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Atlantic Basin LNG Dynamics
Howard V Rogers, Senior Research Fellow OIES
EPRG Winter Research Seminar
10th December 201010th December 2010
OIES* Natural Gas Research Programme
WE ARE: a gas research programme at an independent academic
institute, part of Oxford University, specialising in fossil fuel research
WE ARE NOT:
• consultants
• sellers of exclusive, high price business reports
WE PRODUCE: independent research on national and international gas
22
issues
WE ARE FUNDED BY: sponsorship by companies and governments in gas
producing and consuming countries
*Oxford Institute for Energy Studies is an educational charity
Information about our Institute, our Programme and its publications can be found on our website:http://www.oxfordenergy.org/gasprog.shtml
Roadmap
• Analytical Framework & Methodology
• Current Gas Market Status and Outlook
• UK Gas Market Future Challenges.
LNG trade-flows in the Atlantic Basin, trends and discontinuities, Howard
Rogers March 2010, http://www.oxfordenergy.org/pdfs/NG41.pdf
LNG
European Supply Dynamics
Annual Contract Quantity
Contract Flexibility
Take or Pay Quantity
PipelineImportsPipeline
ImportsEuropean
Domestic Production
Take or Pay Quantity ImportsImportsEuropean
Monthly Demand
Global LNG System -1
Niche Markets(Dominican Rep., Costa Rica, S America etc.)
Asian Markets (Japan, Korea,
Global LNG
Supply
‘Normal’ Storage Inventory Level
(Japan, Korea, Taiwan, China, India)
North America
Domestic Production
Europe
Domestic Production
Take or Pay Quantity
Annual Contract Quantity
Contract Flexibility
Pipeline Imports
PipelineImports
Global LNG System - 1
Relative Flow between Europe
Niche Markets(Dominican Rep., Costa Rica, S America etc.)
Asian Markets (Japan, Korea,
Global LNG
Supply
‘Normal’ Storage Inventory Level
Relative Flow between Europe and North America determined by arbitrage with (oil indexed) pipeline gas imports to Europe (within flexibility limits).
(Japan, Korea, Taiwan, China, India)
Take or Pay Quantity
Annual Contract Quantity
Contract Flexibility
EuropeNorth America
Domestic Production
Domestic Production
Pipeline Imports
Arbitrage has lead to convergence between
US Price and European Oil Indexed Price –
Optimal for European Gas Importers.
PipelineImports
Global LNG System - 2
Relative Flow between Europe
Niche Markets(Dominican Rep., Costa Rica, S America etc.)
Asian Markets (Japan, Korea,
Global LNG
Supply
‘Normal’ Storage Inventory Level
Relative Flow between Europe and North America determined by arbitrage with (oil indexed) pipeline gas imports to Europe (within flexibility limits).
(Japan, Korea, Taiwan, China, India)
Take or Pay Quantity
Annual Contract Quantity
Contract Flexibility PipelineImports
EuropeNorth America
Domestic Production
Domestic Production
Pipeline Imports
More Pipeline Import to Europe = Storage
Overfill in US – Henry Hub de-links and is
lower than European Prices – Sub-Optimal
for European Gas Importers.
Global LNG System - 3
Relative Flow between Europe
Niche Markets(Dominican Rep., Costa Rica, S America etc.)
Asian Markets (Japan, Korea,
Global LNG
Supply
‘Normal’ Storage Inventory Level
Relative Flow between Europe and North America determined by arbitrage with (oil indexed) pipeline gas imports to Europe (within flexibility limits).
(Japan, Korea, Taiwan, China, India)
Take or Pay Quantity
Annual Contract Quantity
Contract Flexibility
EuropeNorth America
Domestic Production
Domestic Production
Pipeline Imports
Lower Pipeline Imports to Europe = Storage
Underfill in US – Henry Hub de-links and is
Higher than European Prices. – Sub-Optimal
for European Gas Importers.
PipelineImports
Global LNG System - 4
Relative Flow between Europe
Niche Markets(Dominican Rep., Costa Rica, S America etc.)
Asian Markets (Japan, Korea,
Global LNG
Supply
Global LNG System Long
‘Normal’ Storage Inventory Level
Relative Flow between Europe and North America determined by arbitrage with (oil indexed) pipeline gas imports to Europe (within flexibility limits).
(Japan, Korea, Taiwan, China, India)
Take or Pay Quantity
Annual Contract Quantity
Contract Flexibility
EuropeNorth America
Domestic Production
Domestic Production
Pipeline Imports
US Storage Overfill; HH de-linked and below
Europe oil-indexed prices. Europe Pipeline
imports at minimum. – Best Outcome within
Constraints
PipelineImports
Global LNG System - 5
Relative Flow between Europe
Niche Markets(Dominican Rep., Costa Rica, S America etc.)
Asian Markets (Japan, Korea,
Global LNG
Supply
Global LNG System Short
‘Normal’ Storage Inventory Level
Relative Flow between Europe and North America determined by arbitrage with (oil indexed) pipeline gas imports to Europe (within flexibility limits).
(Japan, Korea, Taiwan, China, India)
Take or Pay Quantity
Annual Contract Quantity
Contract Flexibility PipelineImports
EuropeNorth America
Domestic Production
Domestic Production
Pipeline Imports
US Storage Underfill; HH de-linked and
Above Europe oil-indexed prices. Europe
Pipeline imports at Maximum. – Best
Outcome within Constraints
Gas Prices 2007 - 2010
AGIP Proxy 15
20
25
mm
btu
Japanese cif LNG
Brent
Sources: Argus, BAFA, EIA, Own analysis
AGIP = Average German Import Price (Oil Indexed Gas)NBP = UK National balancing Point PriceHH = Henry Hub US Price
AGIP
HH
NBP
0
5
10
Jan - 07 Jul - 07 Jan - 08 Jul- 08 Jan- 09 Jul- 09 Jan- 10 Jul- 10
$/m
mb
tu
NBP
HH
AGIP
Japanese cif LNG
AGIP Proxy
European LNG Imports Jan 2005 – Oct 2010
200
250
300
mm
cm/d
ay
European LNG Imports
UK
Portugal
Source: Waterborne LNG
0
50
100
150
Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
mm
cm/d
ay
Italy
Greece
Belgium
Turkey
France
Spain
2,500
3,000
North Atlantic LNG Balance 2008 - 2013
Demand
North America LNG Imports
Europe Supply & Demand
Storage Inj./Withdrawal
0
500
0
500
1,000
1,500
2,000
mm
cm
/da
y
LNG Imports
% of TOP level achievedSources: IEA Monthly Data, Waterborne LNG, Own analysis
Domestic Production
Pipeline ACQ
Pipeline TOP @85% of ACQ
Pipeline imports (Russia, N Africa, Azerbaijan & Iran)
CY 08/09 CY 09/10 CY 10/11 CY 11/12
92% 102%98% 99%
CY 12/13
111%
Global Factors Influencing the European Market
European Domestic Production to 2000 - 2025
250
300
350
400
Others
Romania
bcm
a
0
50
100
150
200Italy
Germany
Denmark
Netherlands
Norway
UK
bcm
a
Sources: IEA, WoodMackenzie, National Grid, Dutch Ministry of Foreign Affairs, Energi Styrelsen, Own Analysis
Shale Gas - Dynamics
European Rig-Count - 2000 - 2010
10
20
30
40
50
60
70
80
Rig
Co
un
t
Gas Rig Count
Oil Rig Count
800 Shale Gas Wells/Year
0
10
Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Sources: IEA WEO 2009, Baker Hughes
Global LNG Supply Assumptions
2008 - 2025
400
500
600
700
Yemen
Venezuela
USA
Trinidad
Russia
Qatar
Peru
Papua New Guinea
Oman
Norway
Nigeria
Qatar
0
100
200
300
400
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
bcm
a
Nigeria
Malaysia
Libya
Iran
Indonesia
Guinea
Egypt
Brunei
Bolivia
Australia
Angola
Algeria
Abu Dhabi
Sources: Waterborne LNG, Company Reports, Own analysis
Australia
Nigeria
200
250
300
350
bc
ma
Asian LNG Import Assumptions
ChinaIndia
Korea CAGR2010 - 2025
9.8%
11.6%
Total 3.5%
Japan
0
50
100
150
200
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
bc
ma
India
Taiwan
Sources: IEA, WoodMackenzie, Own analysis
0.9%
1.7%
1.3%Japan
South Korea
Competing Sources of New Supply for Europe ?
3
4
5
6
7
8
9
10
$/m
mb
tu
Export Tax
Uncertainty Range
Upstream and
Transportation
Regas
19
0
1
2
3Regas
Transportation
Liquafaction
Upstream
*WEO2009, p482 plus 30% export tax.**WEO2009, p481 plus regas @$0.60/mmbtu.*** Broad estimate.
The Gas Exporter’s Conundrum
Export projects at
international prices
for govt revenue.
Domestic
residential and Low cost
Investment terms
for foreign
companies
tightened
Domestic Price rise
politically
Domestic supply
quota a
disincentive to
further export
investment as dev.
costs rise.
residential and
power sectors
developed at low
gas price.
Low cost
gas
reserves
discovered
Relatively low
number of skilled
jobs created.
politically
unacceptable, may
need to import
some gas at
international prices.
Potentially value
destructive if
creates glut of
petrochemicals
Demand booms at
low regulated prices
Industrial Sector
developed for
added value and
skilled
employment.
TimeTime
Gas exports
constrained
UK Future Supplies and Import Infrastructure
40
60
80
100
120
140
160
bcm
a
Actual Modelled
-60
-40
-20
0
20
40
2005 2010 2015 2020 2025
bcm
a
Production Norway Netherlands IUK imports LNG Ireland Exports IUK exports Demand
NB. Assumes storage in existing & under construction categories only (i.e. 5.7 bcm by 2014)
Sources: IEA, DECC, Waterborne LNG, own analysis
IUK
Flo
ws 2
00
5 -
20
25
-10
0
-50 0
50
10
0
15
0
20
0
Jan-05
Jun-05
Nov-05
Apr-06
Sep-06
Feb-07
Jul-07
Dec-07
May-08
Oct-08
Mar-09
Aug-09
Jan-10
Jun-10
Nov-10
Apr-11
Sep-11
Feb-12
Jul-12
Dec-12
May-13
Oct-13
Mar-14
Aug-14
Jan-15
Jun-15
Nov-15
Apr-16
Sep-16
Feb-17
Jul-17
Dec-17
May-18
Oct-18
Mar-19
Aug-19
Jan-20
Jun-20
Nov-20
Apr-21
Sep-21
Feb-22
Jul-22
Dec-22
May-23
Oct-23
Mar-24
Aug-24
Jan-25
Jun-25
Nov-25
mmcm/day
IUK
Flo
w
Ex
po
rt Ma
x
Imp
ort M
ax
With
BB
L L
ine
re
ve
rse
flow
Based o
n G
lobal B
ala
nce w
ith U
K S
tora
ge 5
.7bcm
in 2
014+
Actu
al
Mo
de
lled
-15
0
-15
0
-10
0
-50 0
50
10
0
15
0
20
0
Jan-05
Jun-05
Nov-05
Apr-06
Sep-06
Feb-07
Jul-07
Dec-07
May-08
Oct-08
Mar-09
Aug-09
Jan-10
Jun-10
Nov-10
Apr-11
Sep-11
Feb-12
Jul-12
Dec-12
May-13
Oct-13
Mar-14
Aug-14
Jan-15
Jun-15
Nov-15
Apr-16
Sep-16
Feb-17
Jul-17
Dec-17
May-18
Oct-18
Mar-19
Aug-19
Jan-20
Jun-20
Nov-20
Apr-21
Sep-21
Feb-22
Jul-22
Dec-22
May-23
Oct-23
Mar-24
Aug-24
Jan-25
Jun-25
Nov-25
mmcm/day
IUK
Flo
w
Ex
po
rt Ma
x
Imp
ort M
ax
With
BB
L L
ine
re
ve
rse
flow
So
urc
es: IE
A, D
EC
C, W
ate
rbo
rne
LN
G, o
wn
an
alys
is
UK
Sto
rage 5
.7bcm
in 2
014, ris
ing to
10.7
bcm
by 2
018
Actu
al
Mo
de
lled
Wind Intermittency Impact on Gas Fired Generation
Hourly wind speed
data at 15 UK
locations from
historical database
Generation
algorithm using
standard turbine
output curve
Impact on gas and
other generation
fuels/technologies
using future demand
and generation view.
Database of
existing and future
wind farms –
capacity, location
start-up timing
Construct
different future
capacity cases
Impact on short term
gas demand
Requirement for
additional salt cavern
storage
Ho
urly
Win
d G
en
era
tion
20
09
, 20
15
an
d 2
02
0
15
20
25
30
35
GWh/hour
0 5
10
1
170
339
508
677
846
1015
1184
1353
1522
1691
1860
2029
2198
2367
2536
2705
2874
3043
3212
3381
3550
3719
3888
4057
4226
4395
4564
4733
4902
5071
5240
5409
5578
5747
5916
6085
6254
6423
6592
6761
6930
7099
7268
7437
7606
7775
7944
8113
8282
8451
8620
20
09
20
15
20
20
GWh
Hours
Conclusions
• Global LNG System– Model valid but recession and US Shale gas growth (minimal LNG imports) has
eliminated trans-Atlantic arbitrage for time being.
– Analytical framework still highly useful for exploring European balance (LNg vs Pipeline imports ) as domestic production declines.
• Medium Term Outlook– De-linkage of Henry Hub and NBP could remain until 2014/15, with NBP arbitraging on
coal and oil-indexed price. However balance could soften periodically and therefore expect prices to be volatile.
– 2015 + system tightening due to Asian demand growth, European domestic production decline.
– 2015 + system tightening due to Asian demand growth, European domestic production decline.
– Will US shale growth plug the gap between demand and declining US and Canadian conventional gas ?
– Outlook for new sources of long distance gas trade uncertain; incremental new supplies will not be low cost.
• UK Market– Uncertainty on demand levels but rise in imports inevitable.
– Space heating market will require significantly more seasonal storage capacity.
– Wind power intermittency will require fast response from CCGT’s and more salt cavern storage.
Questions Welcome.
Thank You
for your attention.for your attention.
Howard V RogersSenior Research Fellow ,
OIES Natural Gas Programmehoward.rogers@oxfordenergy.org
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