Emerging Tightness in LNG For India

Strategic Advisors in Global Energy
Welcome Seminar on 'Emerging Tightness in LNG Market: Implications for India
May 4, 2010, New Delhi
The New Dynamics in the Middle East
Prepared for Petrofed By Fareed Mohamedi, Partner Shangri-La Hotel, New Delhi, 4 May 2011
The Restless Wave of Middle East Protests
Regime change in Tunisia and Egypt raised risks in the oil industry, but the first actual disruptions to operations came in Libya When will normalcy be restored in Libya? Will unrest spread to other producers? Will there be significant changes in the operating environment?
Emerging Tightness in LNG Markets | PFC Energy-Petrofed Seminar May 2011 | Page 3
Middle East: Patronage Patterns in Soft States

State
The ruling class often has a distinctive identity and the bureaucracy is often little more than a public employment program.
Local Elites
Local elites mediate between rulers & ruled, using complex systems of patronage. Religious ties occupy a special position since they transcend tribal & ethnic links.
Mass
Fragmented by multiple identities.
Tribe
Sect
Ethnic
Middle East: Three Types of States

1. Broad-Based Elite: Egypt, Tunisia and Morocco
The state is representative of the rural and urban notables More political choices for head of state are available no zero sum game
2.
Narrow Elite: Algeria, Syria, Bahrain, Jordan, Iraq, Libya

The state represents the interests of one primary group There are no alternatives for this group zero sum game approach
3.
The Gulf Monarchies: GCC minus Bahrain

Clearly defined identities and hierarchies Elites comprised of ruling families with very close relations through marriage, Emerging tribal affiliations or economic ties Tightness in LNG Markets |
PFC Energy-Petrofed Seminar May 2011 | Page 5
What is Next For Egypts Democratization?

1. Managed Elections
Real power of the traditional elite is preserved in new democratic system, with participation from other groups Most Likely
2. No Real Elections
An electoral veneer, with presidential elections for pre-screened candidates prone to co-optation
3. Developmental Democracy
Divisions among the ruling classes lead to competition for support from the masses through elections
4. Relapse from Democratization

Capture of power through elections by one group (inter alia, the Muslim Brotherhood) either leads to no willingness to cede power, or fear among other groups of economic crisis and political marginalization; support for coups Least Likely
It is unlikely that the existing system of ruling elites will be overturned in Egypt or other Middle Eastern states
Libya: Descent into the Abyss

Qadhafis initial, violent crackdown failed
Benghazi protestors encouraged by the examples of Tunisia and Egypt The resilience Benghazi protestors encouraged other groups
But the oppositiona series of groups seeking regime changeis similarly incapable of dislodging Qadhafi from western Libya Outside the oil sector, Libya has almost no institutional state capacity A post-Qadhafi Libya would mean a wholesale rebuilding of the state, hampering efforts to return oil operations to normalcy A cautionary tale for other narrowly-based regimes?
Yemen: Salih Era is Ending

The question is not whether there will be regime change, but when and how that change will occur Salih and Yemens myriad interest groups are negotiating the terms of Salihs exit, under a Gulf Cooperation Council (GCC) plan If Salih hands over power peacefully, he may be replaced by a consensus figure with the support of Yemens main opposition groups: tribal sheikhs (especially in the north), religious leaders and the Joint Meeting Partiesa coalition of opposition groups However, it is possible that Salih will refuse to step down or will be replaced by a divisive figure, which could open a path to conflict among tribes and regional leaders
President Ali Abdallah Salih
Is the Gulf Next?

Happy Gulf a reaction to the 1990s economics challenges
Economic Changes
Higher oil prices and stabilization Strategic economic plan Public-Private partnerships Globalization of services Using energy for development
Political Changes
Improved governance Faux democratic institutions Opposition mistakes and opportunities for divide and rule
Continuing Challenges
Income distribution Unemployment Greater political inclusion Growing government capacity Strengthening rule of law
Trajectories for Middle East Protest Movements
Opposition Capacity for Regime Opposition Capacity for Regime Change Change
Opposition prevails
Tunisia Egypt Kuwait Yemen Iraq Syria Bahrain Jordan Algeria Oman Saudi Arabia
Compromise
Prolonged violence
Libya
Regime prevails
UAE
Qatar
Legend Oil Net Exporter
Regime Capacity for Survival Regime Capacity for Survival
Financial strength and generally better governance yields a better political outlook for the major oil producing states
Risk of Disruptions to LNG Exports

The war in Libya could persist for months to come, and the most likely scenario is a sustained disruption to all LNG exports. The liquefaction facility at Marsa el-Brega lies within the active zone of conflict. Yemen presents the next-greatest risk. If Salihs departure leads to a breakdown of government and regional conflict, gas installations and pipelines could be targeted by local tribes. The key risk in Egypt is not a disruption to LNG exports, but rather pipeline exports to Israel. This is already a hotly debated topic, and a new government will review and possibly revise the contracts. Algeria presents limited risks to LNG exports. Even during the upheaval of the 1990s, there were no supply disruptions.
Low
High
OPEC Spare Capacity Can Meet Second Disruption

Light
Algeria: Production 1,460 mb/d Algeria: Production 1,460 mb/d UAE: Production 2,500 UAE: Production 2,500 mb/d mb/d Spare capacity 230 mb/d Spare capacity 230 mb/d Qatar: Production 820 mb/d Qatar: Production 820 mb/d Spare capacity 150 mb/d Spare capacity 150 mb/d
Libya: Lost
production 1,350 mb/d
Syria: Production 340 mb/d Syria: Production 340 mb/d Saudi Arabia: Production 9,100 mb/d Saudi Arabia: Production 9,100 mb/d Spare capacity 3,400 mb/d Spare capacity 3,400 mb/d Oman: Production 800 mb/d Oman: Production 800 mb/d
Yemen: Production 220 mb/d Yemen: Production 220 mb/d Iran: Production 3,690 mb/d Iran: Production 3,690 mb/d
Kuwait: Production 2,430 mb/d Kuwait: Production 2,430 mb/d Spare capacity 200 mb/d Spare capacity 200 mb/d
Heavy Sweet
Solid bubbles = Available spare capacity Circles = Production
Sour
OPEC has enough spare capacity to meet the loss of most other Middle East producers, though with relatively sour barrels
Mideast Liquids Capacity Growth Continues

2011 onward: Iraqi crude, more gas liquids growth from across region
Crude oil gains for only a few producers:
The largest expansion has already occurred: Saudi Arabias 4 oil field projects that added 2.0 mmb/d in 2009/2010 Iraq gains already underway, but large increases dependent on infrastructure developments UAE may see gains aggregating 0.8 mmb/d by 2017 assuming concession extensions are resolved
But gas liquids a big positive:

Qatars six major LNG projects have seen the countrys gas liquids production climb by 400 mb/d since 2008; output should gain another 500-600 mb/d by 2015 Domestic gas utilization projects to support power/desalination growth and petrochemical investments will drive associated gas liquids gains in Saudi Arabia and UAE But potential Iraq gains difficult to quantify and a thorny investment environment will make increases in Iran and Kuwait problematic
North Field moratorium limits further increases (unless gas found in other blocks) in Qatar and new refineries in Saudi Arabia and Abu Dhabi will cut potential crude availability to export customers
Price Requirements Rising for All OPEC States
2011 Forecast Brent Price------------------------------------------------------------------
Thank You! Question & Answer Session
Drivers Behind a Tightening Gas Market
Prepared for Petrofed By Natalie Bravo, Senior Analyst Shangri-La Hotel, New Delhi, 4 May 2011
What Gas World Do We Live In?

Too much supply
Gas glut will last a decade says the IEA US shale gas changed everything Now Europe and Asia will develop shale gas and their LNG needs will fall Australia will be huge and the market will struggle to absorb these volumes Uncertain demand: efficiency and renewables will lower gas use, as will nuclear or carbon capture and sequestration
Too much demand

Gas is the transition fuel it is the default power gen source in the OECD and the development fuel for the non-OECD LNG markets are emerging in SE Asia, the Middle East, Latin America and Europe Established LNG producers will struggle to meet future demand New LNG plants face problems some may never happen Spot prices strong; and contracts just below oil parity
The New Landscape for Global Gas

Supply Shock: Lost output from Libya risk of more losses from other producers.
Demand Shock: Existing reactors are offline and new reactors will struggle to move forward.
Nuclear capacity (~10 GW) offline in Japan. Existing nuclear plants are being shut down for inspections. Debates about whether to extend the life of nuclear reactors are re-starting. New problems for new nuclear plants.
MENA + Fukushima = Supply Glut view has disappeared.
Supply Shock: Middle East Output Loss Low So Far, But There is Downside Risk
bcf/d
MENA: 2010 LNG Exports (13 bcf/d) High Medium 7.6 Low
9 8 7 6 5 4 3 2 1 0
Libyan LNG inconsequential loss. Libyan pipeline loss tolerable in off season; Russia can fill gas. Yemeni LNG loss would equal volume of Fukushima shock. Losing Algerian & Egyptian gas would have serious ripple effects.
1.9 1.2 0.6 0.0 Oman Yemen Algeria Qatar Egypt Libya UAE 0.9 0.8
Qatar has 15-20 mmtpa of spare capacity to offset losses. Long-term story unchanged so far: Little growth forecasted for Middle East anyway.
Demand Shock: Japanese Spot Demand

10 GW, or 20%, of Japans nuclear capacity was shut down after the quake. By comparison, Japan shut down 8.2 GW of capacity in 2007.
mtons 900 800 700 600 500 400 300 200 100 0 2006 2007 2008 2009 2010 Japan: Spot LNG Purchases
mtons 600 500 400 300 200 99 100 0 2006
Japan: Monthly Spot Purchases 498
July 2007 earthquake
Peak spot purchases in March 2008
270 162 159
2007
2008
2009
2010
Japan is expected to need an extra 500-600 mtons per month while the 10 GW are offline. This increase in demand has boosted spot prices in Asia to $12-$13/MMBtu and European spot (NBP) to $9-$11/MMBtu. There is little reason to see prices reach $20/MMBtu as they did during the last earthquake in 2007. Qatar and Asia-Pacific suppliers are capable to meet most of the needed volumes. Less need to pull Atlantic Basin supplies.
Demand Shock: Existing Nuclear Plants

The nuclear industry has suffered from three shocks after the Fukushima Daiichi disaster: a call to re-inspect existing reactors; new opposition to extending the life of older reactors; and increased scrutiny of new projects The impact for natural gas comes from three sources: 1. Plants being shut down for inspections
The EC is recommending countries inspect every operating power plant in 2011. Assuming every nuclear power plant in Europe is offline for just 1 month, and that 75% of the lost power is made up by gas, demand in Europe could increase by 1.1 bcf/d in a European market of ~54.5 bcf/d.
2. Plants not been granted extensions

Nuclear reactors are typically granted an initial operating license period of 30 years, but many facilities have operated or been granted extensions for up to 60 years. Extensions, however, have not been smooth, and given that ~24% of the worlds capacity is over 30 years old, whether governments approve extensions to operating life will be critical. This is especially relevant in countries where extensions have been hugely contentious. Germany, Spain and Belgium stand out in this category.
Demand Shock: Proposed Nuclear Plants

3. New plants not being built
Longer term, the absence of a nuclear renaissance would boost gas consumption. At this stage it is too early to assess how big that shock may be. But the loss of 1 GW of planned nuclear output could trigger a gas demand increase of up to 160 mmcf/d.
GW 400 Existing Nuclear Capacity by Region and Commissioning Date % of growth Other 41 Asia 84 11%
Proposed Nuclear Capacity by Country USA China (PRC) Japan
350
300
250
Other 33 Asia 42
56%
S. Korea UK UAE
200 N. America 107
N. America 113
8%
Bulgaria France India Turkey
150
100 Europe 115 Europe 134 25%
Egypt Iran Other GW 0 10 20 30 40 50
50
0 1990 2010
Demand Shock: Lost Nuclear Output Has Created a Severe Shock that will Boost Natural Gas Demand
bcf/d
Range of Possible Gas Demand Boost From Different Nuclear Shocks
14 12 10 8 6 4 2 0 Japan Plants Offline (2011+) EU Reactor Inspections (20112012) BE & GER Plant Closures (20152025) Plants Cancelled Globally (2018+)
+10% Japanese LNG Demand +2-6% European Gas Demand +2-4% European Gas Demand Equal to Australian LNG capacity in 2018
Lower nuclear output has delivered a short-, medium- and long-term shock that will benefit natural gas demand.
The Expected Tightness in the LNG Market Comes Sooner and is Greater than Anticipated
mmtpa
300
GlobalGlobal Supply/Demand Balance: LNG LNG Supply vs Demand View in January 2011
Demand ex. US
More demand from lower nuclear output

250
200
Less supply from MENA?
150
100
50
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
PFC Energy has long argued that the gas market will tighten by 2013; these events accelerate the transition to a tighter market and also deepen that tightness
Is the Current LNG Supply Sustainable?

Utilization Rates by LNG Exporter (2010) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Malaysia Australia Russia 0% Eq. Guinea Oman Qatar Trinidad Norway Indonesia Yemen Nigeria Algeria UAE Egypt US Brunei Libya Peru
Several cannot maintain full utilization either due to resource maturity (US, Indonesia), technical Several cannot maintain full utilization either due to resource maturity (US, Indonesia), technical challenges (Algeria, Nigeria) or domestic demand which is curbing exports (Egypt, Oman). Others challenges (Algeria, Nigeria) or domestic demand which is curbing exports (Egypt, Oman). Others (Malaysia, Equatorial Guinea) may have trouble maintaining export levels within the decade. (Malaysia, Equatorial Guinea) may have trouble maintaining export levels within the decade.
PFC's Methodology For Analyzing the Outlook for Proposed Projects: Variable Codification
Parameter Feedstock Availability Politics and Geopolitics Environmental Regulation Domestic Gas Needs Partner Priorities Project Economics Ability to Execute Market Low Risk / Enabler Enough proven reserves for 20-year project life Political support for the project No foreseeable environmental barriers Domestic market does not threaten exports High priority for all partners Break-even is much below sales price High operator experience and low technology risk Secured contracts for almost all of the output Project to come online more or less based on schedule Medium Risk / Some Barriers Need to prove or to secure additional gas Some domestic or international barriers Some hurdles and/or uncertain regulation Concern about balancing export and domestic needs Some partners are not prioritizing the project High price needed to make economic Some operator and/or technical obstacles Some or no contracts, but potential market outlets Some delays expected High Risk / Potential Deal Breakers Insufficient identified / secured supply sources Politics are prohibitive for investment Major environmental barriers to be overcome Government priority is to feed the domestic market Very low priority for one or more partners Break-even is close to or above estimated sales price Little / no expertise on LNG / technical barriers No contracts and targeting unattractive markets Project faces major hurdles and will not happen unless challenges are addressed
Overall
Few Low Risk LNG Projects

Number of LNG Trains and Their Risk Score
Low Medium High
Overall
17
90
90 projects face major barriers 61 projects lack feedstock
Feedstock Availability Ability to Execute Partner Priorities Politics & Geopolitics Domestic Gas Needs Project Economics Environmental Regulation Market 0% 11 21 26
38
13 38
61 48 34 34 24 53 75 29 17 16 41 97 4 4 60% 80% 100%
48 trains have partners who lack technical or operational expertise Governments prioritize domestic gas use over exports
44 59 42
67
Market is a yellow which means demand is out there but few have secured contracts
20%
40%
Of all the proposed LNG projects, only a handful are low risk. Most are high risk, meaning the face major barriers before moving forward.
PFC Energy Has a More Pessimistic Supply Forecast than the Operators
mmtpa
PFC Energy Liquefaction Capacity Forecast
600 Capacity if all projects materialized according to operator plans
500
400 Pacific
300
200 Middle East 100 AtlanticMediterranean 0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
PFC Energy expects liquefaction capacity will rise to ~400 mmtpa by 2010 which is much below the 550+ mmtpa that operators expect.
Emerging Markets Plan 200+ mmtpa of Regas Capacity Equal to World LNG Exports in 2009
Proposed Regasification Terminals by Region Middle East 1% Africa 1%
Asia ex. China/India 10% India 7%
Europe 37% Latin America 10%
China 13% OECD Asia 2%
North America 19%
China and India account for 20% of global proposed capacity; other Asia and Latin America account for another 20%.
Demand Recovery Not Only in Non-OECD

bcm
OECD Gas Demand, 2008-2010 2008 2009 2010 % Growth, 2010 vs. 2008 8% 7% 6% 5%
900 800 700 600 500
4% 400 3% 300 200 100 0

North America Pacific Europe
2% 1% 0%
Gas demand in the OECD world in 2010 was on average 3% higher than 2008 pre-crisis demand levels, a clear sign of demand recovery.
What Do The Prices Tell Us?

$/MMBtu
Contract Prices: Oil-Gas Relationship
18 16 Russia (Ave to Europe) 14 12 10 8 7.077 6 4 2 0 0 20 40 60

$/b
Japan (Ave Import) Late 2008 (Oil Parity) 9.517 11.957
4.637 2.197
80
100
120
In late 2008, prices were being signed close to oil parity (0.16 x oil).
What Do The Prices Tell Us?

$/MMBtu
Contract Prices: Oil-Gas Relationship
18 16 Russia (Ave to Europe) 14 12 10 8 7.077 6 4 2 0 0 20 40 60

$/b
Japan (Ave Import) Late 2008 (Oil Parity) Late 2010 (0.145x) 9.517 11.957
4.637 2.197
80
100
120
In late 2010, buyers were still paying close to 0.145x to secure LNG much above the price that Europe pays to Russia for its gas.
New LNG Projects Need High Prices

$/MMBtu
10 8 6 4 2 0 -2 -4 0 50
LNG: Supply Curve (Projects Existing and Under Construction)
mmtpa
100
150
200
250
300
New projects on the left side of the graph need $7-$8/MMBtu. So even without oil-indexation, new projects need high prices to take FID.
Henry Hub Remains Disconnected from Global Markets; Is this Sufficient to Trigger Exports?
Brent ($/b)
Oil and Gas Prices For GOM LNG Exports to Europe to Be Economic
March 2011
120 100 80 60 40 20 0 0 1 2 3
Exports Economic
Exports not Economic
Jan 2009
Indifference Curve
Henry Hub $/MMBtu
At the current oil-gas price environment, exports make sense; however, investment will hinge on a continuation of the low price environment in the United States.
Key Messages
Supply shock is modest but with potential downside.
Demand shock is large and can be larger still.
Transition to tighter market was coming it comes sooner and is bigger.
Exports from North America start looking more compelling but will Henry Hub remain low?
Growth of Unconventional Gas: Enablers and Barriers
Prepared for PetroFed By David Mullins, Manager, Upstream & Gas Group 4 May 2011
The Shale Gas Cocktail

What countries need for unconventional gas to take off
Parameter
Resource base Property rights Cooperative government Service sector Competition Willingness to spend money Favorable gas prices Easy to market gas Incentives for unconventional
Questions to ask
How much, how good? Is it clear who owns the sub-surface rights? Do landowners have an incentive to drill in their back yards? Does the government favor unconventional gas use? Are there national, regional or local opposition pressures? Is there adequate service sector capacity? What are the bottlenecks; rigs, people, services? How many companies are operating? Is there experimentation or is there group-think? Are companies willing to spend money to drive efficiencies? What is the growth / return relationship? How high are gas prices? To what are gas prices linked? What the infrastructure or market barriers to gas sales? Are there specific fiscal incentives to do unconventionals? What kind of fiscal regime governs unconventionals
Resource Base: Large and Varied
There are broad variations in play types and quality in North America: Porosity, permeability, liquids/gas/water saturations, calorific value, local environmental regulations, existing infrastructure, drilling rig availability, capable and mobile workforce.
Competition: Intensity Drives Growth & Innovation

Primary Region: Annual Number of Operators
100 90 80 70 60 50 40 30 20 10 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
mmcfd Wells
Over the past 10 years, a dramatic increase in operators as play becomes prospective.
72 61 53 46 36 21 13 66
Due to the intense competition from an operator and service sector perspective, gas production increased >2.5 bcf/d since 2004. Independents were the main driver for growth.
6,000 5,000 4,000 3,000
14,000 12,000 10,000 8,000 6,000
Secondary
Primary
2,000 1,000 0
4,000 2,000 0
pre-2000 Wells
2000 Wells
2001 Wells
2002 Wells
2003 Wells 2004 Wells 2005 Wells 2006 Wells Emerging Tightness in LNG Markets | PFC Energy-Petrofed Seminar May 2011 | Page 40 2007 Wells 2008 Wells 2009 Wells Well Count
Shale Gas Will Continue to Play a Large Role

2010 U.S. Gas Production by Source
2% 6% 13%
2020 U.S. Gas Production by Source

2% 5% 27%
18%
12%
21%
8%
49%
37%
Shale Conventional Onshore & State Offshore CBM
Federal GOM Tight Gas Alaska
Shale Conventional Onshore & State Offshore CBM
Federal GOM Tight Gas Alaska
Unconventional gas primarily shale will continues to be the major growth engine of U.S. supply. Shale gas production is expected to provide 27% of total U.S. gas production by 2020. Conventional onshore and GOM gas supply will continue to decline shallowly.
U.S. Shale Gas Production and Drilling Activity to Double in Next Decade
Shale gas production is expected to reach 18 bcf/d by 2020 (~27% of US gas production).
ShaleGasProduction(mmcf/d)
20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2000 2005 2010 2015 2020
The majority of growth will be driven by the most economic plays: Haynesville, Eagleford, and Marcellus.
Total US production from 2010 to 2020 ranges from ~61-67 bcf/d.
ShaleGasWellsDrilled
9000 8000 7000 6000 5000 4000 3000 2000 1000 0 2000 2005 2010 2015 2020
International Resource Base: Large and Varied
Recent EIA study puts technically recoverable shale gas resources at ~6,600 tcf (the US accounts for ~900 tcf). Other gas resources globally are estimated at ~16,000 tcf. This study included 32 prospective countries but excluded Russia, the Middle East, and large portions of Africa &Emerging Tightness in LNG Markets | PFC Energy-Petrofed Seminar May 2011 | Page 43 SE Asia.
The Shale Gas Cocktail

What countries need for unconventional gas to take off
Parameter
Resource base Property rights Cooperative government Service sector Competition Willingness to spend money Favorable gas prices Easy to market gas Incentives for unconventional
Questions to ask
How much, how good? Is it clear who owns the sub-surface rights? Do landowners have an incentive to drill in their back yards? Does the government favor unconventional gas use? Are the national, regional or local opposition pressures? Is there adequate service sector capacity? What are the bottlenecks; rigs, people, services? How many companies are operating? Is there experimentation or is there group-think? Are companies willing to spend money to drive efficiencies? What is the growth / return relationship? How high are gas prices? To what are gas prices linked? What the infrastructure or market barriers to gas sales? Are there specific fiscal incentives to do unconventionals? What kind of fiscal regime governs unconventionals
Where Might Unconventional Gas Be Developed?

Risk assessment of country potential for unconventional gas
Interest, Major barriers
Near-ideal conditions
Promising, some barriers
The countries with the most promise for unconventional gas development are Australia, China, Argentina and Poland
Risk Profile for Unconventional Gas

North America
Resource base quality Resource base quantity Property rights clarity Cooperative government Service sector capacity Competition that spurs innovation Willingness to spend money Favorable natural gas prices Easy to market gas Incentives for unconventional Overall Risk Profile
Australia
China
India
Indonesia
Poland
Ukraine
Argentina
Duplicating the US story will not be easy. Of these countries, Australia, China, Poland, and Argentina are the most likely to see growth in unconventional gas supply, but only if constraints are overcome.
Risk Profile for Unconventional Gas: Australia

North America
Australia
Australia
Australian operators have extensively studied the CBM play in Queensland and IOCs have entered to provide the financial support for LNG projects. However, the scale of what has been proposed is unlikely to be met due to capacity constraints in Queensland. The federal government reeled in fiscal concessions and intends to take a more stringent approach on the environmental approval process.
Risk Profile for Unconventional Gas: China

North America
Resource base quality Resource base quantity Property rights clarity Cooperative government Service sector capacity Competition that spurs innovation Willingness to spend money Favorable natural gas prices Easy to market gas
1,500
China
China
Resource potential and quality is among the highest globally for CBM, and likely for shale gas. Foreign players (IOCs and small independents alike) continue to enter the sector, but only few companies have seen success, and CBM production remains negligible. The government projects CBM production will reach 2030 bcm by 2020, up from only small volumes today. But confusion over property rights, unclear relations with foreign partners, market access, technical know-how, and service sector capacity are barriers to development.
mmcf/d 2,500 2,000
China CBM / CMM Production and Target
Incentives for unconventional Overall Risk Profile
1,000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2020 CMM Production CBM Production Emerging Tightness in LNG Markets | PFC Energy-Petrofed Seminar May 2011 | Page 48
Risk Profile for Unconventional Gas: Argentina

North America
Argentina
Argentina
Argentina is estimated to have large shale or tight gas reserves in the Neuquen Basin, some of which is currently under study by a number of gas companies already in the country. Apache has signed promising contracts for gas up to $5/MMBtu for tight gas this is under the Gas Plus program implemented in 2009 that allows companies to charge between $4-6/MMBtu for supplies from new acreage or the reactivation of mothballed acreage. Breakeven prices for North America shale plays in well developed areas (good infrastructure, solid service sector capacity, easy to market gas) generally ranges from $4-6/MMBtu.
Risk Profile for Unconventional Gas: Poland

North America
Poland
Poland
Poland has the greatest potential to develop shale gas in acreage along the Baltic Sea and CBM in southeastern Poland on the Ukrainian border. Companies involved in the country have indicated they believe there are multitcf resources there. Development in Poland is frustrated by challenges similar to those in neighboring European countries: multiple landowners over unconventional acreage will lead to a lengthy rights acquisition process. Local farmers compete for the same water required for unconventional plays. The country is in support of new sources for natural gas, stating that it would prefer increased domestic production over piped or LNG imports.
Prospects for International Unconventional Gas

Conclusions
Growth in US shale gas has generated extraordinary interest to replicate these technical gains worldwide. There is a rush by companies to acquire acreage internationally and position themselves to develop unconventional gas reserves. What made the unconventional gas revolution possible in the United States was a combination of many unique factors few of these factors can be replicated overseas. Uncertain price and regulatory environments, together with the lack of sufficient competition to spur innovation, stand out amongst the many obstacles to development.
Implications for India
Prepared for Petrofed By Gauri Jauhar, Senior Consultant Shangri-La Hotel, New Delhi, 4 May 2011
India Supply / Demand Balance:

LNG will constitute upto 25% of total supply in the next 15 years
bcf/d
India: Gas Supply - Demand Balance

Gap to Demand Exploration upside PUDs upside Other (LNG) Australia (LNG) Qatar (LNG) CBM D6 Base (ex. D6+CBM)
20 18 16 14 12 10 8 6 4 2 0 2000 2005 2010 2015 2020 2025 2030
Note: Exploration upsides are conservative estimates, shale gas not included
What does Emerging Tightness in LNG mean for Indian market and players?
1. Where to Focus? Traditional suppliers (Australia, Qatar) Non-traditional suppliers
2.
What are the Gaps? Energy security still executed as a largely oil question Gas has been a regional fuel Gas being an industrial fuel is also linked to economic growth Lack of ownership in Liquefaction plants and value chain (ex regas) Lack of dedicated vehicle for ownership in Liquefaction plants
Focus on traditional large suppliers:

Australia set to overtake Qatar
Australia vs. Qatar: PFC Estimated Starts
mmtpa
140 120 100 80 60 40 20 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Australia
Qatar
Focus outside traditional large suppliers:

Rest of the world contributes 43 mmtpa to 2020, 40% of incremental capacity
Note: Near-term opportunities in Brazil, Equatorial Guinea, Indonesia, Malaysia & Brunei, Papua New Guinea, Russia; Long-term wild cards are Angola, Mozambique,. Venezuela.
Gas is a regional fuel:

Mostly consumed where it is produced
InternationalTrade:OilvGas(2008) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Oil NaturalGas
Consumedwhereitis produced,33%
Consumedwhereitis produced,73%
Tradedinternationally, 67%
Tradedinternationally, 27%
And gas is a critical power/industrial fuel
Predominant Source of Power Generation Coal Gas Oil Hydro Nuclear Data Unavailable
World Electricity Generation by Source (2005)
Coal Gas Hydro Nuclear Oil Renewables Other
Source: IEA, PFC Energy
However, LNG exports are growing faster than pipeline exports

Gas Exports via Pipeline vs LNG
Pipeline LNG
bcm
900 800 700 600 500 400 300 200 100 0 1990 1991 1992 1993 1994 1995 1996 1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Energy security still executed as a largely oil question:

Most of OVLs assets are linked to OIL security
Equity Access in Liquefaction is / will be a key factor in securing long-term supplies
Partnerships are critical to long-term supply security:

Case study of Japan
Partnerships are critical to long-term supply security
What does Emerging Tightness in LNG mean for Indian market and players?
1. Where to Focus? Traditional suppliers (Australia, Qatar) Non-traditional suppliers 2. What are the Gaps? Energy security still executed as a largely oil question Gas has been a regional fuel Gas being an industrial fuel is also linked to economic growth Lack of ownership in Liquefaction plants and value chain (ex regas) Lack of dedicated vehicle for ownership in Liquefaction plants
3.
Strategies to Adopt Change the focus to gas Gas is more complex and requires long-term planning Establishing a framework for significant expansion in LNG supply Urgent need to have a national gas grid in India Acquisition of Stakes in liquefaction plants / value chain Pursuit of partnership opportunities with new suppliers

PFC Energy consultants are present in the following locations:
Main regional offices: Asia

PFC Energy, Kuala Lumpur Level 27, UBN Tower #21 10 Jalan P. Ramlee 50250 Kuala Lumpur, Malaysia Tel (60 3) 2172-3400 Fax (60 3) 2072-3599 PFC Energy, China 79 Jianguo Road China Central Place Tower II, 9/F, Suite J Chaoyang District Beijing 100025, China Tel (86 10) 5920-4448 Fax (86 10) 6530-5093
Beijing Brussels Delhi Ho Chi Minh City Houston Kuala Lumpur Lausanne London Manama Mumbai New York Paris Vancouver Washington, DC
Main regional offices are shown in blue.
Middle East
PFC Energy, Bahrain Bahrain Financial Harbor (BFH) East Tower 5th Floor P.O. Box 11118 Manama- Bahrain Tel (973) 7705 8880
North America
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Emerging Tightness in LNG For India

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Emerging Tightness in LNG For India

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Strategic Advisors in Global Energy

Welcome Seminar on 'Emerging Tightness in LNG Market: Implications for India

May 4, 2010, New Delhi

Strategic Advisors in Global Energy

The New Dynamics in the Middle East

The Restless Wave of Middle East Protests

Middle East: Patronage Patterns in Soft States

Middle East: Three Types of States

Narrow Elite: Algeria, Syria, Bahrain, Jordan, Iraq, Libya

The Gulf Monarchies: GCC minus Bahrain

PFC Energy-Petrofed Seminar May 2011 | Page 5

What is Next For Egypts Democratization?

4. Relapse from Democratization

Libya: Descent into the Abyss

Yemen: Salih Era is Ending

President Ali Abdallah Salih

Is the Gulf Next?

Trajectories for Middle East Protest Movements

Legend Oil Net Exporter

Regime Capacity for Survival Regime Capacity for Survival

Risk of Disruptions to LNG Exports

OPEC Spare Capacity Can Meet Second Disruption

Mideast Liquids Capacity Growth Continues

But gas liquids a big positive:

Price Requirements Rising for All OPEC States

2011 Forecast Brent Price------------------------------------------------------------------

Thank You! Question & Answer Session

Strategic Advisors in Global Energy

Drivers Behind a Tightening Gas Market

What Gas World Do We Live In?

Too much demand

The New Landscape for Global Gas

MENA + Fukushima = Supply Glut view has disappeared.

Demand Shock: Japanese Spot Demand

mtons 600 500 400 300 200 99 100 0 2006

Japan: Monthly Spot Purchases 498

July 2007 earthquake

Peak spot purchases in March 2008

270 162 159

Demand Shock: Existing Nuclear Plants

2. Plants not been granted extensions

Demand Shock: Proposed Nuclear Plants

Proposed Nuclear Capacity by Country USA China (PRC) Japan

200 N. America 107

Bulgaria France India Turkey

100 Europe 115 Europe 134 25%

Egypt Iran Other GW 0 10 20 30 40 50

Range of Possible Gas Demand Boost From Different Nuclear Shocks

More demand from lower nuclear output

Less supply from MENA?

Is the Current LNG Supply Sustainable?

Few Low Risk LNG Projects

90 projects face major barriers 61 projects lack feedstock

61 48 34 34 24 53 75 29 17 16 41 97 4 4 60% 80% 100%

PFC Energy Liquefaction Capacity Forecast

600 Capacity if all projects materialized according to operator plans

200 Middle East 100 AtlanticMediterranean 0

Asia ex. China/India 10% India 7%

Europe 37% Latin America 10%

China 13% OECD Asia 2%

North America 19%

Demand Recovery Not Only in Non-OECD