The Golden Age of Gas

- What Will it Take to Get There?

Infrastructure and Gas Monetisation:

How does gas get from source to the market?

Royal Institution: 19th September, 2013

2013 GAFFNEY CLINE & ASSOCIATES. ALL RIGHTS RESERVED. TERMS AND CONDITIONS OF USE: BY ACCEPTING THIS DOCUMENT, THE RECIPIENT AGREES THAT THE DOCUMENT TOGETHER WITH ALL INFORMATION
INCLUDED THEREIN IS THE CONFIDENTIAL AND PROPRIETARY PROPERTY OF GAFFNEY CLINE & ASS0CIATES VALUABLE TRADE SECRETS AND/OR PROPRIETARY INFORMATION OF GAFFNEY CLINE & ASSOCIATES
(COLLECTIVELY "INFORMATION"). GAFFNEY CLINE & ASSOCIATES RETAINS ALL RIGHTS UNDER COPYRIGHT LAWS AND TRADE SECRET LAWS OF THE UNITED STATES OF AMERICA AND OTHER COUNTRIES. THE RECIPIENT
FURTHER AGREES THAT THE DOCUMENT MAY NOT BE DISTRIBUTED, TRANSMITTED, COPIED OR REPRODUCED IN WHOLE OR IN PART BY ANY MEANS, ELECTRONIC, MECHANICAL, OR OTHERWISE, WITHOUT THE EXPRESS
PRIOR WRITTEN CONSENT OF GAFFNEY CLINE & ASSOCIATES, AND MAY NOT BE USED DIRECTLY OR INDIRECTLY IN ANY WAY DETRIMENTAL TO GAFFNEY CLINES & ASSOCIATES INTEREST.

Infrastructure and Gas Monetisation

2013 Gaffney, Cline & Associates. All Rights Reserved.

Infrastructure and Gas Monetisation

Gas Production/
Supply

Infrastructure and
Gas Monetisation

Gas and Product

Demand

How do we bridge the supply and demand for a Golden Age

of Gas?
What infrastructure is required to commercialise gas
resources?
What gas monetisation technologies are available for local
and export solutions?
3

2013 Gaffney, Cline & Associates. All Rights Reserved.

The Golden Age of Gas Requires Infrastructure

Lack of infrastructure can impede gas commercialisation
Villagers in the Shandong Province of China have a solution!......if you are
willing to fill a bag full with natural gas and carry it home, at the risk of,
well, exploding?

2013 Gaffney, Cline & Associates. All Rights Reserved.

Infrastructure is Required to Move Gas to Demand Centres

Gas & LNG exports account for 30% of global gas consumption

Gas export pipelines usage increased by 4.8% AAGR over last 10 years
LNG exports growing at faster rate, by 7.5% AAGR over last 10 years
LNG Liquefaction capacity is approx. 281 MMTp.a. in 2012 (floating LNG is nil)
LNG shipping fleet currently has 362 vessels, a combined capacity of 54 Bcm

Gas & LNG imports opening up to new countries

LNG import (land and floating regas) capacity is 642 MMTp.a. in 2012 and
expanding- new facilities planned in UAE, Ukraine and Canary islands (Spain)
Gas import pipelines & distribution networks (political or commercial
investment decision)

If LNG is going to be a major contributor to the Golden Age of Gas

then huge investments are required to meet forecast demand growth

2013 Gaffney, Cline & Associates. All Rights Reserved.

Major Investment in New Gas Export Pipelines

80+% of global new gas pipelines will be required in North
America - in order of US$15-60 Billion in next 10 years
Existing infrastructure is near capacity or not located near
new shale gas (liquids rich) plays
Marcellus forecast to increase by 10 Bcf/d in next 5 years
Gas pipelines need to handle additional gas for 100+
MMTp.a. LNG exports

NGL infrastructure is required, e.g. Williams is forecasting

1.2 MMbpd of NGLs from Marcellus/ Utica by 2020 alone!
Globally, there are many proposed new/expanded gas pipelines
Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, an Iran-Pakistan pipeline,
East Russian exports and the Caspian

Russia-China line is likely given Russias strategic gas marketing shift eastward
Plus at least one new line into southern/central Europe is likely to come to fruition
Nabucco or South Stream pipelines into southern/central Europe?

2013 Gaffney, Cline & Associates. All Rights Reserved.

New LNG Liquefaction Export Facilities

Large scale, land-based LNG technologies still dominate any situation where

large reserves can be monetised

350 MMTp.a. of new LNG projects are planned or in construction by 2025
Not all may find approval or financing, which is typically secured through
long term LNG supply agreements
Huge capital investment is required, approx. US$230 Bn in 2013-17 alone!
LNG plant costs vary widely (+/- 50%) due
to location, level of pre-treatment, marine
Average Liquefaction Unit Costs in US$/T (real)
facilities, utilities and offsites
US brownfield LNG projects have the
lowest cost (estimated US$650-550MM/T)
substantially lower than typical greenfield
projects averaging US$1,200/T

East African, and particularly North

American LNG projects are well
positioned to compete against the
greenfield Australian LNG projects to
supply Asia
7

2013 Gaffney, Cline & Associates. All Rights Reserved.

Source: IGU 2013

Variability of New LNG Delivered Costs to Tokyo (DES)

15.0

Chenieres
Contract Price

Potential
Delivered Cost
US$13.5/MMBtu

14.0
13.0

US$11.5/MMBtu

12.0
11.0

GTP & Liquids

US$10.3/MMBtu

Shipping

Shipping

Liquefaction
Plant

10.0

Shipping
(via Suez)

$/MMBtu

9.0

6.0

3.0
2.0

1.0
0

Liquefaction
Plant Tariff
$3.0/MMBtu

Liquefaction
Plant

Gas
Pipeline

Upstream
Cost of
Pipeline
Gas
(115% of
Henry Hub
at US$4/
MMBtu)

Upstream

Gas
Pipeline

Gas Pipeline

Upstream
Generic USGC
LNG Exports

Shipping

Liquefaction
Plant

5.0
4.0

US$9.1/MMBtu
GTP & Liquids

8.0
7.0

Liquid Recovery
Improves Costs

2013 Gaffney, Cline & Associates. All Rights Reserved.

East Africa

Australia (Offshore)

Asia Pacific

Phase 1

9 MMTPA

7 MMTPA

9.7 MMTPA
10

MMtp.a., 10% IRR

20Yrs Project Life

Can Floating LNG Liquefaction Lead the Way?

Floating LNG production projects could finally open up the market there are a
raft of potential small and large stranded gas projects
Petronas is in pole position to become the first to commercialise FLNG

Petronas FLNG No.1 facility (2015-6): 1.2 MMTp.a. (FLNG No.2 project FID late in 2013?)
Shells Prelude FLNG (2016): 3.6 MMTp.a. and costs US$12 Bn
(this will be six times heavier than the world's biggest aircraft carrier!)
Santos Bonaparte FLNG (FID 4Q2014) 2-3 MMTp.a. and costs US$ 8-10 Bn

FLNG can avoid the nimbies and reduce costs compared to land based

solutions, but is capitally intensive and still commercially unproven

Source: IGU 2013

9

2013 Gaffney, Cline & Associates. All Rights Reserved.

Additional LNG Import Terminals will be Required

Traditional LNG import terminals are large landbased facilities benefiting from
High regasification rates at 6 Bm3p.a. (4.3 MMTp.a.)
Large LNG storage providing security of supply

Land-based LNG terminal are costly (US$0.81.2Bn) and have long construction schedules (4046 months)
Floating LNG storage and regasification units (FRSU)
provide a flexible and short term solution
Currently there are FRSUs operating in 8 countries

Advantage of FRSUs is the ability to deliver gas onshore

where required

It bypasses some onshore nimby limitations

It can be moored offshore or at a fixed jetty but needs fairly
benign waters

FSRU are lower capex, higher opex options that can be

delivered in less than 1 year
Vessels can be leased or new from US$280-320MM plus
mooring facility and pipeline to shore

10

2013 Gaffney, Cline & Associates. All Rights Reserved.

What are the Monetisation Options for the

Delivered Gas?

11

2013 Gaffney, Cline & Associates. All Rights Reserved.

A Golden Age of Gas Requires Monetisation

Solutions
Criteria for determining the appropriate gas monetisation option

is based on many factors, some key development options

being:

Size and quality of the gas resource

Location of the resource relative to key markets - local and export
Competitiveness of end products
Illustrative Overview of Monetisation Options

Quantity (MMscfd)

Pipeline

LNG
Power

Methanol/DME

LNG & GTL

Medium-scale LNG

Small/Med -scale GTL

Fertilizer or CNG
(Domestic Markets

Small scale LNG and FLNG

Distance (km)

12

2013 Gaffney, Cline & Associates. All Rights Reserved.

GTL

Gas Utilization Options

Various monetization options are technically feasible but

not all are economically viable, or practical long term

solutions
Competitiveness of technologies varies widely depending
upon specific project details and regional markets

13

End Use

Typical Unit Size

MMscfd

Tcf

CNG

10,000 vehicles

0.03

Cement Plant

Small plant ~1 MMTp.a.

10

0.07

Fertilizer (Urea)

Average size 1,150 T/day

15

0.15

City gas

1 million domestic users

15-30

0.1- 0.2

Power

200 MW

50

0.5

Methanol

World scale 5,000 T/day

150

1.2

GTL

Medium scale 16,000 bpd

150

1.2

LNG (Land or floating)

Small scale 3,000 T/day

150

1.2

LNG

10 MMTp.a. (2 Large trains)

1360

10

2013 Gaffney, Cline & Associates. All Rights Reserved.

Illustration of Typical Development Options

Diagram is an
Gas Quantity

LNG
GTL

Viable

Methanol/DME
Fertilizer

Power
Small scale LNG/GTL

Wellhead Gas Price, US$/MMBtu

Associated gas
Conventional, onshore
Tight gas, remote
Offshore (incl remote)
14

illustration only
there are
always
exceptions!

developments
are project
specific

Other Criteria for Determining the Appropriate

Gas Monetisation Route
Practical limitations or geo-political
restrictions :
Logistics for project construction and O&M
Access to a deep water marine facility,
Terrain impediments and roads

Permission for cross-border pipelines

Technology availability and reliability

Manpower/skills availability
Requirement for strategic partners or
agreements from foreign governments
Project financing
Environmental approval

Woodside LNG Train V Expansion Project

Module (18,000 tons module weight)

Where netback gas price and ROR ultimately influence the project however
ignoring other factors can lead to cost over runs and delays
Over 70% of oil & gas mega projects developed since 2000 have exhibited poor
cost and/or schedule performance
15

2013 Gaffney, Cline & Associates. All Rights Reserved.

GTL Technologies Provide Link to Liquid

Markets
Potential new era for GTL - gas conversion

options to syncrude, paraffin liquids (middle

distillates) and petrochemicals
Syncrude injection to crude oil export pipeline
Easily transported products

Prospects have been limited by a perception of

high-costs and operational risks
Potential for good margins especially with wide PetroSA GTL Plant, Mossel Bay, South Africa courtesy of PetroSA
oil and gas price spread
Limited number of commercial scale plants, and technology vendors may want
a share in the project
Reactor sizes present logistical challenges for larger units
17 Mbpd train F-T reactors: 2,200 tons, 60m long x 10m nominal diam.

For small amounts of gas .you may also consider small scale GTL, i.e.
Compact GTL and Velocys
16

2013 Gaffney, Cline & Associates. All Rights Reserved.

Other Small Scale Gas Utilisation

Smaller volumes of gas that can be used for methanol for export, fuel

or conversion to more value added products; DME, olefins, gasoline

Low cost gas is a good option for fertilizer (ammonia to urea) which is
easily transported as a solid and good local markets
Small scale LNG technology is available through numerous vendors
providing trains for 0.1 2 MMTp.a. train capacity
Satisfy local demand for emerging LNG fuel markets or local power
generation units (used in remote locations for drilling rigs)

CNG is more adapted to light duty vehicles/short mileage options

Overall CNG (200 bar) requires 3 times the volume of LNG, but with lower
capex, albeit higher opex, it is a good local demand option

So the question at the pump may well be, liquid or gas, the one

thing that is clear is that NGVs of all sizes are here to stay

17

2013 Gaffney, Cline & Associates. All Rights Reserved.

Quick Look at Two Regions Planning to Export LNG

North America
U.S. set to become a major gas exporter (approvals dependent!)
Relocating and starting-up mothballed methanol production
Renewed interest in medium scale GTL projects
Huge NGL volumes are fuelling new petrochemical boom

East Africa
The reserves are remote from the countrys population centres
Potential to set up domestic industrial zones to establish added
value petroleum liquids and petrochemicals
Export pipeline to neighbouring countries is challenging

What are the prospects for the other monetisation options

compared to LNG?

18

2013 Gaffney, Cline & Associates. All Rights Reserved.

North America Monetisation Prospects

Excellent infrastructure means gas resources can be monetised by a number of
routes not as vital to provide one large anchor project
USGC
Criteria

Power
(200 MW)

Methanol
(5,000 T/d)

Urea
(1,000 T/d)

LNG
(9.0 MMTpa)

GTL
(16,000 Bpd)

Gas reserve
(20 yr size/
quality)

Small,
Sweet
(0.5 Tcf)

Moderate,
sweet
(1.2 Tcf)

Small,
sweet
(0.2 Tcf)

Large,
sweet
(8.5 Tcf)

Moderate,
sweet
(1.2 Tcf )

Market risks

Coal pricing

Possible
oversupply

Possible
oversupply

Export approval

Large liquid
market

Technology
constraints /risks

Proven and
available
technology

Proven and
available
technology

Proven and
available
technology

Proven and
available
technology

Limited
experience and
few plants

Indicative netback price

Reasonable ROR can be achieved - but project specific

USGC LNG Terminal owners can target exports to Europe and S.E. Asia, via
the expanded Panama Canal from 2015, where netback gas prices are more
favourable
West Coast LNG export options (not included) to the Asia-Pacific market also
provide robust net-back prices
19

2013 Gaffney, Cline & Associates. All Rights Reserved.

Mozambique Prospects
A larger anchor project is needed to underpin gas developments for smaller
consumption options such as power generation and methanol
Criteria

Power
(200 MW)

Methanol
(5,000 T/d)

Urea
(1,000 T/d)

LNG
(9.0 MMTpa)

GTL
(16,000 Bbl/d)

Gas reserve (20

yr size /quality)

Small,
rich
(0.5 Tcf)

Moderate,
rich
(1.2 Tcf)

Small,
rich
(0.2 Tcf)

Large,
rich
(8.5Tcf)

Moderate,
rich
(1.2 Tcf )

Market risks

Hydro
competition,
Low pricing

Potential
market
flooding

Market
flooding

Strong export
market

Large liquid
market

Technology
constraints
/risks

Proven &
available
technology

Proven &
available
technology

Proven &
available
technology

Proven and
available
technology

Few existing
plants and
experience

Indicative netback price

Reasonable ROR can be achieved - but project specific

Gas reserves put focus on LNG, GTL and potentially an export pipeline (not
shown here)
LNG is a natural fit but could GTL find a place in the mix?
20

2013 Gaffney, Cline & Associates. All Rights Reserved.

Conclusions
Huge investments are required for the new wave of LNG and

infrastructure projects to facilitate the Golden Age of Gas, but

implementation will take time
Reasonable ROR are achievable on these projects if the
economic drivers remain robust
Financing the projects will be a challenge

Strong growth in new gas monetisation technologies and

resurgence in some of the more tradition options

New production will challenge traditional market centres

Competitiveness of the projects are location specific?

21

2013 Gaffney, Cline & Associates. All Rights Reserved.

The Golden Age of Gas

- What Will it Take to Get There?

Infrastructure and Gas Monetisation:

How does gas get from source to the market?

Royal Institution: 19th September, 2013

2013 GAFFNEY CLINE & ASSOCIATES. ALL RIGHTS RESERVED. TERMS AND CONDITIONS OF USE: BY ACCEPTING THIS DOCUMENT, THE RECIPIENT AGREES THAT THE DOCUMENT TOGETHER WITH ALL INFORMATION
INCLUDED THEREIN IS THE CONFIDENTIAL AND PROPRIETARY PROPERTY OF GAFFNEY CLINE & ASS0CIATES VALUABLE TRADE SECRETS AND/OR PROPRIETARY INFORMATION OF GAFFNEY CLINE & ASSOCIATES
(COLLECTIVELY "INFORMATION"). GAFFNEY CLINE & ASSOCIATES RETAINS ALL RIGHTS UNDER COPYRIGHT LAWS AND TRADE SECRET LAWS OF THE UNITED STATES OF AMERICA AND OTHER COUNTRIES. THE RECIPIENT
FURTHER AGREES THAT THE DOCUMENT MAY NOT BE DISTRIBUTED, TRANSMITTED, COPIED OR REPRODUCED IN WHOLE OR IN PART BY ANY MEANS, ELECTRONIC, MECHANICAL, OR OTHERWISE, WITHOUT THE EXPRESS
PRIOR WRITTEN CONSENT OF GAFFNEY CLINE & ASSOCIATES, AND MAY NOT BE USED DIRECTLY OR INDIRECTLY IN ANY WAY DETRIMENTAL TO GAFFNEY CLINES & ASSOCIATES INTEREST.