© 2013 Institute of Energy Economics, Japan - IEEJ

Evolutions and Revolutions in the Global Gas and LNG Markets

DAY ONE: TUESDAY 4 JUNE 2013 Ayodya Resort Nusa Dua, Grand Ballroom

Hiroshi Hashimoto (Facebook, LinkedIn) hiroshi.hashimoto@tky.ieej.or.jp

3RD Gas Data Transparency Conference

© 2013 Institute of Energy Economics, Japan - IEEJ

1. Price convergence and divergence – Interaction between regions leads to some convergence – Whereas regional price differences are widening – Different pricings coexist within the same markets

2. What have happened in recent years – Shifts in gas and LNG business (Asia and LNG) – Shift to natural gas and LNG in markets around the world – Increasing shares of the Asia Pacific markets and Japan

3. Impacts of the revolutions – Changing world gas powers – Changing prospects

Outline

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© 2013 Institute of Energy Economics, Japan - IEEJ

The biggest problem: widening gaps

(Sources) Compiled by the author, based on data from Japan’s custom statistics, Department of Energy (United States), Energy Intelligence

From 2003 to 2007, prices in the United States were often more expensive than prices of Japanese imports. Since 2008, price gaps have been much wider.

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Henry Hub New York Citygate NBP Japan LNG average JCC

(USD / million Btu) (USD / bbl crude oil equivalent)

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© 2013 Institute of Energy Economics, Japan - IEEJ

Japanese LNG buyers’ dilemma: misinterpreted both in and outside of the country

• Ordinary people in Japan tend to think that “Japan buys the most expensive LNG because it is supplied as LNG and because the utility buyers do not work hard to reduce prices.”

• Some external experts describe “Asian buyers are willing to pay higher prices for security of supply” and “Utility companies can easily pass incremental fuel costs onto customers.”

• Anti-nuclear and pro-nuclear discussions in Japan tend to dismiss global implications of Japanese policy, including those on global LNG supply/demand and pricing. 4

© 2013 Institute of Energy Economics, Japan - IEEJ

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Korea

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Chinese taipei

(USD/million Btu)

(Sources) Compiled by the author, based on data from custom statistics of the importers

Asia has the most transparent LNG price data

© 2013 Institute of Energy Economics, Japan - IEEJ

Global LNG trades declines in 2012, whereas share of Asia (Japan) increases

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China

Chinese taipei

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(Data source) GIIGNL, customs statistics, etc.

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(million tonnes)

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LNG trades grow faster than natural gas as a whole, natural gas grows faster than energy in general

(Source) Compiled by the author based on data from Natural Gas Information 2012, International Energy Agency, August 2012, and other information sources

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3,50019

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Natural gas production in the world (blue bars) (bcm)

LNG production in the world (purple bars) (bcm)

© 2013 Institute of Energy Economics, Japan - IEEJ

Changing LNG supply sources to Japan

(note) Figures are for fiscal years. (Date source) Japan’s customs statistics. 8

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United Stat

es (A

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Abu Dhab

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Oman

Yemen

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l Guinea

Norway

Belgium

France

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and Tobag

oBra

zilPer

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2010 2011 2012(million tonnes)

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Changing flows of LNG trade

2012 (major shifts of products from the Atlantic to the Pacific) 9

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Changing flows of LNG trade

1997 (before major Atlantic sources began exports) 10

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Evolving short-term procurement

(Data sources) compiled from customs statistics and GIIGNL data

Share of short-term volume in the total imports in Japan

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Short-term volumes (million tonnes, left axis)Total imports (million tonnes, left axis)Share of short-term (%, right axis)

© 2013 Institute of Energy Economics, Japan - IEEJ

Evolving short-term procurement • Trading patterns tend to shift back from

spot/short-term to term contracts.

Japan’s monthly spot cargo purchase in 2011-2012

(Data sources) compiled from ICIS Heren, Argus, Platts information

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(Number of cargoes)

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World natural gas powers (2012)

(Source) Compiled by the author based on data from 2012 Natural Gas Year in Review, CEDIGAZ' First Estimates, April 2013. 13

Europe

Iran

Qatar

Russia

Australia

Indonesia

Malaysia

China

Japan

United States

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Europe

Iran

Qatar

Russia

Australia

Indonesia

Malaysia

China

Japan

United States

LNG export pipeline export domestic production consumed within boundary pipeline import LNG import

(Consumption in bcm)(Export in bcm)

Green bars combined representtotal production in a country(or a region).

© 2013 Institute of Energy Economics, Japan - IEEJ

World natural gas powers (2006, 2011, 2012)

(Source) Compiled by the author based on data from NATURAL GAS IN THE WORLD – 2012 EDITION CEDIGAZ, October 2012, 2012 Natural Gas Year in Review, CEDIGAZ' First Estimates, April 2013.

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(bcm)

© 2013 Institute of Energy Economics, Japan - IEEJ

Gas production in the two biggest producers

(Source) Compiled by the author based on data from Natural Gas Information 2012, International Energy Agency, August 2012, 2012 Natural Gas Year in Review, CEDIGAZ' First Estimates, April 2013.

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United States IEA United States Cedigaz Russia IEA Russia Cedigaz

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© 2013 Institute of Energy Economics, Japan - IEEJ

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Southeast Asia China India Japan

Emerging markets in the Asia Pacific region

16 (Source) Compiled by the author based on data from Natural Gas Information 2012, International Energy Agency, August 2012, and other information sources

(bcm)

© 2013 Institute of Energy Economics, Japan - IEEJ

Proven reserves are concentrated

Americas

CIS

Middle East

Africa

Russia

Iran

Qatar

Europe

Asia Pacific

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200tcm

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54% of reserves are found in just 3 countries

(Note) As of January 2012 (Source) Compiled by the author based on data from NATURAL GAS IN THE WORLD – 2012 EDITION CEDIGAZ, October 2012 17

© 2013 Institute of Energy Economics, Japan - IEEJ

(Note) Blue = conventional, red = tight gas, green = shale gas, purple = CBM (Source) Compiled by the author based on data from World Energy Outlook 2012, International Energy Agency, November 2012

Technically recoverable resources

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© 2013 Institute of Energy Economics, Japan - IEEJ

19 Contact: Hiroshi Hashimoto hiroshi.hashimoto@tky.ieej.or.jp

Thank you for your attention.

Further changes are on the horizon. . .

1. New supply sources (Australia, North America, East Africa, Russia, more unconventional sources in Southeast Asia);

2. Market dynamics (interaction with other energy sources, business activities, policy decisions, lifestyle changes)