Prepared for Spotlight on Energy...MONTH 2009 © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN &...

© POTEN & PARTNERS 2008 CONFIDENTIAL

Prepared for

Value Generation in the Gas Sector

Spotlight on Energy

March 2018

MONTH 2009


© POTEN & PARTNERSMARCH 2018

Background

MONTH 2009



Introduction

• T&T Gas Master Plan (2015) identified the following (through 2014):• Ammonia had provided greatest benefit per unit to T&T over past decade.• LNG had performed relatively poorly due to particular marketing arrangements.

– LNG market conditions / prices were strong over the period.– LNG would have performed at least as well as ammonia under different arrangements.

• Greater value required from LNG– Could be the most attractive monetisation option under revised marketing arrangements.– Expiry of existing Train 1 arrangements in 2018 presented an opportunity.

• The GORTT retained Poten to update the analysis through 2017

MONTH 2009



T&T gas based industries are highly capital intensiveLNG value chain has very high capex

• T&T industries are worldscale• Captures economies of scale • Global petchem markets smaller

than for gas (LNG)• Offtake supported by producers

• LNG has huge investment costs • Single train project ~$6 bn• Long term (20 yr) sales contracts

support investment• Contracts entered into at

development phase 0

1

2

3

4

5

6

7

LNG Methanol Ammonia/Urea

Cap

ex $

bn

Capex for New Worldscale Plant (Current Costs)

Feed Gas (MMscf/d)

740 125 80

Reserves (Tcf)

5.5 0.9 0.6

Output (MMt/y)

5 1.51.2

(Urea)

MONTH 2009



Existing downstream portfolio could consume ~4.2 Bscf/d of gas

• LNG dominates gas the downstream portfolio

• ~57% of total capacity

• Petrochemicals also very significant

• Ammonia (& derivatives): ~17%• Methanol: ~16%

– Some ammonia and methanol capacity currently shut down

• Other• Power: ~7%• Other: ~4%

Distribution of Gas Consumption CapacityTringen/ Yara PCS

PLNLN2000CNCAUMTTMCCMCM4Titan

Atlas

M5000

ALNG Train 1ALNG Train

2

ALNG Train 3

ALNG Train 4

Nu‐IronAll Power

Other

Ammonia

Methanol

LNG

MONTH 2009



The gas supply to consumption picture in 2017

Ammonia554

MMscf/d

Power253

MMscf/d

ATLANTIC LNG1,721 MMscf/d

NGC1,450 MMscf/d

Methanol475

MMscf/d

Other168

MMscf/d

Upstream Producers

Downstream Consumers

bpTT1,899 MMscf/d

EOG521 MMscf/d

Others78 MMscf/d

Shell498 MMscf/d

BHP369 MMscf/d

MONTH 2009



Supply to NGC and LNG have dropped since both peaked in 2010: 14% decline for NGC through 2017 & 26% for LNG

0

500

1000

1500

2000

2500

2010 2011 2012 2013 2014 2015 2016 2017

MM

scf/

d

Gas Supply toNGC

Gas Supply toLNG

Historical Gas Supply

MONTH 2009



High global LNG prices from 2010-14. Prices forecast to remain at more modest levels

• LNG is now a strong buyer’s market

• Increasing supply competition, particularly from the US

• Huge export capacity now under development.

• Global gas pricing remains diverse• ALNG’s base markets less

attractive over recent years• ALNG sales based on supply into

traditional Atlantic markets (US, Spain).

• Pricing set to remain influenced by oil but HH-based supply brings a new dynamic

0

5

10

15

20

2005 2007 2009 2011 2013 2015 2017

$/M

MB

tu

JapanLNG

JKM

NBP

HenryHub

LNG (& Brent) Price Forecast

Gas / LNG Price History

01020304050607080

0

2

4

6

8

10

2018 2020 2022 2024

Bre

nt (

2017

$/b

bl)

Gas

/ L

NG

(2

017$

/MM

Btu

)

10 - 12% ofBrent NBP

HH

US LNGFOB Marker Brent

MONTH 2009



Ammonia & Methanol prices also robust from 2011-14 but now lower

• Demand growth expected to remain solid

• Methanol demand driven by China: fuel additives & chemicals market.

• Ammonia driven by global fertiliser demand.

• But pricing likely to remain under pressure as supply increases

• Supply of both commodities expected to ramp up from US, driven by low HH gas prices.

Ammonia / Methanol Price Forecast

Ammonia / Methanol Price History

0

100

200

300

400

500

600

2008 2010 2012 2014 2016

$ /

T

Methanol USGCContract

Ammonia FOBBlack Sea

Methanol 10YAv.

Ammonia 10YAv.

050

100150200250300350400

2018 2020 2022 2024

2017

$/T Methanol

Ammonia

MONTH 2009



GORTT Take / Commercial Arrangements

MONTH 2009



DownstreamMidstream

•Royalties

•Fiscal Terms

•Govt Co. profits/dividends

•Payroll tax

Upstream

•D/S Co. profit tax

•Govt Co. profits/dividends

•Payroll tax

•NGC / PPGPL profit tax

•NGC / PPGPL profits/dividends

•Payroll tax

FLOW OF GAS

FLOW OF MONEY

Resourcerent

T&T receives revenue from all three stages of gas value chain

NGC (& PPGPL) has provided additionaleconomic rent to the GORTT from midstream

MONTH 2009



Value generation along the gas chain

Value captured outside T&T

Methanol

Ammonia

LNG

MONTH 2009



LNG has consistently lagged Ammonia & Methanol in netback gas pricing since 2009

• Many of ALNG’s contracts have not worked in T&T’s favour

• Much of ALNG’s production has base pricing tied to US gas prices

• This hurt T&T badly as the shale gas revolution supressed US gas prices

• Hence, LNG netbacks did not benefit greatly from higher global commodity prices, unlike Ammonia and Methanol

• T&T did not significantly benefit from very high global LNG prices

• Significant volume of T&T cargoes sold into markets in the $10-15/MMBtu range, particularly in 2013/14

*Note: ALNG figures subtract a calculated “NGL credit” to compare on the same basis to dry gas sales by NGC

0

1

2

3

4

5

6

7

2005 2007 2009 2011 2013 2015 2017

US$

/MM

Btu

Ammonia

Methanol

LNG

Estimated Netback Pricing to Plant Inlet*

MONTH 2009



Ammonia has provided the greatest value for T&T

• Ammonia has provided the highest GORTT take every year from 2008, until 2017

• LNG consumes >50% of T&T’s production but has provided significantly lower value

• Methanol trended between Ammonia and LNG from 2010 to 2016, before moving above ammonia in 2017

Est. Total GORTT Take from Gas Value Chain

0

1

2

3

4

5

6

7

8

2008 2010 2012 2014 2016

US$

/MM

Btu

Ammonia

Methanol

LNG

MONTH 2009



NGC profit margin has been key to higher GORTT take from Ammonia / Methanol

Breakdown of Estimated Total GORTT Take from Gas Value Chain

0

1

2

3

4

5

6

LNG Meth. Amm. LNG Meth. Amm. LNG Meth. Amm. LNG Meth. Amm.

2014 2015 2016 2017

US$

/ M

MB

tu

Plant Take

NGL Take

NGCProfitMargin

UpstreamTake

MONTH 2009



Significant value in the LNG chain has not been realised in T&T

LNG Revenues Realised & Est. Value Loss – TotalsLNG Prices Realised & Est. Value Loss per Train*

0 5 10 15

Train 1Train 2Train 3Train 4Train 1Train 2Train 3Train 4Train 1Train 2Train 3Train 4Train 1Train 2Train 3Train 4Train 1Train 2Train 3Train 4

2013

2014

2015

2016

2017

US$/MMBtu

Contract BasePrice (FOB)

Actual Price -IncrementalValue Realised

Value Loss A:Loss in MarketSupplied

Value Loss B:IncrementalLoss vs. GlobalPrices

0 1 2 3 4 5 6 7 8 9 10 11

2011

2012

2013

2014

2015

2016

2017

US$ Billion

Contract BasePrice (FOB)

Actual Price -IncrementalValue Realised

Value Loss A:Loss in MarketSupplied

Value Loss B:IncrementalLoss vs. GlobalPrices

* Value Loss A: Difference between the price realized from the market actually supplied and Poten’s estimate of the prevailing price in that marketValue Loss B: Poten’s estimate of the incremental price that could have potentially been realized by selling FOB at an oil-linked price (11.5 – 12%)

MONTH 2009



Major issue is that the US has not been a relevant reference LNG market for many years

ALNG Train 4 Export Destinations

0 100 200 300

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Trillion Btu

USA

Non-USA

0

1

2

3

4

5

6

7

8

9

10

2005 2007 2009 2011 2013 2015 2017

$/M

MB

tu

US Henry Hub Gas Prices

MONTH 2009



0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2018 2020 2022 2024

2017

US$

/MM

Btu

LNG -RevisedTerms*

Ammonia

Methanol

LNG -ExistingTerms

LNG could provide the highest netback gas prices under revised terms when contracts expire

Est. Forecast Netback Pricing to Plant Inlet• Assumptions:• LNG could capture a base price of UK

NBP minus freight for future sales– Should be able to achieve a higher

price than this as buyers will pay for flexibility

• Fixed margin of $1/MMBtu for liquefaction, with the remainder flowing back to the plant inlet

• Ammonia / Methanol will continue on current commercial arrangements

• Important for the GORTT to realise a market price

MONTH 2009



Summary

MONTH 2009



Summary

• LNG has consistently lagged Ammonia & Methanol in netback gas pricing since 2009

• Ammonia: highest GORTT take, with LNG lagging Methanol

• NGC profit margin has been key to higher GORTT take from Ammonia / Methanol

• Long-term contracts are a feature of the LNG business, but many of ALNG’s are tied to the US market, which has hurt T&T badly as US prices declined

• As a result, much of the value from higher global LNG markets has hasnot been realised in T&T

• No return to the very high commodity prices of 2011-14 foreseen

• But, LNG could still provide the highest netback gas prices under revised terms when contracts expire

MONTH 2009



NATURAL GAS & LNG CONSULTING CONTACTS:

AMERICAS (NEW YORK)Contact: Majed Limam

Email: [email protected]: +1 212 230 2000

EUROPE, M. EAST, AFRICAContact: Graham Hartnell


ASIA PACIFICContact: Stephen Thompson


AMERICAS (HOUSTON)Contact: Doug Brown


Prepared for Spotlight on Energy...MONTH 2009 © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN &...

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Transcript of Prepared for Spotlight on Energy...MONTH 2009 © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN &...