Global gas markets: the aftermath of the global recessionGDP growth Asia Pacific Europe North...

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Global gas markets: the aftermath of the globalrecession

Jen SnyderWood MackenzieCSIS28 October 2009

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The deep global recession continues to frame and reshapeexpectations

Source: Wood Mackenzie estimates, DES prices* Originally signed in Sep-02

*

GDP growth falters—and the rebound takes hold only slowly

-6%

-4%

-2%

0%

2%

4%

6%

8%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

%G

DP

grow

th

Asia Pacif ic

Europe

North America

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0

50

100

150

200

250

300

350

400

450

2008 2010 2012 2014 2016 2018 2020

bcfd

…cutting into global gas demand growth; the outlook issignificantly less favourable than pre-economic crisis…

Gas Demand Outlook (Q3 09 vs Q2 08)

Destruction of approx 20 bcfd oflatent gas demand to 2020

Source: Wood Mackenzie Global Gas Service (Base Case)

CAGR 3.9% CAGR 2.8%

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...just as large volumes of LNG from new projects are being introduced intothe global gas market over the next few years…

Source: Wood Mackenzie LNG Service

New Global LNG Capacity Availability From Post FID* Projects

*FID: Final Investment Decision

Peru LNG

Skikda Rebuild

Yemen LNG

RL 3

Qatargas-2Qatargas-3Qatargas-4

Sakhalin 2

Tangguh

Pluto

Arzew GL3-Z

Angola


-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

200

9

201

0

201

1

201

2

201

3

201

4

201

5

bcf

/d(s

)

Algeria Angola Australia

Indonesia Peru Qatar

Russia East Yemen

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-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2003 2004 2005 2006 2007 2008 2009

bcfd

Egypt Algeria Nigeria Eq. Guinea Norw ay Trinidad

Asia’s draw on Atlantic Basin LNG has diminished…

Atlantic to Pacific Basin LNG Flows (2003 - H1 2009)

Lack of supply proximate to Pacific marketsnecessitated large volumes of LNG to be

transported from the Atlantic to meet demand

But AtlanticBasin LNG will

now need to seekmarket closer to

home


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0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2005 2007 2009 2011 2013 2015

mm

cfd

Montney

Horn River

Marcellus

Haynesville

Woodford

Fayetteville

Barnett

North American shales negate need for North America to import LNG

Existing & Emerging ShaleCurrently Commercial Shale Production ForecastFrom Key Plays

Source: Wood Mackenzie Global Gas Service

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Our base case anticipates that major Europe sellers will showrestraint to maintain oil indexed contract pricing…

Export Utilisation of Major Europe Sellers(Base Case)

Recent Actions & Statements From Major SellersSupport This

"The advantage of our contracts is in pricepredictability…it doesn't make any sense to halveprices to see offtake picking up by, let's say, 3percent". (Gazprom’s Alexander Medvedev, June-09)

“The UK market is now saturated and webelieve it will remain so in the short term…”(Qatargas’ Faisal al-Suwaidi, June-09)

“The days of cheap gas are over….we are in theprocess of joining the GECF…". (Netherland’sMinister of Economic Affairs, March-09)


75%

80%

85%

90%

95%

100%

2009

2010

2011

2012

2013

2014

Po

ten

tial

Uti

lisat

ion

(%)

Algeria Netherlands Norway Russia West

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But in the near term, those measures are insufficient to reinstate indexation.A lack of new supplies could impact Europe in the longer term

Over-supply results in Europe prices beingdragged down to North America price levels

Results in disconnect between spot pricesand oil indexed prices in Europe

Europe over-supply likely to ease post-2012

North America prices remain driven byindigenous unconventionals

Atlantic Price OutlookAtlantic Price Outlook


0

2

4

6

8

10

12

14

2007 2008 2009 2010 2011 2012 2013 2014 2015

US

$/m

mbt

u

NBP European Oil Indexed Contract USA Henry Hub

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0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2007 2009 2011 2013 2015

bcf

d

North America

Middle East

Latin America

FSU

Europe

Africa

…And even if suppliers hold back, the LNG market still needsNorth America

North America and forecast imports


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2003 2005 2007 2009 2011 2013 2015

bcf

d

US-Qatar US-Other Supplies Mexico Canada

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Asia Pacific LNG Demand* & SupplyAsia Pacific LNG Demand* & Supply

There remains pricing support for gas under long-term contracts in thePacific…for now

Pacific market tightness from 2012• Led by China demand growth

Multiple buyers competing for LNG between2013-15 providing froth in the market

• In part due to expiry of existingcontracts

But as the likelihood of FID on new projectscrystallises so the strength of sellersdeteriorates


* Available Pacific supply & demand associated with Asian markets east ofIndia incorporating Japan, Korea, Taiwan, China, Singapore, Thailand, Java.Note, year from April to March.

-

5.0

10.0

15.0

20.0

25.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

bcf

/d(s

)

Available Pacif ic LNG Pre-FID LNG Demand

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0

50

100

150

200

250

300

350

400

450

500

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

mm

tpa

Onstream Under Construction Probable Possible Speculative Demand

Putting the demand and supply outlooks together creates aninteresting picture

Source: Wood Mackenzie LNG Tool, August 2009

2013 to 2015 remains a key market window

Market is soft as a result ofsignificant new supply and

weaker demand

Some supply may be heldback

Liquid markets likely toabsorb the surplus(particularly the US)

Market tightens through2012/14 because of limited

FIDs in 2006 to 2008. Delaysto FIDs expected in 2009/10

will tighten it further bypushing the Probable supply

to the right

Longer-term potential excess capacity

Mere perception of over-supply could adversely impactprices via supply competition

Development of some capacity will be deferred

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0

2

4

6

8

10

12

2008 2010 2012 2014 2016 2018 2020 2022 2024

$/m

mb

tu

Belarus Japan UK US (Henry Hub)

Global gas price prognosis — longer-term disconnect between Europe andNorth America while Asia prices retain a premium

Global over-supply results inglobal spot price convergence inthe near-term

In the medium term a lack ofsufficient proximate supply inAsia will enable a premium toEurope

In the medium term supplierbehaviour results in Europeprices being disconnected fromUS

Global Gas Prices

Source: Wood Mackenzie Global Gas ModelNote: Calendar Year

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A number of key moving pieces will impact the medium term outcome

Pace ofgrowth ofAustralian

LNGprojects

Pace ofgrowth ofAustralian

LNGprojects

Upside inChina demand

Upside inChina demand

Pace of shalegas growth

Pace of shalegas growth

Qatar’s salesstrategy &

tactics

Qatar’s salesstrategy &

tactics

Pace of growthof West AfricaLNG projects

Pace of growthof West AfricaLNG projects

Major pipe exporterssales strategy & tacticsMajor pipe exporters

sales strategy & tactics

Pace of global economic recoveryPace of global economic recovery

Extent of competition between buyers of long-term gasExtent of competition between buyers of long-term gas

Extent of demandelasticity

Extent of demandelasticity

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Contact Information

We will shortly be hosting a webcall introducing the Global Gas Service. To register, pleasevisit http://www.woodmac.com/energy/ggswebcall

For more information please contact:

Noel TomnayHead of Global Gas, Gas ResearchE: [email protected]: +44 (0)131 243 4511

Jen SnyderPrincipal, North American GasE: [email protected]: 617 535 1050

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Strictly Private & Confidential

This report has been prepared by Wood Mackenzie Limited. The report is intended solely forthe benefit of The 3rd ICIS Heren Gas Conference and its contents and conclusions areconfidential and may not be disclosed to any other persons or companies without WoodMackenzie’s prior written permission.

The information upon which this report is based has either been supplied to us or comes fromour own experience, knowledge and databases. The opinions expressed in this report arethose of Wood Mackenzie. They have been arrived at following careful consideration andenquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as ofthis date, are subject to change. We do not accept any liability for your reliance upon them.

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