Stage Of Development – Is The Atlantic Basin Market For LNG Gaining Momentum Or Is It Played Out?

1. Stage Of Development – Is The Atlantic Basin MarketFor LNG Gaining Momentum Or Is It Played Out? David Small Director of PolicyMinistry of Energy and Energy IndustriesTrinidad and Tobago

2. The Atlantic Basin LNG Markets Europe Preferred Atlantic Basin Market • Prices tied to crude (Brent), European oil products & European gas prices (NBP) • Oil prices still drive European gas prices due to contract links, with responses slowed by time lags • Security of supply concerns • Higher prices needed to secure volumes North America – High Capacity ‘Swing’ Atlantic Basin Market • Worldwide Spot Cargo prices are increasingly tied to Henry Hub • Most trades are spot and short-term and prices are volatile • If your LNG has no market, then it can be sold here – But at what price? • Longer term, world prices and Henry Hub less transportation will converge • Swing market for LNG

3. Atlantic Basin LNG Imports 1970 - 2007

4. LNG Liquefaction Capacity

5. European Spot (NBP) Prices vs. Henry Hub Prices

6. Atlantic Basin LNG Demand Scenario • There has been dramatic increase in worldwide demand for LNG in last few years • Several factors are responsible: • Rapid expansion of East and South Asian economies • Annual US market prices have ranged US$4-8 range over 2001-2007. • Owners of LNG capacity have been in the ascendancy as supply was king. As oil prices rose, so did Gas and LNG prices. • Demand for spot LNG rose faster with the result that a cargo from Trinidad fetched over US$23 Mmbtu to Japan during 2008. • However, the winds of change are blowing- Global Recession/Massive new supply may mean that 2009/10 could be a demand constrained period for global LNG. • Bottom Line? Buyers will be in the ascendancy!

7. Atlantic Basin LNG Demand Scenario • Reduced demand for LNG during Q4 2008 saw fewer Atlantic Basin origin cargos going to Asia • Window for recovery from recession is uncertain leading to forecasts of continued softening of demand for LNG for 2009. • Reports show that global spot LNG prices have gone from the US$20 MMBtu range to around US$ $10. • With incremental shipping costs estimated at US$2 for Atlantic Basin origin cargos – US$10 Asian prices suggest that anything above the base differential of US$8 would see a movement of cargoes into Europe. • New liquefaction capacity during 2009 aggravates this situation. • Addition of new Regas capacity in the USA in 2009 potentially pours more fuel on the fire • Only the US has significant storage – Thus once Winter peak is past – where does the LNG go? And at what price?

8. US LNG Imports

9. US Market Outlook • Industry wisdom suggests that due to the reduced prices, flexible LNG volumes will seek other markets for the short-term. Sustainability of shale volumes is key. • Beyond this period, volumes of LNG required likely to increase as US overall gas consumption patterns assimiliate shale volumes. Prices need to be higher in order to attract spot supplies • Global supply increase in 2009 likely to see more LNG heading to USA – not necessarily because of attractive prices but more likely as a market of last resort.

10. Threat to LNG in US Market?Or much ado about………. • LNG now more cost competitive • Improvements in liquefaction processes and technology • Increased train and LNG tanker sizes and resulting economies of scale • Sharing of costly common facilities (e.g., ports) • Competitive bidding for all aspects of EPC process • Reduced U.S. gas supply has left pipeline capacity available • Atlantic Basin LNG production (particularly Western Hemisphere production in Trinidad and prospectively Venezuela) has reduced transit time and costs Hot topic in USA during election build-up. Since then --- ??

11. Current Threat to USA LNG Demand Growth US Shale Basins (TCF) Source: US Federal Energy Regulatory Commission

12. European Market • Residential/commercial (40%) is currently Europe’s largest demand sector. • Five markets dominate demand (UK, Germany, France, Italy and Netherlands – 70%+) • European gas consumption is expected to grow steadily, with power sector demand the key driver • Imports (40% of total) are a major part of European supply, with Russia (60%) and Algeria (25%) in the lead. • Europe will need new gas imports, as demand grows while indigenous production continues to decline. • As recent events show, Russia supply disruptions are a very real concern.

13. Short-Term Price Outlook Source Data - PIRA

14. Forecasted Long-Term LNG Price Outlook Nominal U.S. Dollar/MMBtu Source Data - PIRA

15. Atlantic Basin – Emerging Customers / New Technology Brazil and Argentina became LNG importers in 2008. Chile next. New Markets? Pecem, Brazil 7MMcmd (2008) Peru LNG (2010) 4.2 million tpa Bahia de Guanabara, Brazil 14MMcmd (2009) LNG Regasification Qunitero, Chile 10MMcmd (2009) LNG Liquefaction Bahia Blanca, Argentina 10MMcmd (2008) Operating Under Construction

16. Atlantic Basin – Floating LNG Technology • The Atlantic Basin is ripe with opportunity for floating LNG • Several countries in the region have struggled with the existence of small, individually un-commercial deposits (Trinidad) • There also are those with reserves that exist very far from shore with a very high cost for the infrastructure to bring the gas to shore for domestic use or export (Brazil, Venezuela). • Technology could be proven in next couple of years. • Could add to liquefaction capacity at lower costs and become very competitive

17. Atlantic Basin LNG – Played Out??Not at All! In Fact It will be Center Stage! • 2009 will be a pivotal Year • On the Supply side more production of LNG is coming on stream in 2009, and with it more regas capacity. • On the Demand side, the US and Europe are well supplied by pipeline gas. Production from shale formations has surprised the markets, being far more prolific and cost effective than initially thought. • Global recession continues to have marked effect on demand in all LNG markets – Likely that a substantial amount of demand from 2008 will not recur in 2009. • Storage – Europe has limited storage – US has much more. • The “Swing Market” will now take centre stage in the business, If current conditions persist, by mid-year a surge of LNG will seek entry into the US. • At what price?

18. Atlantic Basin LNG – Beyond 2009 • Global gas consumption forecasts continue to point to expansion in demand going forward • Influence of unpredictable events such as: - Atlantic Hurricane season severity - Length and severity of Northern Hemisphere Winter - Russia supply uncertainty - US Government policy on reserves in environmentally protected areas • Overall, liquefaction capacity will match demand in the short to medium term. Beyond 2014 is when there may be a challenge. • Impact of global crisis on new LNG investment will be a bellwether of the future.

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