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Transcript of Global gas markets: the aftermath of the global recessionGDP growth Asia Pacific Europe North...
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Delivering commercial insight to the global energy industry
Global gas markets: the aftermath of the globalrecession
Jen SnyderWood MackenzieCSIS28 October 2009
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The deep global recession continues to frame and reshapeexpectations
Source: Wood Mackenzie estimates, DES prices* Originally signed in Sep-02
*
GDP growth falters—and the rebound takes hold only slowly
-6%
-4%
-2%
0%
2%
4%
6%
8%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
%G
DP
grow
th
Asia Pacif ic
Europe
North America
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0
50
100
150
200
250
300
350
400
450
2008 2010 2012 2014 2016 2018 2020
bcfd
…cutting into global gas demand growth; the outlook issignificantly less favourable than pre-economic crisis…
Gas Demand Outlook (Q3 09 vs Q2 08)
Destruction of approx 20 bcfd oflatent gas demand to 2020
Source: Wood Mackenzie Global Gas Service (Base Case)
CAGR 3.9% CAGR 2.8%
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...just as large volumes of LNG from new projects are being introduced intothe global gas market over the next few years…
Source: Wood Mackenzie LNG Service
New Global LNG Capacity Availability From Post FID* Projects
*FID: Final Investment Decision
Peru LNG
Skikda Rebuild
Yemen LNG
RL 3
Qatargas-2Qatargas-3Qatargas-4
Sakhalin 2
Tangguh
Pluto
Arzew GL3-Z
Angola
Source: Wood Mackenzie LNG Service
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
200
9
201
0
201
1
201
2
201
3
201
4
201
5
bcf
/d(s
)
Algeria Angola Australia
Indonesia Peru Qatar
Russia East Yemen
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-
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2003 2004 2005 2006 2007 2008 2009
bcfd
Egypt Algeria Nigeria Eq. Guinea Norw ay Trinidad
Asia’s draw on Atlantic Basin LNG has diminished…
Atlantic to Pacific Basin LNG Flows (2003 - H1 2009)
Lack of supply proximate to Pacific marketsnecessitated large volumes of LNG to be
transported from the Atlantic to meet demand
But AtlanticBasin LNG will
now need to seekmarket closer to
home
Source: Wood Mackenzie LNG Service
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0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2005 2007 2009 2011 2013 2015
mm
cfd
Montney
Horn River
Marcellus
Haynesville
Woodford
Fayetteville
Barnett
North American shales negate need for North America to import LNG
Existing & Emerging ShaleCurrently Commercial Shale Production ForecastFrom Key Plays
Source: Wood Mackenzie Global Gas Service
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Our base case anticipates that major Europe sellers will showrestraint to maintain oil indexed contract pricing…
Export Utilisation of Major Europe Sellers(Base Case)
Recent Actions & Statements From Major SellersSupport This
"The advantage of our contracts is in pricepredictability…it doesn't make any sense to halveprices to see offtake picking up by, let's say, 3percent". (Gazprom’s Alexander Medvedev, June-09)
“The UK market is now saturated and webelieve it will remain so in the short term…”(Qatargas’ Faisal al-Suwaidi, June-09)
“The days of cheap gas are over….we are in theprocess of joining the GECF…". (Netherland’sMinister of Economic Affairs, March-09)
Source: Wood Mackenzie Global Gas Service (Base Case)
75%
80%
85%
90%
95%
100%
2009
2010
2011
2012
2013
2014
Po
ten
tial
Uti
lisat
ion
(%)
Algeria Netherlands Norway Russia West
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But in the near term, those measures are insufficient to reinstate indexation.A lack of new supplies could impact Europe in the longer term
Over-supply results in Europe prices beingdragged down to North America price levels
Results in disconnect between spot pricesand oil indexed prices in Europe
Europe over-supply likely to ease post-2012
North America prices remain driven byindigenous unconventionals
Atlantic Price OutlookAtlantic Price Outlook
Source: Wood Mackenzie Global Gas Service
0
2
4
6
8
10
12
14
2007 2008 2009 2010 2011 2012 2013 2014 2015
US
$/m
mbt
u
NBP European Oil Indexed Contract USA Henry Hub
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0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2007 2009 2011 2013 2015
bcf
d
North America
Middle East
Latin America
FSU
Europe
Africa
…And even if suppliers hold back, the LNG market still needsNorth America
North America and forecast imports
Source: Wood Mackenzie Global Gas Service (Base Case)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2003 2005 2007 2009 2011 2013 2015
bcf
d
US-Qatar US-Other Supplies Mexico Canada
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Asia Pacific LNG Demand* & SupplyAsia Pacific LNG Demand* & Supply
There remains pricing support for gas under long-term contracts in thePacific…for now
Pacific market tightness from 2012• Led by China demand growth
Multiple buyers competing for LNG between2013-15 providing froth in the market
• In part due to expiry of existingcontracts
But as the likelihood of FID on new projectscrystallises so the strength of sellersdeteriorates
Source: Wood Mackenzie Global Gas Service
* Available Pacific supply & demand associated with Asian markets east ofIndia incorporating Japan, Korea, Taiwan, China, Singapore, Thailand, Java.Note, year from April to March.
-
5.0
10.0
15.0
20.0
25.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
bcf
/d(s
)
Available Pacif ic LNG Pre-FID LNG Demand
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0
50
100
150
200
250
300
350
400
450
500
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
mm
tpa
Onstream Under Construction Probable Possible Speculative Demand
Putting the demand and supply outlooks together creates aninteresting picture
Source: Wood Mackenzie LNG Tool, August 2009
2013 to 2015 remains a key market window
Market is soft as a result ofsignificant new supply and
weaker demand
Some supply may be heldback
Liquid markets likely toabsorb the surplus(particularly the US)
Market tightens through2012/14 because of limited
FIDs in 2006 to 2008. Delaysto FIDs expected in 2009/10
will tighten it further bypushing the Probable supply
to the right
Longer-term potential excess capacity
Mere perception of over-supply could adversely impactprices via supply competition
Development of some capacity will be deferred
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0
2
4
6
8
10
12
2008 2010 2012 2014 2016 2018 2020 2022 2024
$/m
mb
tu
Belarus Japan UK US (Henry Hub)
Global gas price prognosis — longer-term disconnect between Europe andNorth America while Asia prices retain a premium
Global over-supply results inglobal spot price convergence inthe near-term
In the medium term a lack ofsufficient proximate supply inAsia will enable a premium toEurope
In the medium term supplierbehaviour results in Europeprices being disconnected fromUS
Global Gas Prices
Source: Wood Mackenzie Global Gas ModelNote: Calendar Year
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A number of key moving pieces will impact the medium term outcome
Pace ofgrowth ofAustralian
LNGprojects
Pace ofgrowth ofAustralian
LNGprojects
Upside inChina demand
Upside inChina demand
Pace of shalegas growth
Pace of shalegas growth
Qatar’s salesstrategy &
tactics
Qatar’s salesstrategy &
tactics
Pace of growthof West AfricaLNG projects
Pace of growthof West AfricaLNG projects
Major pipe exporterssales strategy & tacticsMajor pipe exporters
sales strategy & tactics
Pace of global economic recoveryPace of global economic recovery
Extent of competition between buyers of long-term gasExtent of competition between buyers of long-term gas
Extent of demandelasticity
Extent of demandelasticity
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Contact Information
We will shortly be hosting a webcall introducing the Global Gas Service. To register, pleasevisit http://www.woodmac.com/energy/ggswebcall
For more information please contact:
Noel TomnayHead of Global Gas, Gas ResearchE: [email protected]: +44 (0)131 243 4511
Jen SnyderPrincipal, North American GasE: [email protected]: 617 535 1050
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Strictly Private & Confidential
This report has been prepared by Wood Mackenzie Limited. The report is intended solely forthe benefit of The 3rd ICIS Heren Gas Conference and its contents and conclusions areconfidential and may not be disclosed to any other persons or companies without WoodMackenzie’s prior written permission.
The information upon which this report is based has either been supplied to us or comes fromour own experience, knowledge and databases. The opinions expressed in this report arethose of Wood Mackenzie. They have been arrived at following careful consideration andenquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as ofthis date, are subject to change. We do not accept any liability for your reliance upon them.
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