NATURAL GAS, THREE SYSTEMSwecmex.org.mx/presentaciones/2012_Mexico-Gas.pdfNATURAL GAS, THREE SYSTEMS Jean-Marie BOURDAIRE [email protected] Colegio de México May 21, 2012 CONTENT

NATURAL GAS,

THREE SYSTEMS

Jean-Marie [email protected]

Colegio de México May 21, 2012

CONTENT

• World generalities• North-East Asian LNG imports• Europe PPL & LNG imports• North America balance• Conclusions

WORLD GENERALITIES

BP reserves, demand and supplyAIE Perspectives to 2035

With this world market structure, gas is in competition with regional referenceswithout mutual price adjustment and thus no international gas price marker

WESTERN EUROPE

EUROPE

JAPAN / SOUTH KOREA

EAST ASIA

REGIONAL NATGAS MARKETS• Natural gas trade is limited by rigid, costly infrastructures, which

limit trade over very long distances• No world gas market but various national and regional gas markets• Three Main Regional Gas Markets with Marginal Links

NORTH AMERICA

UNITED STATES

NorwayRussiaAlgeria

IndonesiaAustralia

Middle EastCanada

NATURAL GAS CHAIN

Transport Sector(“oil products”)

Transport Sector(“oil products”)

Flared Gas

GrossProduction

Re-injected Gas

Processing

DistributionNetwork

DistributionNetwork

LiquefactionPlant LNG Tanker

RegasificationTerminal

Transportation Pipeline

PropaneButanePentane & Heavy Fractions

IndustrySector

Commercial Sector

ResidentialSector

Power ProductionSector

PetrochemicalsSector

Transport Sector(CNG)

IndustrySector

Commercial Sector

ResidentialSector

Power ProductionSector

PetrochemicalsSector

Transport Sector(CNG)

Dry SweetNatural GasDry Sweet

Natural Gas

GTL plant

High Quality LiquidsNaphtha

Kerosene, Gasoil

High Pressure

Low Pressure

WORLD GAS CONSUMPTION (BCM/Y)

0

500

1000

1500

2000

2500

3000

3500

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Asia-Pacific

Africa

Middle-East

Former Soviet Union

EUROPE OCDE

S-C America

North America

Recent averagegrowth rate2,3%/y



0

500

1000

1500

2000

2500

3000

3500

1970 1975 1980 1985 1990 1995 2000 2005 2010

Asia-Pacific

Africa

Middle-East

Former Soviet Union

EUROPE OCDE

S-C America

North America

Recent averagegrowth rate2,3%/y

WORLD GAS PRODUCTION (BCM/Y)

Regional Natural Gas & LNG Prices - Feb 2012

0

2

4

6

8

10

12

14

16

18

20Ja

n-04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

$/MMBtu

NBP IFERC HH Monthly Japan avg LNG European Gas Contract

REGIONAL GAS PRICES ($/kcf)A growing disconnection among the four price systems

NORTHEAST ASIA LNG

High JCC-indexed prices andincreasing quantities

Traditional v. Emerging Asian LNG Importers

-

5

10

15

20

2520

07

2008

2009

2010

2011

BCFD

Emerging Traditional

Japan, South Korea, Taiwan

China, India, Kuwait, Dubai & Thailand

EAST OF SUEZ LNG IMPORTERS

ASIA-PACIFIC LNG IMPORTS (BCF/D)

5

10

15

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

China, Japan,South Korea,and Taiwan(interpolatedbetween end-02 and end-07)

LNG imports fellbecause of the

economic crisis

FAR-EAST LNG IMPORTS (BCF/D)

JAPANESE CRUDE COCKTAIL OR JCC ($/B)

0

25

50

75

100

125

150


JAPANESE CRUDE COCKTAIL ($/B)

LNG was first imported in Japan,to replace the blend of regionalwaxy heavy low-sulfur crudesused for direct burning in theindustrial and power boilers.

This is why LNG is JCC-indexed

ASIA-PACIFIC PRICING SYSTEM

• For the Asia-Pacific LNG imports, prices are based on LT contracts indexed on the JCC

• JCC was the fuel at the margin for Japanese large boilers because HFO imports were forbidden (to protect the refinery industry) and low sulfur fuels were required (for environmental reasons)

• To protect the LNG producers when JCC was low, a premium floor was added with, as a counterparty, a JCC multiplying factor smaller than 1

LNG IMPORTS IN CHINA (MT/MONTH)

0,0

0,5

1,0

1,5

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Still small but rising rapidly

CHINA LNG IMPORTS

AVERAGE LNG PRICE IN CHINA VERSUS JCC

0

5

10

15

20

25

30

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-130,0

0,3

0,6

0,9

1,2

1,5

1,8

JCC in $/MBtuAverage LNG priceGas as a % of JCC

Average imported LNG price versus JCCsuggeste a smoothed "collar" formulawith a low price-cap and ~3-month lag

PRICE OF CHINESE LNG IMPORTS

JAPAN LNG IMPORTSLNG IMPORTS IN JAPAN (MT/MONTH)

3

4

5

6

7

8

9

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Fukushima

AVERAGE LNG PRICE IN JAPAN VERSUS JCC

0

5

10

15

20

25

30

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-130,0

0,3

0,6

0,9

1,2

1,5

1,8

JCC in $/MBtuAverage LNG priceGas as a % of JCC

Average imported LNG price versus JCCsuggeste a smoothed "collar" formulawith a low price-cap and ~3-month lag

PRICE OF JAPAN LNG IMPORTS

LNG IMPORTS IN KOREA (MT/MONTH)

0

1

2

3

4

5


KOREA LNG IMPORTS

AVERAGE LNG PRICE IN KOREA VERSUS JCC

0

5

10

15

20

25

J-01 J-02 J-03 J-04 J-05 J-06 J-07 J-08 J-09 J-10 J-11 J-12 J-130,5

0,8

1,1

1,4

1,7

2,0

JCC in $/MBtu

Average LNG price

Gas as a % of JCC

Average imported LNG price versus JCCsuggeste a smoothed "collar" formulawith low price-cap and ~3 months lag

PRICE OF KOREA LNG IMPORTS

LNG IMPORTS IN TAIWAN (MT/MONTH)

0,0

0,5

1,0

1,5


TAIWAN LNG IMPORTS

AVERAGE LNG PRICE IN TAIWAN VERSUS JCC

0

5

10

15

20

25

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-130,3

0,6

0,9

1,2

1,5

1,8

JCC in $/MBtu

Average LNG price

LNG versus JCC

LNG/JCC$/MBtu

PRICE OF TAIWAN LNG IMPORTS

LNG Production vs Capacity

-

5

10

15

20

25

30

35

40Ja

n-08

May

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

Jan-

10

May

-10

Sep-

10

Jan-

11

May

-11

Sep-

11

Jan-

12

Bcf/d

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Nameplate Production Utilization

LNG PRODUCTION VS. CAPACITY

The LNG marketis tightening

LNG SHIPPING RATESThe LNG shipping

market is alsotightening

Asia Pacific Contracts signed since March '11

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0Ja

pan

Kore

a

Chin

a

Indi

a

Taiw

an

Sing

apor

e

Mal

aysi

a

Thai

land

Paki

stan

MTA

SPA HOA Share MOU Framework S-T

NEW LNG CONTRACTS SINCE FUKUSHIMA (MARCH-11)

Japan and India dominate

CONCLUSIONS ASIA-PACIFIC

• Some countries like Korea did succeed to lower their LNG supply cost but oil-indexation will likely remain, especially in the post-Fukushima context

• The nuclear crisis will add new LNG requirements in Japan and Western Europe (e.g. in Germany) to replace nuclear, pushing LNG prices up

• High LNG prices make unconventional attractive but the lack of liquids in “dry” gas such as Australian CBM, and controlled domestic prices reduce the incentives

NWE EUROPE: PPL & LNG

THE UK SPOT MARKET (LNG) ANDTHE CONTINENTAL LT PPL CONTRACTS

SEASONAL PROFILES

LOAD PROFILE PER GAS SECTOR

RUSSIA: REGIONAL RESERVES

528,1453,6

90,4 90 80,536,5 31,6 28,1 10,712,4

Kara-Yamal

West Siberia

Volga-Urals Timan-Pechora

Sakhaline & Okhotsk

Caspian North Caucasus

Pre CaspianEast Siberia Barents

-600,0

-500,0

-400,0

-300,0

-200,0

-100,0

0,0

100,0

200,0

300,0

400,0

500,0

600,0

Tcf

Already extracted

Remaining (2P+PVR)

496

0,1 6,4 24,914,551,4 2,3

(Tcf)A lot of available reserves when

EU gas demand will increase

Barentssea

Balticsea

Blacksea

Karskoye Sea Laptevsea

BeringseaSea of Okhotsk

Sea of Japan

East Siberiansea

Chukchi Sea

Azov sea

Caspian sea

Tyumen

Krasnoyarsk

Irkutsk

Komsomolsk-na-AmureVolgograd

Moscow

St. Petersburg

Kazan

Perm

Novosibirsk

Petrovsk Orenburg

Ukhta

Yamal

Yamburg

Surgut

UrengoiNoyabrsk

Yakutsk

Novokuznetsk

Kemerovo

Sakhalin

Far EastEast Siberia

Astrakhan

FIELDS TO BE DEVELOPED

Shtokman Production from: 2013Reserves: 3,6 tcm

Kharasavejskoe Production from: 2014Reserves: 1,3 tcm

BovanenskoeProduction from: 2011Reserves: 4,4 tcm

S.-Kamennomyskoe Production from: 2015+Reserves: 0,4 tcm

MedvezhjeProduction from: 1972Reserves: 0,5 tcm

UrengojskoeProduction from: 1978Reserves: 5,1 tcm

OrenburgskoeProduction from: 1974Reserves: 0,7 tcm

AstrahanskoeProduction from: 1987Reserves: 2,4 tcm

KomsomolskoeProduction from: 1993Reserves: 0,4 tcm

Zap. TarkosalinskoeProduction from: 1996Reserves: 0,4 tcm

GubkinskoeProduction from: 1999Reserves: 0,4 tcm

Vost. TarkosalinskoeProduction from: 1998Reserves: 0,35 tcm

Kovyktinskoe5

Production from: 2017 Reserves: 2 tcm

ChayndinskoeProduction from: 2016 Reserves: 0,4 tcm

Lunskoe (Sakhalin 2)3

Production from: 2008Reserves: 0,6 tcm

Severo Urengojskoe1

Production from: 2001 Reserves: 0,3 tcm

BolshehetskayaProduction from: 2004Reserves: 0,4 tcm

Kamennomyskoe MoreProduction from: 2015+Reserves: 0,5 tcm

YamburgskoeProduction from: 1986 Reserves: 3,7 tcm

ZapolyarnoeProduction from: 2001Reserves: 3,1 tcm

YurharovskoeProduction from: 2003 Reserves:0,65 tcm

Yuzno-Russkoe4


Beregovoe2


Planed for 2010

Planed forafter 2010

PLANNED 2010 EUROPE SUPPLY

Egypt 10(LNG)

Source: Total

Qatar 34Oman 3

(LNG)

2010

Libya 9(LNG 1)

Nigeria 17(LNG)

Production(inc. Norway)

317

Demand650

Import Pipe (Contracted) 260

ContractedLNG 90

Of whichNorway Pipe 124

Iran 8

Azerbaijan 5

Algeria 76(LNG 22)

Europe = EU 35Alternative

LNG

in BcmPipelines

Russia 186

Norway 2(LNG)

Export US 4

Trinidad 4(LNG)

For illustrative purpose only

EUROPEAN NET IMPORTSEUROPEAN NET IMPORTS (BCF/D)

10

15

20

25

30

J-01 J-02 J-03 J-04 J-05 J-06 J-07 J-08 J-09 J-10 J-11 J-12 J-13

Note the strong winter seasonalityNote the strong winter seasonality

UK GAS DECOUPLED SINCE 2009UK 12-MONTH STRIP AND BRENT ($/MBTU)

0

5

10

15

20

25

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

NBP spot price

Brent weekly

UK 12-month strip

UK GAS FUTURES ($/MBTU)

0

5

10

15

20

25

May-03

Nov-03

May-04

Nov-04

May-05

Nov-05

May-06

Nov-06

May-07

Nov-07

May-08

Nov-08

May-09

Nov-09

May-10

Nov-10

May-11

Nov-11

May-12

Nov-12

May-13

5-May-03

6-Oct-03

5-Apr-04

5-Jul-04

4-Oct-04

7-Mar-05

4-Jul-05

31-Oct-05

15-May-06

13-Nov-06

18-Dec-06

3-Sep-07

05-Nov-07

21-Jan-08

17-Mar-08

30-juin-08

04-Aug-08

17-Nov-08

9-Mar-09

15-Jul-09

11-nov-09

17-feb-10

3-nov-10

2-mars-11

13-juil-11

30-nov-11

28-mars-12

THE STORY OF UK FUTURES

Prices fell as cheapQatar spot LNG wasplenty, but less spot

availability has drivenspot prices up recently

BRENT VS. CONTINENTAL AND UK NATURAL GAS PRICES ($/MBTU)

0

5

10

15

20

25


Weekly spot price at NBP

Average CIS-NL-NW price

Average continental price

Weekly spot price of Brent

source: WGI

BRENT VS. UK SPOT ANDLT CONTINENTAL GAS PRICES

EU GAS DECOUPLED SINCE 2009EU AVERAGE MONTHLY BORDER PRICE ($/MBTU)

0,0

2,5

5,0

7,5

10,0

12,5

15,0

17,5

J-02 J-03 J-04 J-05 J-06 J-07 J-08 J-09 J-10 J-11 J-12 J-13

Average imported European gas price

75% of 5-month lagged Brent(smoothed over 5 months)

Note the discoupling thanks to the coming

of cheap spot LNG

EUROPEAN SPOT NATURAL GAS PRICES ($/MBTU)

0

5

10

15

20


Spot UK price (NBP)

Spot prices at Zeebrugge

Spot gas price at Bunde (NL)

Monthly Continental Europe Average

Monthly NBP UK spot price

Average CIS-NL-NW price

EU GAS DECOUPLINGLong term contracts (red, orange)

and spot prices in the UK, Belgium and the NL (blue and green) diverge

ZEEBRUGGE LESS NBP DIFFERENTIAL ($/MBtu)

-1,0

0,0

1,0

2,0


Positive differential if gas flowsfrom the continent to the UK and

capacity (25 Bcm/y) is lacking

Negative differential if gas flowsfrom the UK to the continent and

capacity (20 Bcm/y) is lacking

0,15 $/Mbtu = IUK tariff

0,15 $/Mbtu = IUK tariff

ZEEBRUGGE-NBP DIFFERENTIALDriven by pipeline tariffs and bottlenecks

IMPACT OF THE LOW US PRICES

• Natural gas is not impacted by the low oil price as their markets are specific with no competition

• UK NBP was down thanks to the economic crisis and the LNG abundance (no more cargoes to the US)

• Continental Europe spot prices followed the trend and Russian contracts were renegotiated

• But, in the post-Fukushima context, the LNG spot market and the LNG shipping market tighten

NORTH AMERICA

A NEARLY AUTONOMOUS REGIONWITH PRODUCTION UP AND PRICES DOWN

30 YEARS OF US GAS STORYHENRY HUB SPOT PRICE OF NATURAL GAS ($/MBTU)

0

5

10

15

j-80 j-82 j-84 j-86 j-88 j-90 j-92 j-94 j-96 j-98 j-00 j-02 j-04 j-06 j-08 j-10 j-12 j-14

Up to 1985,long-termcontracts

1986-96, "bubble":spot pricing,

partly against coal

1996-00, spotcompetitionagainst HFO

2000-08, prices are up because

of scarcity

2008-11 shale gasup & price

down

US STORY OF FOSSIL FUELSGULF COAST INTER-FUEL COMPETITION ($/MBTU)

0

5

10

15

20

25

j-86 j-88 j-90 j-92 j-94 j-96 j-98 j-00 j-02 j-04 j-06 j-08 j-10 j-12 j-14

Natural gas at Henry hub

WTI/6, a proxy for heating oil

WTI/10, a proxy for heavy fuel oil

Coal (brought from Ohio to Texas)

1954 (Phillips)-1978 (NGPA): Price controls & shortages1978-1986 (oil counter shock): Contract prices falter1986-1992: Spot prices compete with coal in the South1992-2008: Spot prices between heating oil & HFO2009-2011: Shale gas "revolution" and price collapse

Natgasis now

cheaperthan coal

US NATGAS MONTHLY BALANCEUS NATGAS SEASONAL CONSUMPTION

-20

-10

0

10

20

30

40

50

60

70

80

90

100


Bcf/d

Finaldemand

Marketedproduction

Netimports

Storagewithdrawals

Shale gas push production up and net imports down

NORTH AMERICANSHALE PLAYS

US Wellhead Shale Production (MMcf/d)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Barnett Woodford Fayetteville Haynesville Eagleford Marcellus

2008200920102011

US SHALE PRODUCTION GROWTH

NET IMPORTS ARE DOWN…TOTAL US NET IMPORTS (BCF/D)

0

2

4

6

8

10

12

14


US NET LNG IMPORTS (BCF PER YEAR)

-100

0

100

200

300

400

500

600

700

800

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Fareast (exports)

Mideast

Africa

Europe

Trinidad & Tobago

…AS US NET LNG IMPORTS (BCF/Y)

…EXPORTS TO MEXICO (BCF/D) UPUS NET EXPORTS TO MEXICO (BCF/D)

0,0

0,2

0,4

0,6

0,8

1,0

1,2

1,4

1,6


GOM PRODUCTION (BCF/D)GULF OF MEXICO MARKETED PRODUCTION (BCF/D)

0

2

4

6

8

10

12

14

16


Little gas as the Gulf is a «cold kitchen» mostly oil-prone

US MARKETED PRODUCTIONUS NATURAL GAS MARKETED PRODUCTION (BCF/D)

40

45

50

55

60

65

70

J-80 J-82 J-84 J-86 J-88 J-90 J-92 J-94 J-96 J-98 J-00 J-02 J-04 J-06 J-08 J-10 J-12

Impressive

growth now

ending

US NATURAL GAS RIGS AND PRICES

0

5

10

15

20


Smoothed gas rig number /100

Weekly 12-month strip in $/MBtu

Monthly HH price in $/MBtu

The rig countclosely followsthe price trend

NATGAS RIGS & PRODUCTION

STORAGE FULL = PRICES TO FALL

PRICES AND DIFFERENTIALS

• With the growth of shale gas, prices have fallen, as low as 2 $/MBtu for spot Henry hub price

• Such a low price is not exceptional: Price will fall again below 2 $/MBtu because storage is full

• Winter NE price differentials may surge because the high demand creates pipeline bottlenecks

• In spite of the growth of Marcellus shale in the region, the pipelines’ “last km” bottlenecks remain

GC-NE DIFFERENTIALSAVERAGE NORTHEAST* - HH DIFFERENTIAL ($/MBTU)

0

1

2

3

4

5


* Average of Boston city gate, NY city-gate, and Transco Z6-NY

The average differential movesup and down with the fuel costsfor moving gas in the pipelinesfrom the Gulf coast to the NE

DIFFERENTIAL LESS FUEL COSTNE-HH DIFFERENTIAL LESS TRANSPORT FUEL COSTS (~6%

of HH price)

-1

0

1

2

3

4

5


US DEMAND IS IMPROVING• The economic momentum and the low prices

are pushing R-C consumption• International industrial competitiveness has

been re-established by the low gas prices• Gas is competitive for power in all regions

and pushing coal demand and price down • The new LNG plants (Sabine Pass in 2015)

will be an outlet available by 2015-16

Exports will be an incentive for boosting supply

OVERALL CONCLUSIONS

AIE Perspectives to 2035

IEA: REGIONAL NATGAS DEMAND

REGIONAL NATGAS PRODUCTIONRussia will be the main supplier

for additional gas to WE and China

IEA

IEA: NATURAL GAS DEMAND GROWS IN ALL SECTORS BY 50+%

Documents

NATURAL GAS, THREE SYSTEMSwecmex.org.mx/presentaciones/2012_Mexico-Gas.pdfNATURAL GAS, THREE SYSTEMS Jean-Marie BOURDAIRE [email protected] Colegio de México May 21, 2012 CONTENT