U.S. Exports of LNG:The Facts

Presenters

SKM Strategic Consulting– Bob Graham – Principal Consultant– Hope Stevens - Economist

OverviewAustralian Government expectationsU.S. regulatory approval processLobbying for changeAre U.S. LNG exports in the public interest?– Review – “Macroeconomic Impacts of LNG Exports from the

U.S.”Existing and proposed projects (U.S.)– Approval status– Total potential volume of U.S. exports vs. capacity shortfall– Capital cost considerations – Commercial arrangements Summary

“from my analysis, US gas if it’s allowed – because it is a very sensitive, ticklish political issue in the US at the moment – will not be material in terms of our capacity to grow opportunities in Asia” - Martin Ferguson, Minister for Resources, Energy and Tourism, at Australian Resource Conference. AFR 14 Nov 2012.

U.S. regulatory approval process

Department of Energy (DOE)Federal Energy Regulatory Commission (FERC)

DOE approval

Section 3 of the Natural Gas Act of 1938, as amended (NGA), 15 USC 717b“The Commission shall issue such [export] order upon application, unless, after opportunity for hearing, it finds that the proposed exportation or importation will not be consistent with the public interest”

DOE approval timeframe – Sabine Pass

Application FTA countries • August 2010

Approval for FTA countries

• September 2010• 1 month

Application non FTA countries

• September 2010

Conditional approval non FTA countries

Final approval non FTA

• May 2011• 8 months

• August 2012• 15 months

FERC approvalMainly focussed on environmental approvalFERC acts as lead agency and liaises with other federal, state and local agenciesDecides approval to proceed, monitors construction and issues final authorisation to proceedMethods of approval– Traditional process– Pre-filing followed by formal application (now

80% of proponents)

FERC approval timeframe – Sabine Pass

Pre-filing • August 2010

Formal application

• January 2011• 5 months

FERC approval

• April 2012• 15 months

Lobbying for change

LNG exports are facing increased oppositionU.S. Congress Representative Edward Markey (D-MA) has proposed:– Keep American Natural Gas Here Act– North America Natural Gas Security and

Consumer Protection ActBoth bills were not enacted

Are U.S. LNG exports in the public interest?

The study “Macroeconomic Impacts of LNG Exports from the U.S.” was commissioned by DOE, and conducted by NERA Economic Consulting (2012)Global natural gas model, NewERA energy-economy model Export scenariosKey outcomes of the study (overall macroeconomic impacts, price impacts, socioeconomic impacts)

Export scenarios

U.S. natural gas demand and supply scenarios– U.S. reference case (no LNG Export expansion)– High shale estimated ultimate recovery (EUR)

• Optimistic• EUR per shale gas well for new, undrilled wells 50

% higher than in the reference case– Low shale EUR

• Less optimistic• EUR per shale gas well for new, undrilled wells 50

% lower than in the reference case

Export scenarios cont..

Export quota trajectories– Low/slow– Low/rapid– High/slow– High/rapid– Low/slowest– No export constraints (exports based entirely

on relative economics)

Key outcomes

The study showed net economic benefits to the U.S. economy under all scenarios – Net economic benefits increase with the level

of exportsIncomes of natural gas resource owners increase (including superannuation funds)

Key outcomes cont…

Impacts will not be positive for all groups in the U.S. economy – Some increases in U.S. domestic gas prices

• Price is constrained by the global market– Prices do not rise to oil parity or levels observed in

competing regions– Exports expected to be ~10 to 15% of US market– The largest increase in wellhead prices occurs in

2020 - $1.11/Mcf (thousand cubic feet)» Real, 2010, USD 1 Mcf ~= 1.08GJ

• U.S. natural gas consumption – Serious competitive impacts confined to narrow segments of

industry – Shifts in employment across industries

Key outcomes cont.…

U.S. exports are projected to displace some exports from other LNG exporting regions– Drop in wellhead and city gate prices where

U.S. exports are competitive Drop in city gate prices in importing regions leads to increased consumption

Existing approvals (under construction)

http://ferc.gov/industries/gas/indus-act/lng/LNG-approved.pdf

Sabine Pass

Proposed export terminals

East CoastFreeport Corpus ChristiTrunkline Cameron ExcelerateliquefactionCove Point

West CoastJordan CoveOregon

http://ferc.gov/industries/gas/indus-act/lng/LNG-proposed-potential.pdf

U.S. Natural Gas Supply Basins Relative to Major Natural Gas Pipeline Transportation Corridors, 2008

DOE and FERC approval statusProject DOE approval FERC approval

Sabine Pass • FTA & NFTA Yes

Freeport • FTA only• NFTA pending

No

Corpus Christi • Pending No

Trunkline (Lake Charles) • Pending No

Cameron • FTA & NFTA No

Excelerate Liquefaction • FTA• NFTA under review

No

Cove Point • FTA• NFTA under review

No

Jordan Cove • FTA• NFTA under review

No

Oregon • FTA• NFTA under review

No

Commercial arrangements Project Commercial Arrangements

Sabine Pass • 20 year agreements for tolling service with some take–or-pay /fixed component

Freeport • Tolling service

Corpus Christi • Not disclosed

Trunkline • Not disclosed

Cameron • Tolling service

Excelerate Liquefaction • Not disclosed

Cove Point • Tolling service

Jordan Cove • Tolling service

Oregon • Tolling service

Capital cost considerationsProject Existing facilities Facilities requiredSabine Pass • Two unloading berths

• 5 LNG storage tanks• Two new liquefaction trains (potential for two more)• One additional tank may be needed for fourth train

Freeport • Marine berth and manoeuvring area• Two LNG storage tanks

• Liquefaction plant at existing terminal• Widening of shipping channel

Corpus Christi • None • 3 liquefaction trains• 3 storage tanks• Pipeline (37km x 1.2m diameter)

Trunkline • Storage facilities• Existing pipeline

• Liquefaction plant at existing site (3 liquefaction trains)• < 1km pipeline

Cameron • 3 existing storage tanks• Existing pipeline (58km)• 2 berths

• 1 additional storage tank• 3 new liquefaction trains

Excelerate Liquefaction • None • Two floating liquefaction, storage and offloading units• Supporting infrastructure • 44km of pipeline (0.9m diameter)

Cove Point • 140km pipeline• 7 LNG storage tanks• Pier

• 1 new liquefaction train• 25MW of new compressors

Jordan Cove • None • 370km pipeline (0.9m diameter)• 4 liquefaction trains • Pipeline gas conditioning facility• 2 LNG storage tanks• Loading/unloading berth• Other supporting infrastructure

Oregon • None • 140km of pipeline (0.9m diameter)• 2 LNG storage tanks• 3 liquefaction trains

LNG shipping rates to Asian markets: $2010/MMBtu

To FromOceania U.S.

China/India $0.74 $2.81

Korea/Japan $0.90 $2.54

Southeast Asia $0.63 $2.61

Source: NERA Economic Consulting (2012)

Summary After 2018, U.S. export projects are well placed to secure a large portion of the projected global capacity shortfallUse of existing tanks, pipelines and marine facilities, and would enhance the economics of some of these projects compared to Australian and other competitors– Capital cost for greenfield projects in U.S. is generally

significantly lower than Australian projects (NERA Economic Consulting, 2012)

Cost assumptions in NERA Economic Consulting (2012) report indicate Australia remains competitive with regards to LNG transport costs

Questions?

Bob Graham+61 7 3026 8022