Small scale LNG economics - glmri.org Scale LNG Economics...with expanding regasification terminals: UK, Belgium, Netherlands… • LNG is for the time being a “price taker” –

20/09/2011

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Small scale LNG economics

International – Independent - InnovativeInternational – Independent - Innovative

LNG Fuel Forum – 20th September 2011Stockholm

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This presentation has been prepared by the Bergen Energi Group, includingcollaborators from Bergen Energi AS (headquarters) and Bergen Energi Markets AS(portfolio management services). Bergen Energi Markets AS is a MiFID licensedinvestment firm under supervision of the Financial Supervisory Authority of Norway(Finanstilsynet).

Disclaimer

The report is based on information obtained from sources that Bergen Energi Groupbelieves to be reliable but Bergen Energi Group makes no guarantee as to itsaccuracy or completeness.Any analysis or statement is a general market overview and does not offer individuallytailored investment or hedging advice of any kind.Any opinions expressed herein reflect Bergen Energi Group judgment at the time thereport was prepared and it should not be interpreted as an offer to buy or sell anysecurity or other financial instrument or to participate in any investment strategy. Noliability is accepted for any direct or indirect loss or expense arising from the use of thisreport

International – Independent - Innovative

report.

Please contact Bergen Energi Group at +47 55 36 37 00 for further information andinquiries regarding this report.

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Pan European Services• Transparent• Neutral

Independant Energy Management Solutions

Neutral• Flexible

MiFID Licensed• Investment advice services• Quality control

E E t Alli


Energy Experts Alliance• Global reach• Local expertise

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Energy Challenges Tailor-made Services

CostConsumption


Carbon

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Procurement & Portfolio management

Bilateral brokerage direct market access

– Best value chain for you– Security of supplyy pp y

Risk management:– Long term hedging– Budget predictability– Short term arbitrage– Spot exposure


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Agenda

LNG is a game changer for European gas prices

Gas pricing models & trends

LNG fuel competitiveness for marine usages


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Ample European regasification capacity

200

250Sweden

Greece

Portugal

50

100

150

bcm/y

Portugal

Turkey

Netherlands

Italy

France

UK


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Source: Gas Infrastructure Europe, 2011and BP Statistics, 2011

0

2007 2008 2009 2010 2011 2012 2013

Spain

LNG Import

Belgium LNG imports

10000

Aggregated Flow in mcm

ZEEBRU_LNG.LNG.BELGIUM

2000

4000

6000

8000


0

okt nov des jan feb mar apr mai jun jul aug sep09‐10 10‐11 current cap

Source: Gas Infrastructure Europe, 2011 and IEA, 2011

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OIL

Global gas: 3 different price models• Pricing models differ from Europe to North America and to Asia-Pacific

HenryHUB

OIL+ HUBs

Crude(JCC)


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PricemodelsHUB = free local market prices

OIL = basket mainly of oil products (HFO/GO) and BrentJCC = Japan customs-cleared crude oil imports = ‘Japan Crude Cocktail’

RegulatedPrices

And LNG in this game?

Agenda

LNG is a game changer for European gas prices




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Prices in Europe, US and Asia decoupled


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Source: Reuters, 2011; Chinese Customs, 2011; Japanese Customs, 2011; Bergen Energi Markets, 2011 and BAFA, 2011

LNG: a specific price? or many pricing models?• LNG trading prices depends on:

– Destinations:• US: market price (HH +/- discounts)• Asia: oil-parity in Japan (JCC +/- discounts), very low actual prices in China• Europe: a mix of both HUB and LTC signals

– Flexibilities:– Flexibilities:• Long term contracts with secured volumes & destination clauses• Off-take from liquefaction plant is secured, but no destination clause• Full flexible LNG = spot sales

• Europe:– About 80% of LNG imports are long term contracted, with destination regas terminal

set ex-ante, and with mostly oil-indexed pricing• Traditional South European markets: Spain, Portugal, Italy, France…

– Only 15 to 20% is real flexible LNG and/or with gas market price indexation (short term maturities).

• Free market model under development in North-West Europe,ith di ifi ti t i l UK B l i N th l d


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with expanding regasification terminals: UK, Belgium, Netherlands…

• LNG is for the time being a “price taker”– With expanding global LNG trades: possibly LNG becomes “price driver”

• Specific price signal for LNG? (neither oil-indexed value, nor hub prices)

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Supply merit order: which place for LNG?• Future LNG import pricing will be set by its merit order ranking

• What Europe and importing countries want?– LNG = secured base supply?

• To reach diversity of supply: Middle East, Nigeria, etc…• To compensate the European production decline

– LNG = marginal & back-up supply?• To cover peak demand and/or seasonal modulation• To react to unexpected shortages in pipeline gas

– LNG = optional supply?• To get arbitrage between LNG prices (short term prices on different hubs)

against long term import contracts on borders ( +/- oil indexed value).

• What exporters want?


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What exporters want?– Arbitrage with other LNG importers?

• Atlantic: arbitrage with Henry Hub (depressed shale prices) ? and South America? • Asia: arbitrage with Long term LNG imports contracts (oil parity + premium)?

Market price versus Long term contract value

80

90

100

Gas market price versus Long term contracts value

19.08.2011ACTUAL SPOT PRICES <= => CURRENT FORWARD on

30

40

50

60

70

penc

e/the

rm


0

10

20

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Long term gas export contract (Europe)

NBP day-ahead (monthly averages)

NBP day-ahead

Henry Hub p/therm

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Hub spot prices vs LTC value (monthly averages)

100

120

European gas prices ‐ Long trend from 2002Hub spot market prices compared to Long term contracts importation value 07.09.2011

20

40

60

80

p/therm


15

0Jan‐02 Jan‐03 Jan‐04 Jan‐05 Jan‐06 Jan‐07 Jan‐08 Jan‐09 Jan‐10 Jan‐11 Jan‐12

Seasonality (winter) Hub prices (NBP spot monthly averages) Long term gas export contract (German border)

To stay exposed to spot price volatility?


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To get budget predictability with forward hedges


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Agenda

LNG import is a game changer for European gas prices




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Possible value chains for LNG marine fuel• Sourcing from Nordic production fields

– Pricing model might be seen as expensive compared to actual hub/LNG prices: • Commodity: oil-indexed value: NET-BACK? Competition with other buyers?• Liquefaction and transmission: COST+

Norwegian production Liquefaction Local Shipping Coastal

bunkering(By road

redelivery)

European LNG terminal Shipping to Coastal (By road

• Sourcing from existing European LNG import terminals– Pricing model should be more transparent

• Commodity: market pricing is standard model: COST+ (spot forward pricing)• Shipping & transmission: COST+


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European import

LNG terminal reload

Shipping to Nordics

Coastal bunkering

(By road redelivery)

• Is there any “natural” monopoly?– Need to establish third party access to bunkering facilities?

Reload LNG from European import terminals• LNG import terminals: enough place for competition?

– Zeebrugge: reload facility does exist, still some questions:• Available slot access when needed to guarantee security of supply• Gas quality: calorific value, etc…• Reload pricing model.

Gate: studies to invest in reload jetty– Gate: studies to invest in reload jetty.– Future: UK? Poland?

• Commodity access: value proposition to be discussed– Long term competitive LNG availability is probably not a bottleneck– But: are European large importers interested in small scale LNG?

• Few importers and traders are in the retailing business• Small scale shipping: solutions for spot trades, but for medium term secured deals?• Sending gas back to the Nordics?


• Infrastructure access: major bottlenecks– Small LNG carriers: few solution and competition for the time being.– Coastal bunkering terminal. Or bunker boats?– Semi-trailers road redelivery

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Small scale LNG competitiveness• Small scale LNG is not the same market as LNG global trade

– Small scale LNG and LNG marine fuel are downstream retailing markets,with pricing models closer to standard natural gas marketing.

• European LNG import prices are diversep p p– Long term contracted LNG Flexible and spot prices LNG– Still many regional markets– No Global LNG prices– Main drivers for the future gas and LNG prices are highly uncertain

• European wholesale natural gas prices are not homogeneous– OTC Transparent organized exchanges– HUB prices Long term import contract pricing

• Retailing LNG: which pricing model will be applied by suppliers?


– Net-back from alternative marine fuels: MFO, IFO, MDO, MGO…– Cost-plus from exploration + liquefaction + shipping– Depending on each supplier value chain (and buyer’s power…),

a variety of combination of Net-back + Cost-plus approaches.

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LNG fuel competitiveness to marine fuels

Net-back from alternative fuelsMGOMDO LNG fuel

competitivenessIFOMFO

Cost plus from sourcing solutionsBunkering & Road re-delivery

Shipping with small scale carriers/bunkers

competitiveness increases


Reload at LNG terminal LiquefactionSourcing molecule & pricing model:

local production long term imports spot flexible purchases

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Natural Gas competitiveness against MGO

2.5

90

100

Maritime Gasoil compared to gas pricesSource: Bergen Energi proxys, with Reuters, APX‐Endex and BAFA quotes

0.5

1.0

1.5

2.0

20

30

40

50

60

70

80

MGO/G

as ra

tio

€/MWh

ENOUGH ROOM FOR SHIPPING and/or LIQUEFACTION COSTS?


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‐0

10

Jan‐01 Jan‐03 Jan‐05 Jan‐07 Jan‐09 Jan‐11 Jan‐13 Jan‐15

MGO Rotterdam LTC gas Hub gas (TTF) MGO/gas ratio (right axis)

Small scale LNG: several value chains for Nordic market

Supply & Liquefaction Shipping & Transport Bunkering & RegasWHICH SOURCE?1. Imports from small scale LNG

production (Norway)?

WHICH ROUTE?LNG costs of transmission depends on:

STORAGE CAPACITIES?How to follow the demand pattern on short term?

100 to 500 SEK/MWh 50 to 100 SEK/MWh 50 to 100 SEK/MWh

Small scale LNG: a local retailing market with European & global wholesale influences

production (Norway)?Incl. liquefaction costs

2. other European regasterminals? (Zeebrugge, Gate, …)

depends on:• Maritime distances• LNG carries sizes• Number of off‐takers by

carrier

pattern on short term?• Physical storages• Flexible supply

WHICH PRICE SIGNAL?• Oil indexed• European hubs (spot)• Global LNG prices

WHAT BUNKERING AND DISTRIBUTION INFRASTRUCTURES?• Costal bunkers: third party access?• Bunker boats• Semi‐trailers for road re‐delivery


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Small scale LNG: a local retailing market, with European & global wholesale influences.

LNG marine fuel: a specific price to be based on replacement value toward marine fuelsbut related to specific costs of dedicated value chains.

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Questions?Alain BOURGEOISVice President, Gas+47 400 20 915

Bergen Energi AS ‐ Fantoftvegen 38 ‐ N‐5072 Bergen – Norway

www.bergen‐energi.com


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Back-up

International – Independent - InnovativeInternational – Independent - Innovative

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Brent First nearby Future

1 40

1,60

1,80 150

Brent Light Crude OilSource ICE - First nearby Future maturity (1st line)

08.09.2011

0,40

0,60

0,80

1,00

1,20

1,40

50

100

Exch

ange

rate

( x

USD

/ 1 E

UR)

$/bb

l or €

/bbl


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-

0,20

-Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11

Brent 1st line $/bbl Brent 1st line €/bbl USD/EUR

Sweden: Gas spot prices

450

500

Gas hub spot prices (day-ahead) converted in SEK/MWh with ECB exchange rates EURSEK

Update:

04.09.2011

100

150

200

250

300

350

400

SEK/

MWh


0

50

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

NBP (UK) TTF (NL) GTF (Nordpool)

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Nordics: Hub versus Long term contract pricing

30

35

30

35

GTF spot price development versus Long term import contract value05.09.11

5

10

15

20

25

5

10

15

20

25

€/M

Wh

€/M

Wh


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0-

Delivery date

GTF (Nordpool gas day ahead, closing price) GTF (Nordpool gas day-ahead, monthly average)

German border oil indexed proxy (hist=BAFA, default setting=Proxy)

Competition between hub prices & LTC pricing

35

45

35

40

45

Competing dual gas pricing - Front YearSpread between oil-indexed value and hub market prices Update: 8.9.2011

5

15

25

-

5

10

15

20

25

30

€/M

Wh

€/M

Wh


30

(15)

(5)

(15)

(10)

(5)

Long term contracts - Front Year Market price (TTF hub) - Front Year Front Year spread (TTF - LTC)

LTC proxys, HUB prices and spreads could differ depending on each country. Trends are still valid

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Resellers margin (protected)Resellers margin (protected)Margin

Margin

Net‐back Cost+

Gas importation price Self production and/or wholesale market

Sourcing costs

UP UP

Sourcing costs

Transmission & storage costs

Commercial costs

Price formula hedging

Sourcing costs


Commercial costs


Balancing costs

Commercial costs

Financial hedging

Balancing costs

Commercial costs

Margin

Financial hedging

Commercial costs


Sourcing costs


Resellers margin (challenged)

Commercial costs

Balancing costs

Validity period hedging


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Sourcing costsSourcing costs

production and/or whosesale marketSourcing cost

Resellers margin (protected)

Gas retail price Gas or Electricity retail price

Resellers margin (challenged)

DOWN DOWN

Local production Imports Pipe LNG

Worldwide, main 3 regional gas markets are highly contrasted.


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Source: ExxonMobil

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VIRTUAL POINTS

PHYSICAL POINTS

UK: National Balancing Point

Netherlands: Title Transfer Facility

NBP

TTF

European gas hubs

NBP

3 PEGs

TTFGPL

NCG

CEGH

NPTFGermany: Gaspool (GPL)

NetConnect Germany

France: Points d’Echange de GazNord / Sud / Sud‐ouest (TIGF)

Belgium: Zeebrugge

Austria: Central Europe Gas Hub

ZEE

ZEE

NCG

PEG


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PSV

CEGH(Baumgarten)

Austria: Central Europe Gas Hub

Italy: Punto di Scambio Virtuale

Denmark: NordPool Transfert Facility

LNG ship capacity & proxy conversion factors

m3 LNG Nm3 gas (0°C) MWh gas metric tonne LNG1 m3 LNG 1 609 7 0,455

Proxy conversion factors (High calorific gas)

1000 Nm3 gas (0°C) 1,642 1 000 11,5 0,75 1 MWh gas 0,143 87 1 0,065

1 metric tonne LNG 2,2 1 340 15 1

Capacitym3 LNG

CapacityMetric tonne LNG

Capacity gasMMm3 (N)

Volume gas GWh

Knutsen 1 100 1 000 0,7 7,7 Coral Methane 7 500 3 400 4,6 53

C l 600 00 9 09

Small scale

G

LNG vessels (ship class size)


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NB Coral Energy 15 600 7 100 9,5 109 Standard average capacity 145 000 65 900 88 1 016 Q‐flex 217 000 98 600 132 1 520 Q‐max 266 000 120 900 162 1 863

LNG

Global LNG

Documents

Small scale LNG economics - glmri.org Scale LNG Economics...with expanding regasification terminals: UK, Belgium, Netherlands… • LNG is for the time being a “price taker” –