1. © OECD/IEA - 2006 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market TOWARDS A GLOBAL GAS MARKET APEx CONFERENCE, Seoul 31 October 2006 Session 3 Ian Cronshaw Head, Energy Diversification Division

2. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market OECD import dependence grows

3. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Dependence on non-OECD countries

4. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Total electricity production: +1.1% /yr since 2000 From gas: +4.9% /yr in the same period Gas the driver of growth in power generation

5. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Investment focuses on LNG 2005-2010

6. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Investments in the LNG sector 2005-2010

7. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market New projects and plans…

8. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Russia has a long history of reliable energy supply to Europe

9. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Future LNG producers

10. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Gas follows oil prices, United States

11. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Momentous year in gas Hurricanes Katrina, Rita, Wilma Oil and gas disruption January 2006, Russian gas supplies disrupted UK gas import difficulties Italy – supply system severely tested LNG supplies affected Indonesia, but others too

12. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Pacific Market During the first half 2006 Japanese industrial gas demand grew by 13% year on year (Japan Gas Association) Japan and Korea import LNG at a stable oil-indexed price on long term contracts and buys spot LNG at the margin Long term LNG at a discount to Oil Spot LNG at a premium to Long term LNG

13. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market European Market Strong storage build 2005 anticipating problems in Ukraine last winter. Strong storage build in 2006 in line with last year… No effect on current gas price due to oil-indexed long term contracts. Norway commissioned Langeled pipeline ahead of schedule & below cost Langeled

14. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Regional Price Comparison

15. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Russian Gas Supply Outlook © OECD/IEA,(2006) © OECD/IEA,(2006) To do lists get longer and more costly to implement with fewer helping hands Chinese demand? Yamal Shtokman development?

16. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market “Global” LNG supply decline 2008 - LNG contracts start expiring Buyers assumed their contracts would be extended But 4Mtpa shortfall in 2006 Up to 12Mtpa less LNG than expected by 2011 (not including Tangguh)

17. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market India and China LNG – overrated? Capacity Deliveries LNG is substituting expensive Naptha in fertiliser manufacture but expensive for power generation LNG was intended to substitute coal for power generation but now seems expensive

18. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Italy Consumption increasing at 5% per annum Imports increasing at 7% per annum Call on Storage for 2006/7 similar as 2005/6 if same weather conditions Risks: Weather conditions worse than 2005/6 Increase in supplies (eg. from Russia) not available High European power prices

19. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Korea KOREA “does not have adequate long- term gas contract cover due to uncertainty about the role of KOGAS and long-term KOGAS contracts in the future”. (New In-Depth Review of Korea, 2006) Spot LNG Purchases? Long term Purchases

20. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Gas meets growth in electricity demand in OECD countries (2000-2005, in TWh) From gas: +4.9% /yr in the same period

21. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Growth in fossil electricity generation 2000 to 2005 © OECD/IEA,(2006) © OECD/IEA,(2006)

22. 2006 NATURAL GAS MARKET REVIEW 2006 Towards a Global Gas Market Key Conclusions OECD production plateauing, but demand increasing, so gas imports will rise; dependency is a fact of life; diversification is the key. Investment is lagging LNG will double in importance, and the Atlantic market will be as big as the Pacific market LNG will diversify all IEA regions’gas supply, and start to link them together Competitive well functioning markets help security of supply and put downward pressure on prices