1. Liquefied Natural Gas: Global Overview
Alan Townsend
World Bank
Myanmar, October 2015

2. Source: GIIGNL

3. This infographic shows new LNG export and import capacity due online in 2015 and The size of the circle reflects the total volume from each country. Export capacity is colored green, import capacity is red, in million tons per annum. Source: ICIS

4. LNG Trade East of Suez dominates
Major changes are coming this year, with the first Lower 48 US gas exports
Two other major, new sources of LNG may emerge by 2025: Canada and Mozambique
Source of Map: GIIGNL

5. Flat global demand, but dynamic shifts within it
Asian buyers becoming more price sensitive
Demand growth in China and India has been lower than generally expected
New buyers continue to appear (2014: Lithuania, Singapore)
Source: GIIGNL

6. “Flexible” LNG has become a major part of the market
Overall market is bigger, with growing liquidity
Export projects has generally had good technical performance and have been debottlenecked, so can produce more than their contractual obligations
Investors and financiers have become comfortable with projects that are not fully sold out on a long term basis
In recent years, demand has evolved with price sensitivity becoming a factor in influencing demand at the margin
With more offtake commitments coming from marketers, the true size of the flexible market may already be larger than shown
Source: GIIGNL

7. LNG production capacity growth will outpace demand growth for the next few years

8. New supply coming on strong . . .

10. Supply at risk
Ambitious proposals from large resource basins are at risk in a low oil price environment because of high costs
© 2015 IHS
Source: IHS Energy
Note: Units are MMtons.

12. Gas prices 1997-2014 ($/mmBtu) [BP Statistical Review of World Energy 2015]

13. 2014-2015 prices: seismic shifts
Up to 50% declines in NE Asia
Europe – prices down by at least a third
Transportation differentials are too low to easily justify trade from the Atlantic basin to the Pacific (including re-exports)
In 2015, Egypt, Pakistan, and Jordan have emerged to take some of these volumes

14. The downtrend continues . . .

15. But where will prices go?
The FGE view (at left) is not untypical and reflects an industry consensus about:
Cost of production of crude oil (from $50-$60 per barrel to $80- $90)
Cost of production of US natural gas, which is assumed to be the marginal supply to world markets
Source: FACTS Global Energy

16. US Natural Gas Exports – permanent feature of global trade?
Charts show results from the Rice World Gas Trade Model (RWGTM) from model runs in 2014 – before the collapse in prices
Analysis suggests that, even with some periods of short-term imbalances, there is enough supply and demand response such that in the long run the differential between the US and East Asia is just enough to allow for exports
The implication is more globally integrated natural gas markets

18. How is LNG priced? Traditional DES* pricing in Asia: P = A(x) + B
Price = JCC times a percentage + a constant
Example: ($60/barrel x 15%) + $1 = $10/mmBtu
Some common formulas are shown at right (indicative values shown)
Spot cargos might be purchased on a fixed price basis, with no formula
US export tolling contracts focus only on the liquefaction fee – the purchase of natural gas, its delivery to the LNG plant, and the transport of LNG are the assumed by the buyer of the tolling service
NBP is also often used as an index especially for deals in the Atlantic basin
Singapore has launched an LNG spot price index; Tokyo and Shanghai next?
Cheniere model for pricing US exports, FOB
Price = Henry Hub times 115% plus a liquefaction fee
Example: ($3/mmBtu x 115%) + $3 = $6.45/mmBtu
FOB, so add $3 for transport to Asia = $9.45/mmBtu
Kansai purchase from BP, DES
Price = Henry Hub times 115% plus a constant
Example: ($3/mmBtu x 115%) + $7 = $10.45/mmBtu
Seller provides liquefaction and transport
*delivered ex-ship

21. LNG Shipping: big increases in vessel numbers, shipping capacity

22. LNG shipping glut
Short-term charter rates have fallen far below vessel replacement costs
From Fearnleys, October 22, 2015:
Spot $32,000 per day
1 yr T/C $35,000 per day

23. Shipping is tighter in the medium term than one might think
Shipping is tighter in the medium term than one might think Unless trades are optimized
Is Kansai-Engie deal a model for future optimization of supply portfolios and shipping?

24. Who trades LNG (selected examples)
Portfolio Marketers
Who trades LNG (selected examples)
Traders
Production Companies

25. Key Trends Who buys LNG 80 million tons in 2014 (1/3) The rest (2/3)
Smaller share of LNG on LTC
For large buyers, new LTC’s will favor new projects
Desire for more gas-on-gas pricing but oil-linked pricing will not disappear; new gas hubs support
Portfolio approach not limited to sources but to contract tenors, indexation terms
Long
Term
Contracts
80 million tons in 2014 (1/3)
(Tepco/Chubu jv JERA formed in 2015)
New
Supply
Desirable
Gas-
On-gas
Pricing
Other power and gas utilities, national oil companies, traders, power generators, and portfolio marketers
Real
portfolios
for big
buyers
The rest (2/3)

27. Small and mid-scale LNG shipping Vibrancy but challenging economics
Multi-carriers have emerged – when will they start trading LNG?
A boom in the Baltic
New ships for coastal China trade
New designs for bunkering, small-scale trade
New, lower cost containment approaches

28. LNG Shipping Economics
Strong economies of scale
Moving small cargos long distances will be expensive
Hub-and-spoke models will work when there is a logical hub
Panama could be a logical hub
Bunkering market gives Panama a key comparative advantage versus other players in Central America