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IEEJ：April 2017 © IEEJ2017
Global LNG Outlook
Medium and Long Term
Quarter 1 2017
Global LNG Outlook - Agenda

1. Introduction
2. Key Assumptions
A. Oil and Coal Prices
B. Demand and Supply
C. Infrastructure
3. Medium Term Outlook to 2020
A. Demand Trends
B
B. K LNG Importers
Key I t
C. LNG Export Capacity
D. LNG Trade
E
E. Spot and Contract Prices
4. Long Term Outlook – 2020 to 2040
A. Demand
B. LNG Export
p Capacity
p y
C. Asia Pacific Trade Flows
D. Spot and Contract Prices
5. Wrap Up
A. Q&A
B. Detailed Model Output
Global LNG Outlook Medium and Long Term Quarter 1 2017 1

Introduction
2
Introduction
Global LNG Outlook comes from the Nexant Base Case sent out to licensees of Nexant’s World Gas Model ((WGM).
) Licensees
receive updates each quarter.
Decisions to invest in new supply and infrastructure are not solely based on economics but political and regulatory issues play an
important part – the WGM user decides on supply and infrastructure start up dates – the model does not build capacity.
Pipeline and LNG contracted flows take priority up to TOP levels. Most contracts expire at end of contractual term but some key
ones assumed to be extended under the same terms and conditions e.g. Russia to Germany, Qatar to Japan
WGM solves for spot prices – they are not an assumption or input – based on the marginal cost of supply, competing prices and
market tightness

World Gas Model - Overview

Database Assumptions Raw Outputs Key Summary Outputs
Production flows Regional balances
Production
Country and node
LNG and Regas throughput
balances
Pipeline, LNG and
Storage
Infrastructure
Contractual flows Inter and intra regional flows
Oil Price Contracts:
LNG, Pipe & Transport
World Gas Model
Carbon Price Prices Spot Prices
(Node and Arc with
LP Formulation)
LNG Routes
Coal Price
Weighted average
Pipeline trade
import prices
Gas Demand by Sector
& Country
Consumption Cost Stacks
Demand Response
LNG trade Demand Response

Regional Definitions – IGU
Europe FSU
North
America
Middle Asia
East
Africa
Asia
South Pacific
America

Keyy Assumptions
p
6
Oil and Coal Prices

Oil Prices Coal Prices
140
7.0 140
120
6.0 120
$$/MMBTu Real 2014 Prices
$/Tonne Real 22014 Prices

$/bbl REAL 2014 PRICES
100 5.0 100
80 4.0 80
60 3.0 60
40 2.0 40
1.0 20
20
0.0 0
0 2005 2010 2015 2020 2025 2030 2035 2040
2005 2010 2015 2020 2025 2030 2035 2040
Cent App $/mmbtu NW Europe $/mmbtu
Brent Crude Oil West Texas Intermediate Japan $/mmbtu Ave OECD Import $/Tonne
Japan Crude Cocktail
Oil prices are not assumed to rise above $100 a barrel in real terms – the levels seen in 2008 and in the 2011 to
2014 period, in excess of $100 a barrel, are seen as an aberration. Assumed to rise gradually to $85 a barrel by
2023
Coal prices average out at $80 a tonne in longer term
Demand and Supply

Demand
e a d
 Global demand through 2040 reflects a broad consensus view – close to the IEA’s New Policies Scenario and also the
recent BP, GECF and ExxonMobil base scenarios. These all suggest around 1.6% per annum growth in global gas
demand between 2015 and 2040.
 World natural gas consumption growth rises from over 33.55 tscm in 2014 to almost 55.22 tscm in 2040.
2040
 Projected growth is strongest in developing countries where gas still has a relatively low share of Total Primary Energy
Supply. This is particularly true of China where growth in gas consumption will be determined by economic growth as
well as by switching from other fuels to gas in the energy mix; Average annual growth is fastest in Asia followed by
Africa and the Middle East.
 Demand is weakest in Europe and the FSU where gas already has a large share of the total primary energy share
(TPES) and growth is limited by economic difficulties, improvements in energy efficiency, and a commitment to
renewables.
Supply
 Potential capacity is based largely on proven and probable reserves, although possible reserves are included for North
America, together with assumptions about production profiles and costs. On this basis, there is more than adequate
production
d ti capacity it available
il bl iin every year off th
the outlook
tl k period
i d without
ith t any recourse tto speculative
l ti reserves.
 The World Gas Model schedules production based on lowest cost, taking into account the cost of transport to market,
by pipeline or LNG, as well as the cost of production, subject to contractual obligations
 US pproduction continues to be increasingg driven mainlyy byy development
p of shale g
gas. Unconventional g
gas,, which
includes coal bed methane as well as shale gas, is also produced in this scenario in Europe, China and other
locations. Nevertheless, conventional gas (which includes tight gas) continues to provide the majority of world gas
supply

Global Liquefaction Capacity

Liquefaction
que act o Capacity
Capac ty Assumptions
ssu pt o s
 Global
Gl b l capacity
it rises
i b
by 50% bbetween
t 2015 and d 2020
2020, as
multiple new projects currently under construction enter
service. Final investment decisions for these projects were
1000 taken between 2009 and 2015, when global energy price
outlooks and gas demand projects were generally stronger.
stronger
900
 There is a second wave of projects between 2024 and 2030
800 and a third wave from 2035
700  The U.S. is expected to host six projects up to 2020, with
expansions of these projects later in the forecast period
period,
600
plus two new Gulf Coast based projects. Canada will launch
BSCM
500 three projects, all on the Pacific coast, in the second and
400 third wave.
300
 Most Asia Pacific capacity additions are located in Australia
Australia,
although Indonesia, Malaysia, and Papua New Guinea also
200 contribute.
100  The FSU has multiple new sources of LNG, all in Russia. In
the medium
medium-term,
term the Yamal LNG venture currently under
0 construction and an expansion of the existing Sakhalin II
2005 2010 2015 2020 2025 2030 2035 2040
venture provide incremental sources of regional supply
North America Europe Asia  In Africa, new liquefaction capacity is assumed in Angola,
Asia Pacific Latin America FSU Cameroon Equatorial Guinea
Cameroon, Guinea, Mozambique and Tanzania
Tanzania,
Africa Middle East mainly 2025 on. Offline liquefaction capacity in Egypt is
expected to re-enter full service in 2023.

Pipeline Capacity
Inter-Regional
te eg o a Pipeline
pe e Import
po t Capacity
Capac ty Inter-Regional
te eg o a Pipeline
pe e Export
po t Capacity
Capac ty
700 600
600 500
500
400
400
BSCM
BSCM
300
300
200
200
100 100
0 0
2005 2010 2015 2020 2025 2030 2035 2040 2005 2010 2015 2020 2025 2030 2035 2040
North
o t America
e ca Europe
u ope Asia
sa
E
Europe A i
Asia FSU Af i
Africa Middl E
Middle Eastt
Asia Pacific Latin America FSU
Main growth in pipeline capacity is out of FSU – Russia, Azerbaijan, Turkmenistan – to Europe and Asia (China)
Middle East also expands out of Iraq and Iran to Europe and Asia (Pakistan)

Medium Term Outlook to 2020
11
Demand Trends to 2020

Demand
e a dGGrowth
o t by Region
eg o – 2015
0 5 to 2020
0 0  G oba de
Global demanda dg grows
o s by so
somee 300 bsc
bscm o or jus
just
over 8% to 3,806 bscm
 100 bscm in China and 20 bscm in India
Middle East  Middle East evenly spread
 A i P
Asia Pacific
ifi ddriven
i mainly
i l b
by IIndonesia,
d i d decline
li
Africa in Japan
FSU  UK and Turkey contribute most to Europe
Latin America
Asia Pacific
Asia
Europe
North America
-20 0 20 40 60 80 100 120 140 160
BSCM

Europe Supply Gap

Change
C a ge in Europe
u ope Supply
Supp y Demand
e a d – 2015
0 5 to 2020
0 0  Europe
u ope supp
supply
y gap widens
de s by so
some e 75
5 bsc
bscm
– 20 bscm already happened in 2016
 Pipeline imports up 15 bscm – already 10
bscm higher in 2016
 LNG imports up by 50 bscm – doubling by
Consumption 2020 compared to 2015 – small rise in 2016
LNG Imports
Pipeline Imports
Production
-60 -40 -20 0 20 40 60

BSCM

LNG Imports
Change
g in LNG Imports
p – 2015 to 2020
China
India
United Kingdom
Indonesia
France
Pakistan
Latin America
Belgium
Malaysia
LNG Bunker Fuel
Spain
Singapore
Poland
Chinese Taipei
Other Europe
Bangladesh
Turkey
Korea
Thailand
Middle East
Egypt
Japan
North America
-10 -5 0 5 10 15 20 25 30
BSCM
China and India growth is key to increase in LNG imports. UK imports partly “re-exported” to continental Europe. Indonesia
imports are mainly from “East” to “West”. Start of use of LNG as bunker fuel. Japan imports decline

LNG Export Capacity

Change
C a ge in LNG
G Export
po t Capacity
Capac ty – 2015
0 5 to 2020
0 0 T erminal Start Up
Australia Pacific LNG CBM T rain 1 2016 1
Sabine Pass 1 2016 1
Gladstone LNG (CSG) T 2 2016 2
60 Gorgon 1 2016 2
50 Australia Pacific LNG CBM T rain 2 2016 4
Gorgon 2 2016 4
40 PFLNG Satu 2016 4
Petronas LNG 9 Sdn Bhd (PL9SB) 2016 4
30 Gorgon 3 2017 2
Sabine Pass 3 & 4 2017 2
BSCM
20 Wheatstone LNG 1 2017 3

Sengkang LNG, Sulawesi 2017 4
10
y
Ichthys 2018 1
Prelude FLNG 2018 1
0
Wheatstone LNG 2 2018 1
Yamal LNG T 1 2018 2
-10
Cove Point 2018 2
-20 Elb IIsland
Elba l d 2018 2
2016 2017 2018 2019 2020 Cameron T rains 1&2 2018 3
Freeport Phase 1 2018 4
Yamal LNG T 2 T 3 2019 1
North America Asia Pacific Latin America FSU Africa Middle East Corpus Christi T rain 1 2019 1
Corpus Christi T rain 2 2019 2
Cameron T rain 3 2019 3
Cameroon FLNG 2019 4
PFLNG 2 (Rotan FLNG) 2020 1

Unutilised LNG Export Capacity

Unutilised
U ut sed LNG
G Export
po t Capacity
Capac ty – 2015
0 5 to 2020
0 0  U u sed capac
Unutilised capacity
y largely
a ge y
contractually determined
 Spot LNG will be shut in if there is not
80 enough demand
70  Algeria has the option to export by
LNG or pipeline – is it really
60 unutilised?
50  US reflects uncontracted capacity
BSCM
40
 Middle East mostly Oman
 Other in 2019 and 2020 is the slow
30 build up of Yamal
20
10
0
2015 2016 2017 2018 2019 2020
North America Australia Other Africa Middle East Other Algeria

Inter Regional LNG Flows

Key
ey Inter
te Regional
eg o a LNG
G Flows
o s – 2005
005 to 2020
0 0
80 80
70 70
60 60
50 50
CM
CM
40
BSC
40
BSC
30 30
20 20
10 10
0 0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2005
2006
2007
2008
2009
2010
2012
2013
2014
2015
2016
2017
2018
2019
2020
2011
AP to AS ME to AS ME to AP AF to EU NA to AP AF to AS ME to EU AF to AP RU to AP NA to EU
Middle East exports more to China, India and Pakistan as volumes diverted away from Asia Pacific. Asia Pacific
volumes
l also
l feed
f d Asia.
A i US volumes
l head
h d to
t Europe
E and
d Asia
A i Pacific
P ifi

Market Tightness
Market
a et Tightness
g t ess Indices
d ces – 2012
0 to 2020
0 0
1.02
1 00
1.00
0.98
0.96
Index 2005 = 1
0.94
0.92
0.90
0.88
0.86
2012 Q1
2012 Q2
2012 Q3
2012 Q4
2013 Q1
2013 Q2
2013 Q3
2013 Q4
2014 Q1
2014 Q2
2014 Q3
2014 Q4
2015 Q1
2015 Q2
2015 Q3
2015 Q4
2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
2019 Q2
2019 Q3
2019 Q4
2020 Q1
2020 Q2
2020 Q3
2020 Q4
North America Europe Asia Asia Pacific
Asia markets tighten as demand rises sharply. Europe tightened in 2015 as production declined but market
eases as import supply increases. North America tightens as LNG exports rise. Asia Pacific eases again in 2017
as more LNG export capacity comes on

Spot and Contract Prices

Spot and
a d Contract
Co t act Prices
ces – 2012
0 to 2020
0 0
20
18
16
14
12
$/MMBTU
U
10
8
6
4
2
0
2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
Henry Hub NBP Japan Spot Average LNG Q: Japan

Average_LNG_Q: Average Pipe Q: China East
Average_Pipe_Q:
Even though Europe and Asia Pacific markets are becoming more supply long, spot prices remain flat – rising
cost of supply and rising competing prices offset les tight market. Gap opens up between spot and contract
prices in Japan as oil prices rise

Netback Prices to Henry Hub

Netback
etbac Prices
ces – 2012
0 to 2020
0 0
16
14
12
10
MBTU
8
$/MM
6
4
2
0
-2
2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
Henry Hub Netback from Japan Spot (Full) Netback from Japan Spot (Marginal) Netback from Japan Contract (Full)
Netback from Japan is higher than Henry Hub on a marginal basis. From end 2018 the netback from average
Japan LNG contracts is higher than Henry Hub as oil prices rise

Longg Term Outlook
2020 to 2040
21
Demand Trends to 2040

Demand
e a dGGrowth
o t by Region
eg o – 2015
0 5 to 2040
0 0  Asia
s a de
demonstrates
o s a es highg ggrowth
o suppo
supporteded by
population increases, greater wealth, rural
electrification schemes, and gas’ rising share of
national primary energy mixes.
Middle East
 Middle East demand also rises as oil producers
Africa seek alternate fuel sources to increase the
volumes of petroleum available for export.
FSU
 Rising North American gas consumption is
Latin America supportedt d by
b growing
i and d competitively-priced
titi l i d
indigenous gas availability.
Asia Pacific
 European demand shows some recovery, but
Asia not to the extent of historic highs. Policies
aimed at improving energy efficiency and
Europe
boosting the share of renewable energy
North America sources will help contain growth. Recovery is
partly attributable to the fact that demand was
-100
100 0 100 200 300 400 500 600 700 so poor between 2011 and 2014; recovery is
the only way forward.
BSCM
2015-2020
2015 2020 2020-2030
2020 2030 2030-2040
2030 2040

Supply Trends to 2040

Supply
Supp yGGrowth
o t by Region
eg o – 2015
0 5 to 2040
0 0  With theee
exception
cep o o of Europe,
u ope, a
all regions
eg o s
show production increases under the Base
Case. Global gas production growth is
dominated by unconventional gas output
Middle East gains.
Africa  The Middle East records the largest gains
in absolute terms, buoyed by robust
FSU
Iranian and Qatari output
L ti America
Latin A i  S b t ti l N
Substantial North
th A
American
i gains
i supportt
its broadening pipeline gas and LNG
Asia Pacific
export base.
Asia  Projected growth in regions like Africa, the
Europe FSU, and Asia Pacific is largely export-
driven.
North America  Production growth in Asia, Latin America,
-200
200 -100
100 0 100 200 300 400 500 and the Middle East is almost exclusively y
BSCM for domestic use.
 Against the backdrop of recovering
European gas consumption, the region’s
2015-2020 2020-2030 2030-2040
declining output renders Europe
increasingly dependent on natural gas
imports.

LNG Imports to 2040

LNG
G Imports
po ts by Region
eg o – 2005
005 to 2040
0 0  Asia’s
s a s increasing
c eas g importance
po a ce as a an LNG G
importer reinforces the region’s significance
as an LNG demand centre. The start-up of
900 new regasification capacity, and the
increasing utilization of existing facilities,
800
drives gains in Asian countries like
700 Bangladesh, China, India, and Pakistan.
600  Europe’s LNG imports rise as sources of
500 supply are diversified and compensates for
BSCM
M
400 declining domestic production, but its long-

standing position as the world’s second-
300
largest LNG demand centre is superseded by
200 Asia
Asia.
100  Middle Eastern throughput increases as new
0 terminals are commissioned in the Persian
2005 2010 2015 2020 2025 2030 2035 2040 Gulf, and some existing importers continue to
ramp up deliveries.
 As a region, Latin America’s throughput level
North America Europe Asia Asia Pacific remains fairly consistent for most of the
Latin America FSU Africa Middle East forecast pperiod after 2018, althoughg the line-
up of countries importing LNG changes.
 The rise of several smaller regional LNG
importers (e.g., Jamaica, Panama, and
Uruguay) helps compensate for Brazil’s
Brazil s
reduced requirements in the 2020s.
LNG Exports to 2040

LNG
G Exports
po ts by Region
eg o – 2005
005 to 2040
0 0  Post
os 2020
0 0 capac
capacity ya
andd throughput
oug pu risese in
line until 2030, when the market stars to
tighten.
1,000
900
 North American throughput rises from
virtually zero in 2015 to over 90 bscm by
800 2030 and continues to rise.
700
 This suggests that U.S. buyers will exercise
600 their rights to take cargoes even if Henry
CM
500
BSC
H b NBP A i spott price

Hub-NBP-Asian i diff
differentials
ti l ddo
400 not fully cover lifting costs.
300  There is a rapid increase in Asia Pacific
200 throughput due primarily to the ramp-up of
100
new Australian liquefaction facilities. New
capacity in Indonesia, Malaysia, and Papua
0
2005 2010 2015 2020 2025 2030 2035 2040
New Guinea also contribute.
 African throughput
g p rises rapidly
p y to reflect
the addition of new capacity, especially in
North America Europe Asia
East Africa, and the restoration of offline
Egyptian capacity.
Asia Pacific Latin America FSU
 There is also a rise in FSU throughput to
Africa Middle East Total LNG Capacity reflect the Yamal LNG start-up, the
Sakhalin II expansion, and the addition of
greenfield Far East liquefaction capacity.

Unutilised LNG Export Capacity

Unutilised
U ut sed LNG
G Export
po t Capacity
Capac ty – 2015
0 5 to 2040
0 0  After
e 2020
0 0u unutilised
u sed capacity
capac y dec
declines,
es,
although there is greater “slack” in North
America plants and less in Australia –
140 driven by contracts but also by the less
competitive US gas as Henry Hub prices
120 rise
100
 As more plants come online in 2030 “slack”
rises again principally in North America but
BSCM
M
80 rising demand quickly reduces this prior to

the third wave of capacity growth.
60  Post 2035 as there are fewer contracts, the
“slack” is primarily determined on
40 competitiveness
titi grounds
d
20
0
2015 2020 2025 2030 2035 2040
North America Australia Other Africa Middle East Other Algeria

LNG Contracts to 2040

LNG
G TOP
O Levels
e e s – 2011/12
0 / to 2040/41
0 0/  Point to Point – contracts with
destination clauses
 Portfolio import – import terminal
900
has receipt obligation but supplied
800
from anywhere
700
600
 Portfolio export – export terminal
has deliver y obligation but can be
500
d li
delivered d anywhere.
h Th
The llevell off
BSCM
400
portfolio export in chart is total
300
portfolio export TOP less portfolio
200
import TOP
100
0
 Market appears over contracted
through 2020 – some contracts will
-100
therefore undertake
 However, contracts may have more
flexibility and lower TOP as part of
Point to Point TOP Portfolio Import TOP renegotiations than thought
P tf li Export
Portfolio E t TOP U
Uncontracted
t t d

Asia Pacific Trade Flows to 2040

Asia
s a Pacific
ac c Imports
po ts a
and
d Exports
po ts – 2005
005 to 2040
0 0  Thee Asia
s a Pacific
ac c boboth imports
po s aandd
exports LNG from/to other regions.
250 The Asia Pacific also imports small
volumes of Asian pipeline gas.
200  The region
region’ss current LNG imports are
chiefly sourced from the Middle East,
150
but this changes dramatically over the
100 forecast period.
CM

BSC
Middl E
Middle Eastern
t LNG imports
i t are
50 displaced by deliveries from North
America, new African LNG projects,
0
and eventually, flows from expanded
-50 andd new ventures
t in
i RRussia’s
i ’
advantageously-located Far East.
-100  Current inter-regional Asia Pacific
2005 2010 2015 2020 2025 2030 2035 2040
pipeline receipts more than double
Pipeline Imports from Asia LNG imports from N America
after 2030, when additional flows from
Myanmar (Asia) commence.
LNG imports from Latin America LNG imports from FSU  Inter-regional Asia Pacific natural gas
LNG Imports from Africa LNG imports from ME exports chiefly comprise Australian
LNG flows to Asia. These grow
LNG Imports from Other Sources LNG Exports to Asia
significantly over the forecast period.
 The Asian market may help
underwrite future expansions of
Australasian LNG export capacity.
Japan LNG Imports to 2040

Japan LNG
Japa G Imports
po ts – 2005
005 to 2040
0 0
Norway
Peru
140 Indonesia West
Australia East
A
Australia
li West
W
120 USA North East
USA Louisiana
USA South West
100 Canada West
Equatorial Guinea
Yemen
80 UAE
BSCM
Qatar
Oman
60 Nigeria
Egypt
Angola
40 Algeria
Russia Far East
Trinidad and Tobago
20 PNG
Malaysia Borneo
Indonesia East
0 Brunei Darussalam
2005 2010 2015 2020 2025 2030 2035 2040 Australia North
USA Alaska
Contracted
 Japan heavily contracted through 2020, even some undertakes on contracts.

 As Qatar contracts fall away, Australia and USA fill the gap. USA especially later in the period. Less from traditional
y
Indonesia and Malaysia suppliers.
pp
 Demand levels out at 100 bscm – more optimistic than IEA – just under 75 mtpa

Korea LNG Imports to 2040

Korea
o ea LNG
G Imports
po ts – 2005
005 to 2040
0 0
Norway
60 Peru
Australia East
Australia West
USA Louisiana
50 USA South West
Canada West
Equatorial Guinea
40 Yemen
UAE
Qatar
BSCM
Oman
30
Nigeria
Egypt
Angola
20 Al i
Algeria
Russia Far East
Trinidad and Tobago
10 PNG
Malaysia Borneo
Indonesia East
Brunei Darussalam
0 Australia North
2005 2010 2015 2020 2025 2030 2035 2040 Contracted
 Demand expected to recover over time from current lows – consistent with IEA
 As contracts fall away Russia takes bigger share of market, with PNG supply also
 Assumes most contracts not renewed
renewed, but if they were even with different volumes and pricing then supply patterns
would change

Spot and Contract Prices

Spot and
a d Contract
Co t act Prices
ces – 2010
0 0 to 2040
0 0
18
16
14
MBTU
12
Real 2014 $/MM
10
8
6
4
2
0
2010 2015 2020 2025 2030 2035 2040
Henry Hub NBP Japan Spot Average_LNG: Japan Average_Pipe: China East
Long term contract prices in Japan and China steady at $12 per MMBTU at $85 oil. There is a large gap between spot and contract
prices in 2020 which narrows over time as the market tightens
p g and more expensive
p g
gas is required
q to satisfy
y demand. HH levels
out as around $4 per MMBTU

Netback Prices to Henry Hub

Netback
etbac Prices
ces – 2012
0 to 2040
0 0
14
12
10
8
TU
$/MMBT
0
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
Henry Hub Netback from Japan Spot (Full)

Netback from Japan Spot (Marginal) Netback from Japan Contract (Full)
Netback to HH from Japan contract more than covers the full cost of delivery at oil prices over $70 a barrel. The
netback from Japan Spot covers the full cost around 2030.
2030

The Changing European Gas Market
Quarter 1 2017
The Changing European Gas Market - Agenda
1. Introduction
1
2. Industrial Structure
3. European
p Gas Pricing
g
4. Removing Destination Clauses
5. TPA in LNG Receiving Terminals
The Changing European Gas Market Quarter 1 2017 34

Introduction
35
Introduction
Two p
part presentation
p – Changing
g g European
p Gas Market and Global LNG Outlook
Changing European Gas Market – Requested Scope
1. Impacts of market liberalization to industrial structure in Europe (merger to gas & power company, market oligopoly by a
limited number of large companies, etc)
2. How natural gas price is determined in in sub-regions of Europe (oil price link in continental countries, hub link in UK or
Belgium, etc)
3. Responses of market players to the EU's decision of free destination, such as Qatar's acquisition and utilization of receiving
capacity in European market.
4. Actual implementation and operation of third party access of LNG receiving terminals in Europe (we understand that some of
new
e LNG G receiving
ece g terminals
te a s are
a eeexempted
e pted from
o TPA regulation).
egu at o )

Industrial Structure
37
Industrial Structure
Impacts
p of market liberalization to industrial structure in Europe
p ((merger
g to g
gas & p
power company,
p y market oligopoly
g p y by
y a limited
number of large companies, etc)
The old model saw large producers selling gas to merchant gas transmission companies who then sold on the gas to LDCs who
were the main sellers to end users. In some countries the gas transmission company also owned the LDCs e.g. British Gas in the
UK market.
Market liberalisation has led, along with privatisation, to essentially 4 groups of companies:
1 Producers
1. P d and
d exporters
t off gas as a commodity
dit
2. Suppliers and traders of wholesale and retail gas
3. Generation, regasification and storage asset owners
4. Network owners and operators – transmission and distribution
A number of companies are involved in more than one element of the chain – a few in all of the first three.
Companies also move into other commodities, especially electricity, wholesaling and retailing both gas and electricity. In addition
network owners and operators, such as National Grid in the UK, cover both electricity and gas networks. What network owners
and operators generally cannot do is to become involved in the commodity side of the business wholesaling and retailing of gas.
Network operators, however, are often also owners of regasification assets in particular and storage assets and sometimes
generations assets.

Industrial Structure – British Gas Case Study

• After p
privatisation in 1986 British Gas retained its monopoly
p y of transportation
p and wholesale and retail supply
pp y in the UK market,
as well as gas storage assets
• As the market moved to full liberalisation British Gas divided itself into 3 separate entities, eventually as fully stock market listed
companies:
• Transco – coveringg transmission,, distribution and storage
g assets
• Centrica – wholesale and retail supply plus the Morecambe Bay gas field
• BG Group – all exploration and production plus all other international assets – transmission and distribution
• Transco was bought by National Grid – the electricity transmission operator
• Centrica expanded internationally and into more upstream production
production, power generation and gas storage – buying the Rough
gas storage facility from Dynegy, who had previously bought it from Transco. Centrica also almost invested in nuclear power in
the UK
• BG Group developed international LNG business comprising liquefaction, regasification, shipping and portfolio trading
• National Grid developed
p the Isle of Grain regasification
g facility,
y, separated
p the distribution network into 8 businesses and sold off
4 – recently sold 2 more
• BG Group recently bought by Shell
• Many
a y European
u opea companies
co pa es followed
o o ed similar
s a restructuring
est uctu g anda d unbundling
u bu d g although
a t oug some
so e remain
e a whollyo y or
o partly
pa t y state o
owned.
ed
• The main unbundling is splitting the network operations from the wholesale and retail supply – the infrastructure versus the
commodity

European
p Gas Pricingg
40
European Gas Pricing

How natural g
gas price
p is determined in in sub-regions
g of Europe
p ((oil p
price link in continental countries, hub link in UK or Belgium,
g
etc)?
IGU Wholesale Price Survey has been monitoring prices and price formation mechanisms since 2005
European gas pricing has gone through a transformation in last 10 years

Europe Wholesale Price Formation – 2005 to 2015
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2005 2007 2009 2010 2012 2013 2014 2015
OPE GOG BIM NET RCS RSP RBC NP
Continued rise in GOG – 15% in 2005 to 64% in 2015 at expense of OPE

Europe Regional Wholesale Price Formation – 2005 to 2015
Northwest Europe Central Europe
100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
2005 2007 2009 2010 2012 2013 2014 2015 2005 2007 2009 2010 2012 2013 2014 2015
OPE GOG BIM NET RCS RSP RBC NP OPE GOG BIM NET RCS RSP RBC NP
GOG dominates in Northwest Europe with a 92% share in 2015

Largest share at 56% in Central Europe
Europe.

Europe Regional Wholesale Price Formation – 2005 to 2015
Mediterranean Southeast Europe
100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
2005 2007 2009 2010 2012 2013 2014 2015 2005 2007 2009 2010 2012 2013 2014 2015
OPE GOG BIM NET RCS RSP RBC NP OPE GOG BIM NET RCS RSP RBC NP
Elsewhere GOG shares are smaller – some 32% in Mediterranean (principally in Italy)
Almost non-existent in Southeast Europe.
OPE dominates
d i t still
till in
i Mediterranean
M dit – Spain
S i and
d Turkey,
T k and
d shares
h Southeast
S th tEEurope with
ith th
the RCS category
t in
i Romania.
R i

Europe Regional Wholesale Price Formation 2015
Scandinavia & Baltics
Southeast Europe
Mediterranean
Central Europe
Northwest Europe
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
OPE GOG BIM NET RCS RSP RBC NP
Snapshot of 2015
Scandinavia and Baltics has some GOG
2016 survey will
ill be
b outt in
i May
M – expected
t d to
t show
h further
f th move to
t GOG

Removingg Destination Clauses
46
Removing Destination Clauses

Responses
p of market players
p y to the EU's decision of free destination, such as Qatar's acquisition
q and utilization of receiving
g
capacity in European market.
In the EU, destination clauses that prevent onward sales within the EU are considered 'hardcore' restrictions of competition and
prohibited under the EU competition rules. Alternative mechanisms, such as profit
profit-sharing
sharing mechanisms (PSMs) have been
permitted where the LNG is sold on a delivery ex ship (DES) basis.
Destination clauses were removed for pipeline contracts more than 10 years ago when, following legal proceedings by the EU, the
gas producers agreed to remove them.
them
The enforcement of destination clauses in DES contracts, especially by Algeria to Spain, prompted the rise in the re-export market.
Qatar (as QP) really only holds actually capacity in South Hook which it owns and at Zeebrugge – a 20 year contract. It sells LNG
to Edison who have the capacity at Rovigo and to PGNIG in Poland and also to Spain and France on contracts. The buyers of
Qatar LNG at these plants will be the capacity holders.
Qatar also sells LNG on a spot basis into the European market, and in terms of the way it uses South Hook in the UK is that apart
from a contract with Centrica – which doesn’t actually require LNG to be delivered as they can source it at the NBP – they self
contract into the UK market, bringing cargoes in and selling the regasified gas on a daily, weekly or monthly basis.

TPA in LNG Receivingg Terminals
48
TPA in LNG Receiving Terminals

Actual implementation
p and operation
p of third party
p y access of LNG receiving
g terminals in Europe
p (we
( understand that some of new
LNG receiving terminals are exempted from TPA regulation).
There are currently 25 large-scale LNG import terminals in Europe. Of these, 23 are in EU countries (and therefore subject to EU
regulation), two are in Turkey (which is a candidate for EU membership), 22 are land-based
land based import terminals, and three are floating
storage and regasification units (FSRUs).
The Third Gas Directive anticipates a system of regulated third-party access to LNG receiving terminals, and requires LNG
terminals in the EU to provide transparent and nondiscriminatory access arrangements.
arrangements Developers of new import facilities and
existing import facilities for which new capacity is being developed may obtain an exemption to such TPA requirements from the
national regulator if the project satisfies certain criteria. So far, exemptions to the TPA regime have been granted to six of the EU’s
operating LNG regasification terminals: three in the United Kingdom (Grain LNG, Dragon LNG and South Hook LNG), one in France
(Dunkerque), one in Italy (Rovigo) and one in the Netherlands (Gate).
The conditions and tariffs of third-party access (TPA) to regulated LNG terminals must be published by terminal operators, as well
as approved by the national regulator.
Where a TPA exemption has been granted, the owner of the LNG terminal can negotiate contracts directly with its primary
shippers/customers; however, the national regulator monitors anti-hoarding mechanisms, and ensures that shippers have access
to a sufficiently transparent secondary market.

TPA exempt terminals tightly clustered in Northwest Europe – all are TPA exempt apart from Zeebrugge – the oldest terminal
Rovigo is on Italy east coast


TPA exempt
p terminals are all in or close to the key
y trading
g markets and hubs.
Notable that 2 recent terminals – in Poland and Lithuania are not TPA exempt.
In the UK market, the LNG terminals were regarded as being similar to the beach terminals where gas was brought ashore from the
North Sea. UK is the key trading market along with Netherlands.
In Spain in contrast,
contrast the terminals are much older and would probably not have been eligible for TPA exemption but Spain is a
relatively isolated market with no real liquid trading hub, although there are multiple terminals.
In the TPA regulated terminals usually plenty of primary capacity is available, but in the TPA exempt terminals the primary capacity
is often all booked e.g
e g in South Hook in UK an affiliate of the owners has booked all the capacity but there is a strong secondary
capacity market.

Wrapp Upp
52
Wrap Up
Q&A
Model Detail

World Gas Model
Overview
Mike Fulwood
February 2017
World Gas Model - Overview

WGM is supplied
pp with a comprehensive
p database on g
gas production,
p LNG and p
pipeline
p infrastructure, trade routes as well as long
g
term contracts, storage facilities and demand projections
Key outputs include spot and contract prices, production and consumption, trade flows and infrastructure utilisation
WGM is an excel-based linear p

programme,
g , with an optimiser
p add-in,, and can be run on a standalone laptop
p p
WGM can be accessed by clients in a number of ways:
 Licensed and installed on client’s

client s own computers, with quarterly updates from Nexant
 Customised scenarios of client’s choosing
 Intensive scenario weeks
 Subscribe to quarterly World Gas Analytics Service
World Gas Model Overview February 2017 55

WGM – Inputs and Outputs

Database Assumptions Raw Outputs Key Summary Outputs
Production flows Regional balances
Production
Country and node
LNG and Regas throughput
balances
Pipeline, LNG and
Storage
Infrastructure
Contractual flows Inter and intra regional flows
Oil Price Contracts:
LNG, Pipe & Transport
World Gas Model
Carbon Price Prices Spot Prices
(Node and Arc with
LP Formulation)
LNG Routes
Coal Price
Weighted average
Pipeline trade
import prices
Gas Demand by Sector
& Country
Consumption Cost Stacks
Demand Response
LNG trade Demand Response

Functioning of the World Gas Model
First Selected Year
Import Data for KEY

Current Year
Visual Basic
イメージを表示できません。メモリ不足のためにイメージを開くことができないか、イメージが破損している可能性があります。コンピュータを再起動して再度ファイルを開いてください。それイメージを表示できません。メモリ不足のためにイメージを開くことができないか、イメージが破損している可能性があります。コンピュータを再起動して再度ファイルを開いてください。それ
でも赤い x が表示される場合は、イメージを削除して挿入してください。でも赤い x が表示される場合は、イメージを削除して挿入してください。
Call What’s Best イメージを表示できません。メモリ不足のためにイメージを開くことができないか、イメージが破損している可能性があります。コンピュータを再起動して再度ファイルを開いてください。それ

でも赤い x が表示される場合は、イメージを削除して挿入してください。
Return Result to WGM

Database WGM
Excel File
Copy raw quarterly results for All selected years

current year to light blue tabs optimised
What’s Best!
No Yes O i i
Optimiser
Next Select Year Create Output File
Yes No
Stop
Option to create output file later
F db k the
Feedback th spott prices
i
Output file
St
Stop

Unique Feature – Modelling Spot Prices

Spot
p prices,
p either at hubs or for spot
p LNG cargoes,
g are considered to be a function of three factors:
 The marginal cost of supply;
 Prices of competing fuels; and
 The tightness of the market which includes local production capacity as well as the availability of pipeline and LNG supply.
The level of market tightness for the particular market determines whether the forecast spot price is closer to the marginal cost of
supply or to the competing price.
The tighter is the market then the closer the spot price is to the competing price. In a less tight market the spot price might be
expected to be closer to the marginal cost of supply.

Appendix:
pp WGM Specifications
p
59
WGM – What it does?
WGM is based on excel and with the system configuration below:
• Win 7 (8 GB RAM)/ Win 10 (16 GB RAM) [64 bit systems)
WGM is supplied with a comprehensive database on gas • Office 2010 / Office 13 [64 bit versions]
production, LNG and pipeline infrastructure, trade routes as • Linear Programming solver – What’s Best (64 bit)
well as long term contracts, storage facilities and demand
well as long term contracts, storage facilities and demand Run time: We have optimised run time to under 10 min for a full
Run time: We have optimised run time to under 10 min for a full
projection. All data needed to run the model is scenario run
supplied by Nexant and users are free to
add or overwrite the supplied System
assumptions to construct scenarios
assumptions to construct scenarios Database requirement
i t
of interest to their organisations.
and run time
WGM
Key outputs include spot and contract
prices, production and consumption, trade WGM runs on a stand‐alone computer
flows and infrastructure utilisation Support
Outputs or laptop. The Excel interface allows users
Global Consumption
to modify
to modify inputs easily and incorporate outputs
inputs easily and incorporate outputs
into other internal programs and systems.
European pipeline imports Nexant provides comprehensive support services including
Spot Price differentials
initial installation and training regular updates of data and
initial installation and training, regular updates of data and
technical support. All users benefit from a continuous
programme of model development and enhancements.

Optimisation – Linear Programming

A linear p
programme
g is an optimisation
p problem
p consistingg of:
 input assumptions
 constraints
 Physical variables such as production and flows by pipeline and LNG are constrained by capacity assumptions.
 Gas and LNG contracts are modelled using constraints to represent contract volume terms.
terms
 Objective: Objective function is to minimise costs including energy price assumptions and infrastructure and production LRMCs (which
include both capex and opex)
Solving this linear programme leads to forecasts of:
 gas production at each source of supply (e
(e.g.
g gas fields)
 flows
 spot prices
Conceptually, the WGM LP is expressed as a network:
 Nodes - containing the demand, production, storage, LNG and regas assumption
 Arcs - representing connections between the nodes (pipelines and shipping routes and also used to model LNG and pipeline contracts)

System Requirements
H d
Hardware S ft
Software
Standalone computer with 8 GB RAM Windows 7 (64-bit)
recommended
Office 2010 64-bit (English language version please)
What s Best! Add-in

What's Add in with the 64-bit
64 bit Extended Base
Version as minimum
Some clients have moved to Windows 10 and Office 2013. The model runs fine in this environment
but as Windows 10 takes up a lot more RAM than Windows 7, 16 GB of RAM would be recommended

Accessing the World Gas Model
The World Gas Model (WGM) is available to the clients to WGAS is a subscription program that provides coherent
use under license on their own systems. The clients benefit forecasts for global, regional and national supply/demand
from the database containing detailed Information about
from the database containing detailed Information about and prices for natural gas and LNG.
d i f t l d LNG
production, infrastructure and contracts, continuous
support and global coverage in WGM.
WGAS
Licensing Subscripti
on
Products
Bespoke
Scenario In a Scenario Week – we sit with the client
in their office running the scenarios and
Clients can consult with Nexant to create
Clients can consult with Nexant to create Week
S
Scenarios
bespoke scenarios starting with our base case,
i sensitivities in real time, providing the data,
iti iti i l ti idi th d t
results and analysis from each scenario.
and then changing key assumptions to generate
alternative scenarios and sensitivities.

Appendix:
pp Spot
p Price Backcastingg
64
North America (Henry Hub)
16
14
12
10
MMBTU
8
$M
6
4
2
0
20066 Q1
20066 Q3
20077 Q1
20077 Q3
20088 Q1
20088 Q3
20099 Q1
20099 Q3
20100 Q1
20100 Q3
2011 Q1
2011 Q3
20122 Q1
20122 Q3
20133 Q1
20133 Q3
20144 Q1
20144 Q3
20155 Q1
20155 Q3
20166 Q1
20166 Q3
Calculated Spot Actual Spot
Tracks changes pretty well – 2011 and 2012 actual less than calculated

Europe Netherlands
18
16
14
12
MBTU
10
SMM
8
6
4
2
0
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
2006 Q
2006 Q
2007 Q
2007 Q
2008 Q
2008 Q
2009 Q
2009 Q
2010 Q
2010 Q
2011 Q
2011 Q
2012 Q
2012 Q
2013 Q
2013 Q
2014 Q
2014 Q
2015 Q
2015 Q
2016 Q
2016 Q
Tracks changes pretty well – since 2011 calculated level generally less than actual level

Asia (China – Shanghai)
25
20
15
MMBTU
SM
10
0
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
2006 Q
2006 Q
2007 Q
2007 Q
2008 Q
2008 Q
2009 Q
2009 Q
2010 Q
2010 Q
2011 Q
2011 Q
2012 Q
2012 Q
2013 Q
2013 Q
2014 Q
2014 Q
2015 Q
2015 Q
2016 Q
2016 Q
Tracks changes pretty well – since 2011 calculated level slightly less than actual level
China spot LNG a pretty thin market though

Asia Pacific (Japan)
25
20
15
%MMNTU
10
0
2006 Q1
2006 Q3
2007 Q1
2007 Q3
2008 Q1
2008 Q3
2009 Q1
2009 Q3
2010 Q1
2010 Q3
2011 Q1
2011 Q3
2012 Q1
2012 Q3
2013 Q1
2013 Q3
2014 Q1
2014 Q3
2015 Q1
2015 Q3
2016 Q1
2016 Q3
Tracks changes pretty well since 2008 (spot market thin before that) – but post-Fukushima calculated level generally
slightly less than actual level

Nexant Inc.
Nexant, Inc
San Francisco
New York
This Report was prepared by Nexant, Inc. (“Nexant”) and is part of the NexantThinking™ suite. Except where
specifically stated otherwise in this Report, the information contained herein is prepared on the basis of
Houston
information that is publicly available, and contains no confidential third party technical information to the best
knowledge of Nexant. Aforesaid information has not been independently verified or otherwise examined to
Washington
determine its accuracy, completeness or financial feasibility. Neither Nexant, Subscriber nor any person acting
on behalf of either assumes any liabilities with respect to the use of or for damages resulting from the use of any
London
information contained in this Report.
p Nexant does not represent
p or warrant that anyy assumed conditions will
come to pass.
Bahrain
1 King’s Arms Yard,
Singapore
London, EC2R 7AF The Report is submitted on the understanding that the Subscriber will maintain the contents confidential except
for the Subscriber’s internal use. The Report should not be reproduced, distributed or used without first obtaining Bangkok
Telephone: +44 20 7950 1600 prior written consent by Nexant. Each Subscriber agrees to use reasonable effort to protect the confidential
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IEEJ：April 2017 © IEEJ2017

Global LNG Outlook

Medium and Long Term

Global LNG Outlook - Agenda

Global LNG Outlook Medium and Long Term Quarter 1 2017 1

Global LNG Outlook Medium and Long Term Quarter 1 2017 3

World Gas Model - Overview

Production flows Regional balances

LNG trade Demand Response

Global LNG Outlook Medium and Long Term Quarter 1 2017 4

Regional Definitions – IGU

Global LNG Outlook Medium and Long Term Quarter 1 2017 5

Oil and Coal Prices

$$/MMBTu Real 2014 Prices

$/Tonne Real 22014 Prices

100 5.0 100

Demand and Supply

Global LNG Outlook Medium and Long Term Quarter 1 2017 8

Global Liquefaction Capacity

Global LNG Outlook Medium and Long Term Quarter 1 2017 9

Global LNG Outlook Medium and Long Term Quarter 1 2017 10

Medium Term Outlook to 2020

Demand Trends to 2020

-20 0 20 40 60 80 100 120 140 160

Global LNG Outlook Medium and Long Term Quarter 1 2017 12

Europe Supply Gap

-60 -40 -20 0 20 40 60

Global LNG Outlook Medium and Long Term Quarter 1 2017 13

Global LNG Outlook Medium and Long Term Quarter 1 2017 14

LNG Export Capacity

20 Wheatstone LNG 1 2017 3

Global LNG Outlook Medium and Long Term Quarter 1 2017 15

Unutilised LNG Export Capacity

North America Australia Other Africa Middle East Other Algeria

Global LNG Outlook Medium and Long Term Quarter 1 2017 16

Inter Regional LNG Flows

Global LNG Outlook Medium and Long Term Quarter 1 2017 17

Global LNG Outlook Medium and Long Term Quarter 1 2017 18

Spot and Contract Prices

Henry Hub NBP Japan Spot Average LNG Q: Japan

Global LNG Outlook Medium and Long Term Quarter 1 2017 19

Netback Prices to Henry Hub

Global LNG Outlook Medium and Long Term Quarter 1 2017 20

Longg Term Outlook

Demand Trends to 2040

Global LNG Outlook Medium and Long Term Quarter 1 2017 22

Supply Trends to 2040

Global LNG Outlook Medium and Long Term Quarter 1 2017 23

LNG Imports to 2040

400 declining domestic production, but its long-

LNG Exports to 2040

H b NBP A i spott price

Global LNG Outlook Medium and Long Term Quarter 1 2017 25

Unutilised LNG Export Capacity

80 rising demand quickly reduces this prior to

North America Australia Other Africa Middle East Other Algeria

Global LNG Outlook Medium and Long Term Quarter 1 2017 26

LNG Contracts to 2040

Global LNG Outlook Medium and Long Term Quarter 1 2017 27

Asia Pacific Trade Flows to 2040

Japan LNG Imports to 2040

 Japan heavily contracted through 2020, even some undertakes on contracts.

Global LNG Outlook Medium and Long Term Quarter 1 2017 29

Call What’s Best イメージを表示できません。メモリ不足のためにイメージを開くことができないか、イメージが破損している可能性があります。コンピュータを再起動して再度ファイルを開いてください。それ