Prepared for APERC Annual Conference 2019 15-16 May 2019 China Gas Market Briefing Fareed Mohamedi, Managing Director, SIA-Energy International 16% real gas consumption growth continues in 2018 China Gas Demand by Sector Power and Centralizaed Heating Industrial TransportationChina gas real consumption Residential Commercial, Public Service And Other Loss Incremental demand growth YoY (R-axis) 300 24% 275 22% 250 20% 225 18% 200 16% 175 14% bcm 150 12% 125 10% 100 8% 75 6% 50 4% 25 2% 0 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E Source: SIA Energy sia-energy.com Page 2 China’s “demand shock” pushes up JKM prices; energy security is back to government agenda Major LNG/Gas Prices vs China Monthly LNG Import Volume China Monthly LNG Imports Volume TTF NBP *Brent JKM 16 8 14 7 12 6 10 5 8 4 mmt mmbtu $/ 6 3 4 2 2 1 0 0 Oct-17 Oct-16 Oct-18 Jun-16 Jun-17 Jun-18 Apr-16 Apr-17 Apr-18 Feb-17 Feb-16 Feb-18 Dec-15 Dec-16 Dec-17 Dec-18 Aug-16 Aug-17 Aug-18 * Represent oil-parity prices Source: SIA Energy sia-energy.com Page 3 Myth 1: China’s two consecutive years of high demand growth was driven by coal-to-gas switch policy single-handedly China Monthly Primary Energy Consumption Growth Coal Petroleum Natural Gas Non-fossil 40% 30% 20% 10% 0% -10% -20% Jul-16 Jul-17 Jul-18 Jan-16 Jan-17 Jan-18 Oct-16 Oct-17 Oct-18 Jun-16 Jun-17 Jun-18 Apr-16 Apr-17 Apr-18 Feb-16 Feb-17 Feb-18 Mar-18 Mar-16 Mar-17 Dec-16 Dec-17 Dec-18 Sep-16 Sep-17 Sep-18 Aug-16 Aug-17 Aug-18 Nov-16 Nov-17 Nov-18 May-16 May-17 May-18 Source: SIA Energy, the NBS, China Customs SIA Argument: 1. Coal-to-gas switch policy mandate to northern Chinese cities (2+26) started in 2012, not 2017. 2. All fuels in primary energy grew in 2017-18 including coal, which reversed previous downward trend. 3. High double digit growth is a combined effect of economic boom and politicized “CTG campaign”——industrial upgrade and urbanization are still the fundamental drivers, but environmental mandates and government interference in supply and pricing are the “accelerators”, which partially advanced future demand growth. sia-energy.com Page 4 Myth 2: China imported record LNG in the summer to fill underground storages in order to prepare for winter Gas Sales Volume by Major City Gas Henan Monthly Piped Gas Demand by Sector Distributor (1H2017 vs 1H2018) 14 35% 1.2 12 30% 1.0 10 25% 0.8 8 20% bcm 6 15% 0.6 4 10% 0.4 2 5% 0 0% 0.2 0.0 Jul-16 Jul-17 Jul-18 Jan-16 Jan-17 Jan-18 Mar-16 Mar-17 Mar-18 Sep-16 Sep-17 Sep-18 Nov-16 Nov-17 Nov-18 May-16 May-17 May-18 1H2017 1H2018 Yoy Growth City Gas Industrial Fuel Gas Power Chemicals Source: public information disclosure of the companies Source: Henan Energy Administration SIA Argument: 1. Summer 2018 was a demand-pull story (2017 summer policy-push & demand-pull). City gas enjoyed higher (20-30%) growth compared to gas-fired power and other large industries due to supply constraints. 2. Summer LNG imports were driven by（1）CNPC reshaped term LNG delivery curve towards winter-heavy and spaced out summer for spot LNG imports; (2) Northern China CTG program continues, and central government mandated NOC supply security at all cost, curtailment for the rest of China started in Q2. 3. CNOOC has no UGSs to store gas for winter. Sinopec Wen23 was ready for injection of cushion gas but was short of gas supply until Q4. SIA estimated total off-peak months injection volume of 9 bcm and net injection of 2-3 bcm in 2018. sia-energy.com Page 5 Myth 3: China’s winter gas demand slowed and LNG imports stagnant China LNG Imports Seasonality NOCs and Tier-2's Shares in LNG Imports 2015 2016 2017 2018 CNOOC CNPC Sinopec Tier-2 8.0 Dec-18 48% 28% 7.0 Nov-18 42% 32% Oct-18 47% 31% 6.0 Sep-18 53% 23% 5.0 Aug-18 52% 29% Jul-18 51% 30% 4.0 mmt Jun-18 54% 28% 3.0 May-18 51% 25% Apr-18 57% 22% 2.0 Mar-18 56% 26% 1.0 Feb-18 48% 33% Jan-18 53% 33% 0.0 J F M A M J J A S O N D 0% 20% 40% 60% 80% 100% Source: SIA Energy created from China Customs data Source: SIA Energy SIA Argument: 1. 4Q2018 China LNG imports grew 33% yoy, no sign of slow down whatsoever. 2. However, due to CNPC’s pre-contracted winter term LNG and increased pipeline supply, trucked LNG prices did not hike as the previous winter; lacking pipelines & UGS, CNOOC’s trucked LNG distribution experienced glut. 3. CNOOC’s market share in LNG imports drastically reduced from 53% in September to 42% in November, causing defers and cancellation of CNOOC spot cargos, on the contrary, CNPC’s share in LNG imports went up by 9% in same months. sia-energy.com Page 6 Incremental supply mainly came from LNG imports and domestic production, especially shale gas and tight gas sia-energy.com Page 7 Real demand is expected to reach 330 bcm and 510 bcm respectively in 2020 and 2030 China Gas Demand Forecast 2030 Power and heating Industrial Transportation Residential Commercial & Public Services Loss Demand growth YOY (R) 600 30% 500 25% 13th FYP 400 Target 20% 300 15% bcm 200 10% 100 5% 0 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2029F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2030F 2017E Source: SIA Energy sia-energy.com Page 8 To meet future demand, China will have to sign new long term LNG contracts and help FID of new liquefaction capacity China Gas Supply-Demand Balance China Imported LNG Forecast 550 100 500 90 450 80 LNG Imports 400 70 42.5 37.4 350 60 Pipeline Gas 20.0 300 Imports 16.0 bcm 50 250 mmtpa 14.5 Unconventional 40 200 7.9 30 150 Onshore & 20 100 Offshore 50 Conventional 10 - 0 (50) Spot & Future Term Contracts Tier-2 Players' Term Contracts NOC LNG Term Contracts Signed in 2018 NOC LNG Term Contracts as of End-2017 Source: SIA Energy Source: SIA Energy sia-energy.com Page 9 NOCs still have dominant position (95%) in total gas supply 2018 Gas Supply by Company & Source 2018 China Gas Supply by Company (Including Supply to Hong Kong and Macao) 200 150 Other 5% CNOOC 19% 100 bcm Total 285 bcm 50 Sinopec CNPC 13% 63% 0 CNPC Sinopec CNOOC Other Exports to HK & Macau -50 Domestic Supply Imported Pipeline Gas Imported LNG Exported Pipeline Gas Source: SIA Energy Source: SIA Energy sia-energy.com Page 10 After three years of absence, Chinese NOCs are back to LNG market for term deals Three Chinese NOCs Term Contract Signed Year and Peak Contract Volume nd CNOOC enters LNG 1st round buying spree Absent in 2 round space in buyer’s market in seller’s market buyer’s market buying spree? mmtpa sia-energy.com Page 11 CNOOC—looking for diversified incremental supply at smaller and shorter contracts to create flexibility CNOOC Contracted Volume vs. Real Imports vs. Terminal Capacity CNOOC & JV LNG Receiving Capacity 50 60% Capacity 45 North West Shelf 40 Qatargas (CNOOC) 35 Tangguh LNG 30 Malaysia LNG 25 mmtpa TOTAL Portfolio (CNOOC) 20 GDF SUEZ Portfolio 15 Shell (former BG) 10 Shell Portfolio 5 BP Portfolio (CNOOC) 0 Woodfibre LNG (CNOOC) 2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2006 Real Import (Including Spot) Source: SIA Energy sia-energy.com Page 12 CNPC—turning winter spot demand into terms in the near term, while leaving long term market for future equity lifting CNPC Contracted Volume vs. Real Imports vs. Terminal Capacity CNPC & JV LNG Receiving 30 Capacity 60% Capacity Qatargas (PetroChina) 25 Shell Portfolio Gorgon LNG 20 Yamal LNG PNG LNG (PetroChina) 15 Sabine Pass/Corpus Christi LNG mmtpa US LNG A 10 Qatargas (PetroChina) IOC A 5 IOC B LNG Canada 0 Yamal LNG Expansion 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2006 Rovuma LNG Source: SIA Energy Browse Upstream Expansion sia-energy.com Page 13 Sinopec—eager to play catchup and diversify its supply portfolio Sinopec Contracted Volume vs. Real Imports vs. Terminal Capacity 30 25 Sinopec & JV LNG Receiving Capacity 60% Capacity 20 Australia Pacific LNG PNG LNG (Sinopec) 15 mmtpa Real Import (Including Spot) 10 5 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Source: SIA Energy sia-energy.com Page 14 Tier-2 Chinese LNG Players by Peer Group Who are taking actions ? Who may take actions ? Provincial Gas Grid/ Provincial Energy Zhejiang Energy GEG Hebei Construction Invt City-gas Beijing Gas Shenergy Guangzhou Gas Shenzhen Gas Operators China Resources Gas TownGas ENN China Gas Gas Power Plants Huadian Beijing Energy Shenzhen Energy GCL Huaneng LNG/LPG Distributors Guanghui Hanas JOVO Huafeng Oil Traders / Refineries Baota Petchem Zhenhua Oil Dongming Petchem sia-energy.com Page 15 Contact Us visit us China Central Place #4-1602 89 Jianguo Road Beijing 100025, China ww.sia-energy.com call us +86 10 6530 7010 email us [email protected] All rights reserved.