BUILDING A WORLD OF DIFFERENCE

Presentation to the State of Alaska Legislature

Liquid Natural Gas (LNG) NPV Analysis and
Results

June 9, 2008

BUILDING A WORLD OF DIFFERENCE

Key Conclusions
z

LNG Projects Have Higher Capital Costs and Therefore Greater Risk than a
Pipeline Project

Similar to an Overland Project, Price Remains the Primary Risk to a LNG Project

LNG Projects Have Positive NPVs with Base and High LNG Price Assumptions

The 4.5 Bcf/d Proposal Base Case Project Produces a Higher NPV than a 4.5
Bcf/d LNG Project

A Sustained High Oil to Gas Price Relationship is Required for an LNG Project
to be Favorable when Compared to an Overland Route

-2

BUILDING A WORLD OF DIFFERENCE

Expected LNG Tariffs for the LNG Project Configurations

Considered
z

Assumed same
terms as TC
proposal

Differences to tariff
are:

LNG Tariffs
$15.0

GTP

AK Pipeline

LNG Plant

LNG Shipping

Higher capital

Higher fuel
Losses

Higher O&M

$6.0

Higher property
taxes

$3.0

Delayed start
date

Higher debt
cost

LNG shipping

$12.0
Nominal $/MMBtu

$10.33
$9.68

$9.61

$9.40

$9.0

$0.0
2.7 LNG

-3

2.7 LNG + 1.8

LNG

4.5 LNG

4.5 AECO + 2.0

LNG

BUILDING A WORLD OF DIFFERENCE

Applying the Gas Strategies Asian Price Formula

Expectations
$45.0

Price (Nominal Ex-Ship $/MMBtu)

$40.0
$35.0
$30.0

High LNG Case

Base LNG Case
Low LNG Case
Wood Mackenzie Henry Hub

$25.0

$6

$20.0

$5
$15.0
$10.0
$5.0

Price differential is a key

element to understanding
whether an LNG project
economics are favorable
(relative to an overland
project).

$0.0
2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044
-4

BUILDING A WORLD OF DIFFERENCE

Estimated Cash Flow for the 2.7 Bcf/d LNG Case: Positive
Net Cash Flow of $103 billion to the State

$25.0

$20.0

$ Billions

$15.0

$10.0

$5.0

$0.0

($5.0)
2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044
LNG

US Fed. Gov.

Aggregate Producer

State of Alaska

LNG
$83
27%

-5

US Gov.
$57
19%

Canadian Gov.
$0
0%

State
$103
33%

Producer
$64
21%

BUILDING A WORLD OF DIFFERENCE

Estimated Cash Flow for the 4.5 Bcf/d LNG Case: Positive
Net Cash Flow of $170 billion to the State
$50.0

$40.0

$ Billions

$30.0

$20.0

$10.0

$0.0

($10.0)
2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044
LNG

US Fed. Gov.

Aggregate Producer

US Gov.
$98
20%

State of Alaska

LNG
$126
26%

-6

State
$170
34%

Producer
$99
20%

BUILDING A WORLD OF DIFFERENCE

Y-Line Aggregate Project Cash Flow: Positive Net Cash

Flow of $353 billion to the State
$75.0
$65.0

$ Billions

$55.0
$45.0
$35.0
$25.0
$15.0
$5.0
($5.0)
2008

2011

2014

State of Alaska

2017

2020

2023

Aggregate Producer

2026

2029

Trans Canada

2032

2035

2038

Canadian Gov.

2041

2044

US Fed. Gov.

US Gov.
$156
19%

Canadian Gov.
$9
1%
State
$353
43%

TransCanada
$119
14%
Producer
$193
23%
-7

BUILDING A WORLD OF DIFFERENCE

Estimated State NPV5 is Substantially Positive for all LNG

Project Configurations Considered
$90.0
$80.0
$70.0

Y- Line project produces a

substantial NPV for the State.
The 2.0 Bcf/d LNG expansion
provides an additional $19.4
billion NPV5 to the State.

$85.5

$ Billions (2008)

$60.0
$50.0

$47.1

$48.0

2.7 Bcf/d LNG Expanded

to 4.5 Bcf/d LNG

4.5 Bcf/d LNG

$40.0
$30.0

$29.1

$20.0
$10.0
$2.7 Bcf/d LNG

-8

6.5 Bcf/d Y-Line

BUILDING A WORLD OF DIFFERENCE

LNG Price Scenario Impacts on the State NPV5 for the 4.5
Bcf/d LNG Project
State NPV5
4.5 Bcf/d
TransCanada
4.5 LNG Project

$70.0

project generates a $66.1

billion NPV5 to the State.

Considered the
alternative price
scenarios impact on
the producers

Producer NPV15:

$61.4

$60.0

$ Billions (2008)

$50.0

$48.0

$40.0

Base LNG Price

- $3.0 billion

High LNG Price

$3.8 billion

Low LNG Price

- <$1.8> billion

$30.0
$20.0

$13.2

$10.0
$Base Case Price
-9

Low Case Price

High Case Price

BUILDING A WORLD OF DIFFERENCE

Current Market Relationship between Oil and Gas Prices

is Substantially Higher than Historical Average
Oil and gas forward
markets show that the
relationship will return to
average levels. Wood
Mackenzie is forecasting a
much quicker return than
the forward markets.

Nominal Oil to Gas Price Ratio ($/BBL to $/MMBtu)

14

12

10

Current Forward Market for WTI Oil Price to Henry Hub Gas Price ($/BBL vs $/MMBtu)
Wood Mackenzie Forecast for WTI Oil Price to Henry Hub Gas Price ($/BBL vs $/MMBtu)

Historical Average WTI Oil Price to Henry Hub Gas Price Ratio ($/BBL to $/MMBtu)

0
2008
- 10

2011

2014

2017

2020

2023

2026

2029

2032

2035

2038

2041

2044

BUILDING A WORLD OF DIFFERENCE

Implications to LNG Project NPV from High Oil Prices

Analysis Assumptions:
z

Considered oil to gas price ratio assumptions of 8, 9, 10 and 11 to 1

Analysis Results:
z

High oil prices, relative to gas prices, must be maintained in order for LNG
project NPV to be greater than an overland route

Assumes that the Gas Strategy generated relationships do not change

Base Case LNG Price

- 11

High Case LNG Price

State: 10 to 1 or greater

State: 9 to 1 or greater

Producer: 11 (12) to 1 or
greater

Producer: 10 or 11 to 1
or greater