Asia's Energy Outlook

Squared Energy Presentation

Abdul Jalil Jumriany Principal, Squared Energy UK

ASIA'S ENERGY OUTLOOK AND LNG PRICES IN THE NEXT

DECADE

WORLD ENERGY SECURITY FORUM, WESF 2014

AGENDA

Energy and Geopolitics

Asia’s Political Economy

LNG Markets and Transportation cost

Conclusion

Energy and Geopolitics

Source: US Energy Informa3on Administra3on, 2012 Annual Energy Outlook

ENERGY MARKETS: Challenging conventional Paradigms

Source: Wood Mackenzie

WORLD LARGEST IMPORTERS TRADING PLACES

China is overtaking the U.S. in OPEC-oil imports, daily average 6 million barrels a day.

Egypt, which until recently was exporting natural gas to Israel, now has several LNG gasification terminals idling, and has reached a $30 billion agreement to purchase gas from Israel’s new Leviathan field

Source: Financial Times, Israel’s Leviathan Partners Target $30bn Supply Deal with BG29 June 2014

EXPORTER BECOMING IMPORTER

Australian gas is helping feed China’s ever increasing demand as it develops into one of the major suppliers to the market.

Source: Brookings energy forum report 2014

EXPORT POTENTIAL

POLITICAL CRISES

Crisis in Ukraine has started a debates about the security of existing energy supplies to Europe from Russia.

Source: www.rian.ru

Nord Stream, 761 miles Capacity of the first line commissioned in 2011: 27.5 bcm (970.75 bcf) Total capacity(two lines): 55 bcm (1.94 tcf) per year

Yamal-Europe, Over 1,240 miles Capacity: 33 bcm (1.16 tcf) per year

Russian energy giant Gazprom’s 30 year, 400 billion dollar gas deal with China is set to impact global geopolitics

Source: Ulson Gunnar, New Eastern Outlook 2014

FORMING ALLIANCES NEW GAS NETWORK DEAL

REGIONAL POWER AND DOMINANCE Japan and China are fundamentally engaged in a long-term rivalry for regional power and dominance.

Demand for natural gas is expected to double by 2040. There is a potential rivalry expected over the new resources between large consumers, such as China and India, when it comes to gas.

Source: Economic Times India, Brookings energy forum report 2014, IEA Publica3ons, 2013

ASIA’S POLITICAL ECONOMY

GROWING DEMAND,INCREASING COSTS, SUBSIDIES, POLITICAL ENVIRONMENT AND ALTERNATIVE ENERGY One cannot forget the role of politics when it comes to Economy and Energy sector.

PR

ICE

QUANTITY

S-SUBSIDY

GROWING DEMAND

World energy consumption will rise 56% by 2040 led by Asia. Growing in a world where 1.2 billion people still have no access to electricity, securing energy supplies tops the political agenda for many developing countries

Source: Bloomberg Jul 25, 2013. Brookings

Prices of Gas has gone much higher than expected in Asia. Gas exporting countries are going to sell gas in regions where market potential and profits are huge.

Source: US Department of Energy and Thomson Reuters

Global Natural Gas Prices (Monthly Averages)

Subsidies is a major political problem in Asia. Sadly, with energy subsidies are so large, critical investments in energy efficiency do not occur.

Energy subsidies also drive up demand and result in wasteful use of energy.

SUBSIDIES

SUBSIDIES AND POLITICS

Subsidies reform are politically daunting and unavoidable. Governments are scared of uprising. The growing size of subsidy bills and the growth in fiscal deficits is having a sobering impact on many Asian economies.


POLITICAL ENVIRONMENT & ALTERNATIVE ENERGY

Political environment can play a big role in your energy cost.

Alternative energies to expensive gas are available but getting public support would not be easy.

Japan has shut down its 54 nuclear plants following the Fukushima accident in 2012. Japan spent 27.4 trillion yen ($269 billion) on fossil fuels in 2013, up 50 percent from 18.1 trillion yen the year before the Fukushima disaster Nuclear power in Japan, once Asia largest producer remain unpopular after three years of worst civilian atomic disaster.

Source: Bloomberg, Japanese Public seen as biggest obstacle to Nuke restart.


Environmental pressures on coal consumption are rising not only in Europe and North America but also in Asia. China’s leadership has made a policy decision, where the government is aggressively pursuing an “anything but coal” development plan for the power sector Source: Financial Times, Thermal coal falls vic3m to China’s energy policy


LNG MARKETS AND TRANSPORTATION

LNG MARKETS ASIA Asia’s increasing populations, industrialization, urbanization, motorization, and economic development is increasing the demand for energy. Significant growth in primary energy demand is expected in China, India, Malaysia, Indonesia, and the Philippines up to and beyond 2030 Asian and Middle Eastern energy demand growth is likely to be met by new producers, aided by falling imports to the newly energy independent United States


Source: BG Group, Global LNG Market Overview 2013-‐2014, Brookings energy forum report 2014

LNG MARKETS ASIA Turning to global markets, LNG demand will grow at 5% to 2025, twice as fast as for gas overall, is unchanged. In 2014 we expect continued growth in demand for LNG from Asia. Asian economies are following China’s lead, looking to gas, and to a lesser extent nuclear power, to supplement coal-powered electricity generation.

LNG MARKETS ASIA

This lack of global LNG cargo flexibility is currently reflected in the regional price divergence across Asia (tight market post Fukushima) Gas producers are doing likewise, but the high transportation costs of LNG has created regional gas markets

Source: BG Group, Global LNG Market Overview 2013-‐2014, Brookings energy forum report 2014

LNG MARKETS ASIA Turning to global markets, LNG demand will grow at 5% to 2025, twice as fast as for gas overall, is unchanged. In 2014 we expect continued growth in demand for LNG from Asia. Asian economies are following China’s lead, looking to gas, and to a lesser extent nuclear power, to supplement coal-powered electricity generation.

TRANSPORTATION

Transport cost consideration are likely to drive renewed expansion of LNG sector. LNG tankers and operating costs depending on distance Experts expects that more LNG will be used to supplement bunkering fuel in LNG vessels in order to cut down shipping costs.


Transporta)on

This lack of global LNG cargo flexibility is currently reflected in the regional price divergence across Asia. Gas producers are doing likewise, but the high transportation costs of LNG has created regional gas markets.

Source: Tight market post Fukushima

TRANSPORTATION

LNG PRICES

Supply diverted to Asia from Europe because of High Asian spot price levels & volatility If the post-Fukushima tightness continues the LNG market will continue to be higher in Asia. Premium markets (e.g. in Asia and South America) will continue to attract flexible supply with higher prices. Additional supplies coming online will threatens the prices to be lower in the future. Future pipelines. US LNG may take longer than expected because of delays in the licensing project.

The new LNG projects will target Asia because of high prices.

CONCLUSION

Energy diversity has long been considered a key component of

energy security, so it seems unlikely that natural gas will become the one

and only dominant fuel source, especially as other fuel sources will

become relatively cheaper.

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