LNG Exports

Introduction

• The shale gas revolution has changed the U.S. natural gas supply landscape

• The U.S. natural gas market is currently demand constrained – there is room for increased demand, including LNG exports, while maintaining stable, affordable natural gas prices.

• Global energy markets and capital markets will naturally limit volumes of LNG exports.

• Fears of price volatility and diversion of investment are unfounded – expeditious permit approval will allow U.S. companies to compete for a share of the global market and lead to job creation at home.

LNG Imports/Exports Worldwide

Qatar

Malaysia

Australia

Nigeria

Indonesia

Trinidad

Algeria

Russia

Oman

Brunei

UAE

Egypt

Yemen

Peru

Eq. Guinea

Norway

US

LNG Exports

Source: Waterborne LNG Reports, US DOE, PFC Energy Global LNG Service

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1973 1983 1993 2003 2013 2023 2033

Fundamental Shift in Outlookame Change

Source: EIA, Annual Energy Outlook 2005 & 2013 Early Release

Natural Gas Net Imports(trillion cubic feet)

Imports

Exports

ProjectedHistorical

AEO 2005

AEO 2015

Actual

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2010 2015 2020 2025 2030 2035 2040

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-15

-10

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0

5

10

15

20

25

30

LNG and Pipeline Exports

Source: EIA Annual Energy Outlook 2005 & 2015

Natural Gas Exports(billion cubic feet per day)

AEO 2005

AEO 2015 LNG

LNG Pipeline

Pipeline

Exp

ort

sIm

po

rts

LNG Export Study Comparison

Modeler Release Date

U.S. Natural Gas Supply

Assumption

LNG Exports Volume Range

(Bcf/d)Price Change from

Baseline Case

EIA October, 2014 Reference 12.0 - 20.0 $0.10 - $0.80

ICF May, 2013 High 4.0 - 16.0 $0.32 - $1.02

CRA February, 2013 Low 20.0 - 35.0 $1.60 - $3.10

NERA December, 2012 Reference 0.0 - 15.8 $0.00 - $1.09

Navigant January, 2012 Reference 0.9 - 6.6 $0.04 - $0.41

Deloitte 2011 Reference 6 $0.22

* Relative to EIA supply assumptions

LNG Exports

Sabine Pass (Cheniere)DOE: ApprovedFERC: Approved

Freeport LNG (FLEX Quintana Island)2 Separate FilingsDOE: Approved FERC: Approved

Lake Charles (Trunkline/Energy Transfer Partners, BG Group)DOE: Conditionally ApprovedFERC: Filed Cove Point (Dominion)

DOE: ApprovedFERC: Approved

Cameron (Sempra)DOE: ApprovedFERC: Approved

Coos Bay (Jordan Cove)DOE: Conditionally ApprovedFERC: Filed

Waiting all Final Approvals

Approved by FERC and waiting DOE Approval

Astoria (Oregon LNG)DOE: Conditionally ApprovedFERC: Filed

Elba Island (Southern LNG)DOE: Under ReviewFERC: Filed

Received Final Approval

Corpus Christi Liquefaction (Cheniere)DOE: ApprovedFERC: Approved

Carib Energy (Crowley Maritime Corp.)DOE: ApprovedWill provide LNG transport services

Meeting Global Demand

1. ICF estimate for year end 2011.2. FTA & non-FTA Applications to DOE as of Mar 31, 2014 3. Dec 2012 ICF estimate based on current worldwide project list.~Poten, BG Group, Credit Suisse, Facts GlobalSource: API, ANGA

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40

60

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100

120

140

Bcf

/d

Proposed U.S. Capacity 2

Under Construction, Planned & Proposed Non-U.S. World Capacity 3

Current World Capacity 1

Range in Projected Worldwide LNG Demand: 2020-2025~

Demand and Price ExpectationsComparison of Recent Annual Energy Outlooks (AEO)

Natural Gas Demand and Price: 2025

EIA has increased expected demand for year 2025 by 35% since the 2010 AEO release while expected 2025 prices have fallen 29%.This further supports the growing, abundant supply claim.

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2010 2011 2012 2013 2014

Gas

Pri

ce $

/mm

btu

TCF

Liquefied Natural Gas Exports

Pipeline Exports

Lease and Plant Fuel

Pipeline Fuel

Transportation

Electric Power

Natural Gas to Liquids

Industrial

Commercial

Residential

Henry Hub

International Interest in U.S. LNG Exports

Select Natural Gas and Crude Oil Historical Prices

Source: Brookings Institute, “A Strategy for U.S. Natural Gas Exports”, June 2012

Historical price correlations have broken down since 2009, start of U.S. shale gas revolution.

Divergence between US, European and Asian natural gas hubs drives strong international interest in U.S. exports.

LNG Export Concerns• Fear:

– All proposed LNG export projects will be built and all built

capacity will be fully utilized

– Leading to high domestic gas prices and volatility

– Resulting in diversion of investment and job losses

• Truth:

– Abundant supplies and continued development will mitigate price

and volatility impacts

– Global energy markets and capital markets will limit LNG export

volumes

– Government intervention is counterproductive

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International Markets

• Short-term market risks:

– International LNG competition exists to capture LNG demand.

– Several Middle East LNG suppliers have marginal production

costs close to zero; but they limit demand by insisting on oil-

linked contracts.

– Once the U.S. enters the LNG export market, ME suppliers will

need to compete with the next marginal supplier, which will be

the U.S.

– To maintain/increase export volumes, they must compete with

next marginal supplier by lowering price

– International LNG prices expected to lower toward U.S. cost of

production (less transportation and liquefaction costs).

– This reduces incentive for U.S. LNG exports.

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International Markets• Mid to long-term market risks

– New pipeline capacity between Russia, Central Asia, South Asia

and China frees up more existing LNG cargos to go elsewhere.

– Global shale gas development commences.• Only Australia has announced drilling. But significant untapped reserves exist

internationally.

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CountryProduction

(TCF)Consumption

(TCF)

Proved Reserves

(TCF)

Recoverable Shale Gas

Resources (TCF)

China 2.9 3.1 107 1,275

United States 20.6 22.8 273 862

Argentina 1.5 1.5 13 774

Mexico 1.8 2.2 12 681

Australia 1.7 1.1 110 396

Canada 5.6 3.0 62 388

Libya 0.6 0.2 55 290

Algeria 2.9 1.0 159 231

Brazil 0.4 0.7 13 226

Poland 0.2 0.6 6 187

Source: EIA, 2011

Capital Markets

• LNG export facilities are capital intensive: $5-$10 billion

per project

• Each LNG export project will compete for financing

• Off-take contracts are required for financing

– 3.5 contracts typically needed to justify one LNG train1

– Challenge: Majority of projects sponsored by companies without

international LNG marketing experience.

• Context:

– 25 proposed LNG export facilities exist, if all were built at $5

billion/project the cumulative capital investment would be $125

billion.

– Capital investment in natural gas transportation and distribution

in 2011 totaled $21 billion.2

142. US Census, “Capital Expenditures Survey”, Feb 2013

Capital Markets

• Historical Example

– In the early 2000’s, it was expected that the U.S. would require

significant LNG import facilities.

– 47 facilities were proposed.

– 8 projects were built.

– Rise of U.S. shale gas and resulting lower prices rendered these

projects obsolete.

• Lesson: Market forces, not governmental intervention,

imposed limits on investment.

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U.S. LNG Export Price Components

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LNG Landed Prices and Cost of Delivered U.S. Exports

The U.S. domestic price is only one component of the total cost to export LNG from the U.S. Additional costs include: liquefaction costs, shipping costs and regasification costs.

Depending on destination, these additional costs can be 2 to 3 times the current U.S. domestic price.

Source: FERC

Estimated Dec 2014 ($/mmbtu)

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LandedUK

LandedJapan

LandedChina

LandedIndia

U.S.Exports

Regasify Cost

Shipping Cost

Liquefy Cost

Henry HubPrice

What is the Government’s Role?

DOE EXPORT AUTHORIZATION

Applicant files an NGA § 3 application to export to FTA countries (immediately approved)

Applicant files an NGA § 3 application to export to non-FTA countries (DOE must make an affirmative “public interest” finding for each export application)

FERC FACILITY SITING AUTHORIZATION

Applicant requests approval to enter FERC’s pre-filing process at least 6 months prior to applying for authorization to site & construct export facilities

Pre-Filing Phase: FERC conducts scoping study with public consultation to prepare for its Nat’l Envtl. Policy Act (“NEPA”) environmental review

Applicant submits formal application

FERC issues a draft environmental study (either a full Environmental Impact Statement (“EIS”) orstreamlined Environmental Assessment (“EA”)) under NEPA

FERC solicits public comment and responds to comments

FERC issues a final EIS, if applicable

FERC approves or denies the project

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LNG Exports Promote Domestic Investment

• Jobs created from an LNG include direct

(construction/operating) and indirect (production) jobs.

For example, a 2 bcf/d export facility means:

– 3,400 construction jobs (spread over 20 year plant operating

period)

– 400 operations jobs

– 26,000 upstream and midstream natural gas jobs

• Export market for dry gas will promote continued

development/production, leading to NGL supply that is

promoting domestic manufacturing jobs

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Renewed Domestic Manufacturing

• Due to shale gas abundance, natural gas liquids (NGLs) have

seen increased supply and decreased prices on average.

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• Permitting LNG exports will drive demand for U.S.-produced dry natural gas and continued investment in overall production.

• This helps preserve low NGL prices that benefit the domestic chemical, fertilizer and plastics industries.

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Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015

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Natural Gas Liquids: Nymex

Butane Propane

Ethane Natural Gasoline

Natural Gas Production Worldwide

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United States Russia Iran Qatar Canada China Saudi Arabia

Top Natural Gas Producing Countries

Natural Gas Production

Source: EIA – International Energy Outlook 2013

Conclusion

• The shale gas revolution has changed the U.S. natural

gas supply landscape.

• LNG exports will have a positive impact on the economy

and the environment.

• The Federal government should move expeditiously to

allow U.S. companies to compete in the global LNG

market so the domestic benefits from export can be

realized.

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