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Transcript of LNG Malaysia Forum 2013 - Online Portal - · PDF fileLNG Malaysia Forum 2013 ... PETRONAS T9...
STRICTLY CONFIDENTIAL
LNG Malaysia Forum 2013 20 March 2013
Gas pricing and impact on LNG trade
Outline
2
• Gas pricing overview
• Regional price disparity
• Impact on LNG industry
Global gas trade has three distinctive markets
North America
3
• Liberal gas markets • Gas to gas competition –
henry hub linkage • Large number of supplier and
buyers • Ample storage and transport
systems • Availability of financial
instruments
• Continental Europe – Oil or oil products linkage
• Limited number of supplier and many buyers
• Storage and transport controlled by a few players
• Gas to gas competition mostly in North West Europe – NBP, TTF/Zee index
• For LNG, linkage to oil • Limited number of supplier s and
buyers • Some pipeline markets -oil
products linkage • No significant financial markets
trading gas
Europe Asia Pacific
North America – Henry Hub (HH) pricing
Henry Hub
• Official delivery location and pricing point for natural gas futures contracts on the New York Mercantile Exchange (NYMEX).
• Most liquid physical natural gas trading point among the 30 major market hubs in the US.
• Located in Louisiana and owned by Sabine Pipeline LLC.
Malin
Transco Z6 NY
HH
Waha
Midcon Socal
PG&E Opal
AECO
App
Chicago
Transco S85
FGT Z3 HSC
STX
Dawn
Niagara
Dracut
4
Henry Hub trend
Source: Bloomberg
• Determined by the interaction of buyers and sellers. i.e. gas-to-gas competition.
• Factors affecting the spot price include weather, economy, demand, storage and production.
• Abundance of domestic production (shale gas) has depressed price.
5
0
2
4
6
8
10
12
14
16
US$/MMBtu HH historical prices
Europe - UK National Balancing Point (NBP) pricing
Source: Intercontinental Exchange
• Europe’s mature and liquid virtual trading hub
• Europe virtual trading hub established in 1998.
• Pricing and delivery point for the Intercontinental Exchange (ICE) natural gas futures contract.
• Most liquid gas trading point in Europe.
• Trades in pence per therm which exposed to forex risk.
• Operated by the National Grid as the transmission system operator in the UK.
NBP
6
Other trading hubs in Europe
Source: tri-zen
Gas Pool
EuroHub GmbH
Baumgarten
TTF
BEB virtual point
PSV
PEG Balancing Zones
Zeebrugee Hub
Notional/Virtual hubs
Trans-regional/physical hubs
• Besides NBP, Title Transfer Facility (TTF) and Zeebrugge are the two major gas trading points in Europe:
• TTF:- – virtual trading point for natural gas in the
Netherlands with close linked to the NBP.
– Established by Gasunie in 2003 with ‘entry-paid gas’ system.
– Trades within the Dutch network in euros per megawatt hour.
• Zeebrugge hub:- – Physical natural gas trading point in Belgium.
– Interconnected with the UK pipeline.
– Price principally driven by the NBP.
7
NBP trend
Source: Bloomberg
0
2
4
6
8
10
12
14
16
US$/MMbtu NBP historical prices
• Determined by supply and demand. i.e. gas-to-gas competition.
• NBP is usually used for LNG spot trading while most European long term contract uses Dated Brent as price reference.
8
Asia Pacific – Japan Crude Cocktail (JCC)
9
• Asian LNG trade started in 1969 with the export from Alaska to Japan with a fixed
pricing.
• In 1973-74 , prices were linked to crude oil . First Indonesian contract into Japan was at 90% oil parity.
• Japan JCC (Japan Crude Cocktail) is the weighted average price of all crude oils imported into Japan.
• Widespread use of JCC reflects the importance of Japan in the development of LNG market and as the largest importer.
JCC
LNG Price = 14.85 x JCC + Constant + S curve
10
On Shore
Lower Slope
LNG Price
(US¢/MMBtu)
JCC(US$/bbl)
Base Slope 14.85
To help buyer under extremely high oil price (improve competitiveness of LNG against crude oil)
To help seller under extremely low oil price
Slope: Determines the responsiveness of the price to crude oil price fluctuation. E.g 14.85% around 85% parity to oil whereas 17.24% for full oil parity
JCC: Japan Crude Cocktail (JCC) is the weighted average price of all crude oils imported into Japan, calculated from the tables contained in “Trade Statistics” announced by the Ministry of Finance, Japan
Constant: a fixed figure which determines the price level in accordance with a slope
S curve: introduced as a helping hand to both seller and buyer when oil price is either extremely high/low
JCC trend
Source: Japan Tariff Association, Bloomberg
0
20
40
60
80
100
120
140
160
US$/bbl
JCC Brent
• JCC is widely used in the LNG contracts globally.
• Highly correlated with major crude like Middle-Eastern crude, Brent etc.
JCC historical prices
11
Source: PFC Energy 12
• Far East is still the premium market due to linkage to oil • Has two different implications either from sellers perspective or buyers.
0
2
4
6
8
10
12
14
16
18
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
USD
/mm
btu
Far East delivered price vs HH & NBP
Far East
HH
NBP
These three regional markets have disconnected
pricing levels
13
Sellers perspective:
More new supply competing for premium Asia market
50 mtpa
25 mtpa
70 mtpa
2015:
PETRONAS T9
PETRONAS FLNG 1
QCLNG T1 Australia
PNG LNG T2
Gorgon LNG T1
QCLNG T2
Gladstone LNG T1
Gorgon LNG T2
APLNG T1
2014:
PNG LNG T1
Donggi-Senoro LNG
2016:
PETRONAS FLNG 2
Gorgon LNG T3
Gladstone LNG T2
APLNG T2
2017:
Ichthys LNG T1
Wheatstone T1
Wheatstone T2
2018:
Ichthys LNG T2
2016:
Sabine Pass Export Phase 1
2017:
Sabine Pass Export Phase 2
Freeport Export
2018:
Cameron LNG Export
Lake Charles Export
2019:
Cove Point Export
2018:
Pacific Northwest LNG
Kitimat LNG 2020:
BC LNG
2019:
Shell CNPC LNG
More LNG trade to interconnect gas market and reduce regional disparity
20 mtpa
2018:
Mozambique
Buyers perspective: Desire cheaper LNG
Source: Team analysis
14
Volatility aspects and regulatory hurdles to be met
Henry Hub Liquefaction
cost Shipping
~ 115%HH ~$3-3.5/mmbtu ~$3- 4.50/mmbtu
+ Regas cost Pipeline tariff
However, henry hub cost alone is misconception as delivered prices will be higher
Approximate LNG cost
delivered to Asia:
~$10- 12/mmbtu
Once trade is introduced, price will rise.
15
Price increase reduce arbitrage opportunity
Pa
Pb
P
Q
S D + Exports
D
Supply – demand
To a certain extent, LNG trade will be influenced by hub
prices but oil-link is perceived to be predominant
Source: Wood Mackenzie, Team analysis 16
Higher hub prices may limit the potential of exports Other new projects will remain oil link to reflect investment
Potential over 40-50
MTPA of exports from
USA by 2020 offering hub
pricing subject to
approval
Majority new
projects are oil-
linked
0
100
200
300
400
2011 2020
MTP
A
Only 10-12% LNG trade is expected to be hub-based by 2020
Conclusion
17
• Current disparity in regional prices encourages arbitrage.
• Far East is the premium market and remain as target for sellers.
• Buyers want cheaper LNG . But there are incremental costs for
export delivery of henry hub cargoes.
• Hub-based prices are more volatile, likely to rise once export trade
begin. Therefore does not guarantee cheap gas.
• Oil-link prices will remain predominant although regional disparity
in price may reduce.
Thank You