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Richard L. Levitan, rll@levitan February 10, 2006

Restructuring Roundtable How LNG Fits Into the Regional Market. Richard L. Levitan, rll@levitan.com February 10, 2006. North American Natural Gas Supplies. Accelerated depletion affecting mature supply basins: Gulf of Mexico Onshore Gulf Coast Western Canada Sedimentary Basin (WCSB)

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Richard L. Levitan, rll@levitan February 10, 2006

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  1. Restructuring Roundtable How LNG Fits Into the Regional Market Richard L. Levitan, rll@levitan.comFebruary 10, 2006

  2. North American Natural Gas Supplies • Accelerated depletion affecting mature supply basins: • Gulf of Mexico • Onshore Gulf Coast • Western Canada Sedimentary Basin (WCSB) • These supply areas account for ~ 60% of continental production • Production offshore Nova Scotia has been a bust • New gas fields in the Rockies, unconventional gas formations, and deep water are not sufficient to plug the U.S. supply gap • MacKenzie Delta and Alaska should dent the supply gap but not remedy the imbalance

  3. Gulf of Mexico On-Shore Production

  4. Gulf of Mexico Off-Shore Production

  5. WCSB Production

  6. Sable Island Production Source: CNSOPB

  7. U.S. Consumption / Production Gap Source: EIA

  8. Development Challenges • Over 60 LNG terminals proposed in North America • 5 terminals operational • No more than a dozen new terminals are likely to be built • Most will be on the Gulf Coast, Mexico, or in Canada • Successful projects will require: • Permittable site • Balance sheet strength / credit enhancement vehicles • Global reach

  9. Gulf Coast LNG Projects–Risks • All eggs in one basket • Hurricanes Katrina and Rita disrupted onshore as well as offshore infrastructure • MMS Summary of Damages: • Almost all offshore oil production and more than 90% of offshore gas production were shut-in • Katrina destroyed or heavily damaged 66 production platforms and caused 100 pipeline damage incidents in federal waters • Rita destroyed or heavily damaged 101 production platforms and caused 83 pipeline damage incidents

  10. Current Proposed LNG Supply Sources Alaska Norway Russia Egypt Algeria Qatar Libya Oman UAE Trinidad Venezuela Yemen Nigeria Malaysia Brunei EquatorialGuinea Indonesia Peru Angola Australia Chile Source: Tractebel

  11. Sources of U.S. LNG Supply Source: EIA

  12. Proposed Atlantic Basin Import Terminals – Greater Northeast (partial list)

  13. Proposed LNG Terminals Canaport Bear’s Head Weaver’s Cove Broadwater Crown Landing

  14. LNG Markets are Global • Strong demand fundamentals across Europe / UK • Strong demand fundamentals in Asia and Europe resulted in price divergences against the Henry Hub over the past two winters • Spot LNG cargoes have been bid away from U.S. terminals and re-routed to Spain and the U.K. • Swaps and arbitrage standard industy practice

  15. Global Gas Prices Source: Bloomberg

  16. Observations • Extreme tightness in global LNG markets requires strong contractual lock on supply • Proposed projects with strong supply links need to be approved and constructed as soon as possible • First movers are the winners in the regional slugfest

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