Regional Market Outlook Energy Studies Institute

8/6/2019 Regional Market Outlook Energy Studies Institute

1/17

Dr. Tilak K. DoshiChief Economist & Principal Fellow

Chew Wee Kian Alvin

Energy Analyst

Examining Regional Market Outlooks and

Developments

12th October 2010

Gas Asia Conference 2010,

Kuala Lumpur, Malaysia


2/17

Primary Energy Demand by Fuel (MTOE)Primary Energy Demand by Fuel (MTOE)

Despite increasing emphasis on renewables and other non-fossil sources ofenergy, coal, oil and natural gas occupy a predominant share of fuel sourcesin the foreseeable future (81.5% in 2007; 80.1% in 2030).

CAGR

1980 2007 2030 1980-2007 2007-2030 2007 2030

Coal 1,792 3,184 4,887 2.2% 1.9% 26.5% 29.1%

2

, , , . . . .

Gas 1,234 2,512 3,561 2.7% 1.5% 20.9% 21.2%Nuclear 186 709 956 5.1% 1.3% 5.9% 5.7%

Hydro 148 265 402 2.2% 1.8% 2.2% 2.4%

Biomass 749 1,176 1,604 1.7% 1.4% 9.8% 9.6%

Renewables 12 74 370 7.0% 7.3% 0.6% 2.2%

Total 7,228 12,013 16,790 1.9% 1.5% - -

Source: IEA World Energy Outlook 2009


3/17

Primary Energy Demand by Region (MTOE)Primary Energy Demand by Region (MTOE)

Asia (including China and India) and the Middle East have the most rapidenergy demand growth

CAGR Share

1980 2007 2030 1980-2007 2007-2030 2007 2030

OECD 4,050 5,496 5,811 1.1% 0.2% 45.8% 34.6%

North America 2092 2793 2974 1.1% 0.3% 23.2% 17.7%

United States 1,802 2,337 2,396 1.0% 0.1% 19.5% 14.3%

3

Europe 1,493 1,826 1,894 0.7% 0.2% 15.2% 11.3%

Non-OECD 3,003 6,187 10,529 2.7% 2.3% 51.5% 62.7%

Asia 1,068 3,346 6,456 4.3% 2.9% 27.9% 38.5%

China 603 1,970 3,827 4.5% 2.9% 16.4% 22.8%

India 207 595 1,287 4.0% 3.4% 5.0% 7.7%

Middle East 128 546 1,030 5.5% 2.8% 4.5% 6.1%

Others 1,808 2,295 3,043 0.9% 2.3% 19.1% 18.1%

World 7,228 12,013 16,790 1.9% 1.5% - -



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Primary Natural Gas Demand by Region (bcm)Primary Natural Gas Demand by Region (bcm)

CAGR Share

1980 2007 2030 1980-2007 2007-2030 2007 2030OECD 958 1,527 1,761 1.7% 0.6% 50.1% 40.8%

North America 659 813 892 0.8% 0.4% 26.7% 20.7%

United States 581 655 649 0.4% 0.0% 21.5% 15.0%

Europe 264 544 651 2.7% 0.8% 17.8% 15.1%

Asia and the Middle East also account for the fastest growth in natural gasdemand; natural gas will increase in importance in these countries

4

Japan 25 100 111 5.3% 0.4% 3.3% 2.6%Non-OECD 559 1,523 2,553 3.8% 2.3% 50.0% 59.2%

Asia 36 319 748 8.4% 3.8% 10.5% 17.3%

China 14 73 242 6.3% 5.3% 2.4% 5.6%

India 1 39 132 14.5% 5.4% 1.3% 3.1%

Middle East 36 294 602 8.1% 3.2% 9.6% 14.0%

Others 488 910 1203 2.3% 4.0% 29.8% 27.9%World 1,517 3,049 4,313 2.6% 1.5% - -



5/17

LNG Liquefaction Capacity Outlook

500

600

700

800

Metres

World liquefaction capacity sharply increases, led by Qatar, Australia andWest Africa, from about 390 bcm at end-2009 to 460 bcm by 2015 and 600bcm by 2020

0

100

200

300

400

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

North America Europe Asia Asia PacificLatin America FSU Africa Middle East

BillionCu

bic

xls 40749 WGMO Sec 4 Source: Nexant forecasts


6/17

Natural Gas Proved Reserves (end 2009)Natural Gas Proved Reserves (end 2009)

Share R/P

tcf of total Ratio (yrs)

North America 323 4.9% 11.3

US 245 3.7% 11.7S. & Cent. America 285 4.3% 53.2

Venezuela 200 3% >100Europe & Eurasia 2,228 33.7% 64.8

Russian Federation 1,567 23.7% 84.1

Middle East and FSU dominate conventional reserves

, .

Iran 1,046 15.8% >100Qatar 896 13.5% >100

Africa 521 7.9% 72.4Algeria 159 2.4% 55.3

Nigeria 185 2.8% >100

Asia Pacific 574 8.7% 37

Australia 109 1.6% 72.7Indonesia 113 1.7% 44.3

Malaysia 84 1.3% 38

World 6,621 62.8

6

Source: BP Statistical Review of World Energy 2010


7/17

Natural Gas Proved Reserves (end 2009)Natural Gas Proved Reserves (end 2009)

(with US Shale Gas estimate)(with US Shale Gas estimate)

Share R/P

tcf of total Ratio (yrs)

North America 323 4.9% 11.3

US 245 3.7% 11.7S. & Cent. America 285 4.3% 53.2

Venezuela 200 3% >100Europe & Eurasia 2,228 33.7% 64.8

Russian Federation 1,567 23.7% 84.1

tcfR/PRatio (yrs)

Including shale gas

>3,000 >100

China and Australiaexpected to have

e ast , . >

Iran 1,046 15.8% >100Qatar 896 13.5% >100

Africa 521 7.9% 72.4Algeria 159 2.4% 55.3

Nigeria 185 2.8% >100

Asia Pacific 574 8.7% 37

Australia 109 1.6% 72.7Indonesia 113 1.7% 44.3

Malaysia 84 1.3% 38

World 6,621 62.8

7

Source: BP Statistical Review of World Energy 2010, IHS/CERA shale gas estimates 2010

US. Exxon, Chevron, Shell

and ConocoPhilipshave acquired shalegas prospects in

Poland, Sweden andGermany


8/17

USGS Hydrocarbon Resource Estimates(Conventional v. unconventional)

Conventional hydrocarbons: dominating role of the Middle East OPEC dueto the geographical distribution

Unconventional hydrocarbons: are subject to great uncertainty indevelopment costs (e.g. Canadian tar sands)

However, North American shale gas is game changer with global impacts(with China, Europe, India and Australia all also having potential shale gasand CBM availability)


9/17

EIA US Gas Supply Forecasts

20

25

trillion cubic feet

Shale gas

EIA forecasts of just 2 years ago might be conservativeshale gas couldconstitute half of all US gas supply by some estimates

0

5

10

15

1990 2000 2008 2015 2025 2035

Coalbed methane

Other lower 48 onshore(including tight gas)

Lower 48 offshore

Source: EIA, 2009


10/17

Gas ProductionGas Production

Long Run Marginal Cost ($/mmbtu)Long Run Marginal Cost ($/mmbtu)

4

5

6

Indonesia

South

USA

Offshore

-

Indonesia

North

Sumatra

$2.35

Barnett

Shale

$3.4

Appalachian

coal seam

$4.86

Piceance

Tight

$6.8US shale gas breakeven prices at $3 - $5/mmBTU,according to Shell (FT, Oct 2nd, 2010)

1010

0

1

2

3

LRMC

Nigeria

Associated$0.1

Qatar North Field

$0.2

USA

12000

ft

$0.29

Algeria

$0.5

UAE

$0.55

China

$0.8

Australia East

Coast

$0.85

Trinidad and

Tobago

$1.25

Qatar AlKhaleej

$1.3

Brunei

$1.5

Sumatra

and Java$1.6

Russia

Shtokman

and Yamal

$1.7

$1.73

Indonesia

EastKalimantan

and Sulawesi

$2

Indonesia

Irian Jaya

$2.75

Pinedale

Tight

$3.5

WoodfordShale

$3.89

Source : Nexant, Energy Studies Institute


11/17

Natural Gas Prices ($/MMBTU)

12

14

16

18

Japan Contract

Financial crisis and recession in 2008 led to steep fall-off in prices, with Japanspot LNG prices diving from $16/mmbtu peaks to below contract prices

0

2

4

6

8

10

2004 2005 2006 2007 2008 2009 2010*

Japan Spot

HH

NBP


12/17

LNG Pricing Modes

No Price1%

Not Known

0.3%

Regulation BC

23%

Oil Price

Escalation

22%

In scenarios of global LNG surplus, price link to oil prices will be underpressure and spot LNG prices will diverge from oil-indexed higher pricedcontracted LNG flows

Bilateral

Monopoly

8%

Regulation SP

11%

Regulation

COS

3% Netback1%

Gas-on-Gas

Competition

31%

xls 40749 WGMO Sec 4

Source: Nexant estimates


13/17

LNG Importers: New Players and Routes

Importing CountriesNumberYear

+India, China

+Turkey, Greece, Portugal, UK

202008

Japan, South Korea, Taiwan,

Belgium, France, Spain, Italy,

US

81998

+UAE, Singapore, Thailand?, HK?, Indonesia?,Pakistan?

+Netherlands, Germany, Poland?, Cyprus?

292015

+Puerto Rico, D. R., Mexico, Argentina, Brazil

Source: Deutche Bank, 2008

By 2007:84 country-to-country trades (+15 over 2006)264 sea transportation routes (+68 over 2006)


14/17

Impacts of US Gas Shale Supply Shock

Indigenous natural gas supplies reduce the need for LNG imports into NorthAmerica which become a matter of choice rather than necessity.

Sempra, Cheniere and Freeport LNG have asked for FERC permission toturn their US import terminals into export terminals.

Huge Qatar planned supply to U.S. now likely to look for new markets,

New technologies to extract gas from shale rock have altered the U.S. energyoutlook for the next 100 years(Tony Hayward, BP, 2010)

.

Russian LNG projects previously targeting U.S. markets will also most likelylook to Asian markets.

The end result will be a pressure on natural gas prices, already weak sincetheir peaks in 2008.

Asian importers have an option value in sourcing larger shares of LNG

imports under spot or short term contracts given the outlook for softer spotLNG market for the medium term


15/17

China Gas Infrastructure

RUSSIA

KAZAKHSTAN

China is said to have the second largest deposits of shale gas, after theUS; together with potential pipeline gas from Russia and Myanmar makesChinas options for gas supply far more competitive

Existing Import Terminals

Planned Import Terminals

Existing Pipelines

Planned Pipelines

CHINA

MYANMAR

PP: 40749 WGMO Asia Pacific Sec_5


16/17

Levelized Costs of Electricity (2008)Levelized Costs of Electricity (2008)

Nuclear CCGT

SC/USC

Coal

Coal with

90% CCS

Onshore

Wind Solar PV

Diesel

Genset

Capacity (MW) 1,400 480 750 474 45 1 1

Investment Cost (S/kW)* 4,102 1,609 2,133 3,838 2,349 6,006 187

Natural gas will likely be used as an interim transition fuel in a carbon-constrained future, as CCGT remains among the most efficient technologiesfor power generation

16

O&M (cents kWh) 1.5 0.4 0.6 1.4 2.2 3 1.5

Fuel Cost (cents/KWh) 0.9 6.1 1.8 1.3 0 0 40.4

Load Factor (%) 85% 85% 85% 85% 26% 13% 85%

Lead Time (years) 7 2 4 4 1 1 1

Expected lifetime (years) 60 30 40 40 25 25 7

LCOE (cents/kWh) @ WACC=5% 5.9 7.5 4.1 5.9 9.7 41.1 42.3


Carbon Cost at $60/ton



Sources: IEA Projected Cost of Generating Electricity, 2010; Energy Studies Institute calculations for diesel genset


17/17

Thank You!Thank You!

17

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Regional Market Outlook Energy Studies Institute