Trends in LNG Business Models in the APEC Region- Presentation to Conference on APEC Regional LNG Trade Facilitation

Alistair SmithHead of LNG Origination, Asia & Middle EastBPTaipei, 16 July 2015

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Today’s Presentation

• Introduction

• Development of LNG trade in and with Asia

• Key Asian supply and demand patterns in past 10 years

• Asia’s increased linkage to Atlantic Basin

• Growth of spot and mid-term contracts

• Portfolio supply options

• Asian LNG outlook

• Summary of developments in business models and implications for Asia

Long-term contracts enabled modern LNG industry:LNG trade flows in 1970

Source: BP Internal

LNG export 5 Mtpa (0.65 bcf/d)

LNG import 10 Mtpa (1.3 bcf/d)

SE Asia to Japan and Algeria to Europe trades dominant by mid 1980s

LNG export 5 Mtpa

LNG import 10 MtpaSource: BP Statistical Review of World

Energy

Little change in the nature of global LNG trade by mid 1990s but still scaling up

LNG export 5 Mtpa

LNG import 10 MtpaSource: BP Statistical Review of World

Energy

By 2005, broader Atlantic Basin market evolving and Middle East suppliers beginning to play balancing role

LNG export 5 Mtpa

LNG import 10 MtpaSource: BP Statistical Review of World

Energy

LNG has now evolved into a global business: LNG trade flows in 2014

Source: BP Statistical Review of World Energy

LNG export 5 Mtpa

LNG import 10 Mtpa

Impact of Qatari and other expansion in last ten yearsQ

ata

rA

ust

ralia

Ru

ssia

Nig

eria

Ye

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eru

Ma

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ay

Trin

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q. G

uin

ea

PN

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et o

the

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-20-10

0102030405060Change in LNG exports 2005-14

Mtp

a

• Qatar becomes the dominant supplier, adding more than half of 100 mtpa net supply increase and cementing its strategic position straddling the Atlantic and Pacific

• Multiple new supply sources emerge: Russia, Yemen, Peru, Norway, Equatorial Guinea, Angola and Papua New Guinea

• New projects in Australia: Darwin, Pluto

• Exports decline in Egypt, Algeria and Indonesia as upstream production fails to keep pace with rapid growth in domestic demand, helping to tighten the market

• LNG trade becomes much more flexible as a more liquid market emerges

Source: BP Statistical Review of World Energy

These ten years have also seen Asia able to call on flexible Atlantic LNG supply

JKT

Ch

ina

La

tAm

Ind

ia

UK

Me

xico

S.E

. Asi

a

Mid

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st

Oth

er

Eu

rop

e

US

/Ca

na

da

-20

-10

0

10

20

30

40

50

60Change in LNG imports 2005-14

Mtp

a

• Japan/Korea/Taiwan (JKT) demand continues to grow strongly

• Major new demand centres emerge in China, India, Latin America, the United Kingdom, Mexico, South East Asia and the Middle East

• Emergence of smaller LNG markets is facilitated by maturing Floating Storage & Regasification (FRSU) technology

• Market tightens considerably following March 2011 Fukushima nuclear accident in Japan

• Emergence of shale gas in US releases LNG supply and promotes LNG export

• Asian market tightness exerts strong pull on Atlantic Basin supply, incentivising diversions and reloads from the US and Europe

Source: BP Statistical Review of World Energy

Wide Pacific-Atlantic price arbitrage enabled inter-basin trade flows in recent years

0

2

4

6

8

10

12

14

16

18

20

US

$/m

mbt

u

US Henry HubUK NBP

Japan average LNG import price

Source: ICE, NYMEX, BP analysis

US LNG to Europe

US LNG to Asia

Spot & short term LNG sales* now account for almost 30% of the global market

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

10

20

30

40

50

60

70

0%

5%

10%

15%

20%

25%

30%

35%

Mt

pe

r a

nn

um

Spot & short term LNG sales (LHS)

Share of global Market (RHS)

Source: GIIGNL* Spot sales and sales under contracts < 4 years in length

BP’s global LNG portfolio makes it better able to meet buyers’ growing demand for flexibility

Dominican

Republic

Cove Point

AngolaBontang

NWS

Tangguh

Fujian

Korean Terminals

Taiwan Terminals

Bilbao Japanese Terminals

Trinidad

SEGAS

ADGAS

Costa Azul

Isle of Grain

Source: BP Internal

Rovigo

BrowseGorgon

Freeport LNG

Existing Supply

Resource

Future Supply resource

Existing Market Access

Marketing Joint Venture

Trading Hub

IGS

Alaska LNGGATE

Reloads Kuwait

Argentina

3rd party DES Asia

4 x GEM3 x Trader 1x Time Charter

LNG

Outlook for strong future growth of LNG, with Asia’s share of global trade set to remain above 70%

Source: BP Energy Outlook 2035 © BP plc 2015

Changes in LNG business models in Asia have occurred alongside these new trade flows

• Regional markets now highly connected, even with new Asian supply

• Availability of spot and flexible volumes

• Long-term contracts taking a smaller share of global trade, though still >70%

• Long-term contracts are themselves exhibiting new types of flexibility

• Equity LNG lifting and marketing playing a greater role in Asian trade flows

• Portfolio sales increasingly used by Buyers

• Emergence of new players

• Strong growth expected across established and new Asian LNG markets

• Buyers looking for greater reliability and flexibility from LNG business models