Professional Documents
Culture Documents
m
p
o
r
t
s
(
f
i
x
e
d
)
n
d
i
g
e
n
o
u
s
p
r
o
d
u
c
t
i
o
n
Non-
switching
demand
Distillate switching
Power dispatch
switching
Resid switching
OiI-Iinked pricing band
LLUSTRATVE
Source: McKinsey
LNG PRICES IN A SHORT ENVIRONMENT RISE TO THE VALUE IN
ALTERNATE MARKET - IN THIS CASE EUROPE
If Demand stays
robust and US suppIy
not sufficient to push
LNG back into the
AtIantic, the marginaI
price setter for the US
becomes LNG
competing with
Europe
12
PERSPECTIVES ON NATURAL GAS PRICES
Gas price fundamentaIs: What you would need to believe to see a
sustained gas price linkage to petroleum conversion capacity
Questions
Market based perspective on gas price: Estimating long-term gas price
and probability distributions based on commodity and capital markets
13
UNUSED SLIDES
14
0
2
4
6
8
10
12
J
a
n
-
9
1
J
a
n
-
9
2
J
a
n
-
9
3
J
a
n
-
9
4
J
a
n
-
9
5
J
a
n
-
9
6
J
a
n
-
9
7
J
a
n
-
9
8
J
a
n
-
9
9
J
a
n
-
0
0
J
a
n
-
0
1
J
a
n
-
0
2
J
a
n
-
0
3
J
a
n
-
0
4
J
a
n
-
0
5
J
a
n
-
0
6
IN EUROPE, NATURAL GAS CONTRACTS INDEX PRICES TO LOW
SULFUR FUEL OIL PRICES
* Monthly prices. Gas prices average for Spain, Belgium, Netherlands, Germany, taly, France & UK . 6-month lag compared to oil (Brent) and LSFO
** Assumes 6.287 MMBtu / Bbl for LSFO, FCC is marginal refining unit in Europe, and an average of narrow and wide light / heavy differentials (modeled)
Source: Platts; World Gas ntelligence; EA; McKinsey GGM; McKinsey refining equilibrium pricing model
$ / MMBtu, 1991-2006 Q3
40 $/bbl ($5.25/MMBtu)**
30 $/bbl ($3.90/MMBtu)**
20 $/bbl ($2.50/MMBtu)**
Cost of Russian
imports (full cost)
OiI-Iinked gas border price* compared to Brent and LSFO prices
Oil-linked gas prices reflect long-
run marginal cost of Europe's next
alternative supply (Russia)
Growing price gap to gas
cost as oil prices
increase and stay high
50 $/bbl ($6.65/MMBtu)**
Brent
Oil-linked gas price (WG)*
Low Sulfur Fuel Oil (LSFO)
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
15
LIQUEFACTION ACROSS THE ATLANTIC IS CONSTRAINED AND WILL
NOT BE SUFFICIENT TO FILL US REGAS CAPACITY
Natural gas delivered
into Europe currently
prices at a residual
fuel oil linked contract
price
f the US prices below
resid, then more
majority of excess
LNG should divert to
Europe
f US is pricing at a
premium to resid it
becomes the
advantaged market
* Assuming end-of-year in-service dates. Regas projects shown only in operation and under construction. 47.6 Bcfd facilities approved by FERC. Liquefaction
assumes projects operating, under construction and in development. ncludes Middle Eastern projects with expected delievries to Atlantic Basin based on
investing partners or signed contracts
Source: LNG Asian demand Dr. Fesharaki, FACTS nc., September 2005; McKinsey Energy Practice; McKinsey analysis
5 5 5
6
7
7
8
10
12
15
15 15 15 15 15 15
2
2
3
3
4
4
5
8
11
14
17
18
19 19 19 19
0
5
10
15
20
25
30
35
40
2000* 2002 2004 2006 2008 2010 2012 2014
Europe
North America
AtIantic basin
Iiquefaction
AtIantic Basin Liquefaction and regas capacity*
Bcfd