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BC Gas Exports and LNG Shipping:

Unlocking the Export Potential

Christian Waldegrave Manager, Research, Strategic Development Tony Bingham Director, Business Development & Technology, Strategic Development

The Institute of Chartered Shipbrokers – Canada Branch


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LNG Shipping Market Outlook October 2013


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Teekay Shipping • A world leader in marine logistical solutions to the global oil and gas industry

• Founded 1973 by the late Torben Karlshoej

• Listed on the NYSE since 1995 (TK) and controls three NYSE-listed daughter subsidiaries (TOO, TGP and TNK)

• Transnational company with 6,600 employees

• 200 employees in the Vancouver, BC office

• $11 billion of consolidated assets, approximately 175 vessels 3


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Teekay Is In Every Part of its Customer’s Value Chain

6 FSOs

36 SHUTTLE TANKERS

10 FPSOs

SHIP TO SHIP LIGHTERING

12 PRODUCT CARRIERS

47 CRUDE TANKERS

32 LNG CARRIERS*

*Plus 31 LPG Carriers

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MOL NYK Teekay Golar MaranGas

BWGas

K Line

32 31 27

10 5 14 12

8 1 5

11 15

2

In Service On Order

11 14

9 9 5 4

4

2 1

1

In Service On Order

Teekay is a Leader in Each of its Business Segments

Operates Third Largest Independent Fleet in the World

Source: Clarkson Research Services, Platou, Company Websites, Industry Sources. 1 Aframax and Suezmax tankers. Includes vessels under commercial management. 2 Excludes one VLCC and six MR product tankers. 3 Includes shuttle tankers.

Controls More Than 50% of the World’s Fleet Largest Operator of Shuttle Tankers

Leading Position in LNG Carriers

Leader in Harsh Weather Operations in the North Sea Leading Position in Leased FPSOs

Transports Approximately 10% of the World’s Seaborne Oil3

Largest Operator of Mid-Size1 Conventional Tankers

Note: Excludes state & oil company fleets.

15

Teekay KnutsenNYK

Tranpetro Viken /PJMR

Lauritzen

32

18

2

3

4

4

7

5

In Service On Order36

22

9

40

32 32

21 20 16

12

51 65 65 59

40 26 22

32

4

2

3 2

Owned / Chartered-InCommercially ManagedOn Order

Teekay2 Heidmar Pools

SCF AET / MISC

OSG Pools

Stena Sonangol

Tsakos

87

67 65 59

40 29 24

14

11 10

5 5

SBM MODEC BW Offshore

Teekay Bluewater Bumi Armada

5


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6

LNG Market


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The World is Growing

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The world’s population will increase 25%, reaching nearly 9 billion people by 2040.


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And Needs More Energy

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• Natural gas gaining market share from oil and coal due to its low cost, abundance, and cleaner burning properties

• Demand driven by the power sector (gas displacing coal)

• The “Golden Age of Natural Gas” (IEA)


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• LNG supply expected to grow by 4.4% p.a. to 2030, more than twice as fast as underlying global gas production (2.1% p.a.)

• Worldwide build-out of a global LNG market requires significant investment in infrastructure and logistics chain

• LNG is playing an increasing role in many countries’ energy mix

Build-Out of Global LNG Infrastructure In Progress

0

10

20

30

40

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2018

LNG Import / Export Countries

Exporting Countries Importing Countries

Source: Clarksons / GIIGNL / JP Morgan

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Current LNG Trade Map

• 236 million tonnes of LNG imported worldwide in 2012 • 40% of global LNG imports were supplied by the Middle East • 71% of global LNG demand is from Asia • 26 countries currently import LNG; 18 countries export LNG

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LNG Exporter LNG Importer


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Japan Currently the Top LNG Importer…

• Japan imported 88 MT of LNG in 2012 accounting for 37% of global imports

• Nuclear accounted for ~30% of Japan’s electricity generation pre-Fukushima

• None of Japan’s 50 nuclear reactors are currently online – no clear timeline for activation of the reactors

• Without nuclear Japan depends on fossil fuel imports (vulnerable to price shocks)

0

10

20

30

40

50

60

70

80

90

Mill

ion

To

nn

es

Japanese LNG Imports

Source: Thomson Reuters

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…Though Future Demand Driven By China & India

• LNG is a cornerstone of China’s energy mix

• Chinese LNG imports expected to double to ~25-30 MT by 2015

• Domestic gas shortfall prompting India to turn to LNG

• India planning to double regasification capacity by end-2015

02468

1012141618

Current Secured by2016

MOU

Mill

ion

To

nn

es

Chinese LNG Purchase Agreements

Australia Qatar Indonesia

Malaysia PNG Portfolio

0

5

10

15

20

25

30

35

40

2012 2013 2014 2015 2016

Mill

ion

To

nn

es

Pe

r A

nn

um

Indian Regasification Capacity

Source: Thomson Reuters Source: Ambit Capital

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• Australia expected to add ~65 MTPA of LNG supply by 2020

• North America may add a further ~95 MTPA of LNG supply

Strong LNG Supply Growth Post-2015

150

200

250

300

350

400

450

500

2013 2014 2015 2016 2017 2018 2019 2020

Mill

ion

To

nn

es

Pe

r A

nn

um

(M

TPA

)

LNG Capacity Additions By Region

Others Africa North America Russia Australia Existing

Source: Internal Estimates

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North American Exports Provide Upside

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• 200+ MTPA of North American LNG export projects in the planning stage – Cheniere’s 18 MTPA Sabine Pass terminal the only project under construction

• Every 10 MTPA moving USG to Asia creates demand for ~18-20 LNGCs

– Versus ~7-8 LNGCs to move 10 MTPA from Australia to Asia

0 50 100 150 200 250 300 350 400 450

Proposed Projects

Under Construction

Existing Global LNG Capacity

Million Tonnes per Annum

Global LNG Production Capacity

North America Australia Qatar Rest of World


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Looking to Take Advantage of Regional Pricing

Average Spot Natural Gas Prices 2013

US Henry Hub $3.70 / MMBtu

UK NBP $10.50 / MMBtu

N.E. Asia LNG $16.10 / MMBtu

$3-4 / MMBtu Henry Hub means US LNG can be delivered into Asia for ~$7-10 / MMBtu

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North American Project Overview

Potential LNG Export Projects

Source: FERC

• 10+ planned export projects in Canada, 20+ in the US

• 3 Canadian projects have NEB export approval (BC LNG, Kitimat, LNG Canada)

• US projects have to gain both FERC and DoE approval ○ FERC approves construction of liquefaction facilities ○ DoE approves export of LNG to FTA / non-FTA countries ○ Four projects have secured non-FTA export approval

• US sales agreements are indexed to gas, not oil: ○ BC LNG: Golar - gas indexed

○ Sabine: BG, EDF, Gail - HenryHub + $2-3/mmbtu

○ Cameron: GDF Suez, TEPCO - HH indexed

○ Dominion Cove: Sumitomo, Tokyo Gas - HH indexed

○ Freeport: Osaka, Chubu – tolling agreement

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• North America is generally competitive with Australia despite longer distances

• Several issues will affect the degree of Canadian competitiveness: ○ Time to market; lots of competing projects chasing the same resources ○ Some US projects can utilize existing import terminal infrastructure ○ Cost vs. Price – will sales contracts be indexed to oil or gas? ○ Canadian project costs are higher; Canada could become the marginal producer

North American Exports in Competition

Cost of LNG Supply to Asia, $/mmbtu

Source: Pareto

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Global Shale Deposits Pose Long-Term Threat

0

200

400

600

800

1,000

1,200

1,400

China USA Argentina Mexico Europe S. Africa Australia Canada

Technically Recoverable Shale Gas Reserves (Trillion Cubic Feet)

Source: EIA

Significant LNG importers

• China has the largest shale gas reserves in the world (1,275 tcf)

• Shale development in other countries not expected before 2020; the US has unique advantages which are not easily replicated elsewhere: ○ Abundance of fresh water for fracking ○ Existing oil & gas infrastructure and technical expertise ○ Small, risk-taking entrepreneurial companies

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LNG Fleet Overview

• 347 LNG Carriers on the fleet and 105 more on order – 30 LNGCs on order are currently uncommitted to long-term charters

• Move towards standardized size of 160-170 kcbm – New technologies (MEGI engine, new containment systems)

0

10

20

30

40

50

60

19

70

s

19

80

s

19

90

s

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

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20

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20

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17

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f V

esse

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LNG Carrier Fleet and Orderbook

Long Term Contract Short Term Contract / Uncommitted

Source: Clarksons

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ORDERBOOK


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LNG Fleet Utilization Improves From 2015

• 72 LNG carriers due to deliver by end-2015 – Little new LNG supply growth during this time; fleet utilization expected to fall

• New LNG supply post-2015 expected to create significant demand for new vessels over and above the current orderbook

-80

-60

-40

-20

0

20

40

60

80

2012 2013 2014 2015 2016 2017

Nu

mb

er

of

Ve

sse

ls

Source: Clarksons / Internal Estimates

Tonnage Supply / Demand Balance Vessels on Order Vessel Demand Surplus / Deficit Total Surplus / Deficit

VESSEL SURPLUS

VESSEL DEFICIT

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Conclusion

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Supply / Demand Fundamentals

• Global demand for LNG remains strong with future growth to be led by the non-OECD and China / India in particular

• Global liquefaction capacity is set to increase significantly in the next decade led by Australia, North America, Russia and East Africa

• Canadian LNG projects face several challenges: – Time to market / competition from other global projects – Pricing vs. competing projects

Shipping Fundamentals

• Oversupply of vessels 2013-15 as ships deliver early

• Strong market post-2015 with significant new shipping demand


Unlocking the Export Potential

BC Gas Exports & LNG

Shipping

TEEKAY 23

Properties of LNG

• Whilst primarily composed of Methane LNG does not have a standard composition.

• In order to transport LNG efficiently the Natural gas is cooled to -160oC. The liquid form is about 1/600th of the Natural gas at ambient temperatures.

• Normal steel becomes brittle at -160 and even a small amount of LNG coming into contact with normal steel can cause it to crack.

• LNG vapours are lighter than air at ambient temperatures (> -110oC), other hydrocarbons such as gasoline, propane etc are heavier than air.

• LNG has a narrow flammability range, between 5 and 15% concentration in air

• LNG produces the least amount of CO2 of any hydrocarbon fuel

Documents

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