Gas: a bridge or a destination fuel?

1. Gas: a bridge or a destination fuel? BOSPHORUS FORUM NOVEMBER 2017

2. PRESENTATION CONTENTS • THREE VISIONS OF GAS 03 • GAS TRENDS 05 • GLOBAL GAS CONNECTIVITY 14 • THE COMPETITION 17 • CONCLUSIONS 24

3. Three visions of gas

4. THREE VISIONS OF GAS

5. GAS TRENDS

6. MAJOR GAS INDUSTRY TRENDS ¹ BP ²Earnst & Young Oil and Gas US Perceptions Study, 2017

7. NATURAL GAS: “ABUNDANT, ACCEPTABLE, AFFORDABLE” • Overall gas demand to grow by 35% by 2035, from current 342.5 bcf/d • Recent uses: Hydrogen (made from natural gas) as an energy carrier & transport fuel • Asia to be biggest center of demand growth • Major demand centers are China, India and Pakistan • Japan and south Korea gas demand to be relatively modest • Taiwan plans to close its nuclear plant by 2025 – replaced by LNG and renewables • Middle East and US demand growth from increased supply 7 *Includes biofuels Source: BP; Qamar Energy

8. NEW GLOBAL GAS RESOURCES NOT ONLY ABOUT SHALE Unconventional gas going global Shale / tight / coalbed gas New conventional gas 8

9. GEOLOGICAL POTENTIAL UNQUESTIONED • Middle East holds the largest conventional gas reserves & technical recoverable reserves • Iran is the largest natural gas reserve holder, but limited gas exports • Middle East shale gas only assessed for Saudi, UAE, Oman, Jordan 9 Source: BP 2017; Lukoil; EIA (Middle East shale); Qamar Energy

10. NEW SUPPLY SOURCES, LOWER COSTS Supply Lithuania Latvia Ireland Poland Germany Pakistan Morocco Jordan Egypt Bangladesh Philippines India UAE New and growing demand markets • 59% of gas trade to be met by LNG in 2040 compared to 39% now • Australia & US lead supply growth • LNG as a whole addresses security of supply problems of pipelines; FLNG solving infrastructural issues • Middle East losing cost advantage Source: Qamar Energy for KPMG; IEA figures for LNG

11. GAS DEMAND IN INDUSTRY & TRANSPORT Increase in gas demand by sector between 2013 and 2030 in major emerging Asian markets Supply • Focus is on gas switching in power sector. Key catalyst is falling gas prices • Coal-to-gas switch in China, to combat air pollution • India’s fertilizer industry one of the highest gas consumption in industry • India gas demand largely met by LNG as pipeline projects risky • Japan nuclear likely replaced by gas and renewables until nuclear is gradually increased • Gas in transport set to grow in Asia with government preferential tax schemes • LNG started being used in medium- and heavy-duty vehicles and shipping • 2020 impact of MARPOL sulphur regulations for shipping Source: Oxford Institute of Energy Studies

12. ACCEPTABLE: GAS THE CLEANEST FOSSIL FUEL • Pollution costs reflect damage to human health from sulphur oxides, nitrogen oxides and particulates Supply Sources: Qamar Energy Research; Cost of damage based on UK factors; CO2e emissions include infrastructure and methane emissions

13. CARBON CAPTURE & STORAGE (CCS) • 22 large-scale carbon capture and storage projects are in operation around the world, capturing 40 million tonnes (0.04 Gt) of CO2 per year • Depending on costs, CCS can make gas climate-friendly • Current high costs • Costs of capture are $60-70/t of CO2 avoided for new coal plants • Costs for natural gas plants are higher ∼$125/t of CO2 avoided • Costs to remain uncertain until more industrial-scale projects under way • Carbon capture technologies for natural gas could be used to address industrial emissions Cumulative power: 6.9 Gt Cumulative industry: 3.8 Gt Cumulative others: 2.2 Gt Al Reyadah carbon-capture project, Abu Dhabi Assumes an emissions trajectory consistent with at least a 50% chance of limiting the average global temperature increase to 2°C Source: IEA Qamar Energy; RightGraphics: The National

14. GLOBAL GAS CONNECTIVITY

15. GLOBAL GAS CONNECTIVITY: SHIFTING FLOWS • CIS & Middle East are the two major exporting regions • However, total Middle East gas exports do not grow much • Russia to dominate supplies to Europe. Russian spare capacity estimated at 170 BCM/y • Big change is the emergence of North American gas exports • Asia is the major importing region 15 Source: BP 2017; Qamar Energy

16. GLOBAL GAS CONNECTIVITY: NEW INFRASTRUCTURE East Mediterranean gas Blue stream Turkish stream Baku-Tiblisi-Ezurum TANAP KRG-Turkey TAPI PEACE MEIDP 16 Source: Qamar Energy; Reuters

17. THE COMPETITION

18. ONGOING COMPETITION WITH COAL Supply • We see Singapore LNG prices averaging a little over $6.5/MMBtu from 2017 to 2022 and to stabilize at $8.60/MMBtu in 2024 onwards • Supply growth in the medium term will keep prices subdued • Long-term oil linked contracts • New hubs? Source: SPLNG; EIA; Qamar Energy

19. BREAKEVEN PRICES OF NEW LNG PROJECTS Supply Source: Rystad Energy Ucube

20. COMPETITIVENESS OF FOSSIL FUELS VS OTHERS IN ELECTRICITY GENERATION Supply • Compared to fossil fuels, most renewable energy sources require large capital investments; thus sensitivity to interest rates • MENA solar operating costs high with dust accumulation • Alternative generation (solar, nuclear, coal CCS) is cheaper than LNG or oil Source: Qamar analysis; Maersk Oil; Vestas

21. DRAMATIC FALLS IN SOLAR PV POWER BIDS Supply Dubai Dubai Abu Dhabi

22. A WILDCARD – ADVANCED NUCLEAR Supply • TurkeyAkkuyu nuclear plant to start construction in 2018 (4 × 1200 MW) • Jordan plant under construction (2000 MW) • Egypt finalizes deal with Rosatom for nuclear plant (4800 MW) • Abu Dhabi Barakah nuclear plant construction of first unit complete expected by 2018 (4 × 1350 MW) Source: US EIA

23. conclusions

24. WHAT DOES GAS NEED FOR ITS GOLDEN AGE? Gas’s long-term future Cost competitiveness • To coal and renewables Continuing strong supply • New entrants to meet rising demand Completing the global market • Global interconnectivity Creating new markets • New demand centers • Gas in transport CCS • To reduce CO2 emissions 24

25. CONTACT DETAILS ROBIN MILLS CEO Qamar Energy HDS Business Centre Cluster M, Jumeirah Lakes Towers Dubai Tel +971 4 364 1232 Fax +971 4 420 3391 www.qamarenergy.com info@qamarenergy.com