Dr. Tilak K.

Doshi
Chief Economist & Principal Fellow

Chew Wee Kian Alvin

Energy Analyst

Examining Regional Market Outlooks and

Developments

12th October 2010

Gas Asia Conference 2010,
Kuala Lumpur, Malaysia
 Primary Energy Demand by Fuel (MTOE)

Despite increasing emphasis on renewables and other non-fossil sources of

energy, coal, oil and natural gas occupy a predominant share of fuel sources
in the foreseeable future (81.5% in 2007; 80.1% in 2030).

CAGR
1980 2007 2030 1980-2007 2007-2030 2007 2030
Coal 1,792 3,184 4,887 2.2% 1.9% 26.5% 29.1%
Oil 3,107 4,093 5,009 1.0% 0.9% 34.1% 29.8%
Gas 1,234 2,512 3,561 2.7% 1.5% 20.9% 21.2%
Nuclear 186 709 956 5.1% 1.3% 5.9% 5.7%
Hydro 148 265 402 2.2% 1.8% 2.2% 2.4%
Biomass 749 1,176 1,604 1.7% 1.4% 9.8% 9.6%
Renewables 12 74 370 7.0% 7.3% 0.6% 2.2%
Total 7,228 12,013 16,790 1.9% 1.5% - -

Source: IEA World Energy Outlook 2009

2
 Primary Energy Demand by Region (MTOE)

Asia (including China and India) and the Middle East have the most rapid
energy demand growth

CAGR Share
1980 2007 2030 1980-2007 2007-2030 2007 2030
OECD 4,050 5,496 5,811 1.1% 0.2% 45.8% 34.6%
North America 2092 2793 2974 1.1% 0.3% 23.2% 17.7%
United States 1,802 2,337 2,396 1.0% 0.1% 19.5% 14.3%
Europe 1,493 1,826 1,894 0.7% 0.2% 15.2% 11.3%
Non-OECD 3,003 6,187 10,529 2.7% 2.3% 51.5% 62.7%
Asia 1,068 3,346 6,456 4.3% 2.9% 27.9% 38.5%
China 603 1,970 3,827 4.5% 2.9% 16.4% 22.8%
India 207 595 1,287 4.0% 3.4% 5.0% 7.7%
Middle East 128 546 1,030 5.5% 2.8% 4.5% 6.1%
Others 1,808 2,295 3,043 0.9% 2.3% 19.1% 18.1%
World 7,228 12,013 16,790 1.9% 1.5% - -

Source: IEA World Energy Outlook 2009

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 Primary Natural Gas Demand by Region (bcm)

Asia and the Middle East also account for the fastest growth in natural gas
demand; natural gas will increase in importance in these countries
CAGR Share
1980 2007 2030 1980-2007 2007-2030 2007 2030
OECD 958 1,527 1,761 1.7% 0.6% 50.1% 40.8%
North America 659 813 892 0.8% 0.4% 26.7% 20.7%
United States 581 655 649 0.4% 0.0% 21.5% 15.0%
Europe 264 544 651 2.7% 0.8% 17.8% 15.1%
Pacific 35 170 218 6.0% 1.1% 5.6% 5.1%
Japan 25 100 111 5.3% 0.4% 3.3% 2.6%
Non-OECD 559 1,523 2,553 3.8% 2.3% 50.0% 59.2%
Asia 36 319 748 8.4% 3.8% 10.5% 17.3%
China 14 73 242 6.3% 5.3% 2.4% 5.6%
India 1 39 132 14.5% 5.4% 1.3% 3.1%
Middle East 36 294 602 8.1% 3.2% 9.6% 14.0%
Others 488 910 1203 2.3% 4.0% 29.8% 27.9%
World 1,517 3,049 4,313 2.6% 1.5% - -

Source: IEA World Energy Outlook 2009

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 LNG Liquefaction Capacity Outlook
World liquefaction capacity sharply increases, led by Qatar, Australia and
West Africa, from about 390 bcm at end-2009 to 460 bcm by 2015 and 600
bcm by 2020
800

700
600
Billion Cubic Metres

500
400

300
200

100

0
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
North America Europe Asia Asia Pacific
Latin America FSU Africa Middle East
xls 40749 WGM O Sec 4 Source: Nexant forecasts
 Natural Gas Proved Reserves (end 2009)

Middle East and FSU dominate conventional reserves…

Share R/P
tcf of total Ratio (yrs)
North America 323 4.9% 11.3
US 245 3.7% 11.7
S. & Cent. America 285 4.3% 53.2
Venezuela 200 3% >100
Europe & Eurasia 2,228 33.7% 64.8
Russian Federation 1,567 23.7% 84.1
Middle East 2,690 40.6% >100
Iran 1,046 15.8% >100
Qatar 896 13.5% >100
Africa 521 7.9% 72.4
Algeria 159 2.4% 55.3
Nigeria 185 2.8% >100
Asia Pacific 574 8.7% 37
Australia 109 1.6% 72.7
Indonesia 113 1.7% 44.3
Malaysia 84 1.3% 38
World 6,621 62.8
Source: BP Statistical Review of World Energy 2010

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 Natural Gas Proved Reserves (end 2009)
(with US Shale Gas estimate)
Including shale gas
Share R/P R/P
tcf of total Ratio (yrs) tcf Ratio (yrs)
North America 323 4.9% 11.3 >3,000 >100
US 245 3.7% 11.7
S. & Cent. America 285 4.3% 53.2
Venezuela 200 3% >100
Europe & Eurasia 2,228 33.7% 64.8 • China and Australia
Russian Federation 1,567 23.7% 84.1 expected to have
Middle East 2,690 40.6% >100 largest potential after
Iran 1,046 15.8% >100 US.
Qatar 896 13.5% >100 • Exxon, Chevron, Shell
Africa 521 7.9% 72.4 and ConocoPhilips
Algeria 159 2.4% 55.3
have acquired shale
Nigeria 185 2.8% >100
Asia Pacific
gas prospects in
574 8.7% 37
Australia 109 1.6% 72.7 Poland, Sweden and
Indonesia 113 1.7% 44.3 Germany
Malaysia 84 1.3% 38
World 6,621 62.8
Source: BP Statistical Review of World Energy 2010, IHS/CERA shale gas estimates 2010

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 USGS Hydrocarbon Resource Estimates
(Conventional v. unconventional)
• Conventional hydrocarbons: dominating role of the Middle East OPEC due
to the geographical distribution
• Unconventional hydrocarbons: are subject to great uncertainty in
development costs (e.g. Canadian tar sands)
• However, North American shale gas is game changer with global impacts
(with China, Europe, India and Australia all also having potential shale gas
and CBM availability)
 EIA US Gas Supply Forecasts
EIA forecasts of just 2 years ago might be conservative…shale gas could
constitute half of all US gas supply by some estimates
trillion cubic feet
25

20
Shale gas

15
Coalbed methane

10 Other lower 48 onshore

(including tight gas)

Lower 48 offshore

0
1990 2000 2008 2015 2025 2035

Source: EIA, 2009

 Gas Production
Long Run Marginal Cost ($/mmbtu)

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Piceance
US shale gas breakeven prices at $3 - $5/mmBTU, Tight
Appalachian $6.8
5 according to Shell (FT, Oct 2nd, 2010) coal seam
$4.86
Barnett
Indonesia Shale
North $3.4
4
Sumatra
USA
Indonesia $2.35
Offshore
South
ultra-deep
3
Sumatra
$1.73 Woodford
Qatar Al and Java
$1.6 Shale
Australia East Khaleej
$3.89
Coast $1.3
2 $0.85
Indonesia Pinedale
UAE Irian Jaya Tight
USA
$0.55 $2.75 $3.5
Nigeria 12000 Indonesia
1 Associated ft East
$0.1 $0.29 Brunei Russia Kalimantan
$1.5 Shtokman and Sulawesi
Trinidad and and Yamal
Tobago $2
0 $1.7
China $1.25
Algeria $0.8 LRMC
Qatar North Field
$0.5 Source : Nexant, Energy Studies Institute
$0.2

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 Natural Gas Prices ($/MMBTU)
Financial crisis and recession in 2008 led to steep fall-off in prices, with Japan
spot LNG prices diving from $16/mmbtu peaks to below contract prices

18
16
14
12
Japan Contract
10
8 Japan Spot
6 NBP
4 HH
2
0
2004 2005 2006 2007 2008 2009 2010*
 LNG Pricing Modes
In scenarios of global LNG surplus, price link to oil prices will be under
pressure and spot LNG prices will diverge from oil-indexed higher priced
contracted LNG flows
Not Known
No Price 0.3% Oil Price
1% Escalation
Regulation BC
23% 22%

Gas-on-Gas
Regulation SP Competition
11% 31%
Regulation
COS Bilateral
3% Netback Monopoly
1%
xls 40749 WGM O Sec 4
8%

Source: Nexant estimates

LNG Importers: New Players and Routes

Year Number Importing Countries

1998 8 Japan, South Korea, Taiwan,
Belgium, France, Spain, Italy,
US
2008 20 +India, China
+Turkey, Greece, Portugal, UK
+Puerto Rico, D. R., Mexico, Argentina, Brazil

2015 29 +UAE, Singapore, Thailand?, HK?, Indonesia?,

Pakistan?
+Netherlands, Germany, Poland?, Cyprus?

By 2007:
84 country-to-country trades (+15 over 2006)
264 sea transportation routes (+68 over 2006) Source: Deutche Bank, 2008
 Impacts of US Gas Shale Supply Shock
“New technologies to extract gas from shale rock have altered the U.S. energy
outlook for the next 100 years” (Tony Hayward, BP, 2010)

• Indigenous natural gas supplies reduce the need for LNG imports into North
America which become a matter of choice rather than necessity.
• Sempra, Cheniere and Freeport LNG have asked for FERC permission to
turn their US import terminals into export terminals.
• Huge Qatar planned supply to U.S. now likely to look for new markets,
competing with Australia in Asia and Gazprom in Europe.
• Russian LNG projects previously targeting U.S. markets will also most likely
look to Asian markets.
• The end result will be a pressure on natural gas prices, already weak since
their peaks in 2008.
• Asian importers have an option value in sourcing larger shares of LNG
imports under spot or short term contracts given the outlook for softer spot
LNG market for the medium term
 China Gas Infrastructure

China is said to have the second largest deposits of shale gas, after the
US; together with potential pipeline gas from Russia and Myanmar makes
China’s options for gas supply far more competitive
RUSSIA

KAZAKHSTAN

CHINA

Existing Pipelines
MYANMAR
Planned Pipelines
Existing Import Terminals
Planned Import Terminals

PP: 40749 WGMO Asia Pacific Sec_5

 Levelized Costs of Electricity (2008)

Natural gas will likely be used as an interim transition fuel in a carbon-

constrained future, as CCGT remains among the most efficient technologies
for power generation

SC/USC Coal with Onshore Diesel

Nuclear CCGT Coal 90% CCS Wind Solar PV Genset
Capacity (MW) 1,400 480 750 474 45 1 1
Investment Cost (S/kW)* 4,102 1,609 2,133 3,838 2,349 6,006 187
O&M (cents/kWh) 1.5 0.4 0.6 1.4 2.2 3 1.5
Fuel Cost (cents/KWh) 0.9 6.1 1.8 1.3 0 0 40.4
Load Factor (%) 85% 85% 85% 85% 26% 13% 85%
Lead Time (years) 7 2 4 4 1 1 1
Expected lifetime (years) 60 30 40 40 25 25 7
LCOE (cents/kWh) @ WACC=5% 5.9 7.5 4.1 5.9 9.7 41.1 42.3
LCOE (cents/kWh) @ WACC=10% 9.9 8.2 8.2 8.7 13.7 61.7 42.3
Carbon Cost at $60/ton
LCOE (cents/kWh) @ WACC=5% 5.9 9.6 9.6 6.5 9.7 41.1 46.8
LCOE (cents/kWh) @ WACC=10% 9.9 10.3 10.3 9.3 13.7 61.7 46.8

Sources: IEA Projected Cost of Generating Electricity, 2010; Energy Studies Institute calculations for diesel genset

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Thank You!

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