0. Spot vs Long-term LNG APEC EGCFE Workshop Taipei Alistair Smith
Regional Manager, Asia
BP Traded LNG
APEC EGCFE Workshop
Taipei
Monday, 21 March, 2005

1. Contents Context Types of Short-term LNG Trade
Why Short-term LNG Trade is Growing
Why Short-term LNG Trade is Constrained
Summary

2. Context
Trend
Short-term LNG volumes are becoming increasingly common in Asia. Estimated 2004 shares of total imports:
- Japan 5%
Taiwan 7%
Korea 11%
2004 Special Factors
Bontang substitutes
reliability of Japanese nuclear
Korean seasonality/ storage
price flexibility
SHORT-TERM LNG FLOWS IN ASIA
Source
Destination
Abu Dhabi
JAPAN
Algeria
Malaysia
Nigeria
KOREA
Oman
Qatar
Trinidad
TAIWAN
2004
Estimates of short-term volumes:
1. BP estimates
2. Term less than 2 years
3. excludes Buyer call options and time swaps

3. Types of Short-term LNG Trade
Examples in Asia
Diversions
Backhauls
Physical Swaps
LNG vs Pipeline Swaps
Short-term Surplus Volumes
Wedge volumes
Strip sales
Spot cargoes
Role of Master Agreements

4. Why Short-term LNG Trade is Growing
Factors Promoting Growth of Short-term Business in Asia
Asian demand uncertainty and prospect of liberalisation
Plant debottlenecking
Surplus shipping capability
Cost reduction
Increase in supply & market nodes encourages lower cover
Including access to more liberalised North Atlantic markets
Increased volume of trade promotes innovation
Increased quantity flexibility in many contracts
Expiry of original Asian term contracts

5. Why Short-term LNG Trade is Constrained
Long-term Contracts Continue to Dominate in Asia
Sellers have restricted access to Asian markets
Sellers (and their financiers) look to Buyers to take volume risk
Cost and geography limit ease of access to supply and market alternatives
LNG market itself still quite illiquid
Security of Supply still important for many Buyers
Limits to destination freedom
Contractual challenges for many swap opportunities
Buyers often prefer to focus on increased flexibility within long-term contracts

6. Summary Spot vs Long-term LNG in Asia?
Short-term trade will continue to expand as Asian industry grows
Market deregulation in Asia not driving a shift from long-term contracts
Extent of effective competition would need to accelerate
Until then, long-term volume commitment by Buyers essential
Recent supply tightness highlights value of flexibility in long-term contracts
Future Drivers for Short-term LNG Trade in Asia
Asian LNG Buyer recontracting decisions
Sizeable impact on short-term volume availability sizeable (sometimes exaggerated)
Possible mismatch between pace of North Atlantic supply expansion and market access/size
Likely to be temporary
If mismatch sustained, would lead to a correction
Shipping compatibility and flexibility
There would still be sizeable impact on Asian short-term volume availability