Gasoducto Bajanorth/North Baja Pipeline 2 nd Annual Customer Meeting October 8-10, 2008
Gasoducto Bajanorth/North Baja Pipeline 2nd Annual Customer MeetingOctober 8-10, 2008
Eduardo Quirazco González
October 9th, 2008
Electric Infrastructure of the Baja California SystemElectric Infrastructure of the Baja California SystemElectric Infrastructure of the Baja California System
3
(1)
IVML
(2)
TIJ ROA
Coast ZoneValley Zone
320 MW, 2 units ST498 MW, 2 units CC206 MW, 3 units GT
720 MW, 13 units GEOT47 MW, 2 units TG
PRESIDENTE JUAREZPRESIDENTE JUAREZ
GT GT -- CIPRESCIPRES CERRO PRIETOCERRO PRIETO
62 MW, 3 units TGGT GT -- MEXICALIMEXICALI(1)
(2)C.C. MEXICALI ( INTERGEN )C.C. MEXICALI ( INTERGEN )1000 MW (3 units GT + 1 unit ST)
TV Steam TurbineTG Gas Turbine CC Combined Cycle GEOT Geothermal
TV TV Steam TurbineTG TG Gas Turbine CCCC Combined Cycle GEOTGEOT Geothermal
Generation
(3)
TERMOELECTRICA DE MEXICALI TERMOELECTRICA DE MEXICALI (SEMPRA)(SEMPRA)
600 MW, (2 GT + 1ST) CC
(3)
Heavy oil, diesel and Heavy oil, diesel and natural gasnatural gas
dieseldiesel geothermalgeothermal
dieseldiesel
Natural gasNatural gas
Natural gasNatural gas
Generation units in the Baja California System
(1 unit GT + 1 unit ST)
2008 System Demand:2092 MW (August 27th, HE21)
1232 MW860 MW
4
1.95%
11.96%
-0.75%
11.29%
12.50%
8.65%
3.15%
10.39%
12.53%
3.36%
-1.02%
5.25%4.57%
2.10%
5.92%
1.65% 1.63%
5.17%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-1.54%
11.96%
-3.39%
12.77%
6.06%
8.17%
4.79%
7.06%
9.32%
4.14%
0.09%
2.62%
6.44%
2.85%
9.74%
5.42%
-5.25%
6.42%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
*
Growth Demand
Consumption energy growth
5
Economic Sectors Statistic - 2007
0.4%
0.2%
1.2%
0.0%
89.2%9.0%
residentialservicesagriculturecommercialmedium industrybig industry
4.6%
11.2%
7.2%
23.4%
2.7%
51.0%
1,098,824 users
10,026 GWh
6
Generation participation
56.9%0.1%41.9%1.1%20042004
59.4%0.1%38.4%2.2%20052005
55.7%0.1%42.7%1.5%20062006
0.2%
3.6%
Heavy OilHeavy Oil
59.1%
57.1%
GeothermalGeothermal
40.5%
39.2%
Natural GasNatural Gas
0.1%20072007
0.1%20032003
DieselDiesel
7
0.065
0.590
0.313
0.022
0.610
0.196
0.025
0.586
0.243
0.054
0.598
0.325
0.052
0.621
0.222
2003 2004 2005 2006 2007
Gas TurbinesCombined CyclesSteam units
Power plant factors by type
8
75
929
127 97165
316
768
48
770
43
1037
81
563468
790
249
2000 2001 2002 2003 2004 2005 2006 2007
Exports Imports
Transactions (GWh)
9
Future Generation Projects
NATURAL GAS
NATURAL GAS
NATURAL GAS
NATURAL GAS
GEOTHERMAL STEAM
NATURAL GAS
NATURAL GAS
SOURCE
March 2012100 MWGEOTERMICOCERRO PRIETO V
2013280 MWCOMBINED CYCLEBAJA CALIFONRIA II
2014280 MWCOMBINED CYCLEBAJA CALIFORNIA III
2015271 MWCOMBINED CYCLEBAJA CALIFORNIA IV
May1ST,200990 MW *COMBINED CYCLEGT REPOWERED USING STEAM TURBINES
July 1ST,2009150MWAERODERIVADASGAS TURBINES
May 15TH,2009271.9 MWCOMBINED CYCLEBAJA CALIFORNIA
OPERATION DATECAPACITYTYPEPROJET
* Gas turbine of 150 MW located in PJZ power plant repowered
10
Load and Resources
2900
2384
20092009
4071
3417
20162016
3800
3159
20142014
3240
2866
20122012
3153
2600
20102010
407135203190RESOURCES (GEN + IMP)RESOURCES (GEN + IMP)
328530672730DEMANDDEMAND
201520152013201320112011
0500
1,0001,5002,0002,5003,0003,5004,0004,500
2009 2010 2011 2012 2013 2014 2015 2016
Energía Costa Azul LNG TerminalEnsenada, Baja California
12
LNG Technology Enhances Benefits
Commercializes large gas resources with little or no local demand and allows access to previously “stranded”resourcesCan be transported over long distances
13
FactsUS$1.2 billion investment, including pipeline
28 MMC/day process capacity; expandable to 42 MMC/day
Berth can dock 300m ships
2 storage tanks - 160,000 m3 each; space for 2 additional tanks
A 648m breakwater built with 25m deep concrete cells
Construction started in 2005; Completed in May 2008
ECA LNG Regasifying Terminal
14
Storage tank
Open Rack Vaporizer
ORVIntank Pump
Sendout Pump
Recondenser
BOG Compressor
SEA
SEA WATER
LNG
GAS
REGASIFICATION PLANT
VAPO
RS
VAPO
RS
SEA
WA
TER
LNG
GASIFICATIONPipelines
Domestic Market and Exports
LNG Regasification Process
ECA LNG Regasifying Terminal
15
Modes of Operations
SENDOUT CASE FLOWRATE (MMSCFD)
Zero sendout -
Minimum (without ship unloading) 100
Minimum (with ship unloading) 350
Maximum normal (100%) 1,000
Peak (130%) 1,300
16
Pipelines to Mexico & US Markets
Simbología
LNG
Gasoducto TGN
Gasoducto Bajanorte
North Baja Pipeline
Ampliación Bajanorte(propuesto para LNG)
Terminal LNG (propuesta o en construcción)
Existentes
En Construcción
Propuestas
Interconexión
Plantas Eléctricas
17
ECA LNG Project
18
ECA LNG Project
19
ECA LNG Regasifying Terminal Main Components
1. Sea water pumps (4)2. Combustion Turbine
Generators (3)3., 4. Facilities to handle
boil off gas5. High pressure LNG
pumps (7)6. Regasifying system
(ORVs) (6)7. Recondenser8. LNG storage tanks9., 10. LNG carrier
berthing and unloading facilities
11. Electro Chlorination Plant
12. Reverse Osmosis Plant (3 trains @ 10 m3/hr per train)
1
7
9 10
11
2
3
4
5
6 128
20
Primary Containment
Secondary Containment
Safeguard Systems
Separation Distance
Industry Standards / Regulatory Compliance
Critical Safety Conditions
21
Tax, Royalties,Rights and
Other payments
Tax, Royalties,Rights and
Other payments
Indirect contribution to societyIndirect contribution to society
GOVERNMENT
COMPANY
COMMUNITY
GETTING ENERGY FOR THE CURRENT AND FUTURE GENERATIONS
DEVELOPMENT
GETTING ENERGY FOR THE CURRENT AND FUTURE GENERATIONS
DEVELOPMENT
LOCAL CONTENT &
EMPLOYMENTBUSINESS CHAMBERS
LOCAL ECONOMY
ECONOMYECONOMY
CONSERVAT PROGRAMS
MONITORING
HSE CULTURE
ENVIRONMENTENVIRONMENT
SOCIAL INVESTMENT
(TRUST FUND)
CULTURE AND HISTORY
SPONSORSHIP AND CHARITY
SOCIAL SOCIAL DIRECT CONTRIBUTION TO SOCIETYDIRECT CONTRIBUTION TO SOCIETY
Our Approach Towards Sustainable Development
22
On-site Nursery
Over 5,000 Ferrocactus relocated & protected
23
Relocation of Marine Life
Relocated over 670,000 sea urchins, sea cucumbers & sea snails
24
Our CommitmentEnergía Costa Azul is committed to global
sustainable development, by taking an integrated approach to economic balance, environmental
and social issues as it relates to our business, for the current and future generations benefit.
We believe we can help to achieve this goal, not only by getting a competitive, safe and reliable
energy source to help promote regional economies, but by respecting the environment, diversity and local cultures to enhance quality
life through responsible Corporate actions.
Energía Costa Azul LNG TerminalEnsenada, Baja California
©2007 Sempra Energy. All copyright and trademark rights reserved.
BUILDING OUR ENERGY FUTURE
©2008 Sempra Energy. All copyright and trademark rights reserved.
Sempra Pipelines & Storage2008 GB/NBP Customer MeetingOctober 9th, 2008
2727
What is new ?
Completed Construction of Gasoducto Bajanorte/TGN Expansion, including:
LNG Spur - 45 mile, 42” pipeline, MAOP 1480 psig, max capacity 2.9 Bcfd
TGN II - 9 mile, 30” pipeline, MAOP 940 psig, max capacity 800 MMcfd
GB Compressor Station - 30,000 hp located at the east end of GB Mainline
Installed odorization system near the LNG Spur / GB Mainline interconnect
Energia Costa Azul LNG Terminal tested successfully at maximum send out - 1.3 Bcfd
During test, deliveries reached SDG&E at Otay and SoCal at Blythe
Started Construction of the Yuma Lateral – 8 mile, 12” pipeline MAOP 1150 psig
©2007 Sempra Energy. All copyright and trademark rights reserved.
2929
What is next ?
Complete SCADA integration, update portals
CRE approval GB 5-year rate case ~mid 2009
Fuel tracker implementation (GB, TGN, NBP) - target 1Q2009
Complete Construction of the Yuma Lateral
Expect LNG !
Scheduling Issues In The LNG World
Marvin HoffmanSenior Transportation Coordinator
31
North Baja Pipeline
• Scheduling allowed within primary receipt and delivery points
• If constraint on SoCal System, Blythe delivery point will be allocated by SoCal Gas
• Become familiar with scheduling cycles on El Paso Pipeline
• New scheduling system at least 18 months away
32
GB & TGN Pipelines
• Contract MDQs and delivery paths are unique
• Operator Communications are essential with multiple sources of supply
• If constraint on SoCal System, Otay Mesa delivery point will be allocated by SoCal Gas
33
ECA Spur
• Scheduled volumes may not match physical send-out volumes
• Scheduled volumes will match confirmed scheduled deliveries off NBP, GBN and/or TGN
• Scheduled volumes are confirmed daily on ECA’s website as ‘Point Operator’
34
Rosanety Barrios Beltrán for Gasoducto Bajanorte‐North Baja Pipeline 2nd
annual customer meeting
All comments and opinions given in this presentation do notrepresent Comisión Reguladora de Energía opinion, but theauthor´s
35
“Fair Regulation is now, and always will be, a difficult process. But is notimpossible”
Ralph M.Beese
“At most, regulation is a supplement or partial alternative to competition resortedon a largely and ad hoc basis to secure particular objectives wich it is thoughtcannot be obtained by competition”
Lee Loevinger
“Modern regulation is increasingly in need of more headlights and fewertaillights”
Francis X Welch
36
1995 Reform Natural gas Regulation:
Methodologies, estrategiclinesEach project must be justifiedby its own merits. Costs go to each system´susers
Reglamento de Gas NaturalDirectiva de Precios y Tarifas (1996)New Directiva de Precios y Tarifas (2007)
37
38
3939
Current Infraestructure
GOLFO DE MEXICO
MA
R C
AR
IBE
ISLASMARIAS
OCEANO PACIFICO
NACO
SantaAna
Hermosillo
Guaymas
Anahuac
Chihuahua
Delicias
Cd.Camargo
Jiménez Químicadel Rey
Monclova
SaltilloTorreón
Gómez P.
SAN LUISPOTOSI
SalamancaGuadalajara
Uruapan
Morelia
Toluca
Tula
Pachuca
Puebla
Jalapa
PozaRica
Veracruz
T. Blanc
aC.P.Q.
Pajaritos
Minatitlán Nvo. Teapa
Villaherm
osaC.P.Q.Cd. Pemex
Atasta
Campeche
MéridaTlalchinol
Cactus y Nuevo Pemex
C.P.Q.
La Venta
Qro.
Cd. Juárez
Cd.
Mendoza
Cd. Lerdo
L. Cárdenas
Matamoros
Piedras Negras
S.L. Río ColoradoMexicali
NuevoLaredo
Importación Importación
Importación
Importación
Cd. MaderoTampico
Cuernavaca
Escalón
Durango
Castaños
Cadereyta
Hidalgo
Parras
Camargo
Pandura
MiguelAlemán
Sn. Fernando
CampoTam.
C.F.E.Colinas
C.P.Q.Poza R.
C.P.Q.Matapionchi
C.F.E. El Verde
ALTAMIRA
MAZATLAN
11
10 2
1 6
3
5
7
8
Monterrey
Sta. Ana
Valladolid
4
ACCESO ABIERTO PRIVADOS
Kinder MorganGasoductos de ChihuahuaIgasamex BajíoEnergía MayakánTejas Gas de TolucaFINSA EnergéticosTransportadora de Gas ZapataGasoductos del BajíoTransportadora de Gas Naturalde Baja CaliforniaDuctos de NogalesGasoducto BajaNorteSan FernandoGasoductos del RíoAgua PrietaConceptos Energéticos MexicanosTransportadora La HuastecaTejas Gas de la PenínsulaTerranova Energía
123456789
101112131415161718
AGUASCALIENTES
Nogales
Sn Juandel Río
Cancún
Cananea
AguaPrieta
13
14
12
TAMAZUNCHALE 16
15
17
TOPOLOBAMPO
SIMBOLOGÍAPGPB sistema de transporteAcceso abierto privado Proyecto en evaluaciónProyecto viableTerminal de GNL viableCiudadPuntos de inyecciónPlanta petroquímica
MANZANILLO
230 km
LIBERTAD
18Reynosa
40
Investments requires an anchor contract.Only CFE and Pemex signed long termcontracts.There´s no opportunity to recuperate anyredundancy or non used capacityRisk of saturation in the National PipelineSystem (SNG‐Pemex)
41
Based on international experience, and in order to attract new investments and giveredundacy to SNG, CRE started to analize thepossibilities to develop a new rate model, in order to incorporate the cost of specificprojects into a National System.This project is leaded by CRE in coordinationwith SENER
42
SNG 5 year rate review:• Decreased the number of rate zones from 16 to 5.• Minimized the arbitrage among rate zones• Minimize Pemex discretionality in order to define the“gas route”
• CRE Resolution establish the posibility to incorporatenew projects into a National Rate System.
43
Chihuahua
Cd. Camargo
Delicias
Ciudad Juárez
Anáhuac
JiménezLagunadel Rey
Gómez Palacio
Torreón Saltillo
Linares
Monclova
ReynosaArgüelles
Cd. MaderoSan Luis Potosí
Guadalajara
L. Cárdenas
Uruapan
Morelia
Salamanca
Sta. Ana
Tula
Tlalchinol
Pachuca
Puebla
T. Blanca
Veracruz
Matapionche
PozaRica
Minatitlán
Cactus y Nuevo Pemex
Cd. Pemex
La VentaVilla Hermosa
Monterrey
Los Indios
Tuxpan
CempoalaVenta de Carpio
Matamoros
DF
Toluca
Durango
Mendoza
Altamira
Punta de Piedra
Chihuahua Importación
Poza Rica
Cárdenas
Chihuahua Norte
Chihuahua Sur
Centro
Norte
Golfo
Centro
Sur
LosRamones
Occidente
44
First hand sales Sine qua non condition forNGR:• At the end of 2008, users must choose if the stay in thetransitory regime, or switch to the permanent one.
• Definition of adquired rights.• Formula FHS‐CRE:
Reference market: From Houston Ship Channel to Henry HubMinus: HH‐South of TexasAdjustment for cost of transportation between South ofTexas and ReynosaAdjustment for net‐back (new SNG tariffs)
45
Premise: Not all projects are feasible to incorporateto the NGRGoal: Transparency, clear rules for all. Only theprojects that fit with the criteria will be part ofNGR1) Externalities measurement methodology:
• To identify the benefits that specific infraestructre have forconsumers upstream or downstream
• To identify who will pay what portion of the new capacity: (federal, regional, direct users)
• Establish the marginal cost of not to built the newinfraestructure vs the marginal benefit of have more capacity
46
1) Externalities methodology premises:• How to manage the assets currently underconstruction
• What to do with capacity in excess• Standard GTS• To have a solid demand study• Standard reports to CRE
47
2) Legal adecquations:• Create the “clearence and settlements house” figure• This new entity must be solid in legal and financialterms, in order to guarantee payments to allparticipants and making economically posible theleverage of the projects.
• To evaluate the need of modify current legal frame.3) Software development
48
Feasibility for new projectsEconomic scalesStandard services, standard qualityRedundancy
49
Unnecesary infraestructureExcessive cost of infraestructureTransfering market risk to final users
Emerging Dynamics of the Global LNG Market:
North America’s Newest Roller Coaster Ride
October 9, 2008
- 51 -Proprietary & Confidential
Pace U.S. Natural Gas Market View
- 52 -Proprietary & Confidential
U.S. Natural Gas Markets—Bull or Bear?
• Upward Price Pressure
• Obstacles to new coal generation & potential Carbon legislation
• Canadian Supply Risk – royalty tax, tar sands, etc
• Material & labor cost increases
• Global LNG liquefaction lagging
• Large oil-gas differential while markets becoming more global
• Asian Economies = Energy Sink
• Lower Price Pressure • Recent bounce in domestic
production
• Unconventional Shale emerging as significant domestic resource
• Improvements likely in finding & recovery technology over the next 10-20 years
• Higher prices make alternative fuels more economic
- 53 -Proprietary & Confidential
U.S. Lower-48 Supply/Demand Balance
•Demand for gas-fired electric generation key driver of gas demand growth, especially through the next decade
Sources: EIA and Pace
0
5
10
15
20
25
30
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Tcf/y
r
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.002007$/ M
MB
tu
Lower 48 Net Pipeline ImportsLNG AlaskaConsumption L 48 Henry Hub
FORECAST Consumption CAGR: 0.6%
- 54 -Proprietary & Confidential
Shale Resource Is Vast & Becoming More Understood
- 55 -Proprietary & Confidential
Resulting In Year Over Year Supply Increase ~8.0%
• 1980 …last time U.S. production exceeded 58 Bcf/d
40,000
45,000
50,000
55,000
60,000
65,000
Jan-05
Mar-05
May-05
Jul-0
5Sep
-05Nov-0
5Ja
n-06Mar-
06May
-06Ju
l-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-0
7Sep
-07Nov-0
7Ja
n-08Mar-
08May
-08Ju
l-08
MM
cf/d
Katrina
Bounce in
UnconventionalShale
U.S. Marketed Gas Production, 2005-2008
Source: EIA.
- 56 -Proprietary & Confidential
From Rickety To Sharp Ups And Downs…
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00Ja
n-06
Mar
-06
May
-06
Jul-0
6
Sep-
06
Nov
-06
Jan-
07
Mar
-07
May
-07
Jul-0
7
Sep-
07
Nov
-07
Jan-
08
Mar
-08
May
-08
Jul-0
8
Sep-
08
$/M
MB
tu
Henry Hub El Paso, San Juan Basin
- 57 -Proprietary & Confidential
…And Whip-Arounds, Getting Faster and Faster
• Evidence of a Growing Supply Surplus… Chesapeake Energy plans to cut its drilling capital
spending through end 2010 by 17% in response to the drop in natural gas prices
Weakening economy could trigger a loss of
industrial demand for gas, helping to keep prices below
$10/MMBtu
$7-$8/MMBtu natural gas prices
and the credit crunch won’t be
favorable to companies that
have to borrow a lot of money to support drilling
activity
- 58 -Proprietary & Confidential
Global Pricing Competition and Implications
- 59 -Proprietary & Confidential
LNG Market And Price Definitions — The Basics
East AsiaEurope
U.S.Atlantic
Pacific
Middle East
Integrated NA Commodity
Market
Asian Index Market + One-off
Spot Trade
Parallel European Index/Commodity
Markets
Price (Asia) = JCC Index
Price (Europe)
Price (US) = Henry Hub Index
Sources: Pace and various public sources.
Continental = GBP = (Gas Oil+Fuel Oil) IndexUK = NBP = Spot Market Index
- 60 -Proprietary & Confidential
Gas Index Market Prices Move To Their Own Beat…
Sources: Pace and various public sources.
USA
Dec ‘06
Apr ‘07
$7.6$6.9
Dec ‘07
$7.1
UK
Dec‘06
Apr ‘07
$3.3$6.2
Dec‘07
$10.2
BELGIUM
Dec‘06
Apr ‘07
$3.9$7.6
Dec ‘07
$9.3
Market Price
LNG Contract Price
LEGEND
SPAIN
Dec ‘06
Apr ‘07
$6.4
Dec ‘07
$7.5$6.0
KOREA
Dec‘06
Apr ‘07
$7.6$10.6
Dec ‘07
$9.2JAPAN
Dec‘06
Apr ‘07
$6.9$7.3
Dec ‘07
$9.1
- 61 -Proprietary & Confidential
…While Incremental Volumes Follow The Money
1300
Note: All volumes in thousand tons per month.Sources: Pace and various public sources.
USA
19001000 400
Dec ‘06
Apr ‘07
Dec ‘07
SPAIN1600 1900
Dec ‘06
Apr ‘07
Dec ‘07
60250 170UK
Dec ‘06
Apr ‘07
Dec ‘07
130360 240
BELGIUM
Dec ‘06
Apr ‘07
Dec ‘07
KOREA
20002700 2300
Dec ‘06
Apr ‘07
Dec ‘07
JAPAN
46005300 5800
Dec ‘06
Apr ‘07
Dec ‘07
- 62 -Proprietary & Confidential
2008: SE Asia And North Africa/Mideast Lead Supply
15
19
107
31
23
31
11
Note: All volumes in million tons per year (MTA).Sources: Pace and various public sources.
2
1
19
6
2
4
19
Existing Projects
New Entrants
1-15 MTA
16-30 MTA
31-45 MTA
46-100 MTA
100-> MTA
LEGEND
Note: Expansions are italicized and denoted by size variations.
- 63 -Proprietary & Confidential
2015: New Players, w/Qatar, Australia & Nigeria Dominant
32
7
23
36
15
2
4
78
4
22
11
185
5
4
7106
Note: All volumes in million tons per year (MTA).Sources: Pace and various public sources.
4
8Existing Projects
New Entrants
1-15 MTA
16-30 MTA
31-45 MTA
46-100 MTA
100-> MTA
LEGEND
Note: Expansions are italicized and denoted by size variations.
36
38
- 64 -Proprietary & Confidential
2008: Northeast Asia Is Primary Market
6
8
5
18
3 174
1
639
6
4
13
494
12
Note: All volumes in million tons per year (MTA).Sources: Pace and various public sources.
5
3
81
Existing Projects
New Entrants
1-15 MTA
16-30 MTA
31-45 MTA
46-100 MTA
100-> MTA
LEGEND
Note: Expansions are italicized and denoted by size variations.
- 65 -Proprietary & Confidential
2015: The 800-lb. Gorilla Jumps In
5
111
178
1
689 26
4
166
41
20
53
2
7
34 6
11
17
Note: All volumes in million tons per year (MTA).Sources: Pace and various public sources.
5
3
8
11
5
32
372
35
Existing Projects
New Entrants
1-15 MTA
16-30 MTA
31-45 MTA
46-100 MTA
100-> MTA
LEGEND
Note: Expansions are italicized and denoted by size variations.
- 66 -Proprietary & Confidential
Atlantic Liquefaction Capacity Rapidly Catching Up To Pacific?
…with the Middle East a growing swing supplier
2007ATLANTIC
BASIN
2010
6050
2015
130165
2020 MIDDLE EAST
2007 2010
9060
2015
130140
2020
PACIFIC BASIN
2007 2010
9075
2015
115150
2020
Note: All volumes in million tons per year (MTA).Sources: Pace and various public sources.
- 67 -Proprietary & Confidential
Regas Capacity Following The Same Trend?
Note: All volumes in million tons per year (MTA).Sources: Pace and various public sources.
400
2007 2015ATLANTIC
BASIN
2010
145
270
425
2020
2015
338
PACIFIC BASIN
2007 2010
255290
2020
340
Creating the potential for the Atlantic activity to rival traditional Pacific Markets, with the true wild cards being China and India
- 68 -Proprietary & Confidential
Current Pricing Seems To Be Diverging Across The Basins
0
5
10
15
20
25Ja
n-00
Jul-0
0
Jan-
01
Jul-0
1
Jan-
02
Jul-0
2
Jan-
03
Jul-0
3
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
2007
$/M
MB
tu
NBP HH JCC Brent
Oil Price
Contract Gas Price
S-Curve Pricing
- 69 -Proprietary & Confidential
Pacific Basin: Legacy LNG Markets and
Emerging Giants
- 70 -Proprietary & Confidential
Times Are Changing ... LNG Is At The Forefront
Source: Data from BP World Energy Statistics (2008).
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
BC
MA
150
200
250
300
350
400
BC
MA
Philippines
Taiwan
Singapore
Thailand
South Korea
Malaysia
Japan
Indonesia
India
China and Hong Kong
- 71 -Proprietary & Confidential
SE Asia Dynamics…Reality Is Nothing Will Change Overnight
• Japan has little pipeline infrastructure
• Most cities are supplied by their own LNG facilities
• Both continuity and security of LNG supply chains are critical
- 72 -Proprietary & Confidential
Japan’s Strategy … Shorter Contracts, Smaller Volumes, Await Softer Market
Source: Pace.
• …Japanese importers chasing big volumes to fill the gap of expiring contracts + growing demand beyond 2010
• Since Summer 2007 contracted ~14 MTA additional volumes to start in 2015
• Japan’s nuclear dilemma: living on the Ring of Fire
• With loss of 8,600 MW of nuclear capacity in earthquake . . .
• Japan is now importing LNG & Fuel Oil to fire old thermal plants
0
10
20
30
40
50
60
70
2008 2015 2020
MTA
Indonesia Malaysia AustraliaUAE (Abu Dhabi) Qatar BruneiOman Russia USA (Alaska)
- 73 -Proprietary & Confidential
Emerging Markets & Impact On LNG Prices
India and China …• Small but rapidly growing gas market
• Highly price-sensitive
• Potentially large (but ultimately inadequate) domestic resources
• Pipeline import options
• Rapidly expanding domestic pipeline infrastructure
Singapore …• To become an LNG Trading Hub??
Source: GAIL
Singapore
- 74 -Proprietary & Confidential
Singapore As An International Market For LNG
• De-regulated gas market with rules and legal structure for marketing, trading & settlement of gas contracts
• Encourages importation of LNG to complement existing supplies of pipeline natural gas
• LNG Re-Gasification Terminal (3 MTA) recommended for Singapore in 2012 – expandable to 6 MTA by 2024
• 4 pipeline natural gas importation contracts with a gas price linked to oil (HSFO/MSFO)
• Forthcoming liberalization of gas market & established supply of PNG provides basic elements of an “international maker price” for LNG
- 75 -Proprietary & Confidential
Renegotiating The S-curve For Higher Crude Oil Prices
New Cap proposed by sellers to represent the reality of today’s oil prices
LNG Price/ Oil Price relationship with floor & cap prices
OIL PARITY LINE
Increasing Crude Oil Price ($/BBL)
Incr
easi
ng L
NG
Pric
e ($
/MM
Btu
)
LNG Asia LNG EuropeNew Projection Asia New Projection Europe
- 76 -Proprietary & Confidential
The Competition: Sempra Loses Tangguh LNG Supply
• Sempra signed 20-year supply deal in 10/04 with Tangguh LNG (Indonesia –~37% BP, 46% Japanese interests, 14% CNOOC) with base rate of $5.94/MMBtu beginning late 2008, but with diversion option
• Other Tangguh deals (2002): POSCO @ $3.36, K-Power @$3.50, both for 20 years
• Japanese now proposing five-year diversion contract priced per graph at right
• Koreans and Chinese also bidding for this supply
Reported Tokyo Gas/Nippon Oil LNG Pricing Formula(Source: Heren LNG M arkets , 5/2/08)
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$25.0
0$3
5.00
$45.0
0$5
5.00
$65.0
0$7
5.00
$85.0
0$9
5.00
$105
.00$1
15.00
$125
.00$1
35.00
$145
.00
Crude Oil, $/bbl
$/M
MB
tu FormulaOil Parity
- 77 -Proprietary & Confidential
Expectations for North American LNG Volumes
- 78 -Proprietary & Confidential
Consider Gradually Going Global
• Full but measured global recovery from current credit crisis
– BRIC (Brazil, Russia, India & China) economies resume more moderate growth, but world GDP growth remains above long-term historical levels
– Uneasy equilibrium in oil markets keeps price high but relatively stable
• OECD adoption of moderate carbon control measures
– BRIC countries reject all carbon controls, but attempt to appease with limited natural gas/LNG preference over coal and residual fuel
• Robust N.A. gas demand growth moderating over time
– No new coal-fired power plants for decade; some older plants scrapped
– Natural gas is planned bridge fuel to introduction of lower-carbon alternatives
• Early robust growth in N.A. gas production, then decline in 15-20 yrs
– Prevailing U.S. gas prices reach oil parity in winter months– Alaska gas pipeline in-service by 2021– N.A. draws in growing share of LNG production
- 79 -Proprietary & Confidential
Sources: Pace and various public sources.
North America Is Ready For LNG ... But Supply Has Yet To Arrive
Energia Costa Azul
Altamira
Manzanillo
Cove Point
Elba Island
Gulf LNG
Northeast Gateway
Elba Island Expansion
Everett
Canaport
Rabaska
Cove Point Expansion
Hoegh LNG
Neptune LNG
Operational
Under Construction
Expected (Approved)
LEGEND
Energia Costa Azul
Altamira
Manzanillo
Cove Point
Elba Island
Gulf LNG
Northeast Gateway
Elba Island Expansion
Everett
Canaport
Rabaska
Cove Point Expansion
Hoegh LNG
Neptune LNG
Operational
Under Construction
Expected (Approved)
LEGEND
Energia Costa Azul
Altamira
Manzanillo
Cove Point
Elba Island
Gulf LNG4Q 2010
Northeast Gateway
Elba Island Expansion3Q 2010
Everett
Canaport1Q 2009
Rabaska
Cove Point Expansion
2Q 2009
Hoegh LNG
Neptune LNG4Q 2009
Golden Pass
Freeport
Cameron LNG
Trunkline LNG
Sabine Pass Expansion
Sabine Pass
Calhoun LNG Gulf Gateway
Golden Pass
Freeport
Cameron LNG
Trunkline LNG
Sabine Pass Expansion
Sabine Pass
Calhoun LNG Gulf Gateway
Golden Pass 2010
Freeport LNG
Cameron LNG 2Q 2009
Trunkline LNG
Sabine Pass Expansion
2010Sabine Pass
Calhoun LNG Gulf Gateway
Operational
Under Construction
Expected (Approved)
LEGEND
- 80 -Proprietary & Confidential
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Jan-
06Fe
b-06
Mar
-06
Apr
-06
May
-06
Jun-
06Ju
l-06
Aug-
06Se
p-06
Oct
-06
Nov
-06
Dec
-06
Jan-
07Fe
b-07
Mar
-07
Apr
-07
May
-07
Jun-
07Ju
l-07
Aug-
07Se
p-07
Oct
-07
Nov
-07
Dec
-07
Jan-
08Fe
b-08
Mar
-08
Apr
-08
May
-08
Jun-
08Ju
l-08
Bcf
/day
Trinidad Egypt Algeria Nigeria Equatorial Guinea Qatar Spot
Volumes Search Highest Valued Market…Import Terminals Underutilized
• Freeport LNG and Cheniere LNG have both applied for blanket export authorization
• Zeebrugge also announced in late July that it would now load as well as offload LNG cargoes
Monthly Average U.S. LNG Imports by Source, 2006-2008YTD
- 81 -Proprietary & Confidential
North American Terminals Still Looking For Capacity Holders & Supply
0
0.5
1
1.5
2
2.5
3Tu
nklin
e LN
G
Cam
eron
LN
G
Free
port
LNG
Sabi
ne P
ass
Sab
ine
Pas
s E
xpan
sion
Gol
den
Pas
s
Gul
f LN
G
Gul
f Gat
eway
Cal
houn
LN
G
Cov
e P
oint
Cov
e P
oint
Exp
ansi
on
Rab
aska
Eve
rett
Can
apor
t
Nep
tune
LN
G
Nor
thea
st G
atew
ay
Elba
Isla
nd
Elb
a Is
land
Exp
ansi
on
Hoe
gh L
NG
Ener
gia
Cos
ta A
zul
Alta
mira
Man
zani
llo
Tota
l Reg
as C
apac
ity
(Bcf
/d)
Available Capacity
Contracted Capacity
Total Regas Capacity: 24.5 Bcf/d
Total Uncontracted Capacity: 8 Bcf/d
- 82 -Proprietary & Confidential
Major U.S. Shale Basins…Displacing LNG Demand?
• “Conventional gas”predominates production in the San Juan and Permian Basins
• Unconventional gas production (i.e., Shale, and Tight Sands) has strong position in the Rockies
San Juan Basin
Rockies SupplyBasins
Permian
Basin
ConventionalCBM, Shale, Tight Sand
LEGEND
Energia Costa Azul LNG
- 83 -Proprietary & Confidential
Western U.S. Natural Gas Production On the Rise…
0
5
10
15
20
2520
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Bcf
/day
San JuanPermianRockies
FORECAST
- 84 -Proprietary & Confidential
…And Pipeline Infrastructure Is Poised To Accommodate Growth
Palomar
Ruby Pipeline
ECA LNG
Phoenix Lateral
Kern
Riv
er
Expn
Rockies Express
Pathfinder
Sunstone
Pipeline
NVNV
CACAAZAZ
NMNM
UTUT COCO
WYWYIDID
OROR
WAWAMTMT
Blue Bridge
Bronco Pipeline
Palomar
Ruby Pipeline
Bajanorte (recently in service)
Phoenix Lateral
Kern
Riv
er
Expn
Rockies Express
Pathfinder
Sunstone
Pipeline
NVNV
CACAAZAZ
NMNM
UTUT COCO
WYWYIDID
OROR
WAWAMTMT
Blue Bridge
Bronco Pipeline
- 85 -Proprietary & Confidential
Baja Regional Pipelines Reconfiguration Completed For ECA
Pipeline In-Service Date
Capacity (MMcf/d)
Gasoducto Bajanorte 2002 600 GP Exp Phase I 2008 600 GB Exp Phase II 2012 2,600
Baja California
Arizona
Sonora
Blythe/ EhrenbergSoCal Gas Co.
El Paso Gas Co.
SDG&E
All-American Pipeline
Rosarito Power Plant Mexicali
Tijuana
Gasoducto Bajanorte
(135 miles)
North
Baja
Pip
eline
(80
mile
s)
TGN
California
Yuma Lateral80 Mmcf/d
Intergen DGN
Otay Mesa Power Plant
YuccaTDM
Energia Costa Azul
LNG
LNG Spur2.7 Bcf/d
0.6 Bcf/d
0.6
Bcf
/d
0.8 B
cf/d Border Loop
0.94 Bcf/d
Algodones Compressor0.54 Bcf/d
0.5 B
cf/d
12
3
North Baja PipelineGasoducto Bajanorte
Note: GB and NBP capacities displayed account for the completed Phase I expansion on both pipes.
Arrowhead Exp.
Pipeline In-Service Date
Capacity (MMcf/d)
North Baja Pipeline 2002 500 NBP Exp Phase I 2008 600 NBP Exp Phase II 2010 2,600
- 86 -Proprietary & Confidential
Or Maybe a Turn Away from Greener Sources?
• Significant & extended slowdown in global economy
– Extended global economic contraction– Global commerce declines as consumer discretionary
spending shrinks– BRIC economies return to modest growth; weak growth
returns to OECD
• National self-interest trumps carbon control agenda
– Coal is fuel of choice for baseload power generation worldwide
– Natural gas maintains recent market share in power generation
• Modest N.A. gas demand growth– Modest power generation demand growth
• Unconventional U.S. gas supply fails to meet expectations
– Marginal acreage goes undrilled in weak price environment– Weaker global demand growth creates LNG supply overhang– Alaska gas pipeline never built
- 87 -Proprietary & Confidential
Perhaps We Will Become the “Natural Gas Nation”
• No widespread economic growth impact from current credit crisis
– BRIC (Brazil, Russia, India, China) economies continue rapid growth
– Tight oil markets – widespread demand destruction through price-based rationing
• Wide global (including U.S.) adoption of very tough carbon control measures
– Strong global demand for LNG No new traditional coal-fired power plants; older plants scrapped by 2050
– Natural gas becomes political panacea– Rapid development of zero-emission resources
• Very robust growth in N.A. gas production isn’t enough
– Prevailing gas prices approach oil parity– Rush to complete Alaska gas pipeline by 2018– N.A. draws in rapidly growing share of LNG production
- 88 -Proprietary & Confidential
• Define a flexible and robust portfolio consistent with defined objectives.
• Concurrently define a risk management program.
• Execute the program the second you take a position.
• Actively manage your positions to your specific objectives.
Truth Is No One Really Knows What’s Next!
You may get an upset stomach & dizziness, but you will avoid whiplash!
- 89 -Proprietary & Confidential
Our Heavenly Future—What we do Know!
- 90 -Proprietary & Confidential
Market Equilibration Mechanism #1 .. The Tightening Cycle
• Response time of 6-18 months• Lagging infrastructure development may create delays extending the cycle,
e.g., Rocky Mountain export capacity
Rig Count
Wellhead
Deliverability
Gas Price
New Well
Additions
- 91 -Proprietary & Confidential
Equilibration Mechanism #2 … The Transatlantic Tango
Relative Levels ofSeasonal Demand
Relative Levels of Piped Gas Availability
Relative TransatlanticPrice Levels
LNG Supply Flows
Indicative, price-responsive LNG flows
GBP
NBP
HH
- 92 -Proprietary & Confidential
In The End Gravity Will Dominate Prevail With “Music of the Spheres”
• Think of cross-market price convergence as the result of the mutual gravitational attraction of massive objects, where cross-market trading volume equates to spatial distance. Remember, convergence will be the result of mutual movement.
2015
EUROPE N.A.
ASIA
2000
EUROPEN.A.
ASIA
- 93 -Proprietary & Confidential
James S. DiemerExecutive Vice President
Pace703-608-5554 (mobile)713-315-5660 (office)