© 2012 KBC Advanced Technologies plc. All Rights Reserved.

What’s Happening with Australian Gas? Webinar Presented by Dr. Jim Wright

14 August 2012

Agenda • Introduction • Investor sentiment and LNG • Global: demand, supply, reserves, exports • The Australian projects • Global competition to Australia • Global challenges in the LNG arena • Finally: where does that leave Australia

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LNG and investment sentiment > Downturn and fragile Asian economies > Linkage to oil price in Asia > Alternate energy sources

– Nuclear - loss of traction following Fukishima, although 2 nuclear plants back on line, Germany’s nuclear shut down, etc

– Coal: politics – price - environment – Renewables (In Germany this winter – Photovoltaic, not gas,

prevented brown outs)

> Global Shale; and > Investor (over?) optimism

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Demand v Supply - Where is the tipping point? > Global LNG trade:

– 2010: 211.9 million tons – 2011: 234 mt (provisional) – 2012: 249 mt (predicted)

> Overarching any uncertainty - the clear demand in the late ‘teens for additional supply

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Where are the reserves?

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Global v Australian LNG exports > 2011 LNG exports

(bcm) – Qatar: 102.6 – Malaysia: 33.3 – Indonesia: 29.2 – Nigeria: 25.9 – Australia: 25.9 (BP statistical review 2012)

> Australia – 25.9 bcm from 3 existing

plants – A further 7 plants with FID – A further 8 under

consideration

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Australian LNG - existing, constructing and planned

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Australian costs > Santos pulls $US2.5 billion from

2015 for 300 wells - over and above original $US18.5bn

> Arrow Energy 2010 estimate of $24-$26 billion, now $34-$36 billion

> BG Group’s QGCLNG, in part due to the cost of regulatory compliance, from $15b to $20.4b

> The Australian LNG industry has "probably the highest cost base now" anywhere in the world, Shell Australia Chairman Ann Pickard

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Exchange rates

Technical challenge

Skills shortage

Materials inflation

Delay

How are the project responding? > Shareholders remain

optimistic > Long term offtakes

continue to be made > Focus on OpEx - not

CapEx > Full cost recovery still

possible - based on oil linkage; and

> Ignore the competition

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• Australian condensate will not replace ME LPG

• However, Australian condensate will be sold on a commodity basis as light crude at a substantial premium to Natural Gas

What lies in future for Australian LNG? > No doubt there is global demand for LNG in the late ‘teens. > But:

– Australian CSG does not benefit from valuable liquids – Australian condensate will not compete with C4-C5 from ME – Australian cost escalation means higher debt burden – US shale exports may undermine oil linkage – Asian shale may compete

> However: – Australia is politically stable and secure – Has well defined legislation; and – Projects can address costs by:

• Consolidation (why are there 4 planned LNG plants on Curtis Island) • Extension rather than new build • Improve efficiencies to reduce both CapEx and OpEx

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What about the competition? (assuming limited US export)

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Issue E Africa British Columbia

Conventional (Africa, SE Asia)

Global Shale

Stable politics Broad range Uncertain O&G law Broad range Uncertain Security Piracy Broad range Uncertain Liquids Shale / tight gas Probably not

Workforce A Global Challenge Permitting Uncertain Being simplified Uncertain Uncertain

GHG $30/tonne CapEx (all of the above - plus)

Workforce, offshore?, materials

Workforce, pipelines, permitting

Workforce Technical challenges, workforce

OpEx Workforce, offshore?

Workforce Workforce Workforce

What then are the global challenges? > O&G Law - the lack of tried and tested, or worse, “flexible” > Permitting – e.g. Queensland permitting has contributed to

CapEx > Lack of liquids - pivotal to tipping the balance for

unconventional > Workforce - the key issue > Australian disease - cost escalation, therefore:

– Squeeze the CapEx – Squeeze the OpEx

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Addressing the challenges > Skills Australia estimate

4.8m new jobs by 2026 > Australian Government

estimates that in LNG operations by 2015 (10 new trains) 3,200 new workers

> Global skills shortages encourage skills flight

> Increasing local competition for skills

> Trend to demonstrate employees competence

> Example of KBC response in South Africa: – Work with NMMU to

develop education and training capability to meet the requirements of the oil & gas sector

– Develop National Diploma in Chemical Plant Process Operations

– New fuels lab. and pilot plant facilities to provide practical training

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Addressing the challenge > Silo mentality across assets > What is “best-practice” > Initiative overload > Which OpEx Model > Low-level of buy-in > Balancing asset needs with

enterprise wide objectives

> Organisational readiness assessment

> Strategic planning > Organisation transformation

strategy and transition plan > Organisational infrastructure (e.g.,

work processes, management systems, job aids, value driver tree) alignment and development

> Align functional support with central and field teams

> Workforce capability development

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Addressing the challenge > LNG Trains typically designed for

minimum CapEx with low efficiency

> Complex interaction of process/fuel/power balances

> Site imperative to maintain throughput and availability

> Boil-off gas management constrains potential energy reduction

> Site expansion and development plans can affect energy projects

Benchmarking identified shaft work issues

ProSteam model evaluated scenarios

Holistic solution provided throughput debottlenecking and improved reliability performance

Titan reliability modelling to evaluate options

Complex-wide RoadMap to outline constraints and manage uncertainty

Identified $16.5m/yr non-investment savings potential and $250m/yr with < 5 year payback

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So? > Australian projects in construction will go to completion > Australia will overtake Qatar as 7 Australian projects come fully

on line around 2020 > Australia pre-eminence will last a relatively short time (2025?) as

less expensive LNG comes on line (e.g. East Africa to India; US via Panama Canal, British Columbia and Russia all to Asia)

> Australian assets will need to be squeezed to offset Project debt – requiring a change in project philosophy: – Skills have to be sustainable – Company processes must reflect needs – It will no longer be acceptable to use 10-12% of gas in production of

LNG

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A Question and Quick Survey

> Was this topic valuable? – Yes – No

> Was the presentation clear? – Yes – No

> Would you be interested in future webinars? – Yes – No

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> How do you rate the webinar overall? – Excellent – Good – Fair – Poor

Please send any further questions and feedback to: kbc-marketing@kbcat.com

Closing > Questions? > Future webinar topics:

– Market conditions – Asset optimisation – Investment support – Sustainable workforce development

> We welcome suggestions for future topics – please email kbc-marketing@kbcat.com

> Next webinar information will go out shortly. > Thank you for joining us!

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