changes in dynamics and pricing of lng in the atlantic basin · contract structures a short lng...

OMV Gas & Power

Changes in Dynamics and Pricing of LNG in the Atlantic Basin Andrew Williamson

Head of LNG Supply, Commercial Operations & Trading Vienna, 29 January 2018

2 | OMV Downstream Gas

Changes in Dynamics and Pricing of LNG in the Atlantic Basin

OMV Gas Introduction including Gate LNG Supply and Demand regions 2017 Focus on pricing

Historic prices plus forward curves Focus on US FOB prices and changing destinations Rise of Chinese Demand

LNG Future Transactions LNG Capacity in Europe Conclusion – Pricing and Hedging

Agenda


Downstream Gas – Gas & Power

Equity gas supply 67 TWh (~4.6 mtpa)

Gas sales 110 TWh (~7.6 mtpa) Captive use through 1.7 GW

gas-fired power generation

Gas logistics Main operator of Austria‘s gas

infrastructure (pipelines and storages)

Gas transportation volume sold: 1,492 TWh (~100 mtpa capcty.)

Gas storage volume sold: 21 TWh (~1.45 mtpa)


Downstream Gas – NW Europe Trading Locations

TTF since 2007

Zeebrugge since 2007

PEG Nord since 2009

NBP since 2009

PSV since 2006

NCG since 2007

CEGH since 2009

GASPOOL since 2009

ICE since 2010

APX Gas UK since 2009

Powernext (EEX) since 2008

ICE/ENDEX since 2008

Powernext since 2011

MGP* since 2010

APX Spot NL since 2011

CEGH Gas Exchange since 2009

PEG Sud since 2009

OMV GAS active OMV GAS office Hub Exchange

Czech Exchange since 2016


LNG Portfolio: GATE Terminal

Location: Maasvlakte North, Port of Rotterdam Number of berths: 2 Regasification capacity: 12 bcm/annum

(~10 mtpa) Net tank capacity: 540.000 m3 Design ship movements: 180/annum Start-up of operations: September 2011

OMV is a founding member of the project Long-term regasification and storage capacity

contracted Long-term LNG contract with a portfolio supplier Recently announced medium term transactions

with both Cheniere and Qatargas Significant activity in small scale LNG, reloading

and trans-shipment


LNG Supply and Demand Regions in 2017

America Supply

Price taker

HH+Fixed

Export Growth

2017 vol 34,200

America Demand

Must buy

Oil + spot

Weather, fuel

2017 vol 24,400

Europe Demand

Market Balancer

Hub Index

Fuel Switch

2017 vol 66,400

Mid East Demand

Must Import

Oil Prices

Power + Growth

2017 vol 28,300

Mid East + Africa Supply

Portfolio Sells

Highest price first

Price differentials

2017 vol 181,400

Asia Supply

Contract Prices

Oil, JKM, JCC

Fulfil contracts

2017 vol 161 800

Asia Demand

Contract + Spot

Oil, JKM, JCC

Clean fuel switch

2017 vol 281,400

Region

Price view

Price Index

Main driver

2017 Volume 000 m3 LNG

Legend

Europe Supply

M2 LNG %

Africa 27,400 41

Americas 5,600 8

Asia 3,800 6

Europe 5,800 9

Mid East 23,800 36

EuropeanSources

Source: OMV Summary AIS Data


Focus on Pricing – Historic MA plus Forward Curve

Market prices differ depending on regional peculiarities and contract structures

A short LNG market has spot prices rise to Brent equivalence and substitution occurs

A long LNG market has Europe balancing with prices low to increase demand via fuel switch

A very long market could see prices fall to short run marginal cost of US production (supply cap)

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USD/MMbtu Historic MA Prices plus Forward Curves

JKM 18% Brent TTF Henry Hub 115% Henry Hub 115%+2,5

Source: OMV Summary Various Data Sources


Focus on pricing – US FOB Reported Prices

US Market sees a variety of FOB prices achieved

Full Cost (liquefaction included) in LT Prices; otherwise not

Commissioning cargos with spot pricing

Spot cargos achieved very different prices

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Jan-17 Feb-17 Apr-17 May-17 Jul-17 Sep-17 Oct-17

$/MMBtuFOB Price US LNG sold 2017

Long Term inc Liquefaction Spot Cargo Commissioning Long Term no Liquefaction Prices

Source: US DOE Data


Focus on Pricing – US Destinations

US Destinations change with prices to reflect market shortages and seasonal demand

Summer Mexico volumes are swapped to meet strong demand from Asian Market

New supply will arrive soon with T4 Sabine, Cove Point, Cameron, Freeport, Corpus Christi adding new volumes

Costs to send LNG cargos to Europe much lower than Asia

Intra US pricing – North East importing due to price spikes (Transco Zone 5/6) and Jones Act

3



Rise of Chinese Demand – The Bubble Burst

Chinese demand rose strongly in

2017, overtaking South Korea as 2nd largest LNG importer

Drivers are a gas to coal switch to reduce pollution and colder weather

Supplies are mixture of Australian contract plus spot volumes

Seasonal demand will decrease but will China move to outbid Europe over summer?

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2016 2017

China Imports Monthly by Country 1000 m2 LNG

Colombia United States United Kingdom Trinidad and Tobago Spain South KoreaRussia Qatar Peru Papua New Guinea Oman NorwayNigeria Netherlands Malaysia Lithuania Japan IndonesiaFrance Equatorial Guinea Egypt China Brunei BelgiumAustralia Angola Algeria



LNG Future Transactions

LNG Market is changing Japan legislating against destination clauses and liberalising

domestically Petronet renegotiate Exxon Mobil deal. Price cut in exchange for

higher volumes – pressure elsewhere for this Beginning to hear shorter term deals in the market with JKM pricing

structures Growth of FSRUs lead to smaller contracts quantities, with shorter

durations, with less recognised counterparties, eg Bangladesh, Pakistan, Thailand

Longer term Atlantic basin deals based on TTF

Shorter duration, smaller volumes, higher credit and operation risks!


LNG Capacity in Europe

Barcelona 17 bcm

Sagunto 8,76 bcm

Sines 3,6 bcm

Mugardos 3,6 bcm

Cartagena 11,7 bcm

Huelva 11,7 bcm

South Hook 21 bcm

Dragon 7,6 bcm Isle of Grain

21 bcm

Montoir 15 bcm

Fos Cavaou/Tonkin 8,25/3,25 bcm

Dunkerque 13 bcm

Zeebrugge 9 bcm

Adriatic LNG 7,7 bcm

OLT Offshore 3,75 bcm

GNL Italia 3,8 bcm

Gate 12 bcm

Polskie LNG 5 bcm

Klaipeda 4 bcm

Aliaga 6 bcm

Marmara 8 bcm

Revithousa 5 bcm

221bcm capacity available but

many constraints Markets with very limited

liquidity Physical markets with limited

interconnection, low liquidity, & limited ability to absorb LNG

Markets with high access costs, regulatory constraints, and/or volatile spreads markets to hedging hubs

OMV estimate suggests 40-50 bcm capacity in efficient price hedging locations

Of this, OMV estimates >50% is already booked; >20-25 bcm offered

Fuel switch potential becomes limited in the EU as coal units phase out


Conclusion: Pricing and Hedging What can LNG Markets learn from

Gas? LNG commodity can be priced on

various indicies (oil, HH, gas index, or ‘spot’). Spot represents short term price

Oversupply and undersupply dictate spot prices not indexed price levels

Risk management and economics will place large stress on traditional long term contracts not indexed to spot

In gas, establishment of liquid hubs, contract deregulation and liquid spot markets has led to lower prices

Non-spot indexing is now very uncommon in European gas markets

Consumers and producers grow to “trust” the indicies

Gas flows strongly follow price signals In LNG, hub priced deals are happening JKM volumes are small but growing –

will this become the ‘global’ index?

changes in dynamics and pricing of lng in the atlantic basin · contract structures a short lng...

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