how to turn challenges into opportunities in a globalized lng

How to turn challenges into

opportunities in a globalized LNG

market?

Melissa Stark

Managing Director - Accenture

GASEX 2016

Open

2Copyright © 2016 Accenture All rights reserved.

Gas Grows Up – from few sources of supply and demand to many

U.S. flexible capacity, smooth supply curve Competition in generation from alternatives,

particularly in Japan, S. Korea, China

Uncertainty in China LNG Demand New markets and new applications

<$30/bblBreakeven costs for

liquids rich wells in

Marcellus, Utica

70+ MTPALNG export capacity

under construction

(>28% 2015 market)

25%Of China’s 2014

electricity

generated from

non-fossil sources 45%Efficiency of new

coal plants

compared to 33%

global average

40%Demand in 2030 in

Japan met by energy

conservation and

renewables

185bcm2020 China target

domestic NG

production (~2/3

planned demand)

~50bcmDifference in 2020 if

NG growth rate is 5%

vs. 8% needed for

300bcm by 2020

105bcm/yrNG pipeline import

capacity by 2020 (~1/3

planned demand)

34Countries with

regasification

capacity

~180 bcmLNG import capacity in

Spain, UK, France, Italy,

NL, Belgium, Portugal

~250,000LNG trucks and

growing market in

marine

52bcmIndia’s ambition to

almost triple LNG

demand by 2020

8.3 MMcf/d2015 new well gas

production/rig (compared

to 3.2 in 2012)

Open


Gas Grows Up – US LNG heralds the arrival of LNG as a commodity

Smooth U.S. LNG

supply curve

Benchmark- driving

cost innovation in

competing markets

Mature and

independent

midstream sector

Supply > demand for

the near future

Historical barriers to

entry removed

Entry of non-traditional

players and traders is

much easier Open


3 countries account for ~ 60% of the global LNG market, and these

countries are likely to decline or not grow as anticipated

Japan South

Korea

China

Natural Gas consumption will continue to

decline past 2020 and settle at 84 bcm by

2030, 32 per cent less than the 123 bcm

imported in 2014 (METI, 7/15)

Energy Efficiency

Generation alternatives

• Increase in renewables to 24% and

nuclear to 22% of generation

• Coal proves resilient with high

efficiency coal under construction

• LNG down to 18% of primary energy

and 27% of generation (pre Fukushima

levels)

Natural gas consumption in 2015

declined to ~33 mt and is expected to be

roughly flat to 2030

Generation alternatives and comparative

cost

• Nuclear

• Coal

• Renewables

Fuel Cost per KWh

Nuclear 4cents/kwh

Solar 17cents/kwh

Coal 5cents/kwh

Wind 12cents/kwh

LNG 11cents/kwh

Source: Accenture research and interviewsSource: METI

Highest growth market globally for

natural gas but not necessarily for LNG. In

2014 and 2015, China imported 20 mt (27

bcm) of LNG. LNG imports could stay at

this level given competitive alternatives and

slowing demand

In 2014, natural gas demand was 5.5 per

cent of primary energy mix (148

mt or ~200 bcm). In 2015, it was 5.9% but

still behind targets

Currently 14 % LNG (~70% domestic, 16%

pipeline imports) and strategy of increased

domestic production and increased pipeline

imports

Source: Accenture research and interviewsOpen


Drivers of Uncertainty in China LNG Demand

Pace of Natural Gas Demand Growth Unconventional development (vs. cost of LNG

imports)

Pipeline imports (vs. serving coastal markets

and diversifying supply sources through LNG)Growth of generation alternatives

Natural gas

demand

growing at 3%

CAGR means

that it will be

2030 before

China hits 300

bcm (222 mt)

105 bcm pipeline capacity to be onstream by 2018. If all pipelines

were built, capacity would be 165bcm

• Proven reserves 380.6 bcm (MLR)

• Could be 10 bcm by end of 2017 and 15

bcm by 2020

• Revised shale gas target in 13th 5 year

plan expected to be 30 bcm per year by

2020

• But developing shale here requires new

technology and the area has

infrastructure and water scarcity

challenges too

• Coal. China has some of the most efficient coal plants in the world,

reaching 45% efficiency compared to the global average efficiency of 33%

• Growth in renewables and nuclear. China Electricity Council (CEC)

estimates 25% of electricity was generated from non-fossil energy sources

(hydro, wind, solar, nuclear)

Open


India could be the largest and fastest growing market for LNG, but given

historical decline, it’s unlikely to grow as fast as government targets

• India imported 19 bcm of LNG in 2014 and 20 bcm in 2015

• Government forecasts demand will almost triple by 2020, growing to more than 52 bcm, and a significant increase in

natural gas supply from LNG and non-LNG sources to 146 bcm in 2020 from 51 bcm in 2014

• However, natural gas use has been declining over the past four years

• Almost 60 mtpa of LNG regasification and FSRU capacity planned (5x 2014 import volumes)

India Natural Gas Use by Sector (mt) 2011-

2014, 2020 and 2030 forecasts

India LNG Regasification and FSRU Capacity

Planned

Open


The most critical factor in the future of the LNG market is demand

growth in new markets and new applications

0 100 200 300 400 500 600

LNG Imports 2014

2030 Forecast (2014)

2030 revised w/ new demand

2030 revised market shrinks

A scenario on 2030 LNG Demand –Can new markets and applications fill the gap?

Japan S. Korea China India Other Countries

34 countries make up the long tail of demand

Serving these new markets, customers and applications will require new value chains, business models and

technology development

Source: Accenture Gas Grows Up Report

Open


Europe LNG imports grew by 16% in 2015

Potential to reverse the declining use of Natural Gas in Europe

Source: Anouk Honore, Oxford Institute of Energy Studies, IEA

Generation mix in OECD Europe 2000- 2014

Share of NG in

generation dropped to

16% in 2014

OPPORTUNITY

• ~ 180 mtpa import capacity, with

low (<25%) utilisation

• COP 21 pledges to reduce CO2

• Firm capacity (vs. intermittent

renewables) shutting down will up

to the early 2020s creates gap

between power demand and how

much renewables can fulfil

• Energy security. EU aims to

ensure each member state has

access to a minimum of three

different energy sources,

examples

• Increasing use of LNG in marine

and LNG and CNG in road

transport

Open


Growth in the tail markets make up for declining demand in Japan

and South Korea and slower than expected LNG demand in China

Countries importing

< 3MPTA LNG in 2015*

Countries proposed/

planning to import LNG

Countries with potential

to access LNG from

importing market via

pipeline

Puerto Rico

Chile

Egypt

Belgium

Jordan

Kuwait

UAE

Thailand

Singapore

PortugalPakistan

Dominican Republic

Netherlands

Greece

Lithuania

Israel

Poland

Croatia

Colombia

Uruguay

Panama

Philippines

BangladeshVietnam

Myanmar

Morocco

South Africa

Cote d’Ivoire

GhanaBenin

Latvia

Estonia

Czech Republic

Bulgaria

Finland

Slovakia

Ukraine

20 countries imported <3 MTPA or less of LNG in 2015 (~ 30MTPA) and the number of countries

importing LNG is growing

Factors that will influence

growth in tail markets

Energy Security

Use of coal and COP21

commitments

Industrial demand growth

Generation demand growth

Use of fuel oil

NG infrastructure

Connectedness (pipeline to

markets who can import)

Ability to access financing

Return on investment risk

Open


Growth in the tail market is dependent on infrastructure and

financing, but there are already some supporting industry advances

Floating storage and regasification units (FSRUs)

Smaller scale FLNG

Vessel pooling

Logistics hubs and small scale LNG

Improving gas and power technologies

Digital technologies

Source:

http://www.golarlng.com/index.php?name=Our_Business%2FFloating_

Storage_.html

https://www.sevanmarine.com/solutions/hiload-lng

Open


Growth in new applications

Chart from Gas Grows Up Part 2: The Rise of Retail LNG (to be released in July),Sources used: Accenture Strategy Analysis, Thomson Reuters, International Gas Union

KEY POINTS

• Shell estimates that the total

marine and road transport market

is ~700 MPTA, so even 10%

would be significant (source:

Maarten Wetselaar LNG 18)

• Review of > 25 import terminals

globally highlights move to

logistics hubs with offerings as

varied as LNG truck and ISO tank

filling, industrial cooling,

bunkering, transshipment and

break-bulk services

• Scale is very different and will

require new capabilities to

manage many more smaller

customers with different credit

and market risks from traditional

LNG contracts

Open


Implications for buyers of LNG

• More options, more opportunity, but more complexity. Contract portfolio (spot, short-term, long-term) vs. vertical

integration (eg. Tokyo Gas’ investment in US shale), smaller shipments/tenders vs. larger long-term contracted

volumes

• Increased emphasis on midstream assets (shipping, pipelines, storage) and trading and risk management (eg. Jera)

• Opportunity to pool demand from other (smaller) markets and giving new customers increased access to LNG

• New entrants, non-traditional players trading U.S. LNG (and creating volatility)

• Need to understand science, technology, and engineering for smaller scale LNG and new applications to understand

demand trajectory (demand/supply balance)

• Need to track rapidly changing market and adjust positions and strategies accordingly- balance long/medium-term

strategies with short-term opportunities

Open


Examples from Gasex 2016, Beijing:

Buyers stand taller and reshape the Global LNG market

• Finding ways to bring LNG into new markets – for example PetroVietnam’s ambition to develop the LNG

market in Vietnam (from no LNG today) and how they are leveraging the experience of Tokyo Gas

• Moving into new applications and developing new customers – for example Shenzhen Gas is investing in a

terminal and seeking business opportunities in the LNG trucking market, so an investment they were exploring

just 2 years ago is now a reality;

• Competing to be the Asia “LNG hub.” The Energy Institute of Singapore and other from Singapore made a

strong case for Singapore to be the Asia “LNG hub,” but there was acknowledgement that competition from

South Korea, Japan, and particularly China with its diverse natural gas supply (domestic, pipeline import,

LNG) and large captive demand (i.e., Shanghai, and other coastal cities in China);

• Investigating “virtual pipeline” solutions as an alternative to building pipeline infrastructure- for example

Myanmar;

• Ensuring that they have diversity in natural gas supply- e.g., Chinese buyers showed charts on diversity in

China’s sources (pipeline, domestic production, and LNG) and diversity in the countries that supply LNG to

China;

• Leveraging digital to transform their operating model evidenced by many presentations on IoT coupled with

innovations in metrology, gas heat pumps, and leak survey technology.

Open


Implications for producers and marketers

• Japan, South Korea, China and India are still critical markets

• Diversify to other markets and smaller customers

• Prepare for a very different competitive landscape with non-traditional players exporting and trading U.S. LNG

• Build flexibility in contract portfolios (eg., short-term, smaller volume, flexible destination contracts) through trading

and midstream

• Consider vertical integration and partnerships with consumers to secure demand

• Invest in science, technology, and engineering for small scale LNG and new applications

• Drive down the costs of delivered LNG

But what’s probably most important is understanding how the buyers (and

potential new customers) are changing and how to be part of this journey

Open


THANK YOU

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