LNG Investment Conference 2014 - David Egan, PwC
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LNG Investment Conference 2014 - David Egan, PwC
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LNG Investment Conference 2014 - David Egan, PwC
- 1. Global and Canadian LNG Opportunities David Egan Partner, Infrastructure and Project Finance Vancouver, BC
- 2. PricewaterhouseCoopers LLP Table of Contents Introduction World Demand for Natural Gas World Supply of Natural Gas LNG Trade & Pricing Implications for Canada & British Columbia 2
- 4. PricewaterhouseCoopers LLP Introduction The emerging Liquefied Natural Gas (LNG) industry in British Columbia is based on world class deposits of natural gas that have so far been developed for North American consumption only. With worldwide demand increasing for LNG, significant overseas export opportunities are presenting themselves and the province is poised to take advantage. This paper describes global trends with LNG demand, supply and pricing, and describes the implications for Canada and British Columbia. Information is drawn from several sources including trade publications, mass media articles, internet sites, government publications, LNG conference presentations and discussions with PwC Energy experts. 4
- 5. PwC World Demand for Natural Gas 5
- 6. PricewaterhouseCoopers LLP Source: U.S. Energy Information Administration (Annual Energy Outlook) 6 Global Energy Demand by Source Liquid Fuels 37% Natural Gas 27% Coal 19% Nuclear 8% Hydro 3% Biomass 3% Other 3% Year 2014 Liquid Fuels 34% Natural Gas 30% Coal 18% Nuclear 8% Hydro 3% Biomass 4% Other 3% Year 2034
- 7. PricewaterhouseCoopers LLP Source: BP Statistical Review of World Energy 7 Global Primary Energy Consumption 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% North America South and Central America Europe and Eurasia Middle East Africa Asia Pacific Consumption by Source (Oil-Equivalent), 2012 Oil Natural Gas Coal Nuclear Hydro Renewables
- 8. PricewaterhouseCoopers LLP Map of Global Natural Gas Consumption Units in Tonnes Oil Equivalent, Per Capita Image Credit: BP Statistical Review of World Energy 9
- 9. PricewaterhouseCoopers LLP Global Natural Gas Consumption Image Credit: U.S. Energy Information Administration 10 310 329 360 393 431 470 507 0 100 200 300 400 500 600 2010 2015 2020 2025 2030 2035 2040 Volume(quadrillionBcf/d) Global Natural Gas Consumption (quadrillion Bcf/d)
- 10. PwC World Supply of Natural Gas 11
- 11. PricewaterhouseCoopers LLP Global Proved Natural Gas Reserves Source: BP Statistical Review of World Energy 12 Asia Europe Russia Rest of the World North America Middle East 0 10 20 30 40 50 60 70 80 90 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 VolumeinTrillionCubicMetres Proved Natural Gas Reserves by Region
- 12. PricewaterhouseCoopers LLP Global Natural Gas Production Source: BP Statistical Review of World Energy 13 Asia, Rest of Europe Middle East Russia Rest of the World China North America 0 100 200 300 400 500 600 700 800 900 1000 VolumeinBillionCubicMetres Natural Gas Production by Region
- 13. PwC LNG Trade & Pricing 14
- 14. PricewaterhouseCoopers LLP Regional LNG Importers and Import Origins Source: BP Statistical Review of World Energy 15 Trinidad & Tobago Trinidad & Tobago Peru Qatar Qatar Qatar Qatar Qatar Yemen Algeria Nigeria Nigeria Nigeria Australia Australia Indonesia Indonesia Malaysia Malaysia 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% North America Europe and Eurasia Rest of the World China Asia, Rest of Volume(inbillioncubicmetres) LNG Import Sources, 2012
- 15. PricewaterhouseCoopers LLP Map of Major Gas Trade Movements in 2012 Units in billion cubic metres Image Credit: BP Statistical Review of World Energy 16
- 16. PricewaterhouseCoopers LLP Global Natural Gas Prices Source: BP Statistical Review of World Energy 17 0 2 4 6 8 10 12 14 16 18 USD(permillionBtu) Natural Gas Prices German Import Price (cif; LNG) Japan Import Price (cif; LNG) Canada (Alberta; Natural Gas) U.K. National Balancing Point Index (Natural Gas) U.S. Henry Hub (Natual Gas) Average
- 17. PwC Implications for Canada & British Columbia 18
- 18. PricewaterhouseCoopers LLP Map of Canadian Natural Gas Reserves Image Credit: Pacwest Consulting Partners 19
- 19. PricewaterhouseCoopers LLP Source: U.S. Energy Information Administration 20 2.5 1.2 1.1 0.3 -0.06 0.65 0.99 2.34 -1 0 1 2 3 2010 2020 2030 2040 Volume(intrillioncubicfeet) Canadian Net Natural Gas Trade Pipeline LNG Canadian Net Natural Gas Trade Export volume is positive; import is negative
- 20. PricewaterhouseCoopers LLP Investment Opportunities in B.C. Investment opportunities exist throughout the LNG supply chain beyond the LNG Consortia that are dominated by major oil & gas companies and major offtakers: • Exploration companies • Engineering and construction • Pipelines • Camp providers • Services 22
- 21. PricewaterhouseCoopers LLP Source: U.S. Energy Information Administration 26 Canadian Market Share 1.9 1.8 2.0 2.7 23.4 30.4 39.7 47.3 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 0 10 20 30 40 50 60 2014 2020 2030 2040 MarketShare Volume(intrillioncubicfeet) Global Natural Gas Export Volume and Canadian Market Share Canada World Canadian Market Share
- 22. PricewaterhouseCoopers LLP Opportunities and Challenges in B.C. Challenges • Engagement with First Nations bands, whose traditional lands are affected by projects • Escalating competition from Australia and other exporting countries — worldwide liquefaction capacity may double over the next decade • Large potential for marketable natural gas in Western Canadian Sedimentary basin but requires unconventional development — subject to regulatory and environmental approvals Opportunities • Western Canada is located close to the growing Asia-Pacific markets — transportation costs are thus minimized • Proposed liquefaction capacities and export terminals will open access to new Asia — Pacific markets • Large resource base in Western Canada • Adequate access to capital to facilitate development of new capacities and export terminals 27
- 23. PricewaterhouseCoopers LLP Contact Information David Egan Partner, Infrastructure and Project Finance P: +1 604 806 7538 E: david.n.egan@ca.pwc.com
Editor's Notes
- On a global basis, natural gas forms an important component of energy supply Natural gas supplied 27% of global energy demand in 2014 Global energy demand is expected to increase by over 30% over the next 20 years The importance of natural gas in meeting this demand is increasing By 2034 natural gas is expected to supply 30% of global energy demand
- Reliance on natural gas varies by region. The greatest reliance is in the Middle East The least reliance is in Asia Pacific Natural gas has the biggest potential for growth in Asia Pacific because it has room to replace coal.
- Natural gas consumption is increasing in all parts of the world except Europe and Russia Chinese consumption of natural gas is currently low relative to other countries but is rapidly growing.
- Consumption levels on a per capita basis are currently highest in North America, Russia and the Middle East. There is significant potential for more natural gas consumption in Asia from a per capita basis. But … there is potential for more natural gas consumption in Asia if you look at from a per capital basis
- As indicated earlier, natural gas is expected to be the fastest growing of the fossil fuels – with demand rising at an average of 1.9% a year. Natural gas consumption is forecast to increase from 310 quadrillion Bcf/d in 2010 to 507 quadrillion Bcf/d in 2040, a 64 % increase.
- The top 5 countries with the largest reserves are: Iran, Russia, Qatar, Turkmenistan and U.S. respectively. China is ranked 13th. (BP Statistical Review)
- Non-OECD countries are expected to generate 78% of demand growth. Industry and power generation account for the largest increments to demand by sector. LNG exports are expected to grow more than twice as fast as gas consumption, at an average of 3.9% per year, and accounting for 26% of the growth in global gas supply to 2035. (BP) Advances in horizontal drilling and hydraulic fracturing mean that natural gas from shale gas, once considered uneconomic to produce, are now feasible for production. (CAPP) In 2013, the United States Potential Gas Committee increased its estimate of potential U.S. gas resources from 1,898 Tcf to 2,384 Tcf, an increase that was largely due to the inclusion of 1,073 Tcf of potential shale gas resources, up from the previous estimate of 686 Tcf (CAPP)
- Oceanic trade of gas is through liquefied from The chart shows the dependence of various regions on LNG imports Quatar is a significant supplier to all regions Whereas Trinidad & Tobago is a significant supplier to North America, Australia, Malaysia and Indonesia are significant suppliers to China and the rest of Asia While exports of LNG from the Middle East are dominated by Qatar, the largest exporter of LNG in the world, this status could come under threat from Australia over the next decade as this country has a considerable number of LNG liquefaction projects being planned and developed.
- World trade in LNG has more than tripled over the last 15 years, growing from just over 10 billion cubic feet per day in 1997 to nearly 32 billion cubic feet per day in 2012. (CAPP) To date, western Canadian gas production only serves North American markets. Of the total 13.7 Bcf/d of gas produced in Western Canada in 2012, 5.3 Bcf/d was consumed in Canada, while the remaining 8.4 Bcf/d was exported to the United States. Traditionally western Canadian gas has served markets in California, the Pacific Northwest, the U.S. Midwest, the U.S. Northeast and the western and central Canadian markets. (CAPP)
- Currently North American gas prices are depressed due to a combination of weak demand as the economy continues to recover from the recession of 2008/09 and growing natural gas supplies from emerging shale plays throughout North America. If traded on an energy-equivalent basis, the price of a barrel of oil should be six times that of the price of an MMbtu of gas. Today, however, the price of natural gas in North America is trading less than one twentieth of the price of crude oil on an energy equivalent basis. As many European and Asian natural gas price contracts are more closely tied to oil prices, there exists the potential for western Canadian gas producers to obtain a higher netback for their production if they are able to access world markets while North American prices remain relatively depressed. (CAPP)
- The Canadian National Energy Board estimates the ultimate potential for marketable natural gas in the Western Canadian Sedimentary basin to be 821 Tcf.3 Of this some 632 Tcf are remaining as at the end of 2012. Of these resources, some 531 Tcf are unconventional and the development of these resources means that Canada has well over 100 years of supply remaining at current rates of production. There is an enormous resource base in four regions: Montney, Liard Basin, Horn River Basin, Cordova Embayment. A large portion of these unconventional gas resources are found in the Horn River and Montney plays in northeastern B.C. (CAPP)
- As indicated virtually all natural as trade in Canada is by pipeline. This is expected to change dramatically with the emerging LNG export industry combined with lower gas exports by pipeline to the US Canada’s entry into the world LNG market should likely have limited market impacts on price as Canadian producers will likely be price takers in the markets they wish to serve. ompetition for a share of this growing market will be fierce, however, as other countries, notably Australia, are also seeking to develop large quantities of unconventional gas resources with a view to supplying the world LNG market. However Asian buyers will be wary of relying too much on a single country such as Australia for their future LNG needs and should look favourably on Canada as a reliable option to diversify their supply portfolios. Competition for these growing markets will, however, be fierce. An examination of all the gas liquefaction projects worldwide that are under construction or in the proposal stage shows that there exists the potential to increase worldwide liquefaction capacity by more than 100 per cent within the next decade (CAPP)
- There are 14 announced projects in BC at various stages, mostly in the Prince Rupert and Kitimat area If these projects were all to proceed as envisaged, Canada would have a total well in excess of 10 Bcf/d of LNG export capacity on its West Coast. Canada would be among the top six or seven world exporters at this level of export capacity, with the ability to effectively compete for a share of the growing LNG market. (CAPP) Numerous factors influence the proposed developments. Liquefaction plants are typically the most expensive element in an LNG project. In addition to substantial capital costs, because eight per cent to 10 per cent of gas delivered to the plant is used to fuel the refrigeration process, operating costs can be high as well. Economies of scale can be significant. (CAPP)
- Some of the major projects and the players involved are described Significant opportunities exist throughout the supply chain
- While none of the proponents of these proposals has made a final investment decision to proceed, one of the most advanced of these projects in terms of obtaining regulatory approvals is Kitimat LNG. (CAPP) The Kitimat project is equally owned by Apache Canada and Chevron Canada, with the latter company being the operator. The project targets an LNG terminal to be built at Bish Cove near the port of Kitimat, B.C. The project would be built in two phases, and after completion of the second phase it would have the capability of exporting some 1.4 Bcf/d of natural gas. A smaller project that is also proposed to be located near the port of Kitimat is the Douglas Channel Energy Partnership. This project is sponsored by LNG Partners, a private equity firm headquartered in Houston, Texas, and HNLP, a limited partnership established for the benefit of the Haisla First Nation LNG Canada is a joint venture comprised of Shell Canada Ltd., Korea Gas Corporation (KOGAS), Mitsubishi Corporation and PetroChina Company Limited that is proposing to build and operate a LNG export terminal in Kitimat. The project will initially consist of two LNG processing units, or trains, each with the capacity to produce six million tonnes per annum (mtpa) of LNG (equivalent to 0.85 Bcf/d of natural gas). LNG Canada has selected TransCanada Corporation to design, build, own and operate Coastal GasLink — a 700 kilometre pipeline that will connect natural gas from northern B.C. and the Western Canadian Sedimentary Basin to the proposed export facility near Kitimat. Aurora LNG is owned by Nexen Inc and INPEX CORPORATION of Japan and has plans to develop an LNG facility at Grassy-Point, B.C. Aurora was awarded this location by the B.C. government after submitting an expression of interest along with a number of other parties. An export licence in the amount of 3.12 Bcf/d has been applied for with the NEB. In January 2013, Calgary-based AltaGas Ltd. and refiner Idemitsu Kosan Co, Ltd. Of Tokyo announced they will form a 50-50 partnership to investigate exporting liquefied natural gas (methane) and liquefied petroleum gas (mainly propane) from Canada to Asia. This project was named Triton. AltaGas owns the Pacific Northern Pipeline system that is currently in service and delivers natural gas to Prince Rupert and Kitimat. The pipeline would supply proposed export facilities that target exports of two million tonnes per year (0.27 Bcf/d) of LNG by 2017. A specific site for the export facility has not yet been identified. Woodside, an Australian-based company, is also pursuing an LNG export project in Western Canada. The company is the largest independent operator of oil and gas in Australia, where it has an extensive network of LNG operations. Woodside has reached an agreement with the B.C. government regarding the location for a new LNG export facility at the southern parcel of Grassy Point near Prince Rupert. Woodside is pursuing an LNG export project in the range of 10 to 15 million tonnes per annum, or 1.8 to 2.5 Bcf/d, including allowances for fuel gas.
- Pacific Northwest LNG is owned by PETRONAS, the national oil and gas company of Malaysia. The proposal consists of an LNG export facility on Lelu Island in the District of Port Edward near Prince Rupert. Initially the project will include two trains, with the ability to expand with the addition of a third train. The output of LNG is expected to be six million tonnes per annum (0.8 Bcf/d) per train. TransCanada has been selected to design, build, own and operate the proposed $5 billion Prince Rupert Gas Transmission pipeline that will transport natural gas primarily from the north Montney gas-producing region near Fort St. John, B.C., to the Pacific Northwest LNG export facility. Prince Rupert LNG is owned by BG Group and has a proposal to build an LNG export facility on Ridley Island, B.C. The first phase of the project calls for two trains and will export 14 million tonnes per annum (1.8 Bcf/d equivalent) and phase two will bring an additional train of seven million tonnes per annum (0.9 Bcf/d). Prince Rupert LNG received an export licence for 2.91 Bcf/d from the NEB in December 2013. BG has announced a joint venture pipeline with Spectra Energy that will extend 850 km. from northeast B.C. to Ridley Island near Prince Rupert. The pipeline will be capable of transporting up to 4.2 billion cubic feet per day of natural gas and will connect with the Spectra Energy system at its Station 2 facilities. ExxonMobil and Imperial Oil have announced a partnership in WCC LNG. WCC has indicated interest in obtaining a site near Kitimat or Prince Rupert and was recently granted an export licence from the NEB for 30 million tonnes per annum (four Bcf/d). No pipeline proposals for the project have been made public as of yet. Woodfibre LNG is owned by Woodfibre Natural Gas out of Vancouver, B.C. It proposes a smaller project out of Squamish, B.C., for the export of 2.1 million tonnes per annum (0.27 Bcf/d). This project received an export licence in the amount of 0.27 Bcf/d from the NEB in December 2013. Woodfibre has stated that it will be supplied via an expansion of an existing FortisBC natural gas pipeline.
- In summary, based on the proposed developments, early estimates are that Canada’s share of natural gas exports should be around 6% of global suppliers by 2040 This translates to a higher percentage of LNG exports (8 – 10%)