ESAI Energy Presentation: The LNG Gamble

The LNG Gamble

Sarah A. Emerson

ESAI Energy

October 2013

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U.S. Heading towards Net Exporter

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(2.0)

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

U.S. Natural gas Balance (bcf/d)

Net Imports

Supply

Demand

Source: ESAI, EIA

Demand Growth Depends on Sector

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22.09 23.45

20.01 22.44

3.85

5.00

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Composition of Demand Growth (bcf/d)

Other

To NGLS

Transport

Commercial

Residential

Industry

Electricity

Source: ESAI Energy LLC

Chevron Phillips, Cedar Bayou, TX 1500 (2018)

Dow Chemicals, Taft, LA 384 (2013)

Westlake, Lake Charles, LA 106 (2013), 80 (2014) 106 (2015)

Williams, Geismar, LA 272 (2013)

Debottlenecks/feedstock conversions New facility Restart Expansion

INEOS, Chocolate Bayou, TX 115 (2013)

LyondellBasell, Channelview, TX 113 (2015) La Porte, TX 362 (2014)

Eastman, Longview, TX 90 (2013)

BASF, Port Arthur, TX 180 (2014)

LyondellBasell, Corpus Christi, TX 362 (2015)

Dow, Freeport, TX 1500 (2017)

ExxonMobil, Baytown, TX 1500 (2017)

OxyChem, Ingleside, TX 550 (2020)

Sasol, Lake Charles, LA 1400 (2018)

Formosa, Point Comfort, TX 800 (2016)

The Marriage of Natural Gas Liquids and Petrochemicals Ethane Supply and Ethylene Capacity from ESAI’s Study:

A Perfect Storm Of Liquids: Global NGL Forecast & Analysis 2013 – 2023

Source: ESAI Energy LLC: A Perfect Storm Of Liquids: Global NGL Forecast and Analysis 2013 – 2023

Likely US Natural Gas Exports

7

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

U.S Raises Natural Gas Exports (bcf/d)

To Canada by Pipe to Mexico by Pipe LNG outside of region

US Import

Requirement Net Imports

Volumes of

Additional

Exports

LNG

Capacity?

# of

terminals

2012 (3.8) 3.8 - -

2013 (3.6) 3.6 - -

2014 (2.5) 2.5 - -

2015 (2.4) 2.4 0.0 -

2016 (1.8) 2.4 0.6 1.3 2.0

2017 (1.2) 2.4 1.2 3.0 2.0

2018 (0.6) 2.4 1.8 4.1 3.0

2019 0.0 2.4 2.4 5.1 4.0

2020 0.8 2.4 3.2 8.4 5.0

ESAI Energy, Confidential

One Scenario for Natural Gas Exports bcf/d

Source: ESAI Energy LLC

Global LNG, September 2013 ($/MMBtu)

Henry Hub $3.62

Japan $15.75

Korea $15.75

China $15.35

U.K $9.79

India $13.95

Belgium $9.83

Spain $10.25

Rio de Janeiro $14.95

Source: FERC, ESAI

How Much Can Asia Absorb?

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-40

-30

-20

-10

0

10

20

30

40

50

60

70

80

90

100

110

2005 2010 2015 2020

Asia Pacific Natural Gas Balance (bcf/d)

Net Regional Import Requirement Asia-Pacific Supply Asia-Pacific Demand

Source: ESAI Energy LLC

Global LNG Liquefaction Capacity (bcf/d)

Region Existing Capacity Under

Construction Planned

Asia 12 9.8 14

Middle East 13 0 10.5

Europe 1 0 1

FSU 1 0 10

Africa 8 1.3 13.1

N. America 0 2.4 32

Latin America 3 0 2.4

Total 38 13.5 83

Notes: List Includes coal-bed methane to LNG and floating LNG projects Includes Algeria’s Skikda , commissioned 03/13 Sources include ESAI Energy, GIIGNL and IEA

Angola LNG 0.7 bcf/d 2013

Algeria, Gassi Touil LNG 0.6 bcf/d 2013

Qld Curtis LNG 1.1 bcf/d 2014-2015

Papua New Guinea, PNG LNG 0.9 bcf/d 2014-2015

Indonesia, Donngi Senoro LNG 0.3 bcf/d 2014

Gorgon LNG 2.0 bcf/d 2015-2016

Gladstone LNG 1.0 bcf/d 2015-2016

AP LNG 1.2 bcf/d 2015-2016

Wheatstone LNG 1.2 bcf/d 2016-2017

Prelude LNG 0.5 bcf/d 2017

Ichthys LNG 1.1 bcf/d 2017-2018

Sabine Pass LNG 2.4 bcf/d 2015-2017

Malaysia LNG 0.5 bcf/d 2014

LNG Projects Currently Under Construction

Americas: 1 (2.4 bcf/d) Middle East & Africa: 2 (1.3 bcf/d) Asia: 10 (9.8 bcf/d)

View from the Casino

• Beginner’s Luck: o First movers in LNG terminal construction benefit

• Gambler’s Conceit: o Demand for natural gas will go up forever and there is unlimited demand

for LNG

• Stacked Deck: o Some LNG terminal investors/companies are better situated than others

• House Loses: o Prices at Henry Hub will rise with exports

• Count Cards: o There will be a tipping point with these LNG investments, and the

economics will justify a volume far below 34 bcf/d. Analysts need to keep

track of the impact of each new increment of export capacity

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