OCTOBER 2010LNG

LIQUEFIED NATURAL GAS:GLOBAL EXPERIENCE ANDECONOMIC BENEFITS

OCTOBER 2010LNG

WHAT IS LNG • Natural Gas cooled down toapproximately 161°C

• The natural gas is condensedinto a liquid

• Mass is then reduced 600times

OCTOBER 2010LNG

THE LNG VALUE CHAIN

Liquefaction

~1 USD/MMBtu

Shipping

~0.4 USD/MMBtu

Regasification

~0.4 USD/MMBtu

1 ton LNG = 52 MMBtu = 15.3 MWh ≈ 1.300 m3 of natural gas *)

*) Depending of heat value

WORLD LNG SUPPLIERS AND MARKETS

Major suppliers

01 Algeria02 Nigeria03 Qatar, Oman & UAE04 Indonesia & Malaysia05 Australia06 Trinidad & Tobago07 Egypt

01 0306

05

04

AC

D

Major markets

A Japan & KoreaB North AmericaC MediterraneanD North West EuropeE IndiaF Taiwan

E F07

?

0236

55

18

12

Japan & Korea

04

03

05B

Source: BP statistical Review 2010

WORLD LNG SUPPLIERS AND MARKETS

Major suppliers

01 Algeria02 Nigeria03 Qatar, Oman & UAE04 Indonesia & Malaysia05 Australia06 Trinidad & Tobago07 Egypt

01 0306

05

04

B AC

D

Major markets

A Japan & KoreaB North AmericaC MediterraneanD North West EuropeE IndiaF Taiwan

E F07

?

02

Source: BP statistical Review 2010

-

36

9

12

9-3

Middle East

A

D

C

E

OCTOBER 2010LNG

LNG PRICES IS USUALLY LINKED TO OIL

• LNG doesn’t have a commonprice denominator as knownfrom oil (i.e. Brent or WTI)

• Instead LNG is priced againstthe destined market

• LNG for Japan usually links toJCC crude notation

• In European markets it is Brentor NBP

• Henry Hub is widely used in USmarket

0

100

200

300

400

500

600

700

800

sep

-07

no

v-0

7

jan

-08

ma

r-0

8

ma

j-08

jul-

08

sep

-08

no

v-0

8

jan

-09

ma

r-0

9

ma

j-09

jul-

09

sep

-09

no

v-0

9

jan

-10

ma

r-1

0

USD/1000 m3

EU LNG import price span Average European LNG price

German import price

Source: IEA, BAFA, Japanese Ministry of Finance

Brent

Gas price Crude oil parity

S-curve

Illustrative

OCTOBER 2010LNG

CASE: JAPANESE LNG PRICES

0

150

300

450

600

750

0

5

10

15

20

25

2008-01-01 2008-07-01 2009-01-01 2009-07-01 2010-01-01 2010-07-01

EUR/

'000

m3

USD

/MM

Btu

Parity Indonisia Qatar Nigeria Australia Henry Hub NBP

Source: Thompson Reuters, Japanese Ministry of Finance

1-6 month

OCTOBER 2010LNG

WHY LNG IN THEBALTIC

• Security of Supply

• Diversity of Supply

• Flexibility

OCTOBER 2010LNG

THE PRESENT SITUATION FOR SECURITY OFSUPPLY IN EUROPE

low

High

Source: Ramboll Security of Supply index (RAMSOS)

OCTOBER 2010LNG

RECOMMENDATIONS FROM BEMIP

• Substantial investment ininfrastructure

• Amber PolLit

• Balticconnector

• At least one LNG terminal

• Strengthening of existinginfrastructure between Balticstates

• Promote reverse flow in Yamalpipeline

LNG terminals planned or under construction/

Balticconnector

Amber PolLit

OCTOBER 2010LNG

HOW IS IT DONE • Thorough planning

• Patience

• Brave decisions

OCTOBER 2010LNG

BUILDING A LNG TERMINAL TAKES TIME

Months600

18-24 months

36-42 months

4-6 months

Feasibility/FEEDEIAPermetting

Construction

Commissioning

Project award

First gas

Suppliernegotiations

Business processesIT systems

Financial and legalstructure

Note: Assuming a larger scale base load terminal

OCTOBER 2010LNG

THERE ARE ECONOMIES OF SCALE

0

100

200

300

400

500

0 2 4 6 8 10 12

Millio

n Eu

ro p

er B

CM

cap

acity

Total capacity of terminal (BCM)

Existing terminals Planned terminals

33

16214

14

1

20 EquipmentMaterialsPrefabricationConstructionDesign & PMInsurance & certif icationContingency

CAPEX split on work

OCTOBER 2010LNG

WHAT IS YOUR DESIRED RISK APPETITE

Commercial issues

• Number of suppliers• FOB vs. CIF• Underlying indexation• Rely on spot cargoes

Planning/permitting issues

• Third party access• Regulatory setup (ie what level of

tariffs can you expect)

Technical/operational issues

• EPC or several tenders• Operational organisation• Gas quality

Financial/structuring issues

• Capital structure• Project financing• Strategic partners• Company structure• Special purpose financing (EBRD, EIB

etc.)

Non-Exhaustive!

OCTOBER 2010LNG

THANK YOU FOR THE ATTENTION

Ramboll Oil & Gasas.com

Jack M KristensenDirector, Studies and planningE-mail: JCKK@ramboll.commTel: (+45) 5161 5670