North Amercian LNG Exports

DI SPUTES & I NVEST I G ATI ONS • ECONO MI CS • F I NANCI AL ADVI SORY • MANAGEMENT CONSULT I NG

©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy.

Bob Gibb, Associate Director

September 13-14, 2012

North American LNG Exports

Alaska LNG Summit 2012Valdez, Alaska


Important Notice

This presentation was prepared by Navigant Consulting, Inc. exclusively for the benefit

and internal use of the Alaska LNG Summit 2012 and its attendees . No part of it may be

circulated, quoted, or reproduced for distribution without prior written approval from

Navigant. This presentation is incomplete without reference to, and should be viewed

solely in conjunction with the presentation provided by Navigant.

September 13-14, 2012

©2012 Navigant Consulting, Inc. All rights reserved. Navigant is not a certified public accounting firm and does not provide audit, attest, or public accounting services. See www.navigantconsulting.com/licensing for a complete listing of private investigator licenses. Investment banking, private placement, merger, acquisition and divestiture services offered through Navigant Capital Advisors, LLC., Member FINRA/SIPC.

http://www.navigantconsulting.com/licensing


Company Overview

Navigant is a specialized consulting firm:

North American Dispute &

» Publicly traded since 1996 (NYSE: NCI)» Combination of technical skills and deep

industry knowledge» Large engagement capability – more than

1,800 consultants in 40 offices globally» 2011 revenues of $785 million; EBITDA: $98

million» Nationwide platform, international presence» Independent – rigorously objective; no audit

opinions to defendNorth American

Dispute & Investigative

Services

Fraud, Forensic & Accounting

Investigations

Commercial Litigation

International Arbitration

Electronic Discovery

Government Contracting

Construction Disputes

Economic Consulting

Antitrust

Securities

Labor

Valuation and M&A

Forensic & Accounting Investigations

Commercial Litigation / Intellectual

Property

North American Business

Consulting

Energy

Healthcare

Financial Services

Restructuring

Valuations

International Consulting

Construction Disputes

Financial Services

Public Services

International Arbitration

Commercial Litigation

Energy


Navigant’s Energy Practice

About Navigant » Energy Practice

Our Energy Practice includes more than 330 staff and works with companies and agencies in the natural gas and electric industries to create, deliver, and protect value in the face of uncertainty and change. We bring deep, industry-focused expertise to the development and implementation of innovative strategies …

» Natural gas market assessment and modeling

» LNG services and market support

» Fuel services» Regulatory processes

and litigation support» Customer strategies» Resource

procurement» Operations and

performance improvement

» Asset transaction support

» Energy technology and technology management

» Business planning and strategy

» Renewables» Energy efficiency and

sustainability» Greenhouse

gas/climate change» Clean energy» All aspects of

generation and transmission


3 The Road Ahead

2 Role of LNG Exports

1 North American Gas Supply and Demand

Table of Contents


3 The Road Ahead


Section 1 – North American Gas Supply and Demand



World Recoverable Shale Gas Resources

Top 20 CountriesTechnically Recoverable Shale Gas Resources

(trillion cubic feet)

China 1,275 Poland 187

United States

862 France 180

Argentina 774 Norway 83

Mexico 681 Chile 64

South Africa 485 India 63

Australia 396 Paraguay 62

Canada 388 Pakistan 51

Libya 290 Bolivia 48

Algeria 231 Ukraine 42

Brazil 226 Sweden 41

Total 6,429Source: U.S. Energy Information Administration


14,000

15,000

16,000

17,000

18,000

19,000

20,000

21,000

22,000

23,000

24,00019

73

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

Bcf

According to the EIA, U.S. annual average natural gas production at the end of 2011 was at its all time high, exceeding the previous high of 21.7 in 1973 by 1.3 Tcf.

U.S. Historical Annual Average Dry Gas Production

21.7 Tcf

23.0 Tcf


Shales cover much of North America.

North American Shale Map


Industry/governmental associations* have confirmed what Navigant first identified in 2008.

1. The potential supply of natural gas is far greater than thought just a few years ago.

2. The potential supply of oil is also far greater than previously thought.

3. The US needs the oil and gas resources even as efficiency reduces demand and alternatives become more economically available on a larger scale.

4. To gain the benefits of natural gas and oil will require environmentally responsible development.

* National Petroleum Council (Sept. 15, 2011)

Shale Abundance Confirmed


Throughout 2011 and halfway through 2012, U.S. total gas production was increasing, although there is some flattening.

U.S. Historical Monthly Average Dry Gas Production


Production is up as total gas drilling has declined• time to drill a well• completion efficiency• associated gas

U.S. Historical Rig Count


Navigant expects strong gas shale production growth to continue - towards a 56% share of total production by 2020 from 3% in 2006 – only 15 Years.

Navigant’s U.S. Forecast Gas Shale Production to 2020

Source: Navigant Fall 2011 Reference Case Gas Forecast

0

10

20

30

40

50

60

70

80

ShaleShaleShaleShaleShaleShaleShaleShaleShaleShaleShaleShaleShaleShaleShale

Con-ven-

tional

Con-ven-

tional

Con-ven-

tional

Con-ven-

tional

Con-ven-

tional

Con-ven-

tional

Con-ven-

tional

Con-ven-

tional

Con-ven-

tional

Con-ven-

tional

Con-ven-

tional

Con-ven-

tional

Con-ven-

tional

Con-ven-

tional

U.S. Dry Production by Type

Bcfd

Conventional

56% Shale44% Conventional

3% Shale97% Conventional


In an era of abundant supply, natural gas total demand is forecast to remain relatively flat at 1-2% annual growth to 2020 – only EG gas demand will remain strong at about 4% annual growth.

Navigant’s Forecast of North American Gas Demand is Flat

0

10

20

30

40

50

60

70

80

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Bcf

d

U.S. Natural Gas Demand

Res/Com/Veh

Industrial

Electric Power

Lease & Plant / Pipe Fuel


Coal to Gas Switching of Existing Power Plants

Coal to gas switching will continue with abundant gas supply and low prices, contributing to increased demand for natural gas in power generation.


» Even though coal to gas switching in the electric generation market is occurring …. gas production growth has been even stronger – even though some early signs indicate production is flattening at current levels and low prices.

» This leaves a market still looking for ‘balance’ - of supply to demand in order to provide a greater assurance of stable prices and less price volatility.

» LNG exports could become as important as the EG coal-to-gas displacement market.

Balancing the Market…

Despite Coal to Gas Switching – Not Enough to Balance the Market



The Road Ahead3

Section 2 - Role of LNG Exports, Facility Update



» All 50 reactors in the country idled, with 2 returned

» Increased LNG demand by 10-12 mtpa (1.3-1.6 bcfd)

» KEPCO warns 15% less power than that needed to meet peak demand

» Japanese PM quoted without nuclear power “Japanese society cannot survive”

» 2020 demand estimated at 60-90 mtpa (7.9-11.8 bcfd) [currently 79 mtpa (10.3 bcfd)]

» At $5-6 in U.S., European exports marginal

Japanese Market

Role of LNG Exports, Facility Update

Source: All – CWC LNG News


The New Paradigm – LNG Exports from North America?

Source: Canadian National Energy Board

» Gas shale potential is situated across North America, including Canada which should experience the first new LNG project to export LNG from North America at Kitimat, BC.

» Cheniere Energy’s Sabine Pass announced sale to its 4th major customer Korea Gas in Jan ‘12 following announced sales to BG, GAIL and Gas Natural Fenosa and is likely to be the first LNG export project on-line in 2015/16 in the U.S.

» LNG exports should support the oversupplied North American market as coal retirements begin to slow.

» Currently 16 U.S. (2 West Coast, 2 East Coast, 11 Gulf, 1 Alaska) and 3 Canadian projects with combined capacity of nearly 29 Bcfd are going through the export and construction approval process.

» Not all projects are likely to go ahead.

LNG Exports


Recent EIA figures show the U.S. (and by extension, North America) becoming a net natural gas exporter by 2022.

Role of LNG Exports

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

50

55

60

65

70

75

80

85

90

Figure 1: U.S. a Net Natural Gas Exporter by 2022

U.S. Dry Production U.S. Consumption

Bcfd

Source: Navigant/EIA


» Proliferation of emerging gas shale resources around the world, including large resources in many countries in Europe and in the Asian Pacific region.

» Existence of plentiful gas supply and LNG resources in Qatar and Australia. In Qatar gas is produced at very low or zero cost due to value of being associated with high value oil production.

» Impact of the Panama canal expansion likely being limited by passage rates tied to arbitrage value of commodity going through the canal.

» Possible de-linkage of international LNG prices to oil over long term.

In the end, the development of LNG export projects in the U.S. will be constrained by a number of factors.

Not All LNG Export Projects Will Materialize

All things considered, Navigant estimates that ultimately the total U.S. LNG exports will be in the range of 5-6 Bcfd spread widely around the country and served from the Atlantic, Pacific, and Gulf Coast.

An Alaska LNG project will be driven by factors in addition to these and its viability driven primarily by those factors.


» Navigant’s view is that if Producers stay on track, there is at least 10 Bcfd of room to increase demand without causing excessive prices.

» Can they stay on track?—Yes, likely.

» What if demand grows more than the highest case or something happens to slow supply development?

o DOE is clearly being careful in its permitting process for non-FTA nations (the real market) for LNG exports.

o EIA has been directed to study the same overall supply-demand issues as addressed by Navigant. Early studies from EIA however have been disappointing.

o For Cheniere LNG Export project at Sabine, the DOE left room to trim back the authorization if supply/demand became too tight. Recently the DOE have provided clarification on this and suggested they would not re-regulate.

The Bottom Line – There’s enough supply responsiveness for a lot of demand.

Role of LNG Exports


13

North American LNG Exports—At DOE 21.3 Bcfd FTA Countries, 14.56 Bcfd non-FTA under consideration1

23

4

65 7

8

9

11

12

14

1013

Navigant has assisted in analysis for 8 out of 16 US LNG export projects (highlighted)

No. Project Location Capacity (Bcfd) Project Sponsor Regulatory Status

1 Kitimat, BC 0.75 / 1.5 Apache Canada Ltd. Approved by NEB

2 Douglas Island, BC 0.23 BC LNG Export Cooperative Approved by NEB

3 Kitimat, BC 3.4 Shell Filed w/ NEB

4 Cameron Parish, LA 2.2 Cheniere - Sabine Pass LNG DOE Non-FTA Approved, FERC Approved5 Freeport, TX 2.8 Freeport LNG (2) Filed w/ DOE

6 Corpus Christi, TX 1.8 Cheniere - Corpus Christi LNG Filed w/ FERC

7 Lake Charles, LA 2.0 Southern Union Filed w/ DOE

8 Cove Point, MD 1.0 Dominion - Cove Point LNG Filed w/ DOE

9 Coos Bay, OR1.2 FTA/

0.8 non-FTAJordan Cove Energy Project Filed w/ DOE

10 Hackberry, LA 1.7 Sempra - Cameron LNG Filed w/ DOE

11 Brownsville, TX 2.8 Gulf Coast LNG Export LLC Filed w/ DOE

12 Warrenton, OR 1.25 Oregon LNG Filed w/DOE

13 Pascagoula, MS 1.5 Gulf LNG Liquefaction Company, LLC Filed w/DOE (FTA)

14 Elba Island, GA 0.5 Southern LNG Company Filed w/DOE (FTA)

15 Calhoun County, TX 1.38 Excelerate Liquefaction Solutions I, LLC Filed w/DOE (FTA)

16 Sabine Pass, TX 2.6 Golden Pass Products LLC Filed w/DOE (FTA)

1516


The Road Ahead3


Section 3 - The Road Ahead



Challenges Ahead for North American LNG Exports

Potential issues for U.S. and Canadian LNG export projects.» Regulatory Approvals: The review process is strenuous

with no guarantee of approval.

» Capital Requirement: Project capital costs for liquefaction plants range from $1.5 to $10 billion dollars.

» Commercial Commitment: Project sponsors seeking financing or board approval to move ahead with building these facilities typically seek long-term (20 year) terminal use agreements to ensure adequate future revenues to recover the capital costs associated with the project.

» Timing: Liquefaction plants are complex engineering projects and take around five years to build.

» Market Conditions: Project sponsors face a variety of market risks related to growth in LNG demand, economics of competing facilities, and the price of natural gas.


Implications of North American LNG Exports

» LNG exports appear to be able to offer a ‘solution’ to the current market upset as a result of the ‘success’ of the gas shale.

» By assisting the ongoing development of gas shale resources, LNG exports appear at the right time and the right place for a North American gas market in need of sustainable markets offering promise to both domestic consumers and producers.

Challenges Ahead for North American LNG Exports

KeyC O N T A C T S


KeyC O N T A C T S


KeyC O N T A C T S


KeyC O N T A C T S


28

E N E R G Y

Gordon Pickering | DirectorRancho Cordova, CA [email protected]

Gordon Pickering | DirectorRancho Cordova, CA [email protected]

Rick Smead | DirectorHouston, TX [email protected]

Rick Smead | DirectorHouston, TX [email protected]

Bob Gibb| Associate DirectorAustin, TX [email protected]

Bob Gibb| Associate DirectorAustin, TX [email protected]

North Amercian LNG Exports

News & Politics

Transcript of North Amercian LNG Exports