LNG & Gas Hubs

Ane de Ariño (October 2010)

1. LNG weight on gas markets

1. Gas Hubs depth and liquidity

1. Price linkage

1. Conclusions

1

2

3

4

- Relation between LNG and gas hubs -

LNG weigh on gas markets1

World gas demand

3000 Bcma

LNG

250 Bcma

LNG in Asia

4%

31%66%

Pipeline

GNL

P.Propia

0%

100%

0%

Pipeline

GNL

P.Propia

Asia

Asia Pacific = 500 Bcma Asian LNG consuming

countries = 275 Bcma(Japan, S.Corea, Taiwan, India

and China)

Asian LNG consolidated

markets = 130 Bcma(Japan S.Corea & Taiwan)

► Biggest LNG consuming region.

► 1/3 of the gas demand covered by LNG.

► Main LNG consuming countries 100%

dependency on LNG.

► Long term “ToP” contracts.

► Price Oil indexation (floor and ceiling)

► No HUB, but new spot price reference (JKM)

LNG 2009 =

152 Bcma

…security of supply

its the main driver

0%

100%

0%

Pipeline

GNL

P.Propia

Pipeline

LNG

Indig. production

0%

56%45%

Pipeline

GNL

P.Propia

36%

6%

58%

Pipeline

GNL

P.Propia

67%11%

22%

Pipeline

GNL

P.Propia

63%

23%

14%

Pipeline

GNL

P.PropiaEurasia = 1060 Bcma EU 27 = 540 Bcma LNG Europe = 275 Bcma

(France, Spain, UK, Belgium , Italy,

Turkey, Greece and Portugal)

LNG in Europe

Europe

LNG 2009 =

60 Bcma

► Declining indigenous production and high

dependency on Russian imports

► Clearly differentiated markets:

- Northwestern (Deregulated + interconnections

+ Hubs)

- Southern (Less deregulated + non developed

Hubs + poorly interconnected)

…coexistence of Long

Term “ToP” contracts with

increasing spot LNG and

pipeline supplies

0%

100%

0%

Pipeline

GNL

P.Propia

Pipeline

LNG

Indig. production

14% 2%

84%Pipeline

GNL

P.Propia

15% 2%

83%Pipeline

GNL

P.Propia

14% 2%

84%Pipeline

GNL

P.PropiaAmerica = 945 Bcma N.America = 810 Bcma USA = 645 Bcma

(LNG = 13 Bcma)

LNG in USA

America

LNG 2009 =

20 Bcma

► USA: Biggest gas market with low

dependency on imports

► Boost in unconventional gas

production

► Unutilized new regasification

capacity

► High liquidity in gas Hubs Prices

respond quickly to changing

domestic supply and demand

balances…LNG demand forecast decreasing

year by year

USA LNG forecasts

0%

100%

0%

Pipeline

GNL

P.Propia

Pipeline

LNG

Indig. production

Gas Hubs2

World gas demand

3000 Bcma

Physical gas

traded in Hubs*

700 Bcma

* Stream estimation, assuming

most of US physical gas trade

Brent HH NBP ZEE TTF PSV CEGH NCG GNL

500

100

15

5 52 3 2 1

Churn rate > 10 = Liquid marketti

me

s

Churn rate

there’s still a long way to reach relevant liquidity in

European gas Hubs

LNG

NBP TTF ZEE NCG PEGs PSV CEGH BEB

2008

Bc

ma

1000

60

45

25

16 15 15

10

Traded volumes in

Gas Hubs in

Europe

3 Price linkage

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$/MMBtu

HH Brent

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$/MMBtu

NBP Brent120% 70%

0,2 0,7

▲ Oil index

▲ HH

▲ Oil index

▲ NPB

NBP/Oil form. = 100% 110% 80%

Correlation = 0,6 0,4 0,85

HH/Oil form. = 145%

Correlation = 0,8

NBP vs.

Oil index

HH vs.

Oil index

2000-2003 2004-2007 2007-2010$/MMBtu

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$/MMBtu

Spread HH Brent

NBP vs. HH

90% 120%

0,5 0,9

NBP/HH ratio = 70%

Correlation = 0,6

Future

loss of US LNG attractive in favour of European hubs

… will European Hubs be able to maintain this spread to

HH in the long term?

-10,00

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$/MMBtu

Spread HH Brent

we’ve seen some effect on NBP prices from S. Hook

output, but still very limited.

0

10

20

30

40

50

60

70

0

5

10

15

20

25

30

35

40

45

50

55

NB

P (G

Bp

/th

)

Emis

ión

(Mcm

/d)

35South Hook

(Qatar) UK

vs.

NBP

30 (GBp/th)

(Mmcm/d)

0

10

20

30

40

50

60

70

0

20

40

60

80

100

120

140

160

180

NB

P (G

Bp

/th

)

Emis

ión

(Mcm

/d)

140

Norway UK

vs.

NBP

30 (GBp/th)(Mmcm/d)

Conclusions4

Market

Buyers

Sellers

Conclusions4

► In our view, the question today is more how much the hubs have effect on LNG

trade than the opposite

► In a market where increased flexibility and uncommitted LNG contributes in a 20-

30% of the total LNG trade, gas Hub prices are one of the key elements that can

attract flexible LNG around the world.

► LNG short term pricing is driven by the forces of supply and demand of different

regions, and it is increasingly disconnected from long-term contracts prices

► Neither the markets nor the suppliers are driving the industry towards full

“commoditization”, nonetheless, some convergence of LNG pricing may occur.

► We still have a long way to reach a level of total “globalization”, comparable to

oil markets… … but are we in the process of slowly and gradually breaking away

LNG Oil indexation to some LNG Gas Price?

take a look at www.streamrgn.com

Thank yougracias

mercy

grazie

obrigado

danke

dank u

σας εσταριστούμε

ありがとう

谢谢

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