Current status and future prospects of natural gas … status and future prospects of natural gas markets in Asia Japan-China Joint Symposium on Asian Oil & Gas-The 8th IEEJ/CNPC Research

Current status and future prospects of natural gas markets in Asia

Japan-China Joint Symposium on Asian Oil & Gas-The 8th IEEJ/CNPC Research Meeting-

November 21 2014

The 8th IEEJ/CNPC Research Meeting

November 21, 2014The Institute of Energy Economics, Japan

Tetsuo Morikawa

All Rights Reserved

IEEJ : December 2014. All rights reserved

Natural gas supply and demandDemandSupply

4,000

Bcm4,000 Bcm

2 500

3,000

3,500

2 500

3,000

3,500

1,500

2,000

2,500

1,500

2,000

2,500

0

500

1,000

90 92 94 96 98 00 02 04 06 08 10 12

0

500

1,000

90 92 94 96 98 00 02 04 06 08 10 12

199

199

199

199

199

200

200

200

200

200

201

201

North America Latin AmericaAsia Oceania Middle EastFormer Soviet Union EuropeAfrica

199

199

199

199

199

200

200

200

200

200

201

201

North America Latin AmericaAsia Oceania Middle EastFormer Soviet Union EuropeAfrica

Rapid supply and demand growth in Asia Oceania and Middle East

Source: Cedigaz

All Rights Reserved 1

Shale gas revolution pushing up the supply in North America Sluggish demand continuing in Europe


LNG trades

ImportsExports

B Bcm

300

350Angola Yemen

Russia Equatorial Guinea

Norway Peru

T i id d d T b USA

Bcm

300

350

Singapore Malyasia Israel Thailand

Netherlands UAE(Dubai) Kuwait Chile

Canada Brazil Argentina Mexico

Bcm

200

250Trinidad and Tobago USA

Egypt Nigeria

Libya Algeria

Oman Qatar

UAE(Abu Dhabi) Australia

M l i B i

200

250

Canada Brazil Argentina Mexico

Dominica Puerto Rico USA Turkey

Greece Belgium Italy Portugal

Spain France U.K. India

China Taiwan S・Korea Japan

50

100

150 Malaysia Brunei

Indonesia

100

150

0

50

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012 0

50

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Strong demand in Asia, but demand decrease in Atlantic led to little global demand

Source: Cedigaz


Strong demand in Asia, but demand decrease in Atlantic led to little global demand growth in 2013

PNG LNG and QC LNG as new LNG projects in 2014


Monthly LNG imports in Northeast Asia and Europe

EuropeNortheast Asia

9 Million Tonnes

18Million Tonnes

7

8 Netherlands

UK

Turkey

Spain

14

16

4

5

6 Portugal

Italy

Greece

France8

10

12

China

Taiwan

2

3 Belgium

4

6Korea

Japan

0

1

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 8

2010 2011 2012 2013 2014

0

2

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 8

2010 2011 2012 2013 2014

Imports in Jan-Aug 2014: 106.56MT in Northeast Asia (+2.26MT y/y), 23 55MT in Europe ( 2 70MT y/y)

Source: Custom statistics, IEA


23.55MT in Europe (-2.70MT y/y) European imports still slow due to weak competitiveness of natural gas


LNG export projects in North America

DOE authorized 9 projects (about 80 MT/y) for export to

三菱商事、中部電力、東京ガス、大阪ガス、

石油天然ガス・金属鉱物資源機構（JOGMEC）

Cordova

Liard

国際石油開発帝石 (INPEX)、日揮

Cutbank Ridge国際石油開発帝石 (INPEX)、日揮 (about 80 MT/y) for export to

non-FTA countries Out of those, FERC approved

4 projects (53MT/y) for

三菱商事

日揮

Pacific Northwest LNG(石油資源開発（JAPEX）)

Aurora LNG(国際石油開発帝石 (INPEX)、日揮 )

4 projects (53MT/y) for construction

Streamlined authorization b i i l t d丸紅

伊藤忠商事

Cove Point LNG2017年稼働予定

(液化加工：住友商事、

買主：東京ガス、関西電力)

LNG Canada(三菱商事)

Triton LNG(出光興産)

process being implemented LNG export projects in North

America important in terms of l d i i

丸紅

三井物産住友商事

住友商事

買主：東京ガ、関西電力)White River mine

三井物産

東京ガス supply and pricing diversifications

日揮

Cameron LNG 2017年稼働予定

(液化基地：三井物産、JLI（日本郵船・三菱商事）

液化加工：三菱商事、三井物産、GDF Suez買主：東京電力、東邦ガス、関西電力、東北電力)

Permian Basin

住友商事

Freeport LNG

東京ガス

丸紅

日揮

三井物産

大阪ガス

石油資源開発

2018年稼働予定

(液化加工：中部電力、大

阪ガス、東芝)

日本企業が関与する

LNG輸出プロジェクト

シェールオイル・ガス

（確認済）

シェールオイル・ガス

コールベッドメタン

All Rights Reserved 4Source: IEA and company websites

石油資源開発

（JAPEX）コルベッドメタン

コールベッドメタン


Europe and Russia Conflict already

evident in terms of h Thi d Ethe Third Energy

Package and pricing of natural gas for ConflictsEurope (de-oil indexation)

Diplomatic relations

Ukraine Crisis

Asia Diplomatic relations aggravated by Ukraine CrisisE i R i

Shift

Encouraging Russia to shift to Asia

EU controlling gas g gdemand, diversifying supply sources

All Rights Reserved 5Source: Added on JOGMEC


Natural gas demand/supply in ChinaGas infrastructures Domestic production and imports

18Bcm

38bcm30bcm14

16

18Domestic productionPipeline gas importsLNG imports

10

12

4

6

8

0

2

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 8

Russian pipeline gas will contribute to control China’s LNGSource: JOGMEC Source: China OGP

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 8

2010 2011 2012 2013 2014


Russian pipeline gas will contribute to control China s LNG imports


LNG spot and short-term dealsSpot imports/exports (2013)Spot and short-term deals

27%30%70

Million Tonnes Share of Spot and short-terms dealsAsia

Oceania, 9 Unknown

Exported cargoes

hOther AsiaEuropeNorth America

Latin America

Middle East

20%

25%

50

60

Trinidad Tobago, 113Americas

(incl

Other Middle East, 4

Other Africa, 31

, Unknown, 21

Korea

TaiwanIndiaChina

10%

15%

30

40

Nigeria, 57

Other Europe

(Reload), 69

(incl. Reload), 11

Japan

0%

5%

0

10

20 Qatar, 34

Norway, 12

U k

Imported cargoes

Source: GIIGNL

0%0

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Argentina, 102

Other Americas 10

Other Asia, 16

Middle East, 3

Unknown, 65

64.98MT traded by spot and shor-term contracts in 2013 (+4.58MT y/y).

Japan imported 21 69MT sharing 33% of the totalBrazil, 57Thailand, 11

Taiwan, 10Europe, 8

Americas, 10


Japan imported 21.69MT, sharing 33% of the total. Nuclear restart will push down spot imports

significantly. Source: ICIS Heren

Japan, 45Korea, 19Mexico, 15


Natural gas demand outlook in Asia

1500Mtoe

AAGR China India Japan Korea Taipei Singapore

1980-2011 7.3% 12.6% 5.1% － 7.5% －

2011 2040 6 3% 5 5% 0 2% 0 8% 2 7% 1 7%2011-2040 6.3% 5.5% 0.2% 0.8% 2.7% 1.7%

Indonesia Malaysia Phi l i ppines Thailand Vietnam Other As ia

6.5% 8.9% －－－ 6.2%3.4% 2.7% 4.6% 4.1% 5.4% 3.6%

1000

China India Japan Korea Japan

7%

500

Taipei Indonesia Malaysia Philippines

Thailand Vietnam Singapore Hong Kong

Other Asia Tech. Adv.

India

Japan 16%

China 42%11%

23%

21%

Source: IEEJ

01971 1980 1990 2000 2011 2020 2030 2040

23%


China and India will lead the Asian demand growth.


LNG supply/demand outlookWorld Asia and Middle East

1 000Million Tonnes

600

Million Tonnes

800

900

1,000 Under planning

New projects with HOA/SPA signed

Existing projects500

600 Divertable capacity from Atlantic

Under plannning

New projects with HOA/SPA signed

500

600

700 g p j

Hight demand

Low demand

300

400 Existing projects

High demand

Lowdemand

200

300

400 200

Low demand

0

100

200

2012 2015 2020 2025 20300

100

2012 2015 2020 2025 2030

Source: IEEJ

2012 2015 2020 2025 2030 2012 2015 2020 2025 2030


New projects will ease LNG market towards 2020. Timely investment is the key to realize ample supply potential post 2020.


International natural gas prices25$/MMBtu

20

10

15

5

0Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

Source: Energy Intelligence, EIA

Japan LNG spot assessment price for Northeast Asia UK Spain Germany USA


Asia premium of LNG still significant, yet spot prices dropped significantly in this summer


LNG pricing options for Asia

Hub pricingSpot LNG pricing Adjustment within

oil-linked pricing

Link with other fuels (Electricity,

Coal)Henry Hub, Hubs p g Coal)Henry Hub,NBP

Hubsin Asia

• Already available

• Possible toreflect • Possibly the • Rational for

Advantagesavailable• Lower prices (for now)

reflect regional market balance

• Already available

Possibly the quickest solution

Rational for power utilities

Disadvantages

• Higher volatility• Asia market

• Not yet available • Higher volatility

• Limited liquidity•Gas market balance not • Lack of power Disadvantages Asia market

balance not reflected

• Higher volatility

Limited liquidity(so far)

balance not reflected market liquidity

Rationality of oil-linked pricing being questioned Sustainable and rational pricing needs to emerge for mutual benefit between


p g gsellers and buyers


LNG Producer-Consumer Conference 2014 Held on November 6th About 1,000 attendee from more

than 50 countriesProgram

than 50 countries * Yoichi Miyazawa, Minister of Economy, Trade and Industry* Mohammed Bin Saleh Al-Sada, Minister of Energy and Industry, Q t

Keynote speeches

Qatar* Ian Macfarlane, Minister for Industry, Australia* Greg Rickford, Minister of Natural Resources, Canada* Maria van der Hoeven, Executive Director, International Energy Agency

Session 1 LNG supply outlook & Actions by producers

Session 2 LNG demand outlook & Actions by consumersby consumers

Session 3New movement towards developing flexible LNG market and change in LNG trade

All Rights Reserved

Session 4 LNG technology developments

12


LNG Producer-Consumer Conference 2014

Participants shared view on weakening Asian LNG market Japan’s import price can be 20-30% lower (Minister Miyazawa)p p p ( y ) New capacity in Australia will weaken LNG market (Minister

Macfarlane)

Appeal from the US west coast LNG projects LNG buyers accessible to cost-base LNG Relatively shorter transportation distance Relatively shorter transportation distance No Panama canal risk Existing infrastructure availableg

Still searching for alternative pricing to replace oil indexation Price level vs Pricing Hybrid pricing as a transitional measure How will we establish Asian benchmark prices?



Multilateral joint study group on LNG Proposed by IEEJ at the LNG Producer-Consumer Conference

2013 Participants Members： Research institutes from LNG

importing/exporting countries, International organizations Observers: Government agencies

Workshops in February and September in 2014 Policy recommendations at LNG Producer-Consumer

Conference 2014（http://eneken.ieej.or.jp/press/press141106a.pdf）

Cooperation between sellers and buyers, governments and icompanies

Pricing diversifications


Flexible and transparent market developments


Conclusions

Natural gas supply and demand Demand strong in Asia still weak in Europe Demand strong in Asia, still weak in Europe LNG market being weakened Decreased spot LNG prices

Issues in major countries Expectation raising for North American LNG Russia’s shift to Asia Supply diversifications by China

LNG P d C C f 2014 LNG Producer-Consumer Conference2014 Shared view on weaker market US west coast LNG US west coast LNG How can Asian benchmark prices be established? Flexible and transparent LNG market needed


p


Contact : [email protected]

Documents

Current status and future prospects of natural gas … status and future prospects of natural gas markets in Asia Japan-China Joint Symposium on Asian Oil & Gas-The 8th IEEJ/CNPC Research