Gas Markets in Asia

Current situation, prospects and challenges

CEDIGAZ
Armelle Lecarpentier
Chief Economist

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

Trends and features of the Asian market

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

 A relatively young market
Bcm
Evolution of natural gas consumption by geographical region

3500

ASIA-OCEANIA
3000
MIDDLE EAST
2500 AFRICA
LATIN AMERICA
2000
EUROPE
1500
CIS
1000

500
NORTH AMERICA
0
1975

1982

1992

2002

2008

2009

2010

2011

2012
Source: CEDIGAZ Statistical Database

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

 A strong potential for future growth
Evolution of the natural gas share in the energy mix of Asia-Oceania

11 %
Mtoe
5000

4500

4000 8%
3500

3000

2500
4%
2000

1500

1000

500

0
1980 1985 1990 1995 2000 2006 2012

Natural gas Other energy

World average: 22 %

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

Heterogeneous gas markets within the region

100% Share of gas in the energy mix

90% Share of gas in the electricity mix
80%
70%
60%
50%
40%
30%
20%
10%
0%

Vietnam

Myanmar
Japan

New zealand

South Korea

Taiwan
Bangladesh

Malaysia

Pakistan

Indonesia

India

China
Thailand

Australia
Brunei

Philippines
Source: CEDIGAZ analysis from various sources

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

 The main driver of world gas expansion
Volumetric growth in natural gas demand (Bcm)

350
2002 - 2012 120 Asia-Oceania
300
2007 - 2012 Other regions
250 100

200 80

150
60
100

50 40

0
20
-50
pe

ia
st
a

ca
S.
ic

ic

Ea

an
0
.I.

ri
ro
er

er

Af
C

ce
Eu
Am

Am

e
dl

-O
id

2010- 2013 2013 (F)

th

t in

ia
M
or

As
La
N

In 2013, world gas supply and demand are predicted to grow slightly by more than 1%

With a demand up 5 %, Asia-Oceania is the main contributor to the annual growth
Source: CEDIGAZ

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

 A tremendous inroad in the market
%share of Asia-Oceania in world gas consumption
25%

20%

15%

10%

5%

0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(P)

2011: overtook Europe to become the 3nd largest regional market

2012: overtook the CIS to become the 2nd largest market after North America

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A fast-growing dependence on extra-regional
sources amid supply constraints
Bcm
Net imports
800
Production
700

600

500

400

300

200

100

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(P)

Source: CEDIGAZ Statistical Database

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

 A lack of infrastructures

54% 13%
18%

5%

1%
2%
% of international 7%
pipeline imports
Extra-regional
+
Intra-regional
Source: CEDIGAZ
Growing LNG import requirements

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 A growing leadership on the LNG market
Evolution of international LNG imports

Bcm
%share of the total LNG trade
Others
350 74%
Europe 60%
300 North America
Asia-Pacific
250

200

150

100

50

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(F)

Source: CEDIGAZ Statistical Database

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

 Asia to pull on Europe’s LNG supplies
The world LNG trade could at best return to a slight growth in 2013, driven by Asia
LNG imports – Asia-Oceania versus Europe
Bcm
Europe
250 + 7%
Asia-Oceania + 9%
Annual growth (%) + 15%
200

150

100 + 0,7%
- 27%
- 25%
50

0
2010 2011 2012 2013 (F)

Source: CEDIGAZ

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

Prospects for gas supply-demand
balance in Asia-Oceania

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

 Many drivers for growth

Economic and demographic growth and the attendant increase in
energy demand in a context of industrialization

Economic growth in Asian emerging markets is forecast at
6.5%/year over 2012-2020 (5%/year in Southeast Asia)

Cost-effectiveness of gas in power generation relative to oil

Environmental advantages of gas

Gas as a fuel of choice in power generation (Southeast Asia)

Uncertainties on the future role of nuclear (Northeast Asia)

Urbanization and city expansion (China, South Korea) in line with
the development of the network

Political support for a diversification of the energy mix and a
growing role of gas (transport) in the context of the energy
transition

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

A growing impact on the international market
Consumption - 2012 2012 - Net imports (+), Net exports (-)
Bcm Growth 2012 - 2030 Growth 2012 - 2030

1400 Asia
Oceania North
1200
America
1000
Middle
800 East CIS
600
Europe

400 Latin
America Africa
200

-200

-400
Growing role of alternative sources Source: CEDIGAZ

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 Unconventional gas issues and uncertainties
Recoverable resources (Tm3)
Production prospects
Conv. : 462 CBM : 47 Tight : 81 Shale gas : 200 600 2012: CBM & Shale
500 2012 – 2030: Shale
East Europe & Eurasia 400 2012 – 2030: CBM
300
OECD America
OECD Europe 200

100

s
fic
a

pe

er
CI
ic

ci

ro
er

th
Pa

Eu
Am

O
ia

D
D

As
Middle East & Africa

EC
EC

O
O
Asia Pacific Source: CEDIGAZ

Latin America

Notes: Remaining resources comprise proven reserves, reserves growth and undiscovered resources.
Source: International Energy Agency (WEO 2012) based on BGR (2011), US DOE/EIA (2012), USGS, IEA databases and analysis.

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

 Prospects for gas supply in Asia-Oceania
A current acute and growing gas shortage CHINA

Bcm Regional gas supply prospects 500

400

1400 300

Pipeline imports (others) 200

Pipeline imports (to China)

1200 100

LNG imports
0

Unconventional prod. 2012 2020 2030

1000
Conventional prod.

800

600

400

200

0
2008 2012 2016 2020 2030

Source: CEDIGAZ

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

 National supply-demand perspectives

Bcm Consumption - 2012 Production - 2012

500
Growth 2012-2030 Growth 2012 - 2030
450

400

350

300

250

200

150

100

50

China India Japan S. Korea Thailand Indonesia Pakistan Malaysia Australia Bangladesh

Source: CEDIGAZ

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

 The key market for LNG
Prospects for LNG demand
Bcm
800
Asie - Potential emerging markets
Asia - Existing & recent emerging markets
700
Asia - Traditional markets
600 Others
Europe
500
North America

400

300

200

100

0
2008 2012 2016 2020 2025 2030

Traditional markets : Japan, South Korea and Taiwan.

Existing & recent emerging markets: India, China, Thailand, Singapore, Indonesia and Malaysia.
Potential emerging markets: Vietnam, Bangladesh, Myanmar, Philippines and Pakistan.
Source: CEDIGAZ

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

 A flurry of regasification projects
Nominal regasification capacity by project status (as of 1 June 2013)
(Bcm/year)
70 Existing
60
Under construction
Planned
50

40

30

20

10

0
a

m
a

nd

n
a

e
ia

sh

s
si
di

ta

ne
n

na
es

po
ila

ay
hi

e
In

kis

pi
ad
et
on
C

a
a

al

ilip
Pa
ng
Th

Vi

l
M
d

ng
In

Si

Ph
Ba
The most realistic import option in the short and medium-term in some countries ...

Source: CEDIGAZ

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

The development of floating regasification
and floating liquefaction
• Fifteen FSRUs operating today, and more than a
dozen projects worldwide
• Floating regas can be quicker, cheaper and
easier to permit than conventional onshore projects
• Indonesia and Malaysia, traditional LNG
exporters, have chosen FSRU to import LNG

In parallel with the development of FSRU, the development of floating LNG is

becoming increasingly apparent with some projects approaching fruition
• Several FLNG projects in Asia Oceania, of which two under construction (Shell’s
Prelude LNG in Australia, Petronas FLNG1 in Malaysia)
• The advantages of this technology in terms of cost control and quicker
construction time remain to be proved
• Two FLNG projects in Malaysia targeted at supplying domestic needs

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Challenges and uncertainties

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 Main challenges ahead

Lack of infrastructures (mainly cross-border pipelines)

Strong investment requirements along the whole gas chain

A large part of domestic prices continues to be regulated through
a subsidy regime:
– Expansion of gas demand
– A major deterrent to investment (for producers and importers)
– Prominent political issue (India)

Absence of ‘gas to gas’ competition and of a trading hub able to
create a reliable and transparent price signal

A lack of a competitive wholesale market, even in mature markets

Economic concerns of wholesale supply based on oil indexation

The original rationale for oil-indexation can be questioned (Japan)

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 Supply challenges
Evolution of uncontracted LNG demand
Bcm
100
%share of demand 2013 2017 2020 2030

90 67%
63%
80

70

60 84%
50
60%
40 74%
30

20

10
45%

0
Japan South Korea Taiwan China India Other As ian
em erging
m arkets

Notes: Are taken into account long and short- term contracts (including portfolio) as well as HoAs.

Source: CEDIGAZ LNG Contracts Database

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

 Prices, spot versus oil-indexed
$/MBtu Spot Northeast Asia LNG NBP Japan LNG Korea LNG

20

18

16

14

12

10

0
Jan- Feb- M ar- A pr- M ay- Jun- Jul- A ug- Sep- Oct- No v- Dec- Jan- Feb- M ar- A pr- M ay- Jun- Jul- A ug- Sep- Oct- No v-
12 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13

Source: Reuters, World Bank, Energy Intelligence

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

 A tightening global market
Mt 450
D em and

400
Op e ra tin g s u p p ly *:
E xis ting & under c ons truc tion

350 P os s ib le

300

250

200

150

100

50

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

* Operating supply (85% of nominal capacity)

Source: CEDIGAZ

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

 Project-selection criterion
Pricing/supply cost
Security of supply (affordability)
Equity LNG
opportunities

Reserves reliability
Which future role for
(feed gas) Geopolitical risk
US LNG ?

Credibility of the
project’s developer Supply flexibility
Interruptibility
Quality of the gas
lean or rich gas

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison

 CONCLUSION

Past and recent factors point to a remarkable growth of the Asian
market in the medium and long term

This growth will depend on structural and institutional evolutions
on the Asian market

Some regulatory and liberalization reforms have already been
initiated to support the development of gas but this will require a
long process

Oil-indexation will prevail for a long time (but which slope?)

Supply flexibility must be improved (relaxation of destination
clauses, quantity tolerances) to create a competitive gas market

Marketing innovations expected in new long-term contracts to
enhance flexibility whilst preserving investment security

A growing portfolio approach (LNG portfolio, pipeline imports,
unconventional gas) is implemented

Regional cooperation among Asian buyers is very important

Cedigaz – Board of Administration Meeting 2013 – Rueil-Malmaison