© 2020 Akin Gump Strauss Hauer & Feld LLP

Mitigating Risk Today to Capitalize on Opportunities in a Post-Coronavirus World

The Outlook for Global LNG

Steve Davis Asish Mohanty

Nick Fulford Gabe Procaccini

Michael Joyce

May 21, 2020

© 2020 Akin Gump Strauss Hauer & Feld LLP

Our Speakers

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Steve DavisPartner

Akin Gump

Nick FulfordGlobal Head of Gas & LNG

GaffneyCline

Michael JoycePartner

Akin Gump

Asish MohantyPrincipal (Americas), Gas & LNG

GaffneyCline

Gabe ProcacciniPartner

Akin Gump

© 2020 GaffneyCline. All rights reserved.

• Global gas markets were in turmoil before COVID

• 15 month erosion in global spot prices

• Disconnection with oil

• Demand collapse has significantly affected Q2

• Europe struggling to absorb excess

Overview of current LNG market situation

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02/0

1/2

019

23/0

1/2

019

13/0

2/2

019

06/0

3/2

019

27/0

3/2

019

17/0

4/2

019

08/0

5/2

019

29/0

5/2

019

19/0

6/2

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10/0

7/2

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31/0

7/2

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21/0

8/2

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11/0

9/2

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02/1

0/2

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23/1

0/2

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13/1

1/2

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04/1

2/2

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26/1

2/2

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17/0

1/2

020

07/0

2/2

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28/0

2/2

020

20/0

3/2

020

13/0

4/2

020

$/M

MB

tu

Oil price, and LNG Delivered (Asia and Europe)

Asia

Oil (measured in $/MMBtu)

Europe

Oversupply LNG price collapse

COVID related price collapse

© 2020 GaffneyCline. All rights reserved.

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2

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$/M

MB

tu

Gas Price Convergence

Henry Hub

Asia

Europe

• Two weeks ago, US gas prices were higher than both European and Asian indices

• First time in history

• Spate of LNG cargo cancellations

• LNG FIDs being put on hold

US gas the most expensive in the world!

Global gas price convergence

© 2020 Akin Gump Strauss Hauer & Feld LLP

Force Majeure

1. What is force majeure (FM)?

2. What is an FM event?

3. Foreseeability

4. Notice of FM

5. Do COVID-19 events qualify as FM?

6. What happens if FM is not available?

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© 2020 Akin Gump Strauss Hauer & Feld LLP

Other Options for LNG Parties

1. Cargo Cancellations

2. Price Review

3. Flexible Quantity Adjustments

4. Destination Clause Flexibility

5. CSD Delays

6. Price Majeure

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© 2020 GaffneyCline. All rights reserved.7

The COVID-19 crisis has impacted (already challenged) Under Construction Projects on multiple fronts …

Cost & Schedule

Uncertainty

Regional Issues, e.g., First Nations,

Militancy

COVID-19 Cases

Port Closures

Capital Constraints

© 2020 Akin Gump Strauss Hauer & Feld LLP

LNG Contracts Trend – High Level View

1. Trend toward greater reliance on spot contracts during the lower for long LNG price

cycle.

2. Shorter duration LNG contracts.

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© 2020 GaffneyCline. All rights reserved.

• US Gas Rigs have dropped by 50% in the last year

• Gas has not fallen with oil

• Upward pressure from drop in oil production

• Downward pressure from LNG cancellations.

• Sustainable investment in gas needs higher prices

Gas / Oil Dynamic Complexities

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1

1.5

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2.5

$/M

MB

tu

Henry Hub Spot Price

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-5

0

5

10

15

1/2/2020 2/2/2020 3/2/2020 4/2/2020

$/M

MB

tu

WTI vs Henry Hub

WTI Henry Hub

Linear (WTI) Linear (Henry Hub)

Gas and oil price convergence

Rally in gas deflated by LNG

cancellations

© 2020 Akin Gump Strauss Hauer & Feld LLP

Sample Royalty Provision

“Lessee covenants and agrees … to pay Lessor for gas (including casing head gas and coal

bed methane gas) of whatsoever nature or kind (with all of its constituents) produced and

sold or used off the leased premises or used in the manufacture of products therefrom, 3/16

of the gross proceeds received for the gas sold, used off the premises, or in the manufacture

of products therefrom less a proportionate part of any production, severance and other

excise taxes but exclusive of costs incurred by Lessee in transporting, processing,

compressing or otherwise making merchantable Lessor’s share of gas.”

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© 2020 Akin Gump Strauss Hauer & Feld LLP

LNG Arbitration & Issues in New LNG Contract Negotiation

LNG Arbitration

1. What types of arbitration are we likely to see – FM and price review.

2. Tips for arbitration for defending or prosecuting arbitration.

• The details matter, so adhere to notice and other procedural requirements.

• Optimize legal professional privilege.

• Secure experts early.

New LNG Contract Negotiation

1. Pressure to change traditional FM clause approach for global COVID style events.

2. Push for even greater flexibility in certain contract terms.

3. Push for shorter price review periods.

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© 2020 GaffneyCline. All rights reserved.

• Story of two halves!

• 84 MTPA (2018 –2020)

• 16 MTPA (2021 –2023)

• 2020 largely culminates the “first US wave”

• After that, lesser start-ups a result of very few FIDs between 2015 - 2017

New supply start-up expected to slow significantly

Thank you for joining us!Please submit any questions through the chat box feature.

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