Prepared for APERC Annual Conference 2019 15-16 May 2019

China Gas Market BriefingFareed Mohamedi,Managing Director, SIA-Energy International

Page 2sia-energy.com

16% real gas consumption growth continues in 2018

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

0

25

50

75

100

125

150

175

200

225

250

275

300

2009

2010

2011

2012

2013

2014

2015

2016

2017E

2018E

bcm

Power and Centralizaed Heating IndustrialTransportation ResidentialCommercial, Public Service And Other LossIncremental demand growth YoY (R-axis)

Source: SIA Energy

China Gas Demand by Sector

China gas real consumption

Page 3sia-energy.com

China’s “demand shock” pushes up JKM prices; energy security is back to government agenda

0

1

2

3

4

5

6

7

8

0

2

4

6

8

10

12

14

16

Dec-1

5

Feb-1

6

Apr-

16

Jun-1

6

Aug-1

6

Oct-

16

Dec-1

6

Feb-1

7

Apr-

17

Jun-1

7

Aug-1

7

Oct-

17

Dec-1

7

Feb-1

8

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

Dec-1

8

mm

t

$/m

mbtu

China Monthly LNG Imports Volume TTF NBP *Brent JKM

* Represent oil-parity pricesSource: SIA Energy

Major LNG/Gas Prices vs China Monthly LNG Import Volume

Page 4sia-energy.com

SIA Argument:

1. Coal-to-gas switch policy mandate to northern Chinese cities (2+26) started in 2012, not 2017.

2. All fuels in primary energy grew in 2017-18 including coal, which reversed previous downward trend.

3. High double digit growth is a combined effect of economic boom and politicized “CTG campaign”——industrial upgrade and urbanization are still the fundamental drivers, but environmental mandates and government interference in supply and pricing are the “accelerators”, which partially advanced future demand growth.

Myth 1: China’s two consecutive years of high demand growth was driven by coal-to-gas switch policy single-handedly

-20%

-10%

0%

10%

20%

30%

40%

Jan-1

6

Feb-1

6

Mar-

16

Apr-

16

May-1

6

Jun-1

6

Jul-

16

Aug-1

6

Sep-1

6

Oct-

16

Nov-1

6

Dec-1

6

Jan-1

7

Feb-1

7

Mar-

17

Apr-

17

May-1

7

Jun-1

7

Jul-

17

Aug-1

7

Sep-1

7

Oct-

17

Nov-1

7

Dec-1

7

Jan-1

8

Feb-1

8

Mar-

18

Apr-

18

May-1

8

Jun-1

8

Jul-

18

Aug-1

8

Sep-1

8

Oct-

18

Nov-1

8

Dec-1

8

Coal Petroleum Natural Gas Non-fossil

Source: SIA Energy, the NBS, China Customs

China Monthly Primary Energy Consumption Growth

Page 5sia-energy.com

SIA Argument:

1. Summer 2018 was a demand-pull story (2017 summer policy-push & demand-pull). City gas enjoyed higher (20-30%) growth compared to gas-fired power and other large industries due to supply constraints.

2. Summer LNG imports were driven by（1）CNPC reshaped term LNG delivery curve towards winter-heavy and spaced out summer for spot LNG imports; (2) Northern China CTG program continues, and central government mandated NOC supply security at all cost, curtailment for the rest of China started in Q2.

3. CNOOC has no UGSs to store gas for winter. Sinopec Wen23 was ready for injection of cushion gas but was short of gas supply until Q4. SIA estimated total off-peak months injection volume of 9 bcm and net injection of 2-3 bcm in 2018.

Myth 2: China imported record LNG in the summer to fill underground storages in order to prepare for winter

0%

5%

10%

15%

20%

25%

30%

35%

0

2

4

6

8

10

12

14

bcm

1H2017 1H2018 Yoy Growth

Source: public information disclosure of the companies

Gas Sales Volume by Major City Gas Distributor (1H2017 vs 1H2018)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Jan-1

6

Mar-

16

May-1

6

Jul-

16

Sep-1

6

Nov-1

6

Jan-1

7

Mar-

17

May-1

7

Jul-

17

Sep-1

7

Nov-1

7

Jan-1

8

Mar-

18

May-1

8

Jul-

18

Sep-1

8

Nov-1

8

City Gas Industrial Fuel Gas Power Chemicals

Source: Henan Energy Administration

Henan Monthly Piped Gas Demand by Sector

Page 6sia-energy.com

SIA Argument:

1. 4Q2018 China LNG imports grew 33% yoy, no sign of slow down whatsoever.

2. However, due to CNPC’s pre-contracted winter term LNG and increased pipeline supply, trucked LNG prices did not hike as the previous winter; lacking pipelines & UGS, CNOOC’s trucked LNG distribution experienced glut.

3. CNOOC’s market share in LNG imports drastically reduced from 53% in September to 42% in November, causing defers and cancellation of CNOOC spot cargos, on the contrary, CNPC’s share in LNG imports went up by 9% in same months.

Myth 3: China’s winter gas demand slowed and LNG imports stagnant

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

J F M A M J J A S O N D

mm

t

China LNG Imports Seasonality

2015 2016 2017 2018

Source: SIA Energy created from China Customs data

53%

48%

56%

57%

51%

54%

51%

52%

53%

47%

42%

48%

33%

33%

26%

22%

25%

28%

30%

29%

23%

31%

32%

28%

0% 20% 40% 60% 80% 100%

Jan-18

Feb-18

Mar-18

Apr-18

May-18

Jun-18

Jul-18

Aug-18

Sep-18

Oct-18

Nov-18

Dec-18

CNOOC CNPC Sinopec Tier-2

Source: SIA Energy

NOCs and Tier-2's Shares in LNG Imports

Page 7sia-energy.com

Incremental supply mainly came from LNG imports and domestic production, especially shale gas and tight gas

Page 8sia-energy.com

Real demand is expected to reach 330 bcm and 510 bcmrespectively in 2020 and 2030

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5%

10%

15%

20%

25%

30%

0

100

200

300

400

500

600

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017E

2018F

2019F

2020F

2021F

2022F

2023F

2024F

2025F

2026F

2027F

2028F

2029F

2030F

bcm

Power and heating Industrial Transportation

Residential Commercial & Public Services Loss

Demand growth YOY (R)

China Gas Demand Forecast 2030

Source: SIA Energy

13th FYP Target

Page 9sia-energy.com

(50)

-

50

100

150

200

250

300

350

400

450

500

550

bcm

Source: SIA Energy

China Gas Supply-Demand Balance

To meet future demand, China will have to sign new long term LNG contracts and help FID of new liquefaction capacity

Onshore & Offshore Conventional

Unconventional

Pipeline Gas Imports

LNG Imports

7.9

14.5

16.0

20.0

37.4 42.5

0

10

20

30

40

50

60

70

80

90

100

mm

tpa

China Imported LNG Forecast

Spot & Future Term Contracts

Tier-2 Players' Term Contracts

NOC LNG Term Contracts Signed in 2018

NOC LNG Term Contracts as of End-2017

Source: SIA Energy

Page 10sia-energy.com

NOCs still have dominant position (95%) in total gas supply

CNPC

63%

Sinopec

13%

CNOOC

19%

Other

5%

Source: SIA Energy

2018 China Gas Supply by Company (Including Supply to Hong Kong and Macao)

Total285 bcm

-50

0

50

100

150

200

CNPC Sinopec CNOOC Other Exports to

HK & Macau

bcm

Domestic Supply Imported Pipeline Gas

Imported LNG Exported Pipeline Gas

Source: SIA Energy

2018 Gas Supply by Company & Source

Page 11sia-energy.com

After three years of absence, Chinese NOCs are back to LNG market for term deals

mm

tpa

Three Chinese NOCs Term Contract Signed Year and Peak Contract Volume

2nd round buying spree?

1st round buying spree in seller’s market

Absent in buyer’s market

CNOOC enters LNG space in buyer’s market

Page 12sia-energy.com

CNOOC—looking for diversified incremental supply at smaller and shorter contracts to create flexibility

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35

40

45

50

2006

2007

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2015

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2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

mm

tpa

CNOOC & JV LNG ReceivingCapacity

60% Capacity

North West Shelf

Qatargas (CNOOC)

Tangguh LNG

Malaysia LNG

TOTAL Portfolio (CNOOC)

GDF SUEZ Portfolio

Shell (former BG)

Shell Portfolio

BP Portfolio (CNOOC)

Woodfibre LNG (CNOOC)

Real Import (Including Spot)

Source: SIA Energy

CNOOC Contracted Volume vs. Real Imports vs. Terminal Capacity

Page 13sia-energy.com

CNPC—turning winter spot demand into terms in the near term, while leaving long term market for future equity lifting

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15

20

25

30

2006

2007

2008

2009

2010

2011

2012

2013

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2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

mm

tpa

CNPC & JV LNG ReceivingCapacity60% Capacity

Qatargas (PetroChina)

Shell Portfolio

Gorgon LNG

Yamal LNG

PNG LNG (PetroChina)

Sabine Pass/Corpus Christi LNG

US LNG A

Qatargas (PetroChina)

IOC A

IOC B

LNG Canada

Yamal LNG Expansion

Rovuma LNG

Browse Upstream ExpansionSource: SIA Energy

CNPC Contracted Volume vs. Real Imports vs. Terminal Capacity

Page 14sia-energy.com

Sinopec—eager to play catchup and diversify its supply portfolio

0

5

10

15

20

25

30

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

mm

tpa

Sinopec & JV LNGReceiving Capacity

60% Capacity

Australia Pacific LNG

PNG LNG (Sinopec)

Real Import (IncludingSpot)

Source: SIA Energy

Sinopec Contracted Volume vs. Real Imports vs. Terminal Capacity

Page 15sia-energy.com

Tier-2 Chinese LNG Players by Peer Group

Who are taking actions ? Who may take actions ?

Gas Power Plants

LNG/LPG Distributors

Oil Traders / Refineries

City-gas Operators

Provincial Gas Grid/ Provincial Energy

Zhejiang Energy GEG Hebei Construction Invt

Beijing Gas Shenergy Guangzhou Gas Shenzhen Gas

ENN China Gas

Huadian Beijing Energy GCL

Guanghui Hanas HuafengJOVO

Baota Petchem Zhenhua Oil Dongming Petchem

Huaneng

China Resources Gas TownGas

Shenzhen Energy

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