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What do Asian LNG buyers want?

--looking for changes of LNG pricing mechanism

Chen Bo, Vice President, UNIPEC

April 18, 2013

LNG 17, Houston

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1. Global LNG Supply and Demand

2. Regional LNG Pricing Mechanism

3. Global LNG Price Convergence in Future

Contents

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Key Figures 2012 236.3 million tons LNG imported

59.2 million tons LNG traded on a spot or short-term basis or 25% of total trade

Global LNG Supply and Demand

LNG Exporting Countries 2011 LNG Importing Countries 2011

Source: GIIGNL

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Global LNG demand will be 370-400 mtpa by 2020.

Global LNG liquefaction capacity will reach 450-500 mtpa by 2020.

LNG supply meets demand.

Asia Pacific region will have the biggest demand share

0

100

200

300

Pacific Middle East Altanltic-med

mmtpa 2020 LNG Production and Demand

demand production

Global LNG Supply and Demand

Source: PFC

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Qatar – existing plants, 80 mtpa

Australia – under construction and proposed, 100 ~~ mtpa?

North America – under construction and proposed, 60 ~~ mtpa?

Mozambique - new discoveries and proposed, 70 ~~ mtpa?

China – shale gas potential

and…………

………………

………………etc.

The biggest moment in global LNG history

Global LNG Supply and Demand

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Imbalanced regional demand and supply LNG trade breaks geographical restrictions and links LNG markets around the world. Energy resources and gas consumption market are connected. With LNG trade scope expanding, LNG importing countries increase to 26, exporting countries increase to 18 in 2012. Asian demand is increasing rapidly and accounts for 71% of world total.

Source: GIIGNL, other

LNG Trading Development

Global LNG Supply and Demand

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1/2012 2 3 4 5 6 7 8 9 10 11 12

JKM(DES)

SWE(DES

SouthWest Europe

Marker)

NWE(DES

NorthWest Europe

Marker)

Henry Hub

LNG Price in 2012

Source: Platts, other

Regional LNG Pricing Mechanism

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Significant regional characteristics of LNG price under different pricing mechanisms

The regional market spreads widened

Regional LNG Pricing Mechanism

Source: BP, other

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25

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

LNG Japan DES

UK NBP Index

US Henry Hub

Crude oil

$/mmbtu

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North American gas price has decoupled from oil price

Market competition, gas price determined by market supply and demand

Source: BP, other

Regional LNG Pricing Mechanism

North America – gas-on-gas markets

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WTI Henry Hub

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Source: BP, other

Regional LNG Pricing Mechanism

Europe gas price lower than Asia, price reference to NBP, Zeebrugge, etc.

Europe – gas-on-gas markets, price indexation to substitute energy

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Brent NBP

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Regional LNG Pricing Mechanism

1970s-1980s

PLNG = 17.2·PCrude

After 1986

P LNG=A·PCrude+B

After 1990

P =A·PCrude+B+S-Curve

Asia – oil-linkage indexation price

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1/2011 3 5 7 9 11 1/2012 3 5 7 9 11

JKM

(DES)

WTI

Brent

Source: BP, other

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Asia as the biggest market for LNG is supporting projects under-construction

and proposed.

However, Asian LNG buyers has been paying high price premium.

Asia as developing region will be constrained in demand by high LNG price.

Asian LNG buyers are exploring new pricing mechanisms: Introduction of HH etc

Stable LNG demand in Asia and sustainable pricing help to support global LNG

development.

Proposing changes of LNG Pricing mechanism in Asia:

• the integration of regional resources, the establishment of the region's

natural gas trading center, the liquidity improvement of the LNG market

• the influence of market supply and demand on LNG price

• the promotion of gas-on-gas pricing mechanism

Global LNG Price Convergence in Future

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Global LNG Price Convergence in Future

So what are we looking for ?

Let’s work together to find solutions, maybe:

PAsia = (N.A. price + Europe price)/2 + premium/discount (negotiable)

It should be sustainable and beneficial to the global LNG development

2013Yr 2015Yr 2020Yr 2025Yr 2030Yr

Asia LNG NBP HH

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Thank you for your attention!