Leveraging Domestic Shale Gas Production Through Exportsg pPat Outtrim, Vice President, Governmental AffairsCheniere Energy, Inc.gy
Extensive Broad-Based Shale Resource Base
Shale Gas Plays – Lower 48 StatesLower 48
Recoverable Unconventional Reserves (Tcf)
ShaleCBM
Montana Thrust Belt
Cody
Gammon
1,373
700
1400
CBMTight Gas
Total US
WillistonBasin
Bakken
Hilliard Baxter-
MancosGreaterGreenRiverBasin Forest
City BasinIllinoisBasinPiceance
MichiganBasin Antrim
Excello
AppalachianBasin
Marcellus/Utica
366
01996 2009
Proved Reserves
Pierre
Basin
LewisSan Juan
Basin
RatonBasin Anadarko
Basin
PaloDuroBasin
Woodford
NewAlbany
ChattanoogaFayetteville
Arkoma BasinConasaugaBlack Warrior
BasinMarfa
Paradox BasinHermosa
MancosCherokee Platform
Excello-Mulky
Granite Wash
PermianBasinBarnett
Woodford
Pearsall
Barnett TexasLouisianaMississippi Salt BasinFt. Worth
Basin
Basin
MaverickSub-Basin
Shale Gas Plays
Basins HaynesvilleBossier
22
Pearsall
Eagle Ford
Rio GrandeEmbayment
Source: EIA, March 2010
LNG Terminals
U.S. Rig Activity
OilGas
US Rig Count9/23/2011 Week -- 1,991 rigs
vs Year Ago 1 650 rigs
3
vs Year-Ago -- 1,650 rigs
Change -- +341 rigs
Resulting Productive Capacity Estimates Vast
Existing conventional production to continue declining from current 40% share of supply $5.50 to $7.00 HH Priceshare of supplyUnconventional production, led by gains in gas shales, projected to achieve capacity of 50+ Bcf/dTotal North American productive
$5.50 to $7.00 HH Price
Total North American productive capacity 90+ Bcf/d by 2020
Unconventional gas is tl iti l
$6.50 HH Price
currently a critical component of U.S. supply and will continue to grow
into the future
4
Projected U.S. Gas Production Growth
Unconventional gas = 61% of 2010 natural gas productionPotential 11 Bcf/d new production from unconventional gas 2015 vs 2009 (34%)
4 84.9
55 3 57.4 59.3 60.363.9
69.1ForecastBcf/d U.S. Natural Gas Production
3.0 4.4 6.1 9.3 12.2 14.7 19.1 25.14.8 4.8 5.4 5.2 5.2 4.6
4.850.3 52.8 55.3 57.4
71%
15.7 17.0 17.8 17.8 18.9 19.2 19.5 19.3
26.8 26.6 26.0 25.1 23.0 21.8 20.5 19.8
2006 2007 2008 2009 2010 2012 2015 2020
5
2006 2007 2008 2009 2010 2012 2015 2020
Conventional Tight Gas Shale CBM
Source: Advanced Resources International Inc.(Aug 2010), EIA
U.S. Proved Non-Producing Reserves(Tcf)
Non-producing proved U.S. gas reserves +100% since 2003 to 98 Tcf Represents 13 Bcf/d of LNG exports for 20+ yearsRepresents 13 Bcf/d of LNG exports for 20 yearsOver 3,000 gas wells drilled but not hooked up representing
~8-10 Bcf/d of latent 1st -year production
6067
7885
98
49 5160
2003 2004 2005 2006 2007 2008 2009
6Source: EIA, US Crude Oil, Natural Gas and Natural Gas Liquids Proved Reserves, 2009
2003 2004 2005 2006 2007 2008 2009
Oil Production Drives Investment Decisions for Gas
Liquids production from shale plays > 3 million barrels per day by 2020 Associated natural gas > 7 Bcf/d of “costless” supply
Bcf/d MMB/d
g pp y
8 4.0Includes Eagle Ford W Barnett Bakken Shales;
Annual Production from Unconventional Reservoirs
5
6
7
2.5
3.0
3.5Includes Eagle Ford, W. Barnett, Bakken Shales; Granite Wash, Piceance & Uinta Tight Sands
Liquids
3
4
5
1.5
2.0
2.5Gas
0
1
2
0
0.5
1.0
7 Source: Advanced Resource Intl; presentation to Cheniere Board, March 2011; Cheniere Research
02010 2011E 2012E 2013E 2014E 2015E 2020E
0
Energy Consumption by Sector and Source 2011
US Energy Consumption by SourceQuadrillion
40
45
Liquid Fuels
Btus
25
30
35 Natural Gas
Coal
Nuclear
Renewables
Biofuels
10
15
20Biofuels
0
5
2008 2009 2010 2011 2015 2020 2025 2030 2035
8
EIA 2010 Outlook
Productive Capacity Relative to Demand
Bcf/d
2010 Annual Energy OutlookReduction in
estimated demand
Oth
80
90
0 2 .4 21.5
estimated demandBcf/d Projected productive capacity at $6.50
Industrial
Commercial
Electric Generation
Other
50
60
70
-10.
0
-17. -21 -2
Residential
Production
LNG
Pipe Imports
30
40
50
10
20
99Source: Energy Information Administration Annual Energy Outlooks, 2004 and 2010Productive Capacity estimated from EnCana’s projections for North America.
02010 2015 2020 2025
Global Natural Gas Reserves
3,000TCF U.S. Natural Gas Resource Base
• 2,612 TCF of total recoverable reserves700 TCF reco erable shales
2,000
2,500 • 700 TCF recoverable shales
• 400 TCF of shales economical below $6/MMBtu
1,216 Tcf
1,000
1,500
1,216 Tcf Unconventional
1,124 Tcf Conventional
0
500
S a n r n a E a a a q a a a a t y n t
272 Tcf Proved Reserves
US
Rus
sia
Iran
Qat
ar
Turk
men
ista
n
Saud
i Ara
bia
UAE
Vene
zuel
a
Nig
eria
Alge
ria Iraq
Indo
nesi
a
Aust
ralia
Chi
na
Mal
aysi
a
Egyp
t
Nor
way
Kaza
khst
an
Kuw
ait
Unconventional gas is abundant globally but only the U S has
10Source: 2011 BP Statistical Review (Global Reserves); Advanced Resources International US Natural Gas Resources & Productive Capacity,August 2010 (US Resource Base) ; MIT, The Future of Natural Gas, 2009 (shales economic below $6)
Unconventional gas is abundant globally, but only the U.S. has the technical capability to develop at present
Venting and Flaring
The U.S. vented and flared 165 Bcf of natural gas in 2009North Dakota’s share amounted to 27 Bcf; +156% increase on 2007 levelsThere are many “New Bakkens” emerging in liquids rich shale playsThere are many New Bakkens emerging in liquids-rich shale plays (Eagle Ford, Niobrara, Permian, Granite Wash)
Bcf
120140160180
6080
100120
020
40
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
11 Source: EIA
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
North Dakota US Total
Established U.S. Exports of All Energy Sources
2008 U.S. Energy Exports (Trillion Btus)
82
982
50 82Crude & ProductsCoalNatural Gas Piped
3 546
982LNGElectricity
Conversion Rates1 MW hour = 3.41MMBtu
3,5462,119
1 Boe = 5.8 MMBtu1 Mcf = 1.027 MMBtu1 short ton = 24 MMBtu
12 Source: EIA
Global LNG Demand
Natural GasOil Products
2010 Total Global LNG ExportCapacity = ~ 37 Bcf/d
2010 Regional LNG Demand - Bcf/d
LNG Importers - Price Indexation
Japan Crude CocktailAlgeria - 2.7
Norway - 0.6
Qatar - 9.3Russia - 1.3
Egypt - 1.6USA - 0.2
18
AsiaEurope
NorthAmerica
8.6
1.8
Indonesia - 4.6Malaysia - 3.0
South1.3
Australia - 3.1
Brunei - 1.0Indonesia 4.6
Oman - 1.4UAE - 0.8
13
America Yemen - 1.0
Nigeria - 2.9
Trinidad & Tobago - 2.0
Equitorial Guinea - 0.5
Peru - 0.6
Attractive Oil Linked Market Prices
Spread bt oil linked and U.S. natural gas prices averaging $9–$11/mmbtu
~ 12% – 15% of Oil Prices~ 12% – 15% of Oil Prices
Regional Natural Gas & LNG Prices
18
$/MMBtu
$9 51
$14.97$12.45
12
$3 85
$9.51
6
$3.85
0
-04
-04
-04
l-04
-04
v-04 -0
5-0
5-0
5l-0
5-0
5v-
05 -06
-06
-06
l-06
-06
v-06 -0
7r-
07 -07
l-07
-07
v-07 -0
8r-
08 -08
l-08
-08
v-08 -0
9r-
09 -09
l-09
-09
v-09 -1
0-1
0-1
0l-1
0-1
0v-
10 -11
-11
-11
l-11
-11
14Source: PIRA, Platts
Jan
Mar
-M
ay-
Jul
Sep
-N
ov Jan
Mar
-M
ay-
Jul
Sep
-N
ov Jan
Mar
-M
ay-
Jul
Sep Nov Jan
Mar
May Ju
lS
ep Nov Jan
Ma r
May Ju
lS
ep Nov Jan
Ma r
May Ju
lS
ep No v Jan
Mar
May
-Ju
lS
ep-
Nov Jan
Mar
-M
ay Jul
Sep
NBP IFERC HH Monthly Japan avg LNG European Gas Contract
Europe - LNG Import Terminals (Bcf/d)
7.68
UK & Ireland2009 LNG Imports6.8 Bcf/d
23.42
LNG Terminals (Bcf/d)
Existing 16.09Firm 7.50Proposed 19.06
5 46
Mediterranean 5.92
NW Europe2009 2015 Total 42.65
Current Importers
Potential Importers
5.46
2.392.532009 20153.11
Belgium Bulgaria
France Croatia
Greece Cyprus
Italy Germany
10.14
y y
Netherlands* Ireland
Portugal Poland
Spain Romania
152009 2015
Turkey Sweden
UK Ukraine
Regas Terminals in Latin
LNG Terminals (Bcf/d)ExistingFirm 0.5Proposed
6.4PipelinesExistingUnder Construction
0.5
3.4 7.2
Proved Reserves (Tcm)
2009 2015
Current Importers Potential Importers
ArgentinaBrazilChileDominican RepublicMexico
HondurasJamaicaUruguay
0.4
16
Puerto Rico
US Balance of Trade Deficit
• Petroleum imports accounted for 55% of $500 billion US trade deficit in 2010
• LNG exports, domestic shale oil production will improve US trade balance by $130+ billion
$100
$200Other Goods
Billion US$
3 MM B/D UNC Oil Production*
$200
-$100
$0
$100 Petroleum
6 Bcf/d LNG Exports
$500
-$400
-$300
-$200
$800
-$700
-$600
-$500
* Assumes $100/bbl oil
17
-$8002002 2003 2004 2005 2006 2007 2008 2009 2010
Source: US Department of Commerce, US Census Data, Cheniere Research
Assumes $100/bbl oil
Sabine Pass Liquefaction Project
Cheniere owns & operates 4 Bcf/d Sabine Pass LNG terminal in LouisianaCheniere is developing a project to add liquefaction trains, transforming the facility into the g j g yfirst bi-directional LNG terminal that can import & export LNG
– 4 LNG Trains, each 4 mtpa (16 mtpa total project)– 20-yr fixed price contracts for 14 mtpa or 2 Bcf/d of bi-directional service– Begin construction 2012, begin operations 2015g g p
The Company is seeking equity capital to partially fund the project– Equity expected to represent ~20-30% of total funding requirements with the remainder
funded via non-recourse project debt financingLNG value chain:
Expansion Project Current Operations
18
LNG is natural gas cooled to -260ºF in order to be transported by ship to distant markets
Sabine Pass to Become Bi-Directional Import/Export Facility
LNGC UMM SLAL, First QMax Ship received in the U.S.
19
Proposed Liquefaction Project will Transform Sabine into First Bi-directional Import / Export Facility
Current Facility853 acres in Cameron Parish, Louisiana
Existing operational
facility
40 ft ship channel 3.7 miles from coast
2 berths; 4 dedicated tugs
5 LNG storage tanks (17 Bcf of storage)
4 3 Bcf/d peak vaporization
Proposed
4.3 Bcf/d peak vaporization
LNG export licenses approved
Liquefaction ExpansionFour liquefaction trains, each 4.0 mtpa nominal LNG processing capacityProposed
expansionnominal LNG processing capacity
Additional Equipment to include:
– ConocoPhillips’ Optimized Cascade® LNG Trains
– Six GE LM2500+ G4 gas turbine drivenSix GE LM2500 G4 gas turbine driven refrigerant compressors per train
– SAC water injection for emissions control
– Gas turbine inlet air humidification
20
– BASF aMDEA acid gas removal unit
Sabine Pass LiquefactionInfrastructure - Jobs
Infrastructure Investment ~ $6 B$2 3 B M t i l & E i t– $2.3 B Materials & Equipment
– $1.6 B Potential U.S. sourced equipment– $1.0 B Construction wages/benefits
Direct JobsDirect Jobs– 100-200 permanent jobs with an avg annual salary of $120,000– Average construction jobs of 1,800 for four to six years– Peak of 3,000 – 13 million man-hours
Indirect Jobs– Will support 30,000-50,000 permanent jobs in exploration and production
Construction timeline 2012-2018
21
Expanding U.S. Natural Gas Exports Would …
Promote liberalization of the global natural gas trade through the fostering of a global, liquid market, based on prices cleared in free and openly traded natural gas markets;Ad ti l it d th it f U S lli th h di ifi ti fAdvance national security and the security of U.S. allies through diversification of global natural gas supplies; Increase economic trade and ties with foreign nations, including neighboring countries in the Americas, and displace environmentally damaging fuels in those countries;Reduced reliance on foreign sources of oil by promoting domestic production of petroleum and by encouraging the drilling of wells in areas where there is a significant amount of natural gas associated with crude oil and natural gas liquids (“NGL”); Improve U S balance of payments through the exportation of approximately 2 Bcf/dImprove U.S. balance of payments through the exportation of approximately 2 Bcf/d of natural gas valued at approximately $5 billion, and the displacement of $1.7 billion in NGL imports thus furthering the President’s National Export Initiative;Promote stability in domestic natural gas pricing by raising domestic natural gas
d ti it dproductive capacity; andStimulate state, regional and national economies through job creation, increased economic activity and tax revenues, including the direct creation of approximately 3,000 engineering and construction jobs during the course of the project and,
22
indirectly, 30,000-50,000 permanent jobs in the exploration and production sector.
23
ConocoPhillips Optimized CascadeSM LNG Train
Bechtel and ConocoPhillips Collaboration Agreement
– 40-plus year history40 plus year historyProven, Reliable Design
– Template Designs exist for a variety of conditions and compressor configurationsg
– Kenai Alaska, 1969– Atlantic LNG Trains 1, 2, 3 and 4*, 2005*– Egyptian LNG Trains 1 & 2, 2005– Darwin LNG 2006Darwin LNG, 2006– Equatorial Guinea LNG, 2007– Angola LNG, under construction
Process AdvantagesReliability design concept based on– Reliability – design concept based on two 50% compressors for each refrigeration cycle
– Turn-down – Two-in-one concept provides for ~100% efficiency at 60-80%
24
p yutilization
– Intermittency – fast start-up and cool-down
ConocoPhillips-Bechtel – Global LNG Collaboration
2525 ConocoPhillips, Bechtel
LNG Project Support & Regulatory
Very strong local support: Cameron Parish officials, Louisiana state and federal congressional delegations, parish & state agencies Strong support from most gas producing statesCheap ethane by-product means added competitive landscape for chemical industry ($35/Bbl for ethane vs $90/Bbl for naphtha)Job implication 30,000-50,000 Balance of trade improvement ~$7 BPositive foreign policy implications of U.S. role in global gas marketsg p y p g g
Regulatory
FERC: Authorization to Construct Other Environmental Permits• Base site permitted• NEPA pre-filing 7/26/10 for expansion• Some agencies already in agreement• Formal application due after six
months notice period 1/31/11
• DEQ Title V Air Permit - 12/20/11• DNR Coastal Use Permit – 3/28/10• DEQ Water Quality Certification - 6/22/10• USACE Section 404 Wetlands - 1/31/11
26
months notice period – 1/31/11• Estimated approval 2011
Sabine Pass LiquefactionProposed Project Timeline
NEPA Notice
Execute EPCAgreement Begin File DOE
ApplicationsNEPA Notice(beginning of six
month consultation period w. FERC)
Public Announcement
File FERCApplication
ConstructionCommenceBi-directionalService
Applications
DOE Authorization to export natural gas
20102010
Announcement
20112011 20122012 20152015
Application
Initial commercial discussions with
counterparties under CA
FERCAuthorization
to Commence Construction
Obtain construction financing commitments
Initial discussions with local, political,
and regulatory constituents
27NOTE: Timeline represents an estimate of expected events and is continually changing.
Bi-directional Service at Sabine Pass Provides Opportunity to Arbitrage Henry Hub vs. Oil
Worldwide LNG prices predominantly based on a prices of oil = $10 - $25 / MMBtuLNG Contract Price
I d ti % 15%
$ $
at $90/bbl 9.90 13.50at $150/bbl 16.50 22.50
Indexation % 11% 15%$ $ $ $
Low High
Henry Hub 4.00$ 6.50$ Low High
4.00$ 6.50$
Europe Asia($/MMBtu)
Cost to deliver gas from Sabine Pass to Europe & Asia = $7 - $12 / MMBtu
Capacity Charge 1.75 1.75Shipping 1.00 1.00
Fuel 0.40 0.65Delivered Cost 7.15$ 9.90$
1.75 1.752.80 2.800.40 0.658.95$ 11.70$
Current LNG Market
30 – 40 Bcf/d LNG contracts indexed to oil prices – rule of thumb 11% to 15% of crude oil prices
Growth 100 Bcf/d Power generator switching from oil to gas –
28
Growth Market
100 Bcf/d Power generator switching from oil to gas paying $13 to $19 / MMBtu for fuel oil and diesel
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