Navigating Natural Gas Abundance: Opportunities and Risks

1. BE CAREFUL WHAT YOU ASK FOR: LNG OPPORTUNITIES AND RISKS FROM THE NEW NATURAL GAS ABUNDANCE Christopher Goncalves – Berkeley Research Group, LLC

2. Disclaimers The opinions expressed in this presentation are those of the individual author(s) and do not represent the opinions of BRG or its other employees and affiliates. The information provided in this presentation is incomplete without the oral briefing of the author(s), and should not be considered out of context. The information provided is not intended to and does not render legal, accounting, tax, or other professional advice or services, and no client relationship is established with BRG by making any information available in this presentation.

3. Agenda • The Abundance Paradigm • Sustained Supply Abundance • Decelerated Demand Growth • Opportunities and Risks

4. Abundance and Oversupply • Booming shale output enhanced LNG trade liquidity in Asia. • Demand growth has decelerated in Europe and JKT. • By 2020, 149 Bcma LNG liquefaction capacity coming online.* • New markets critical to absorb oversupply. Sources: BRG Analysis, IHS Waterborne *Angola LNG is estimated to restart in Mid-2016

5. Abundance and Price Convergence Term prices converging with hubs due to U.S. LNG, oil price collapse, and weak demand Sources: BRG’s Analysis, Platts, Bloomberg

6. Agenda • The Abundance Paradigm • Sustained Supply Abundance • Decelerated Demand Growth • Opportunities and Risks

7. Resilient U.S. Shale Output U.S. well productivity increased 6x between 2008 to 2016, sustaining resilient shale production despite declining HH prices U.S. HH and Well Productivity U.S. Dry Gas Production Historical Forecast 52% 50% 11% 13% Sources: BRG Analysis, EIA

8. Reduced U.S. LNG Exports Low oil and LNG prices and DOE review have delayed FID for some U.S. LNG terminals. Offtaker contracts are critical for FERC approval and financing U.S. LNG Advanced Project Capacity Sources: BRG Analysis * Includes expansions **Awaiting FERC Approval / Commercially Contracted

9. Post-FID Plus Advanced Projects • 66 Bcma surplus liquefaction capacity in 2015. • By 2025, 174 Bcma post-FID supply will cover 62% of incremental demand. • 81 Bcma advanced pre-FID supply will cover 29% of incremental demand. Sources: BRG Analysis. All units Bcma. * Post-FID supply includes two Australian projects which have come online in 2016.

10. Global Incremental Supply Incremental LNG Supply 78 Bcma of pre-FID supply neededby 2025 Other Post-FID = 38 Bcma (22% of post-FID) U.S. + Aus. = 136 Bcma (78% of post-FID) Sources: BRG Analysis, Global LNG Info

11. Agenda • The Abundance Paradigm • Sustained Supply Abundance • Decelerated Demand Growth • Opportunities and Risks

12. Gradual Demand Rebound Sources: BRG Analysis, IHS Waterborne, IEA WEO 2015. All units Bcma.

13. East of Suez Demand Drivers Sources: BRG Analysis, IHS Waterborne

14. West of Suez Demand Drivers Sources: BRG Analysis, IHS Waterborne

15. Global Demand Growth New LNG Demand by Region Incremental Demand 30% of growth from traditional markets, dominated by OECD Europe growth as Old Asia remains flat. 70% of growth from new markets, dominated by New Asia growth, with moderate growth from Other New Markets. Sources: BRG Analysis

16. Supply-Demand Balance • LNG market surpluses sustained into early 2020s. • Growing market deficits emerge after 2023, unless some of the pre-FID supply is added. Global LNG Supply Demand Balance Sources: BRG Analysis

17. Agenda • The Abundance Paradigm • Sustained Supply Abundance • Decelerated Demand Growth • Opportunities and Risks

18. Abundance and Commercial Change • Spot/ST Trade • SPA oil-indexation slopes subject to review and re-negotiation. • Hub and hybrid hub-oil indexation used for diversification. • Increased flexibility through elimination of destination restrictions, relaxed take-or-pay, and/or cargo cancellation rights. • Increased reliance on short-term markets. Risk Mitigation Delivery Flexibility Hub/Hybrid Indexation Lower Oil Slopes

19. Over-Contracted and Unmet Demand • Through 2020, over-contracted buyers will release or re-direct surpluses. • After 2020, SPA expiry and revived demand will increase buyers’ unmet demand to 40% by 2025. • To serve unmet demand, Pre-FID projects must compete with uncommitted capacity. LNG Demand and SPA Contracted Capacity Over-Contracted Balanced Unmet Demand Sources: BRG Analysis, GIIGNL, Global LNG Info * SPA contracted capacity includes short-term, mid-term, and long term SPAs, including portfolio supply.

20. Abundance Increases Liquidity The new paradigm of abundant natural gas supply, LNG surpluses, are stimulating buyer confidence, short-term trade, and delivery flexibility Growing Share of Short-Term LNG Trade Sources: BRG’s Analysis, Bloomberg, GIIGNL. *BRG analysis. Spot & Short-term trades are of a duration of 4 years or less

21. Crush of Challenges to FID • These trends create a crush of economic and commercial challenges for liquefaction projects to achieve FID and financing commitments. • To surmount these, liquefaction stakeholders must maximize financial, commercial, and technological efficiency throughout the value chain. They must also invest in demand creation in the downstream markets. ROI Finance Requirement Alternative indexation Liquidity Contract Flexibility Lower Demand Abundant Supply Oil Lower for Longer FID

22. Thank You! Christopher Goncalves Chair and Managing Director, Energy D: +1 202.480.2703 M: +1 240.505.6162 cgoncalves@thinkbrg.com