LNG Demand and Cooperation Opportunities in Pakistan

Dr Gulfaraz Ahmed Former CEO OGDCL, Federal Secretary Petroleum

18 June 2014 at Grand Hyatt Hotel Shanghai

IBC/Energy Conference 2014 LNG Carriers & FSRUs

Pakistan Primary Energy Supply Mix (%) 64.8 Million TOE (2012-2013)

48.2 %

32.5 %

12.8 %

6 % 0.5 %

natural Gas Oil Hydro & Nuclear Coal LPG

Hydro & Nuc

Co al

N Gas

Oil

05/14

Natural gas based energy economy: 1st Iran, 2nd Russia, 3rd Pakistan Country wide gas transmission, distribution and utilization network 83 % of oil consumed is imported that equals 27% of total energy mix Coal input is 1/4th of world average: environmentally cleaner energy mix

28.6

23 22.4

11.7

7.9 3.2 3.1 Power

Domestic

Industry

FertilizerFeedstock

Transport (CNG)

Commercial

Fertilizer Power

Power Fertilizer Feed

CNG

Natural Gas Consumption by Sector (%)

1.506 tcf in 2012-2013

05/14

Industry Domestic

Electricity Generation by Fuel 96122 GWh (2012-2013)

35.9 %

31.1 %

28.2 %

4 % 0.1 %

Oil

Hydro

N Gas

Generation Cost/KWh N Gas: Rs 4.5-5.5 Fuel Oil: Rs 17-18 Diesel: Rs 22 Nuclear: Rs 7-8 Coal: Rs 9-10

The world dreads generating electricity with oil: India & USA generate less than 1%. No countrys economy can sustain generating 35.9% electricity using oil for years on end. Urgent need to replace oil by natural gas, nuclear and coal in power

Industrial tariff highest in the world

05/14

5

Fuel Consumption for Thermal Power Generation 2012-2013

Diesel Oil: 218584 tons oil equivalent Furnace Oil (FO): 7342755 tons oil equivalent Natural Gas: 7084177 tons oil equivalent There is an urgent need to replace whole of diesel oil and most of FO in power generation for economical reasons as the oil generated power is very expensive resulting in most expensive power tariff especially for industry even with a massive subsidy Pakistan has fairly clean power generation mix and has no environmental pressure but it is for reducing the cost of oil generated power, that it is seeking to import LNG for replacing diesel and FO

32.021 tcf

25.055 tcf

Produced tcf Remaining Reserves tcf

Natural Gas Discovered, Produced

and Remaining Reserves on 1.7.2013

Daily Production: 4126 MMCFD

05/14

Produced Remaining

01000

2000

3000

4000

5000

6000

7000

8000

9000Actual Projection

Natural Gas Production & Demand History and Projection MMCFD

Shortfall

over 100%

Indigenous Production

Constrained Demand

Constrained demand growing at 6% yearly, production projected declining

at 2% yearly. Unconstrained demand in 2012-2013 is 8000 MMCFD 05/14

Unconstrained Demand of 8000 MMCFD in 2012-2013

2

3.88

6.47

y = 0.0142x2 - 56.779x + 56758 R = 1

0

1

2

3

4

5

6

7

8

2010 2012 2014 2016 2018 2020

(30 mpta)

(46 mpta)

Pakistan Natural Gas Supply Shortfall Forecast by SSGCL (BCFD)

Bill

ion

Cu

bic

Fe

et p

er

Day

Year

(15 mpta)

IP Gas Pipeline not likely to start delivering 1 BCFD gas to Pakistan in November 2015 TAPI Gas pipeline projected to deliver 2 BCFD by November 2018

3.4 BCFD

Pakistan is facing natural gas shortage of 50 % exceeding 2 BCFD in constrained demand and 4 BCFD in unconstrained demand scenario. While pursuing gas import through regional pipelines from Iran and Turkmenistan, decision reliance has been placed on import of LNG in short to medium time-frame.

Three LNG receiving infrastructure projects at Port Qasim, Karachi have been approved by Cabinet Committee (ECC) in principle. These projects will provide LNG receiving, storage, regasification and transfer facilities.

(i) Fast Track Terminal Project 400 to 500 MMCFD (ii)SSGC LPG Retrofit Project 500 MMCFD (iii)New LNG Terminal Project(s) 500 to 1,000 MMCFD Presently Fast Track Terminal Project is being executed on priority. The other two proposed projects will be taken up in Phase 2 of LNG import.

Natural Gas Import Plan

Emerging LNG Import Market & Terminals Trend

No of LNG importers has nearly doubled since 2005 Emerging LNG importers includes: Bahrain, Croatia, Jamaica, Lithuania, Pakistan, Philippines, South Africa and Uruguay Half of the new importers since 2005 have selected FSRUs over the land based terminals for: lower investment cost, Shorter time of completion Interim LNG import solution till completion of permanent

terminals Flexibility of deployment/redeployment Pakistan has decided on a fast tracked FSRU which is being set up by private investors on a tolling fee basis. The first LNG shipment is targeted for end November 2014

LNG Purchase/Import Plan

Government of Pakistan is pursuing import of LNG from Qatar on Government to Government negotiation basis through a long term (20 years) contract. Pakistan State Oil Company Limited (PSOCL) and Qatargas Operating Company Limited (QOCL) have been nominated to negotiate and finalize the contract

In addition, Expression of Interest has been invited through Enquiry No. LNG 001/2014 for supply of 3 mpta of LNG for 5 years on Delivery Ex-Ship (DES) basis between November 01, 2014 to March 31, 2015. Qatar will also compete under this offer

Additional 12 mpta LNG import capacity would be built up to 2018

LNG Import Infrastructure

Fast-track 400 million cubic foot gas (3mtpa LNG) for import between November 01, 2014 and March 31, 2015 November 2105

One FSRU based terminal is being developed in private sector at Port Qasim, Karachi by M/s Engro - Elengy Private Limited (EEPTL) after competitive bidding process at a levelized tolling tariff of $0.66/MMBTU. An LNG Service Agreement (LSA) was executed between EETPL and SSGCL on April 30, 2014. The FSRU has been leased by EEPTL from Exilrate.

Additional Terminals are being planned but work will also be started on a land-based terminal in parallel to increase LNG import capacity to 15 mpta by end of 2017 and to phase out leased FSRUs in the long run

Fast Track Terminal Project M/s Inter State Gas System (ISGSL) called bids for obtaining the LNG services of receiving, storage, re-gasification and delivery of regasified LNG to Southern Gas Company Limited (SSGCL) receiving point in the vicinity of Port Qasim, Karachi. M/s Elengy Terminal Pakistan Limited (ETPL) emerged as the successful bidder at a levelized tolling tariff of $0.66/MMBTU. An LNG Service Agreement (LSA) was executed between ETPL and SSGCL on 30-04-2014. The Implementation Agreement between ETPL and Port Qasim Authority (PQA) has been initialed on 23-05-2014 and approved by Ministry of Shipping. Maximum completion time from the date of signing of LSA is 335 days (11 months)

14

Consumer Prices include about 20% taxes inclusive of GST 17.5% and Gas Development Surcharge 2.5% Power/Industry/Fertilizer Fuel: US $ 6/million BTU Commercial: US $ 7.7/million BTU CNG: US $ 8/million BTU Fertilizer Feedstock: US $ 1.2/million BTU Domestic: Lowest Slab: US $ 1.2/million BTU Highest slab: US $ 6.4?million BTU Weighted Average(WA) Price ~ US $ 5/million BTU Weighted Average(WA) less 20% Taxes ~ US $ 4/million BTU

Consumer Prices in Inexpensive Indigenous Natural Gas Supply Regime

15

1.0 mpta in BTU content = 1.104642 million tons HSD per year in power generation 1.0 mpta in BTU content = 1.192733 million tons FO per year in power generation HSD used in power generation per year = 0.218584 million tons FO used in power generation per year = 7.342755 million tons LNG required to replace whole of diesel in power = 0.2 mpta First 3 mpta will replace diesel and 3.33 million tons of Fuel Oil in power generation Average cost of diesel per ton: Average cost of FO per ton (Jul13-Feb14): US$ 665 Cost of 3.33 million tons = US $ 2,214 billion Breakeven Equivalent cost of 2.8 mpta = 2214 million Breakeven Equivalent Cost of 1.0 mpta = 790 million However, Pakistan is seeking to reduce the generation cost by replacing FO by LNG, which has to be cheaper than breakeven price

Economics of Replacement of Diesel and Fuel Oil in Power Generation by Imported LNG

16

Equivalent cost at power plant site ~ US $ 15.5/million BTU FSRU fee/transportation to plant ~ US $ 1/ million BTU Break-even Price of LNG Ex Ship ~ US $ 14.5/million BTU Use of natural gas will result in 20% higher thermal efficiency so cost of power generated by LNG would be 20% less than that of FO, which will have a positive impact on economy. However, 3 mpta imported LNG at $14-14.5 per million BTU will increase the weighted average natural gas sale price before tax by 30%. The first 3mpta will therefore will not be added to gas supply but earmarked for replacement of diesel and LSFO.

LNG Import Economics for Break-even Fuel Replacement

$ 4.0

$ 5.2

$ 6.4

$ 7.6

$ 8.8

$ 10.0

0

30

60

90

120

150

0 3 6 9 12 15

2016

2017

2018

LNG Import mpta

% In

cre

ase

in G

as S

ale

Pri

ce

Impact of LNG Import at Maximum Cut-off Price of US$ 14/million BTU DES (FO Breakeven Price) on Natural

Gas Sale Price

2015

2019

2014

LNG import increasing @ 3mpta per year

18

Expectations of Government of Pakistan in LNG Import

The News Daily of June 10, 2010 reported that according to a representative of the Ministry of Petroleum & Natural Resources, GOP expects a reduction of 30% in generation cost through substitution of FO with RLNG. Accordingly 30% reduction from the breakeven cost of US$ 790 million for 1.0 mpta comes to US$ 553 million which gives per million BTU of RLNG of about US $ 11 per million BTU. Taking nearly 30% increase in thermal efficiency with natural gas, the DES price of LNG works out to be US $ 14.3 per million BTU.

15658

15662

17399 17498

17799 17798

19257

19384

19450

19420

19420 19786

20922

22477

22797

12000

14000

16000

18000

20000

22000

24000

26000

28000

30000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Installed Capacity MW

For 2011, with 65% plant availability and 75% plant factor 26000 MW generates 110,000 GWh that would meet the demand and no load shedding for 5 % GDP growth. 3000 MW short

26000

For 2014, 2800 MW Installed Capacity with 65% Plant Availability and 75% Plant Factor, it will generate !20,000 GWh that would meet the Demand and there would be no load shedding. 5000 MW short

04/2014

62102

65402

65751

68117

72405 75782

80627

85629 83269

98213 95661

91616

95358

94385 95091

60000

70000

80000

90000

100000

110000

120000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Gross Generation GWh

14

00

0

For 2011, 22797 MW with 65% Plant Availability and 75% Plant Factor generate about 95091 Gwh. Leaving a short fall of 14000 GWh. For no load shedding 26000 MW will generate 110000 GWh 26000MW. Short fall 3000MW

Fiscal year starting on July 01

110000 110000

For 2014, 28000 MW with similar availability/factor will generate 120000 GWh for no load shedding for GDP Growth of 5%

04/14

Opportunities for Investment/Cooperation

1. investment in up-stream oil and gas exploration and production: attractive policy offering $ 6-7/MCF

2. Investment and partnership in power sector: coal, hydroelectricity, solar and wind power plants

3. Communication infrastructure: Gawadar Kashghar Economic Corridor

4. Industry/manufacturing: low labor & raw materials cost and attractive investment packages

5. Agriculture: corporate farming, processing and value adding

6. Education: private sector institutions