WEBINAR: COMPETITIVE ANALYSIS OF CANADIAN LNG
Dinara Millington, Vice President, ResearchDecember 3, 2019
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Allan Fogwill
CANADIAN ENERGY RESEARCH INSTITUTE
OverviewFounded in 1975, the Canadian Energy Research Institute (CERI) is an independent, registered charitable organization specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors.
Our mission is to provide relevant, independent, and objective economic and environmental research of energy issues to benefit business, government, academia and the public.
CERI publications include:
Market specific studies
Geopolitical analyses
Quarterly market reports (crude oil, electricity and natural gas)
In addition, CERI hosts a series of study overview events, executive briefings for organizations and an annual Petrochemicals Conference.
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CORE FUNDERS
FUNDING SUPPORT
IVEY FOUNDATION
IN-KIND SUPPORTAlberta Energy Regulator | Bow Valley College
JWN Energy | Northern Alberta Institute of Technology Petroleum Services Association of Canada
AGENDA
Market Overview
Methodology and Assumptions
Supply Costs
Competitive Analysis
Q&A Period
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GLOBAL MARKET OVERVIEW
Global trade in LNG increased by 28.2 MT in 2018, setting a new annualrecord of 316.5 MT. Combined with 2017, this marks the strongest second-year growth period for international LNG demand since 2010-2011.
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Source: IGU, 2019 World LNG Report
2018 MARKET SHARE OF LNG SUPPLY
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Note: Numbers in the legend represent total 2018 exports in MT, followed by market share. Source: IGU, 2019 World LNG Report
2018 INCREMENTAL LNG EXPORTS (relative to 2017)
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Source: IGU, 2019 World LNG Report
2018 LNG IMPORTS
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Note: Numbers in the legend represent total 2018 exports in MT, followed by market share. Source: IGU, 2019 World LNG Report
2018 INCREMENTAL LNG IMPORTS (relative to 2017)
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Source: IGU, 2019 World LNG Report
SIGNIFICANT TRENDS
1. Asia remains the driver of international LNG demand growth
2. Increase in Natural Gas Supply from Unconventional Sources
3. Changes in the Business model (70/30)
Fragmentation of projects
Redirection of shipments and profit sharing
Changes in reference pricing, time periods and use of tolling
4. Technological changes
Offshore regasification
Offshore liquefaction
5. Carbon Management – substitution of LNG for coal in electricity markets
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CANADIAN PROJECTS
35 LNG export licenses issued 28 in BC 3 in QC 3 in NS 1 in NB
Key projects Goldboro LNG NS – 5-10 MTPA, integrated, 2019-20 FID Bearhead LNG NS – 8-12 MTPA, tolling, n/a Woodfibre LNG BC – 2 MTPA, merchant, active LNG Canada BC – 13 - 26 MTPA, integrated, 2018 FID Kitimat LNG BC – 10 MTPA, integrated, n/a
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METHODOLOGY
Supply cost model – 6 projects in 5 jurisdictions (2 in CA, 1 in AU, 3 in the US)
Cases: a) liquefaction added to regasification, b) another train added to an existing project and c) a greenfield project
Feedstock costs - multiple supply basins
Pipeline cost model – for projects lacking pipeline capacity (long distance mainly for CA and AU)
Shipping cost model – includes distance, charter rates, cost of fuel and destination LNG spot price
Sensitivity analysis
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FEEDSTOCK COSTS
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IMPORT MARKETS
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Market Benchmark, early May 2018
Average 2000-2017
Maximum for 2000-2016
Japan Spot (proxy for Japan, Korea, China)
$8.2 $9.2 $16.8 (2012)
Old North-East Asia (NEA) Contract price (14.5% of Brent + $0.5)
$11.6 $9.8 $16.7 (2012)
New North-East Asia (NEA) Contract price (11.5% of Brent price)
$8.9 (-$2.7 or 24% compared to old
contracts) - -
India $8.0 N/A N/A
UK NBP $7.4 $6.3 $10.8 (2008)
TRS France / Spain (MIB Gas) $7.6 N/A N/A
COST OF WESTERN CANADA LNG PROJECT
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Cost 13 MTPA 26 MTPA Economies of scale
USD CAD USD CAD % Capital 3.42 4.27 3.00 3.75 -12 Feedstock 2.51 3.13 2.51 3.13 0 Pipeline 0.96 1.21 0.67 0.84 -31 Operating 0.69 0.86 0.69 0.86 0 Corporate taxes 0.50 0.62 0.42 0.52 -16 LNG Income tax 0.09 0.12 0.08 0.10 -12 Carbon Tax 0.18 0.23 0.18 0.23 0 Total (mmbtu) 8.35 10.44 7.54 9.43 -10
COST OF EASTERN CANADA LNG PROJECT
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Cost AECO Marcellus Local USD CAD USD CAD USD CAD
Capital 2.77 3.46 2.77 3.46 3.09 3.87 Feedstock 3.67 4.59 3.69 4.61 3.44 4.30 Pipeline 3.33 4.16 3.09 3.86 0.07 0.09 Operating 0.69 0.86 0.69 0.86 0.69 0.86 Corporate taxes 0.53 0.67 0.53 0.67 0.61 0.76 LNG Income tax - - - - - - Carbon Tax 0.18 0.23 0.18 0.23 0.18 0.23 Total (mmbtu) 11.17 13.96 10.95 13.69 8.09 10.11
KEY DIFFERENTIATORS
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Abundant WCSB / Marcellus gas
Conducive temperature regime
Competitive operating costs
Proximity to Markets
Securing transportation
High transportation
costs
Moderate capital costs
Lack of domestic experience in LNG Plant
delivery
MERCHANT VERSUS INTEGRATED FACILITIES
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LANDED COSTS IN JAPAN
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PATH TO COMPETITIVENESS AT JAPAN
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LANDED LNG COSTS AT THE UK
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PATH TO COMPETITIVENESS LANDED AT THE UK
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CONCLUSION
Global trade is increasing faster than expectations – mostly in Asia
Domestic Competitiveness Eastern integrated projects (if local gas was available) slightly more
competitive than western projects Merchant projects in the west more competitive mainly due to
proximity to AECO Incentives a factor in project FIDs (steel tariff exemption, LNG tax
exemption)
Asian Markets CA projects slightly more expensive than Japan spot Western CA market more competitive than AU and US Breakeven price is $8.99 in Japan
European Markets CA projects more expensive than UK spot US projects more competitive than Eastern CA projects Breakeven price is $11.4 in the UK Market dynamic uncertainty = Gazprom
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QUESTIONS?
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Please submit your text questions and comments using the Questions panel.
A recording of the presentation will be available following the event.
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