Unlocking the Potential of Small and Mid-Scale LNG

Unlocking the Potential of Small and Mid-Scale LNG

Implications for the Future

Oil and Gas IQ’s Small and Mid-Scale LNG Summit

Kathleen Eisbrenner

April 24, 2012

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Past 10 years in LNG

The current global natural gas situation

Next 10 years in LNG

LNG opportunity overview and conclusions

A Guide for Today’s Comments

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LNG has continued disproportionate growth in overall natural gas global demand

North America Shale production fundamentally changes requirements for LNG imports in North America

Many new markets have been opened to natural gas use through LNG imports, largely driven through rapid deployment provided by floating regasification technology

Growth in LNG availability has been beset by technical, political and commercial challenges (Qatar being an exception)

The Past 10 Years in Natural Gas and LNG

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Costs for traditional new Greenfield liquefaction facilities have soared

China has entered the market as a huge base load LNG buyer willing to pay attractive oil-linked prices

The oil to gas price ratio has grown from 7 to 1, to 24 to 1, to 60 to 1

The Past 10 Years in Natural Gas and LNG

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Spot LNG Prices

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USA

NBP

Asia

2011

$4

$9

$16

2012

$2

$9

$16

Delta

$2 Delta = $1 Billion

NPV for each 1 mtpa

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Belgium France Greece Italy Japan Puerto Rico South Korea Spain Taiwan Turkey United States

Past Decade: Only 11 Countries Imported LNG in 2000

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Belgium France Greece Italy Japan Puerto Rico South Korea Spain Taiwan Turkey United States Argentina Brazil Canada Chile China Dominican Republic India Kuwait Mexico Portugal United Kingdom

Past Decade: More Than Double That by 2010

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History of Floating Regasification

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CURRENT SITES Argentina Brazil Kuwait United Kingdom United States Dubai

Current Sites

Planned Sites

FLOATING REGAS

PLANNED SITES Bangladesh Bahrain Belgium China Dominican Republic Germany Indonesia Israel Italy Jamaica Mexico Pakistan South Africa Uruguay Vietnam

2000 - 11 LNG Importing Countries (No Floating Regas) 2005 - First Floating Regasification Site (Gulf of Mexico) 2010 - 22 LNG Importing Countries 2012 - 12 Floating Regasification Sites 2015 - 30 or More Floating Regasification Sites (Projected)

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Floating Regas Solutions

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Near Shore

Offshore

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New market alternatives are liquid fuels, priced at oil, fuel oil and diesel indices

Floating regasification has demonstrated how quickly innovative technologies can be adopted and accepted by the LNG industry

Floating regasification has demonstrated reduced costs for floating solutions ~ $400 million vs. $1.2 billion for land-based equivalent

Relevance of New Markets and Floating Regasification Technology

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Vessel-Mounted Liquefaction Will Follow Regasification Growth Trend

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Existing and Planned Floating LNG Projects

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5

10

15

20

25

2000

2005

2010

2015

2020

Num

ber o

f Pro

ject

s

Floating Regasification Projects

Floating Liquefaction

Projects

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Today’s FLNG opportunity space Installed FPSOs (1977 to 2010)

History of FPSO Development

1977 2010 1990 2000

100

50

150

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"Incremental" investment allows decisions to be taken faster

Move from offshore to near-shore/jetty based From shuttle vessels to floating regas terminals via

ship-to-ship transfer From "temporary" solution to permanent From seasonal to base load Bigger isn't always better – replication creates value Investments in floating assets increase option value

Floating Regas Lessons Learned Over the Past Decade

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Lower cost per mmbtu as well as overall investment

Accelerated schedule through replication, efficiency and controlled construction environment

Lower contingency required for cost and time to in service

Attractive financing support Ultimate opportunity to

benefit accross projects from lessons learned and cross-fertilisation

Value Creation Through Korean Built Midstream Solutions

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The gold rush for Australia’s mega projects (with mega cost structures) will continue

Asian basin contract terms will continue to prop up LNG prices

Nuclear disaster in Japan will exacerbate energy shortages Without high level of price support mega projects won’t get

built Space is created for a disruptive technology to move into

upstream LNG – Floating Liquefaction Two approaches succeed

• IOC backed large scale • Smaller scale “capital light”

The Next 10 Years in LNG/FLNG

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0

5

10

15

20

25

30

35

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Land Based Large ScaleOffshore

Small ScaleOffshore/Nearshore

Liquefaction

Upstream

Future LNG FIDs: Time for a New Model?

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$ BI

LLIO

N

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The LNG industry will continue to grow disproportionately to the growth in the global natural gas business

Disproportionate returns will be available to players with flexible portfolios … Volatility continues

Henry Hub will reconnect with other global gas markets through exports of LNG from North America

The Next 10 Years in LNG/FLNG

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Cheniere closes on 4, 3.5 mtpa sales @ 115% HH + $2.25 $3.00

Cheniere to take FID on trains 1 & 2 at Sabine Pass

Rush of new projects are on offer

Henry Hub drops by more than 50% (from a low base of $4.00)

Warmest winter in 100 years causes HH to potentially go negative in the near term

Changes in US Market: Past 6 Months

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Lower purchase price for feedstock

Brownfield economics

Lower/no take or pay (except for tolling fee)

Perceived/Actual Advantages to US Exports

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NOT in technology per se, except to achieve lower unit costs

RATHER BY creating new business models for LNG that compete with the Traditionalists on a fundamentally lower cost basis

Leveraging the power of the Shipyard environment and best practices to keep costs and schedules under control

Floating LNG Dynamics How is Value Created??

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“Relatively” capital light

Small, incremental steps create unexpected competitor to IOCs (much like US Independents “surprised” Majors with Nat Gas Shale plays)

Worldwide global physical arbitrage with financial HH/NBP/Brent plus storage financial overlay

The Way Forward for Growth in Downstream & Upstream LNG: Recognizing the Uniqueness of the Play

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Regional reserves likely to exceed 35 Tcf

Pipeline difficulties and limited domestic market challenge additional natural gas deliveries to shore

Benign sea states and moderate climate enhance FLNG solution

Multiple FLNG vessels provide cost effective solution for Eastern Med

Levantine Basin FLNG Opportunity

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Levant LNG Value Proposition

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Upstream Partners Levant LNG & Midstream Solution LNG Buyers

Levant LNG Buys Gas

From Producers

Floating Liquefaction Vessel Converts Gas to LNG,

Stores LNG & Offloads to LNG Transit Vessels

Levant LNG Sells LNG to Offtakers

FOB

Levant LNG Participates In MIDSTREAM

SOLUTION Including:

Engineering, Commercial Contracts, Financing,

Construction, Operations

DSME/D&H Solutions DSME a world leading shipbuilder and

offshore solutions provider; constructed 9 of 11 floating regasification vessels globally

DSME successful in floating regasification and desires entry floating liquefaction

D&H Solutions, JV of DSME and Hemla, created to exploit stranded gas utilizing FLNG

Next Decade Management company of Levant LNG,

whose initial mission is to bring the Tamar FLNG opportunity to fruition

Team of selected LNG experts engaged to execute developmental efforts – technical, commercial and financial

Initial Shareholders

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Introduction to Levant LNG

▪ Other potential shareholders › Off-takers › Suppliers › Operations provider

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The Tamar FLNG Opportunity

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Tamar- a deepwater gas field with proven gas reserves of 9 Tcf (3-3.5 Tcf for LNG exports) The Tamar operator (Noble) is

building production infrastructure for pipeline deliveries in Israel expected by Q1 2013, ~$3 billion investment Near depleted Mari-B Field will

serve as a buffer for natural gas storage to maximize production efficiency for Tamar gas supplying Israeli domestic market Marginal incremental field

development costs for LNG exports make this gas very competitive on the world LNG market Adjacent Leviathan and Cyprus

Block 12 Fields have greater reserve potential

Yam Tethys Field

Tamar Partners Noble Energy (Operator) Delek Drilling Dor Gas Exploration Avner Oil Exploration Isramco Negev 2

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Tamar FLNG Project Milestones

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Final Investment Decision

Binding Off-Take Agreement Negotiations

Management Services Agreement

Engineering (Pre-FEED & FEED)

Off-Take LOI Execution

Binding HOA With Tamar Partners for Gas Supply

TUA and Financial Structure Development & Negotiation

1st Commercial LNG Cargo

1st LNG Cargo

FPSO Sail Out of Korea

1st LNG Production

Shipyard Construction of FLNG Unit

Subsea Installations

Delivery to Site

Installation & Commissioning

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The Potential for Offshore Floating Liquefaction

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~3,922 fields

~1,043 fields

~719 fields

~347 fields

~337 fields

73 fields

4 50-100 Tcf

5-50 Tcf

1-5 Tcf

0.5-1 Tcf

0.25 - 0.5 Tcf

0.1 - 0.25 Tcf

< 0.1 Tcf

Levant LNG Focus

Large-Scale LNG 20 TCF Leviathan 7 TCF Block 12 Cyprus Many North America Locations

+ Many More……

2-20 Tcf

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Potential for Near Shore FLNG

Unlimited...

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Everett

Cove Point

Elba Island Lake Charles

Sabine Pass

Freeport

Golden Pass Cameron

Costa Azúl

Canaport

Pascagoula

Existing Facilities In Close Proximity to Key Shale Production

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Opportunity exists for exports of natural gas from North America › North America Proven Natural Gas

Reserves Increased Over 60% During Past 10 Years Due to Shale Gas Production

› Domestic U.S Consumption Remained Relatively Flat Over The Same Time Period

Regulatory Framework For LNG Exports Is Still Being Finalized by the FERC and DOE

But, Likely Less Regulatory and Country Risk Than Other Gas Long LNG Export Opportunities

Early Mover Advantage May Exist For DOE Granted Export Licenses, So Time Is of The Essence.

The U.S. Export Opportunity

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0

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100

150

200

250

300

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

U.S. Consumption (Bcf/day) Proven Reserves (Tcf)

Significant Increase in Proven Reserves Versus Relatively Flat Consumption Profile Creates

Potential for US Exports

Evaluating Feasibility, Cost, Timeline, and Business Structure to Implement a Floating LNG Solution in the U.S.

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Vehicle Fuel

Marine bunkering

Industrial fuel (including for drilling rigs)

Additional New Markets for LNG

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What Will Drive Future Success??

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Thank You…

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