Post on 13-Aug-2020
The Asia-Pacific Region: A market niche for Russia’s
LNG, and price change drivers
Anastasiya Masalkova
Senior Lecturer Department of Economy Theory,Gubkin Russian State University
of Oil and GasItaly, Rome, June 12th 2015
• RUSSIAN LNG PROJECTS
• LNG pricing
• APR’s gas market
• A market niche for Russia’s LNG in APR
Focus and Overview of Key Topics
Russian LNG projects
LNG Vectors at present…..
…and LNG Vectors in the Future
LNG exports reflect «managed competition»
between the new oligopoly in Russian gas sector
Export sales based around LNG and piped gas
LNG Pricing
LNG-Commercial Interactions Between East and
West
Oil-linked Pricing Dominant in Core Markets
Pricing of LNG example
Data: http://www.capp.ca
Does the drop in Asian LNG spot prices reflect a lack of LNG demand growth or the low oil
price environment
The declining oil prices has capped LNG spot prices through oil switching, but the Asian
LNG market has been weakening
APR’s gas market
The Asia-Pacific Region (APR)
16
APR: countries of South, East and South-East Asia and Oceania
APR’s gas market: Facts
� The fastest growing demand for gas: over 5% per
year (the average global rate being 2.2%)
� Gas share in the energy balance: 11% (the average
share worldwide being 25%)
� The largest LNG market by volume:
� The region consumes up to 70% of the global LNG
imports
� The APR accounts for 30% of LNG production
� 80% - the percentage of LNG in the imports
� Potential growth by 200% up to 2035.
17
Breakdown of gas consumption in the APR, 2012:
625 billion cub.m
18
Others
12%
China
24%
India
9%
Indonesia
6%
Japan
19%
Malaysia
6%
Pakistan
7%
South
Korea
8%
Thailand
9%
Share of gas consumption:
625 billion cub.m
8,2%
9,9%10,3%
8,8%
5,6%
7,8%
9,6%10,6%
Gas consumption growth rates (the region’s
average being 5.0%)
A market niche for Russia’s LNG in APR
Forecasted production and
consumption in the core markets
600,0
800,0
1000,0
1200,0
1400,0
2015 2020 2025 2030 2035
Forecasted gas consumption
by key regions, billions of
m3/year
North America
Europe & Eurasia
Asia Pacific
North
America
Europe &
Eurasia
Asia Pacific
1038
12451274
11721251
827
Gas production and
consumption in 2035
Consumption Production
Source: BP Energy Outlook 2035
The present and future of APR’s gas market
Producti
on; 470
Imports;
155
2012Total consumption:
625 billion m3Growth by 200%
or 9% per year
Source: BP 2013, Roberto F. Aguilera et al, The Asia Pacific natural gas market: Large enough for all? . Energy Policy, 2014.
Production
827
Imports;
447
2035Total consumption:
1,274 billion m3
APR’s requirement of gas imports
•
PNG
22%
LNG
78%
Imports by 2035: 447 billion m3,
including:
� LNG – 337 billion m3 (248 million t. LNG)
� PNG – 110 billion m3
2015 2020 2025 2030 2035
62
37
94 98
29
Additional requirement for
imports from 2012 to 2035,
billions of m3
Meeting the demand for LNG up to 2035, M tons/year1.Russian LNG supply projects
2,65
10
0
10
20
2018
Ямал СПГВладивосток СПГПечора СПГ
17,6
73,5
65,5
2014
2. Contracted LNG in
APR by 2014
Китай Япония и Корея
139
2015 2020 20252030
2035
49
30
6049
30
75 78
23
Meeting the additional requirement
for LNG imports
Contracted LNG Demand for LNG
Niche: 15 M tons/year
Current level of LNG prices
The Asia-Pacific Region:
Pricing in the APR: Facts• The LNG market in the region follows the pattern of
Japanese LNG contracts:o The principle of Market Value Pricing: The LNG price is linked to the crude
oil price as its key substitute in the target consumption sector (Japan) –
power generation
• Key price indices:o JCC - Japanese Crude Cocktail
o ICP – Indonesian Crude Oil Price
• Key price index formulas:o Linear
o S-curve
• Prior to the 2000s, the LNG price was linked to the
Asian Premium – crude oil price with a premium.
25
APR’s gas prices are higher than in the core markets
0
100
200
300
400
500
600
70019
90
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
$/1,
000m
3
APR (Japan)
Europe
Europe (UK)
USA
APR
Europe
Europe (UK)
USA
Correlation between the price level and the indexation form
0
2
4
6
8
10
12
14
16
18
20
17 15 19 12 26 24 34 62 94 78 109
Correlation between LNG and
crude oil prices in the APR
Цена нефти марки Dubai
Цена СПГ в Японии
$/MMBtu
$/bbl
Year
CIF
prices,
$/1000m
3
Dubai
crude,
$/bbl
2000 173 262001 170 23
2002 156 242003 175 27
2004 190 34
2005 221 492006 261 62
2007 283 682008 459 94
2009 332 612010 399 78
2011 539 1062012 613 109
Correlation between the price level and the indexation form
0
1
2
3
4
5
6
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
$/M
MB
tu
LNG price Crude Oil price
Linear formula
$/bbl
0
1
2
3
4
5
6
8 9 1011121314151617181920212223242526272829
$/M
MB
tu
S-curve
Crude oil Parity S-curve$/bbl
0
2
4
6
8
10
12
14
16
18
20
17 15 19 12 26 24 34 62 94 78 109
Correlation between LNG and
crude oil prices in the APR
Цена нефти марки Dubai
Цена СПГ в Японии
$/MMBtu
$/bbl
LNG price level by the end of 2013
29
China
LNG
Japan
LNG
S. Korea
LNG
Indian
LNG
Japan/Ko
rea
Marker
(JKM)
(Spot)
Oil price
parity at
100$/ bbl
$/MMBtu 15,25 15,65 15,65 13,75 17,348 17,24
$/1000m3 558 573 573 503 635 631
0
100
200
300
400
500
600
700
0
2
4
6
8
10
12
14
16
18
20$/
MM
Btu
$/1000m3
Data: Federal Energy Commission USA, Plats
Drivers of the LNG price change in APR
Asia-Pacific Region
1. Exchange trading started in the APRMay 2013: The LNG Hub opens in Singapore
• SLNG (Singapore LNG Terminal) capacity: 3.5 Mtpa(two-week gas consumption in Japan), with an option to expand up to 9.0 Mtpa and more.
Prospects of LNG exchange trade in Singapore:
• Criticism: lack of volumes for gas (LNG) trading - low market liquidity.
• Facts:1. Japanese, US, Australian, Indian and European companies are getting
ready for participation in LNG trading: the traders are hired, the
volumes are allocated.
2. The lack of APR market niche for Russian gas before 2025 opens an
opportunity for short-term deals with Russian LNG at the Singapore
Exchange.
How will exchange trading
influence the regional price level?Initially, the low liquidity will inhibit full-scale LNG trading.
The Singapore Hub will not be the main point for LNG trade but:
• It will turn into a supply balancing tool
• Price in hub will become an alternative price indicator (for oil baskets like JCC)
• It will contribute to a change in the regional price level
• Subsequently, it will result in pricing transformation in APR: migration from crude oil indexation to exchange pricing.
2. Prospects of methane hydrate
production and its impact on LNG price
• Japan: Research of commercial production potential of natural gas hydrate (NGH) and subsequent power generation using marine plants by 2018.
Implications of NGH commercial production launch in Japan:
• Increase in electricity supply → reduction in electricity prices → MH competing with LNG via electricity price → LNG prices revised downward.
• Dissemination of production technologies to neighboring countries (China, Korea) → LNG price revision linked to the electricity or MH cost.
Prospects of Russian gas exports to
the APR• There is a potential for increased LNG supplies
from Russia to APR countries but:
• A flexible marketing strategy is required:o Long-term contracts combined with participation in exchange
trade.
o Pricing mechanisms for LNG contracts ensuring thecompetitiveness of prices for Russian gas in the buyer’s end market, including:
• Crude oil price indexation, with downward revision (≈-10%)
• Use of exchange price indicator• Hybrid model: exchange prices + crude oil price indexation:
(30%/70%, 40%/60% etc.)
• Netback (or indexation) based on electricity and other prices.
34
References:
1. IGU World LNG Report – 2014.2. Exxon Mobil 2014.3. BP Statistics 2013-4.4. SHWE Gas Movement.5. IHS CERA, various sources.6. BP Energy Outlook 2014.7. Eriras.ru.8. Argusmedia.com.
Anastasiya MasalkovaPhD
Senior Lecturer Department of Economy Theory,Gubkin Russian State University
of Oil and Gas, Leninsky prospect, 65-1, 119991,
Moscow, Russiamasalkova.a@gubkin.ru
Thank you for your attention!