th14 FIESP International Energy Conference

14th FIESP International Energy Conference Promoting Reliable and Competitive Energy

Sao Paulo, Aug 5th

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2

© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

IHS Energy Insight – Regional Messages

3

Strong growth

Gas demand

squeeze

Shale gale:

LNG export plans

Source: IHS CERA.

Note: LNG = liquefied natural gas.

Gas shortages—

India and MENA

Growing dependence

on LNG Rampant

cost inflation

Japanese nuclear

policy unclear

Emerging new

gas province

In search of

markets

Upward pressure on prices

Downward pressure on prices

Price Neutral

Outlook for Natural Gas Deficit

Brazil

4

IHS Private Presentation


Brazil

Possible Pre-salt and Santos Basin Export Routes

5

Existing

Planned

Planned Pipeline

Possible

Route 4

Jupiter - UTCG

13 MMcmd

Route 2

Cernambi – Cabiunas

15 MMcmd Route 3

Marica ou Cabiunas 2

15 MMcmd Route 1

Mexilhao – UTCG

15 MMcmd

Merluza-Lagosta

2.3MMcmd

© 2013 IHS No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

Natural gas market outlook—Demand

6

• Brazilian natural gas demand is

predominantly from industries, thermal

power plants, fertilizer plants, and

refineries.

• Demand is set to rise led by the

industrial and power sectors.

• Industrial demand will grow from

increased economic activities and

vertically integrated projects such as

fertilizer plants.

• Gas demand for power generation will

grow from increased installed capacity

of gas-fired power generation used in

Brazil to provide backup for hydro

generation.

Demand growth is led by industrial and power sectors.

Source: IHS CERA.

*Estimated.

BRAZIL

-

20

40

60

80

100

120

140

2002 2006 2010 2014* 2018* 2022*

Millioncubic

meters per day

Natural gas demand outlook

Automotive Residential Industrial Gas to power


Natural gas market outlook—Supply

7

Limited imports from Bolivia pave the way for increasing LNG use.

Source: IHS CERA.

*Estimated.

BRAZIL

• Natural gas is either domestically

produced, imported from Bolivia, or

imported from the global LNG market.

• Domestic production takes place mostly

offshore and is for the most part

associated with oil production.

• Domestic supplies will increase

following the development of presalt

fields with large gas-to-oil ratios despite

gross-to-net ratios.

• Bolivian imports are likely to be

renewed in 2019 but limited to the

current import levels.

• LNG is likely to remain competitive and

absorb remaining demand.

-

20

40

60

80

100

120

140

2002 2006 2010 2014* 2018* 2022*

Millioncubic

meters per day

Natural gas supply outlook

Net production Pipeline imports LNG

LNG Market Outlook

8



Plentiful and Low-Cost North American Shale Gas Displaces Any Need for LNG

Source: EIA, PGC, and IHS CERA.

00112-27

Breakeven Henry Hub Price for Natural Gas

Resources in Analyzed Plays

Weighted Average

Break Even Price

4.86 $/MMBtu

© 2013 IHS 10

Source: IHS CERA.

*Potentially located near Valdez.

North American liquefaction Taking advantage of the Arbitrage

IHS CERA Outlook (million tons)

2020 2035

Canada 5 24

United States 42 54

million tons

Status United States Canada

Announced 245 60

Fully Permitted 16 10

© IHS 2013

0

20

40

60

80

100

120

140

160

180

200

USAToday

Nigeria Malaysia Algeria Indonesia NorthAmericaOutlook

Qatar Australia NorthAmericaProject

Inventory

MillionTons

Per Year

LNG Capacity UnderConstruction

Existing LNG Capacity

Capacity Outlook

Canada

US

Global LNG—Existing Supply and Potential

Future Role of North America

11

Source: IHS CERA. ?

Over 200 MTPA

of projects filed

in the US alone

North

American

Outreach

© 2013 IHS

North American export competitiveness: …International competition will limit total capacity build

Source: IHS CERA.

12

Global LNG market incremental supply and

demand to 2020

North

America

Other

China / India Committed

Proposed

Other Asia

Europe

Other

Australia

(Base case)

Size of opportunity for new LNG

supply ~60 million tons

(~8 Bcf per day)

0

100

200

300

400

500

600

700

800

900

2012 demand Incremental demand to

2020

Retiring capacity

Extra LNG supply needed

Potential new LNG supply

projects by 2020

Million metric

tons

© 2013 IHS

Long-Term Price Outlook Three-tiered system expected to persist

Source: IHS CERA.

13

Prices are expected to remain separated

North American LNG exports insufficient to either raise US prices to global levels or

lower global prices to US levels

0

5

10

15

20

25

2000 2005 2010 2015 2020 2025 2030 2035

US Dollars(Real 2011)

perMMBtu

Oil European Long-term

European Market Henry Hub

Asia Long-term Asia Market

© 2013 IHS

0

2

4

6

8

10

12

14

16

18

2017 2035

Dollarper

MMBtu(real 2011)

$3 per MMBtu fixed liquefaction fee


LNG ex-ship cost from US Gulf Coast*

Oil parity (Brent)

LNG exports from the US create strong competition

for deliveries into Asia … (delivered to Japan)

Source: IHS CERA. *Feedgas supply at 115% of Henry Hub; 15% of fixed liquefaction fee inflation adjusted.

0.11 to 0.15 slope

oil-indexation

Henry Hub

14

$0

$2

$4

$6

$8

$10

$12

$14

Shipping

Liquefaction

Upstream

© 2013 IHS

0

2

4

6

8

10

12

14

16

18

2017 2035

Dollarsper

MMBtu(real 2011)



LNG cost after regas from US Gulf Coast*

Oil parity (Brent)

0

2

4

6

8

10

12

14

Regas

Shipping

Liquefaction

Upstream

0.11 slope oil-

indexation

plus regas

… but for deliveries into Northwest Europe prices are

likely less favourable (delivered to the UK)

15

Source: IHS CERA. *Feedgas supply at 115% of Henry Hub; 15% of fixed liquefaction fee inflation adjusted.

UK NBP

Henry Hub

© 2013 IHS

• Pressure on regional gas price differentials is

growing • The introduction of Henry Hub linked LNG puts pressure

also on the oil-indexed contract pricing in Asia

• Growing flexible volumes, both LNG supply and

shipping, will make arbitrage between the markets easier

• Can Latin America become a price setter instead of price

taker?

• Oil price will remain significant driver of LNG

prices for deliveries into Asia • Oil indexation will remain for significant part of LNG

deliveries into Asia

• The development of a gas trading hub in Asia faces

significant hurdles and requires a number of interrelated

steps

• High capital costs for liquefaction projects • Even with US LNG exports with gas sourced at Henry

Hub levels, the time of low cost projects is past. LNG

price levels will need to reflect the significant investment

costs.

Key Messages on Pricing

16

Gas/LNG Trading

Hub

Gas Supply Infrastructure Connectivity

Many Buyers & Sellers

No Dominant Player(s)

Transparent Price

Formation and

Reporting

Enabling Industry

Regulation & Enforcement

Transparent TPA to

Infrastructure

© IHS 2013

Unconventional Frontier Study

Global Unconventional GIP Resources

17

South America

Shale 17,000 Tcf

CBM 665 Tcf

West Europe

Shale > 5,000 Tcf

CBM 665 Tcf

East Europe

Shale 2,019 Tcf

CBM 91 Tcf

China

Shale 17,500 Tcf

CBM 2,591 Tcf

India

Shale 586 Tcf

CBM 158 Tcf

Indonesia

Shale 5,062 Tcf

CBM 1,058Tcf

Australia

Shale 1,597 Tcf

CBM 212 Tcf 7 major regions hold

large in-place resources:

Shale gas 49,500 Tcf

CBM 5,300 Tcf

Local-

ization

Source: IHS CERA. North America not included.

Outlook for Natural Gas Prices

Brazil

18



Supply Costs Stacks in Brazil

19

Source: IHS CERA.

• Supply of

unconventional

production from

Parnaiba ranks very

close to onshore

conventional gas. It falls

into the range of

contracted LNG and

Bolivian gas import price

range in 2012.

• Unconventional gas

from Reconcavo and

Potiaguar are less

competitive but still rank

well versus current

import prices.

Bolivia gas at

Southeast Citygate

LNG—Citygate Rio

Conventional Gas Unconventional Gas

US

Dollars

Per

MMBtu

0

2

4

6

8

10

12

14

On

sh

ore

Off

sh

ore

A

ss

oc

iate

d

Mid

dle

Ea

st

Bro

wn

fie

ld

Off

sh

ore

No

n-

As

so

cia

ted

We

st A

fric

a

Gre

en

fie

ld

La

tin

Am

eri

ca

B

row

nfi

eld

Pa

rna

iba

US

Gu

lf C

oa

st

Bro

wn

fie

ld

Re

co

nc

av

o

Po

tig

ua

r

Ea

st A

fric

a

Gre

en

fie

ld

Pa

cif

ic

Gre

en

fie

ld

Ca

na

da

We

st

Co

as

t

Gre

en

fie

ld

Transportation Regas Shipping Liquefaction Upstream

Conventional Gas Unconventional Gas


Brazil:

Natural gas price outlook

Source: Ministry of Development, Industry, and Trade; IHS CERA.

*Estimated; **For 2009 and 2010, LNG prices include the average free-on-board prices

paid by Brazil, shipping costs, and an estimate of transportation costs to the Southeast

citygate. ***Premium is calculated ex-post based on foreign trade data from Aliceweb

Database (http://aliceweb.desenvolvimento.gov.br); ****Estimated transportation cost

refers to the fixed component of the new pricing formula for domestic gas prices at the

citygate; *****Shipping from the West African coast to Brazil.

20

• Brazilian domestic gas and Bolivian imports are likely

to remain oil linked over the next 10 years.

— The price of domestic gas is expected to drop to US$

10.55 per MMBtu in 2016 owing to declines in global oil

prices (see Appendix I).

— Imported Bolivian gas is estimated to have averaged

US$11.17 per MMBtu in 2012 and is projected to drop

to US$9.89 per MMBtu in 2016 also from a decline in

international benchmark prices.

• In the midterm, LNG import prices will likely continue

to follow NBP netbacks.

— In 2012, FOB price of LNG delivered at the Brazilian

coast based on foreign trade data was US$13.36 per

MMBtu.

— Meanwhile an estimate based on an NBP netback was

US$10.67 per MMBtu.*** The resulting premium over

NBP was a result of tighter LNG market owing to the

rise in Japanese LNG imports following the shutdown of

nuclear power plants in 2011 post-Fukushima.

— Considering the IHS CERA NBP outlook as well as the

outlook for transportation costs in Brazil, 2016 LNG

prices are projected at US$11.53 per MMBtu, before a

possible premium.

-

2

4

6

8

10

12

14

16

18

20

2008 2010 2012 2014 2016 2018 2020 2022

USDollars

perMMBtu

LNG NBP netback analysis

Premium over NBP***Transportation Cost****RegasShipping*****NBP Netback

US

dollars

per

MMBtu

-

2

4

6

8

10

12

14

2008 2010 2012 2014 2016 2018 2020 2022

USdollars

perMMBtu

Natural gas price outlook, 2012−22

LNG - NBP Netback*Imported Gas from BoliviaDomestic Gas - Without DiscountsDomestic Gas - With discounts

http://aliceweb.desenvolvimento.gov.br/


Natural gas and power price drivers*

• Oil and refined products prices provide the basis for LNG price estimates for Chile, Brazilian domestic

gas prices, Bolivian exports, and power contracts in the region.

— Brent prices surged in 2012, averaging US$109.94 per barrel, reflecting the fear of a possible supply disruption

across the Middle East and North Africa region.

— In our planning scenario, Global Redesign, IHS CERA expects Brent to average US$103.75 per barrel in 2013

and US$94.20 in 2014, due to increased oil supplies from Iraqi and non-OPEC producers .

Source: IHS CERA.

Note: LSFO = low-sulfur fuel oil; HSFO = high-sulfur fuel oil.

*Estimated

21

-

20

40

60

80

100

120

140

2008 2010 2012 2014 2016 2018 2020 2022

US dollars

per barrel

Refined products price benchmarks

USGC No. 2 Diesel

Rotterdam LSFO

Gulf Coast LSFO

Mediterranean HSFO

Brent


Brazil:

Natural gas price outlook, 2012–22*

22

Source: IHS CERA.

*Estimated.

• IHS CERA expects Brazilian domestic gas prices to average

US$11.98 per MMBtu in 2013 without discounts. Assuming that

an informal price ceiling of 80% of the price of fuel oil continues

to prevail, the actual price of domestic gas would average

US$11.22 per MMBtu this year.

— Petrobras has granted successively one-off discounts at varying

percentages to citygate natural gas prices since May 2011. Discount

percentages to date implicitly define a price ceiling for domestically

produced natural gas at around 80% of the price of fuel oil.

— Granting discounts is commercially attractive to the company because it

preserves the competitiveness of natural gas against substitute fuels for

industries.

— Upon increases in the price of substitute fuels, the informal price ceiling

for natural gas would rise. As a result, an increase in the price of gas

would not decrease natural gas demand from industries significantly.


THANK YOU! IHS Consulting Team & Research Team

[email protected]

[email protected]

23

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th14 FIESP International Energy Conference

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