Outlook for Gas Markets

The Institute of Energy Economics, Japan

Tetsuo Morikawa Manager, Gas Group, Fossil Fuels & Electric Power Industry Unit IEEJ © 2015 regions consuming major demand in Natural gas ▌ ▌ ▌ (Sources) IEA; China OGP; Bureau of Energy,Bureau OGP; China(Sources)IEA; Economicof Ministry Affairs, Taiwan Asia Northeast OECD While While in demand early 2015, the Europe increased resurfaced. debt risk sovereign from OECD 2014: in Demand Americas OECD Europe (up 32bcm bcm 930 Americas

Monthly demand

Europe OECD 447 bcm 360 bcm 360

2%) or bcm (up15 Taiwan) Korea, South(Japan, China, Northeast Asia (down 52

bcm or 4% year on year)year4% or

or 10%)

Y ear

- on- Year Changes IEEJ:Published inAugust2015Allrightsreserved OECD Japan South Korea China Taiwan OECD

Americas Europe

LNG imports in Europe increased since late late 2014. since increased Europe in LNG imports MT) 1.49 (down imports: LNG IEEJ:Published in August (Sources) Customs statistics in eachcountry, IEA, etc. Asia

180.10 MT 180.10 in MTAsia (up 2.06 MT 32.44 on yearyear), Europe in 2015

All

rights reserved Japan South Korea Taiwan China India Thailand Singapore Malaysia MT

Europe Europe

UK Netherlands Lithuania Belgium France Greece Italy Portugal Spain Turkey

In January 2015, shale time. outputexceeded of total gas the first gas natural 50%output for is improving. productivity as falls price despite beenrobust has Shale production gas Jan 2010 May 2010 IEEJ:Published in August IEEJ:Published 2015 All rights reserved Sep 2010

Jan 2011 prices Output and

May 2011 - Non

Sep 2011 Shale gas

Jan 2012 price Henry Hub shale shale gas May 2012 Sep 2012 Jan 2013 May 2013

Sep 2013

Jan 2014 May 2014 Sep 2014 Jan 2015 Ford Eagle Haynesville Major play shale gas Bakken (Source

AuroraLNG (INPEXJGC)

(Source) IEA

IEEJ:Published

Mitsui Sumitomo JOGMEC Gas, Osaka Gas, Tokyo Electric, Chubu Mitsubishi, Electric, Osaka Gas, Toshiba) Gas, Electric, Osaka Chubu tolling: (Liquefaction 2018 in operation launch to Planned LNG Freeport in

August Mitsubishi

Marubeni INPEX, JGC 2015 Itochu

and company websites and company All

rights Tokyo Gas Sumitomo

reserved

Marubeni

Osaka Gas Mitsui Cameron LNG Tohoku Electric Buyers:Tokyo Electric,Toho Gas, KansaiElectric, GDF Suez Mitsui, Mitsubishi, tolling: Liquefaction Equity: JLI Mitsui, in 2018 operation to launch Planned JGC JAPEX

(NYK, Mitsubishi) (NYK, INPEX, JGC Planned to launch operation in 2017 operation to launch Planned LNG Point Cove Buyers: Tokyo Buyers: Tokyo KansaiGas, Electric tolling Liquefaction Coalbed methane Coalbed methane Shaleoiland gas Shale oil and gas (confirmed) Japaneseinvolvedare firms in which projects LNG export Sumitomo Mitsui

：Sumitomo

Canada ▌ ▌ ▌ ▌ ▌ U.S. construction. for approval received has Canada LNG only exports, for approval won have MT/year) 120 (about 10projects While MT) (390 35 projects 2016. earlyor 2015 late in operation launch will Pass Sabine MT/year) (52 facilities, liquefaction gas natural of construction the for and countries non-FTA to exports for approval won have Four projects export 54

projects (350 MT) (350 projects

4 4 IEEJ © 2015 ▌ ▌ ▌ Russia’s toRussia’s Asia shift countries including Japan is an issue. issue. an is Japan including countries As well as pipeline gas supply toChina, the expansion of LNG supply toother Asian to supply As 2014 in Exports IEEJ:Published in August IEEJ:Published 2015 All rights reserved Ukraine turmoil Confrontation Europe is not likely to expand, Russia urgently needs to explore to needs urgentlyRussia expand, to notlikely Europe is markets Asian

(Source) JOGMEC totaled totaled 193 downBcm, 12%on year. year

Shift to to Shift Asia

(Source) Russian Energy Monthly Energy Russian (Source) Domestic Natural Supply Gas

and Exports supply Domestic

Exports

. 5 IEEJ © 2015 ▌ ▌ ▌ Asia to routes supply gas Russian required. is development be prioritymight given Greater to the Altai Pipeline in project which no upstream construction. of Siberia Power the and in development fields Siberian gas Eastern in on investment shadow a cast The has oil plunge price for 30bcm ofunderstanding memorandum 38 for contract sales gas a signed Russia IEEJ:Published in August 2015 Altai Pipeline Altai All rights (30bcm) reserved

(Source) Gazprom

bcm/year (for Power of Siberia) in May 2014 anda MaySiberia) in of Power (for bcm/year /year (for Altai Pipeline). Pipeline). (for Altai /year Power of Siberia of Power (38bcm)

6 IEEJ © 2015 ▌ ▌ ▌ China demand in and supply gas Natural operating rates remain low. remain rates operating import terminals’ LNG extent. significant a impacted increase have import not on Lowerprices to LNG year). on year 15% (up growth remarkable posted imports gas Pipeline year).on year Demand 7% (up 2014 Bcm 183 totaled in Gas infrastructure development infrastructure Gas IEEJ:Published in August IEEJ:Published 2015 All rights reserved (Source) JOGMEC 30 Bcm

38 Bcm

Domestic production andimports production Domestic LNG imports imports Pipeline gas outputDomestic (Source) China OGP China (Source)

7 IEEJ © 2015 ▌ ▌ Spot and short and Spot MT LNG imports) LNG total of 6% for MT 5.2 accounting (about cargoes at 87 in 2014 estimated Japan’s procurement spot short and spot via traded 37%) for accounted Japan MT 69.58 which(of

Spot and Short and Spot IEEJ:Published short Share for and spot Japan South Korea Taiwan India China Othercountries Asian Europe America North Latin America Middle East -term contracts

in August

(Source) GIIGNL

2015

Share for spot and short Share spot for term contracts

trade -

Spot LNG Imports/Exports (2014) Imports/Exports LNG Spot countries (including (including countries Other European European Other Other American American Other countries:16 East Middle Other Other African countries: 30 countries: African Other countries:15 reload): 71 reload): Other Asian countries: 39 countries: Asian Other Taiwan:13 Middle East: 3 East: Middle Europe: 13 Europe: Americas (including (including Americas (Source) HerenICIS reload): 6 reload): Mexico: 7 Mexico: Thailand: 11 Thailand: Norway: 26 Oceania: 35 Oceania: South Korea: 26 Korea: South Asia & Exported cargoes Imported cargoes Imported Unknown: 67 Unknown: Unknown: 16 Unknown: Qatar: 48 Qatar: Argentina: 68 Argentina: Japan: 87 Japan: Trinidad and Trinidad Tobago: 72 Tobago:

Nigeria: 87 Nigeria: Brazil: 58 Brazil:

8 IEEJ © 2015 ▌ ▌ LNG Emerging markets especially in in imports. especially expand to markets continue will Emerging Asia another,one after launched operation have sources As newsupplysupply-pushed growth in demand will clear.will be increasingly demand growthin MT IEEJ:Published in August IEEJ:Published 2015 All rights reserved

Demand supply and demand outlook and demand supply

2014 2014 Japan Supply Asia andOceania

(Source) IEEJ Demand 2015 outlook 2015

Europe Supply

Americas

East East Middle

Demand 2016 Africa

outlook

Supply

9 IEEJ © 2015 ▌ ▌ ▌ Natural gas prices gas Natural 9.7/MMBtu. projected $8.8 Japan’s at 2015 is of 2016 and half the second in averageimport price LNG While substantially Asian oil premiumshrank, rationality has of the decline. price oil crude the due to 2015 early since fallen has (JLC) price import LNG average Japan’s Jan 2011

Mar 2011 IEEJ:Published

NBP NBP futures forward curve JLC JCC May 2011

Jul 2011 (IEEJ assumption)

Sep 2011 in August Nov 2011 2015 IEEJ CME, Platts, (Sources)EIA, EnergyIntelligence, Jan 2012

Mar 2012 All rights

May 2012 reserved

Jul 2012 Sep 2012 Nov 2012 Jan 2013

Mar 2013 May 2013 JCC U.S. JKM Jul 2013

(IEEJ assumption) Sep 2013 Nov 2013 Jan 2014 Mar 2013 May 2014

Jul 2014

indexation remains an issue. an -indexation remains Sep 2014 Nov 2014 Jan 2015 Mar 2015 May 2015 Henry futuresHub forward curve UK JLC Jul 2015

Sep 2015 Nov 2015 Jan 2016 - Mar 2016 May 2016

Jul 2016 Sep 2016

Nov 2016 10 IEEJ © 2015 LNG marketsLNG ▌ ▌ ▌ ▌ ▌ ▌ ▌ Natural supplygas and demand major in markets Conclusions price decline is affecting price is exportdecline projects gas China. to pipeline Russian Demand growth has been decelerating the market. inChinese The oil U.S. shale gas remainedhas competitive despite falls.price risks. debtsovereign uncertain with Europe is the been infirmDemand has Americas and Asia.Future demand in Substantial supply growth will accelerate accelerate Substantialbuyers’growth will supply issue. remains an While the premiumAsian has shrunk, the rationalityoil of Market liquidity been enhanced has with spot growing trade. Europe recently. Demand deceleratedgrowth has in turning in upward while Asia IEEJ:Published in August IEEJ:Published 2015 All rights reserved

market situation. Please direct inquiries to:[email protected] - indexation