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LNG pricing mechanisms and the impact on


LNG bunker fuel price
Simon Ellis
LNG Analyst, ICIS
Rotterdam, 21 October 2013
www.icis.com
Presentation summary
Supply/demandbalance
GlobalLNGpricemechanisms
LNGmarket
pricingtrends
Theshiftfromoilindexationtohub
basedpricing
Europeangas
pricingtrends
Declineoropportunity?
Influenceoforiginonpricing
SourcesofLNG
forEurope
Gashuboroilindices?
Alternativestoindices
OptionsforLNG
bunkerprices
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Who we are
ICIS provides market intelligence services to the global petrochemicals, energy and fertilizer
markets. We are part of the Data Services division of Reed Business Information (RBI).
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www.icis.com
ICIS specialists in energy
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www.icis.com
1. In high volume, long-term, pipeline and LNG supply contracts into
Europe.
2. In short and medium term supply contracts.
3. In floating-price end-user contracts.
4. Infrastructure operators capacity sale and auction contracts.
5. In Energy Trading and Risk Management Systems.
6. In OTC derivative contracts.
ICIS gas and power prices are leading benchmarks
www.icis.com
Trends in the global LNG spot market
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www.icis.com
Asian spot LNG prices have diverged from hubs
Source:ICIS,NYMEX
0.00
5.00
10.00
15.00
20.00
25.00
04/04/2008 06/03/2009 05/02/2010 17/12/2010 18/11/2011 28/09/2012 01/08/2013
F
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m
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M
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t
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EastAsianspotLNGprices,NBPandHenryHub20082013
ICISDESTokyo/EastAsiaIndex(EAX) ICISNBP NYMEXHenryHub
www.icis.com
In 2011 Japan faced unprecedented demand shock
Source:FEPCJapan,customs
agencies
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
90,000,000
H12011 H22011 H12012 H22012 H12013
t
o
n
n
e
s
Japan'selectricityutilitiesasshareoftotalEastAsianLNG
procurementH12011 H12013
Taiwan
China
SouthKorea
OtherJapan
Japaneseelectricityutility
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www.icis.com
Asia dominates short-term since Fukushima
Share of global short term (>5 year) LNG trade
H12012
31.6milliontonnes(gross)
H12013
EastAsia
OtherAsia
SouthAmerica
NorthAmerica
Europe
30.2milliontonnes(gross)
www.icis.com
Asian spot prices influenced by several factors
Seasonalpeaksinwinter(S.Korea,
N.China,Japan)andsummer
(S.China,Taiwan,Japan)
CrudeoilpricestillaceilingforLNG
Seasonality
andsubstitute
fuels
Seasonality
andsubstitute
fuels
LNGstillaphysicalmarketwith
plantsexposedtopoliticaland
operationalrisks
Production
issues
Production
issues
Othermarkets,notablySouth
America,haveshownabilityto
competeatthemargin
Premium
demand
outsideAsia
Premium
demand
outsideAsia
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www.icis.com
Crude price a ceiling for Asian spot LNG
Source:ICIS
8.00
10.00
12.00
14.00
16.00
18.00
20.00
22.00
04Jan11 04Jul11 04Jan12 04Jul12 04Jan13 04Jul13
$
/
M
M
B
t
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EastAsianspotpricesJan2011 Sep2013
ICISEastAsiaIndex(EAX)frontmonth ICISBrentfrontmonth
ICISNBPfrontmonth JapanAsiaPacificcontractaverage
www.icis.com
Oil index still mainstay of Asian longer term contracts
5.00
10.00
15.00
20.00
25.00
50.00 70.00 90.00 110.00 130.00 150.00
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/
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M
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JCC/Brentprice($/bbl)
SelectedoilindexedcontractsintoAsia20082012
LongtermEastAsia2008
LongtermEastAsia2012
LongtermScurve2010
ShorttermeastAsia2011
MidtermEastAsia2011
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www.icis.com
But other price indices emerging
Cheniere hassignedfreeonboard(FOB)dealsat
115%HenryHub+$3/MMBtu liquefaction+shipping
(paidforbybuyer)
USFOB
sales
HybriddealsinAsiahaveindexedtoe.g.Oil/Henry
HubandOil/NBPonlongtermbasis
MidtermdealsinAsiaindexedtospotbenchmarks
Hybrid
contracts
SouthAmericanbuyershaveboughtonmidterm
basisatHenryHubplus$1112/MMBtu
Americas
midterm
www.icis.com
European gas pricing trends
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www.icis.com
European gas pricing: Hub prices put pressure
on oil-linked contracts
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Jan08 Jan09 Jan10 Jan11 Jan12 Jan13
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HubpricesvsGermanimportJan2008 July2013(ICIS,BAFA)
NBPHerenmonthly
index/MWh
TTFHerenmonthly
index(/MWh)
Germanimportprice
(BAFA)/MWh
www.icis.com
About 50% of gas imports now linked to gas
hub pricing - trend toward gas will continue
RWE wins natural gas price dispute with Gazprom
27 Jun 2013 18:06:21 | esgm
Italian Edison wins Algerian long-term natural gas
contract case
01 May 2013 15:33:34 | esgm
Edison wins arbitration against Eni on Libyan natural
gas price
01 Oct 2012 18:07:36 | esgm
E.ON and Gazprom settle natural gas long-term contract
price dispute
03 Jul 2012 17:16:21 | edem esgm
Germany's RWE moves away from oil-indexation on
natural gas supply contracts as profits drop
10 Nov 2011 16:02:52 | esgm
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www.icis.com
OTC traded volumes 2009-2013 - TTF on
strongest growth trend
0
200
400
600
800
1000
1200
1400
1600
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0
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1
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A
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1
0
J
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1
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1
0
J
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1
1
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1
1
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1
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1
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2
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A
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1
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NBP
Zee
TTF
PSV
PEGNord
PEGSud
NCG
GASPOOL
CEGH
TWh
Source: ICIS
www.icis.com
European spot prices historically high
Average NBP Day-ahead price
0
10
20
30
40
50
60
70
80
2005 2006 2007 2008 2009 2010 2011 2012 2013
p/th
Pre Langeled and Isle of Grain start up.
Source: ICIS
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www.icis.com
Sources of LNG for Europe
www.icis.com
NW European LNG imports have fallen rapidly
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
H1
2011
H1
2012
H1
2013
H1
2011
H1
2012
H1
2013
H1
2011
H1
2012
H1
2013
H1
2011
H1
2012
H1
2013
Belgium France Netherlands UK
EuropeanLNGimportsH120112013(Eurostat,ICIS)
Qatar Algeria Egypt Nigeria Norway Peru Trinidad US Yemen
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www.icis.com
Supply tight at least until 2015
Background
H12013productionappearedtofallyear
onyeartoaround118mtonnes
Ongoing
problems
EgyptnowreducedtoonetrainofIdku
Indonesiafellnearly25%yoyinH12013
Recurring
risks
NigeriaLNG/Yemen(sabotage/political),
Snohvit (technical),Australia(weather)
www.icis.com
Europe has emerged as reload market
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
H12012 H12013 H12012 H12013 H12012 H12013 H12012 H12013
Belgium Spain France Portugal
L
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p
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Europeanreexportsbydestination:H12013vsH12012
Middleeast/India
EastAsia
Mediterranean
Mexico
Brazil
Argentina
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www.icis.com
NW Europe LNG stocks remain robust
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
Mar11 Jun11 Sep11 Dec11 Mar12 Jun12 Sep12 Dec12 Mar13 Jun13
L
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(
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LNGstocksatNWEuropeterminals(NationalTSOs,LSOs)
UK France(Montoir) Belgium Netherlands
www.icis.com
Contracts into N. Europe main source of LNG
Gate
Qatargas-E.ON
<1.4mtpa to 2018, flexible, hub-index
Iberdrola-DONG
<1mtpa to 2021, flexible, hybrid
Shell-Eneco
<0.35mtpa to 2015, flexible
Zeebrugge
RasGas-Eni
2.05mtpa to 2027, firm, Zee-indexed
RasGas-EDF
<3.4mtpa to 2027, Flexible
South Hook
Qatargas-Exxon Mobil/Total
<9.9mtpa to 2033
firm/flexible, NBP-indexed
Montoir
NLNG-Enel
<2.5mtpa to 2021
Firm/ flexible, oil-indexed
Dragon
Qatargas-PETRONAS
<1.14mtpa to 2018
NBP-indexed, flexible?
winoujcie
Qatargas-PGNiG
1mtpa to 2034
Firm, oil-indexed
Isle of Grain
Qatargas-Centrica
<2.4mtpa to 2014
Firm/flexible,
NBP-indexed
Terminal committed
to bunkering
Potential bunkering
terminal
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www.icis.com
Selected Northern Europe LNG bunkering sites
To
Hammerfest
Existing LNG plant
Planned LNG plant
Existing bunkering
Planned bunkering
www.icis.com
LNG prices indices in Europe
Source: ICIS, Cheniere statements, NYMEX
8.00
9.00
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12.00
13.00
14.00
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PossibleEuropeanLNGpricesatfuturesmarketprices
(basedonNYMEXBrent/HenryHub,ICISNBP16Oct2013)
USliquefactionDESEurope(Cheniere) USliquefactionFOB NBP 12%Brent 13%Brent
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www.icis.com
Pricing possibilities for LNG bunkering
www.icis.com
LNG bunker market growth price-dependent
0
200
400
600
800
1000
1200
1400
HFO LNG MGO
$
/
t
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DMAcentralcaseenduserprices
OnBoardDeliveredFuelPricesby2020
(DMAassumptions)
Danish Maritime Authority (DMA)
study for EU assumed 4.2 million
tonne LNG market growing by
2020 at these prices (see graph)
$/tonne prices misleading as:
-tonne of LNG52 MMBtu
-tonne of MGO41 MMBtu
-tonne of HFO39 MMBtu
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Potential pricing mechanisms for bunkering
European gas hub-indexed (Premium to NBP/TTF)
Oil-indexed (Brent)
Indexed to competing ship fuels (MGO/ HFO)
US LNG indexed (Henry Hub plus fixed cost)
Hybrid of any of the above
Fixed price (dependent on global LNG prices)
Northern Europe LNG bunker assessment
www.icis.com
Features of different price mechanisms
Seasonality Risk
management
Marketdynamics
NBP/TTF
indexed
Priceindexedto
Europeanhub
pricesplusamark
up
Significantly
higherwinter
prices
OTCmarket
liquid for>2
yearsforward
Hubliquidity
growing but
requiresmore
supplysources
Henry
Hub
indexed
Priceindexedto
HenryHubplus
Moderately
higherwinter
prices
OTCtraded,
90%of
bilateraltrade
cleared(ICE)
Vast numberof
producers,exports
andswitchingcould
shiftdemand
Oil
indexed
Priceindexedto
mainstreamoil
benchmarkor
products
Limited
seasonal
variation
Highlyliquid
physicaland
financial
markets(Brent)
Liquidbut opaque
priceformation,
OPEClimits
downside
NewLNG
Bunkering
index
Assessmentbased
onsupply/demand
inLNGbunker
market
Dependson
sourceofLNG,
demand
structure
Likely to
developas
liquiditygrows
Responsiveto
supply/demand
balancein bunker
market
16
www.icis.com
Theoretical price indices at breakbulk terminal
10.00
11.00
12.00
13.00
14.00
15.00
16.00
17.00
18.00
19.00
20.00
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PossiblesmallscaleFOBindicesatfuturesmarketprices
(basedonNYMEXBrent/HenryHub,ICISNBP16Oct2013,DMA)
USliquefactionFOB+$4/MMBtu NBP+3/MMBtu
LNG(15%Brentindexed) HFO(DMAendusercentralcase)
LNG(DMAendusercentralcase)
*MGO (DMA end-user central
case) $30.00/MMBtu
Premiumatfinalbunker
terminalorvessel
www.icis.com
Origin of future supplies could influence price
Over185mtpaofUSLNGexportcapacityat
approvalstagewith>40mtpaapproved
WesternCanada>20mtpaofcapacitytargetedfor
developmentby2020.
North
America
Mozambique 50tcfofgasfoundinRovumaBasin
Anadarko/Eni plan20mtpacapacityprojectby2018
Tanzania over9tcfofgasdiscovered BGGroup
planmultitrainexportproject
EastAfrica
RussianLNG (Vladivostok,Yamal LNG)
EastMediterranean(TamarFLNG,LeviathanLNG)
Australasia(Browse,Arrow,Bonaparte,PNG)
WestAfrica(CameroonFLNG,EquatorialGuinea2)
Other supply
sources
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www.icis.com
Thank you very much
Simon Ellis, simon.ellis@icis.com

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