA) in the
next 5-10 years.
Most of Australia’s under
construction projects will
put into work in 2015 and
2016.
The liquefaction capacity
will grow significantly over
the next several years.
The Proposed LNG Plants Capacity
AUSTRALIA CHINA LNG TRAINING
PROGRAM 13
THE STRATEGY FROM INTERNATIONAL OIL COMPANIES
Investment Budget
SCALE
BENEFITS
INVESTMENT
COSTS
Focusing on assets
Divesting assets no
longer fit strategy
Rigorous approach
to capital
Concentrating on
efficiency and
competitiveness
2013 2014
7%
Capital Investment
2013 2014
19.5%
Exploration Budget
2013 2014
30%
THE BUILDING SPEED OF LNG INFRASTRUCTURE WILL
CORRESPOND WITH THE TOTAL DEMAND OF OIL AND
GAS, WHICH WILL INCREASE, BUT WITH A LOW
INCREASING RATE.
03
OIL AND GAS PRICE
PREDICTION
1.00
10.00
100.00
1000.00
S/B
BL
The connection between oil, gas and LNG price
Oil price of Brent dated.
Gas price of US Henry Hub †
Average German import price cif *
OECD countries cif
LNG Japan cif
THE CONNECTION OF OIL PRICE, GAS PRICE AND LNG PRICE
There is a strong correlation between them. It is possible to analyze price of LNG
and gas through the analysis of oil price.
Data from EIA
114.02
46.5
0
20
40
60
80
100
120
140
160
14
/1/2
14
/3/2
14
/5/2
14
/7/2
14
/9/2
14
/11
/2
15
/1/2
15
/3/2
15
/5/2
$/B
arre
l
Time
The Present Oil Price Data from EIA
THE PRESENT OIL PRICE DROP DOWN
Short term factor
Short term factor
SHORT TERM FACTOR INFLUENCE THE OIL PRICE
Crude oil react to events
-
500
1000
1500
2000
2500
3000
3500
4000
4500
19
65
19
68
19
71
19
74
19
77
19
80
19
83
19
86
198
9
19
92
19
95
19
98
200
1
20
04
20
07
20
10
201
3
Tho
usa
nd
bar
rels
dai
ly
Total oil production in Asia Pacific Australia BruneiChina IndiaIndonesia MalaysiaThailand VietnamOther Asia Pacific
-
2000
4000
6000
8000
10000
12000
14000
196
0
196
4
196
8
197
2
197
6
198
0
198
4
198
8
199
2
199
6
200
0
200
4
200
8
201
2
201
6
Th
ou
san
d b
arr
els
daily
Oil Production in North America
US Canada Mexico
LONG TERM FACTOR INFLUENCE THE OIL PRICE
---BALANCE OF SUPPLY AND DEMAND
-
500
1000
1500
2000
2500
3000
3500
19
60
19
64
19
68
19
72
19
76
19
80
19
84
19
88
19
92
19
96
20
00
20
04
20
08
20
12
20
16
Tho
usa
nd
bar
rels
dai
ly
Oil Consumption of S & Cent America Brazil Chile
Colombia Ecuador
Peru Trinidad & Tobago
Venezuela Other S. & Cent. America
-
2000
4000
6000
8000
10000
12000
19
60
19
64
19
68
19
72
19
76
19
80
19
84
19
88
19
92
19
96
20
00
20
04
20
08
20
12
20
16
Tho
usa
nd
bar
rels
dai
ly
Oil Consumption of Asia Pacific Australia BangladeshChina China Hong Kong SARIndia IndonesiaJapan MalaysiaNew Zealand PakistanPhilippines Singapore
-
500
1000
1500
2000
2500
3000
3500
4000
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
2016T
hou
san
d b
arr
els
daily
Oil Consumption of in Europe France Germany
Greece Hungary
Republic of Ireland Italy
-
500
1000
1500
2000
2500
3000
3500
19
60
19
64
19
68
19
72
19
76
19
80
19
84
19
88
1992
19
96
20
00
20
04
20
08
20
12
20
16
Tho
usa
nd
bar
rels
dai
ly
Oil Consumption of Middle East
Iran IsraelKuwait QatarSaudi Arabia United Arab EmiratesOther Middle East
15.95
35.59
138.14
119.44
45.14
0
20
40
60
80
100
120
140
DO
LLA
RS
PER
BA
RR
EL
Nominal Price Real Price (Jun 2015 $)
EIA Short-Term Energy Outlook, June 2015
The boundary between the cycle
Monthly Imported Crude Oil Price
OIL PRICE CIRCLE
15.95 35.59
138.14
119.44
45.14
0
50
100
Jan 1974 Jan 1982 Jan 1990 Jan 1998 Jan 2006 Jan 2014
do
llars
per
bar
rel
The price of oil Nominal Price Real Price (Jun 2015 $)
EIA Short-Term Energy Outlook, June 2015
There are two stable platform of Price in recent two decades history.
0.00
20.00
40.00
60.00
80.00
100.00
120.00
1980 1990 2000 2010
US
do
llars
per
bar
rel
Dubai
Brent
Nigerian
West Texas
Polynomial Dubai
Polynomial Brent
Polynomial WT
TREND SIMULATION CURVE OF OIL PRICE
Benchmark
price
Ceiling price The curve
of price
increase
Period
pri
ce
time
One circle new circle
Type cure of price model Trend simulation curve of oil price
36161
-
10000
20000
30000
40000
50000
Tho
usa
nd
bar
rels
dai
ly
year
Total production and consumption of World
OPEC(P) Non-OPEC £(P)
15.95 35.59
138.14
119.44
45.14
0
50
100
Jan 1965 Jan 1973 Jan 1981 Jan 1989 Jan 1997 Jan 2005 Jan 2013
do
llars
per
bar
rel
The price of oil Nominal Price Real Price (Jun 2015 $)
EIA Short-Term Energy Outlook, June 2015
Stable competition stage for share of Market fierce stage
The gap of productions between OPEC and non OPEC is stable unstable
THE COMPETITION AND THE SUPPLY AND DEMAND
PRICE AND BREAKEVEN COST
19.73
18.07
18.06 18.53
18.24
21.76
60.13
61.36
56.08
56.74
52.88
70.38
97.32 96.61
82.34
69.70 65.79 59.40
30.08 37.80
29.23
34.53
39.39
32.56 30.73 26.44
24.82
26.64 31.13
27.27
17.53 24.55
38.12
29.42
31.22
35.68
44.99
59.28
69.37 76.73
101.84
65.15
82.33
107.99 104.25
99.73
89.60
51.92 57.17
0
10
20
30
40
50
60
70
80
90
100
110
120
do
llars
pe
r ba
rre
l
Annual Imported Crude Oil Price
Nominal Price Real Price (Jun 2015 $)
EIA Short-Term Energy
Benchmark=34$ per barrel
Breakeven oil price
Benchmark=28$ per barrel
Based on the model of oil price development, the oil price will goes down to the
benchmark price equals to round 30$, and then could be goes up. the period of price
slop will equal to 3-5 years, and the ceiling price will equal to less 100$.
04
PRACTICAL RESEARCH
04
PRACTICAL RESEARCH
AUSTRALIA CHINA LNG TRAINING
PROGRAM 25
• Identification
• Insights
• Confirmation
AUSTRALIA CHINA LNG TRAINING
PROGRAM 26
Finding 1: The fall in global oil price does have some impact on the price of LNG in the short and longer term.
Finding 2: The LNG price will continue to be linked to the oil price for the long term.
Finding 3: The U.S LNG project will compete with Australia on the Asian LNG market, However U.S LNG projects also have some uncertainties.
Finding 4: Some Australian LNG projects have been delayed or postponed because of their strategic plans and the low oil price.
(Adam Welch-APPEA) The spot price has certainly come down.
There is usually a delay of a few months in the contracted LNG
prices, and then they will start to fall quite significantly.
(Jeff Haworth-DMP) Suppliers don’t always like to unlink LNG
contracts with the oil price due to their huge investments.
.
(David Cullen-NWS) Australia will focus on JCC linked pricing, the
US on HH linked pricing; Both producers will be competing for the
same long term business;
(Alan Smart) A lot of International companies have started to have a
strategic review because the oil price has fallen 50%. They will
concentrate on high value assets and review if the new projects align
with their strategic plans.
The importance of Australia and China LNG cooperation
Diversity of international Investments of the WA LNG sector (WA)
Resetting the costs base
Skills training and increased productivity
2F: FLNG & Fracking ; 2S: Spot trade & Small LNG projects
Be confident with long term investment , but be aware of the uncertainty of
global market and emerging LNG suppliers
Seeking for the next window for Australian LNG Industry – Strategic planning
AUSTRALIA CHINA LNG TRAINING
PROGRAM 27
05
CONCLUSION
•
AUSTRALIA CHINA LNG TRAINING
PROGRAM 29
Its current drop down is marks of entering into new circles of oil fluctuation and
is caused by multi-factors like the balance of supplies and demands.
The global natural gas demand will be supported to maintain increasing by the
expectation for stronger economic growth. But the medium-term growth speed
will fall down comparing with the past years.
The Asian natural gas market is the fastest growing gas market worldwide and
Asian countries used to be the biggest part of the LNG imports.
In the near-term, project developers will likely hesitate to commit to capital-
intensive liquefaction projects.
A loosening LNG supply environment and a narrowing of price differentials
between basins in early 2015 have altered the market conditions that previously
formed the basis for re-exports.
The proposed LNG Plants projects are increasing in the US and Canada, but the
total number of proposed projects are growing.
There is no doubt that Australia will become the largest LNG export in the
global but with challenges.
