Natural Gas Hub Development and the Asian LNG Market

Transcription

1 Natural Gas Hub Development and the Asian LNG Market Plenary Session 3, Structure of Asian Markets for Energy Commodities Bradford G. Leach Principal, Energy Advisory Services 5th IAEE Asian Conference February 15, 2016 Perth, Australia

2 Energy Benchmark Characteristics Commodity Price Reference Regional or National Value Communication Strategic Supply/Demand Relevance Pricing Derived from Competitive Market Operations Transparent Delivery Procedures Established Regulatory Structure Access to Reliable Physical Delivery Delivery Infrastructure Available to New Market Participants

3 Standard Delivery Function Standard Delivery Futures Contract Location Operation and Costs Must Be Transparent and Non-discriminatory Ensures that Futures and Cash Market Values Converge Enables Participants to Close the Futures Contract Obligation with Physical Delivery Exchange of Futures for Physicals Alternative Delivery Procedure

4 Henry Hub Background In 1988, Sabine Pipe Line initiated Henry Hub service at the Henry Gas Processing Plant near Erath, Louisiana Sabine was a wholly owned subsidiary of Texaco. Chevron acquired Texaco and became the next owner/operator of the Henry Hub. Chevron sold Sabine Pipe Line and other midstream assets to Enlink (ENLK) in November In 1990, NYMEX launched its first natural gas futures contract which incorporated the Henry Hub as the standard delivery location. The current Henry Hub transportation service provides hub service among 10 inter and intrastate pipeline interconnections. ENLK charges a discounted rate of 4 cents per MMBtu for hub service related to the 10 pipeline interconnections and between these locations and the Sabine Hub Services Intra-Hub Transfers (IHT) agreement. IHT is a title transfer service and is provided on a non-jurisdictional basis Why was the Henry Hub selected by NYMEX?

5

6

7 Louisiana and Central Gulf of Mexico Bcf/Day Production North LA South LA Central GOM and State Offshore Source: LA Department of Natural Resources

8 Percent of Louisiana OCS of Total U.S. Annual Natural Gas Consumption 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Source: EIA and LA Department of Natural Resources

9 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Selected Platts LA Market Location Monthly Deal Counts CGT LA FLGas Z-2 Sonat LA TN 500 TN 800 TXE ELA TXE WLA TX G SL Henry Hub

10 JAN-05 JUN-05 NOV-05 APR-06 SEP-06 FEB-07 JUL-07 DEC-07 MAY-08 OCT-08 MAR-09 AUG-09 JAN-10 JUN-10 NOV-10 APR-11 SEP-11 FEB-12 JUL-12 DEC-12 MAY-13 OCT-13 MAR-14 AUG-14 JAN-15 JUN-15 NOV Platts Henry Hub Monthly Deals

11 JAN-05 JUN-05 NOV-05 APR-06 SEP-06 FEB-07 JUL-07 DEC-07 MAY-08 OCT-08 MAR-09 AUG-09 JAN-10 JUN-10 NOV-10 APR-11 SEP-11 FEB-12 JUL-12 DEC-12 MAY-13 OCT-13 MAR-14 AUG-14 JAN-15 JUN-15 NOV-15 Platts Henry Hub Monthly Volumes From 's MMBtu/Day

12 3,000,000 2,500,000 2,000,000 1,500,000 Henry Hub Delivery Operating Capacity and Scheduled Quantity (MMBtu) 148, , ,965 72, ,338 65, ,771 71, , ,849 96,368 1,000, ,000 - Op Cap TSQ

13 U.S. Shale Production Areas

14 Annual Increase in Shale Production Compared to Conventional Production

15 Physical Hub Characteristics Strategic Hub Location Trusted Physical Operator Transparent Facility Fees Non-Discriminatory Third Party Facility Access Sufficient Facility Transfer Capacity Access to Storage at or Close to the Facility Facility Operator Interest in Business Development Delivery/Storage Expansion Capability

16 Financial Hub Characteristics Services that Complement Physical Facility Operations Title Transfer/Book Transfer Henry Hub Intra-hub Transfers (IHT) Facilitates Title Transfers at Low and Known Cost Anonymous Sourcing through IHT Can Be Offered by Operator or Third Party

17 The Asian Natural Gas Market Asia is the Fastest Growing Natural Gas Consumption Market LNG Is the Primary Natural Gas Supply Regional Natural Gas Markets Are Not Uniformly Connected By Pipelines Increasing Focus on Pipeline Delivery Historical Natural Gas Pricing is Based on Oil-Based Indexation Increasing Interest in Gas-to-Gas Competitive Pricing Development of LNG Price Indices Asia Lacks a Natural Gas/LNG Physically Delivered Trading Hub

18 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 $25.00 Monthly Brent Spot in MMBtu $21.63 $20.00 $15.00 $10.00 $5.00 $8.23 $6.55 $-

19 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Brent Spot MMBtu and the Henry Hub Spot Price $25.00 $21.63 $20.00 $15.00 $19.46 $10.00 $6.55 $5.00 $1.95 $4.62 $- $1.93 Henry Hub Brent MMBtu Difference Source: EIA

20 Cheniere Energy LNG Pricing Henry Hub means the final settlement price (in USD per MMBtu) for the New York Mercantile Exchange s Henry Hub natural gas futures contract for the month in which a relevant cargo s delivery window is scheduled to begin; Under the SPAs, the customers will purchase LNG from Sabine Pass Liquefaction for a price consisting of a fixed fee plus 115% of Henry Hub per MMBtu of LNG. Source: Cheniere SEC Filings

21 Cheniere Energy Long-Term LNG Pricing Example Henry Hub Final Settlement for February 2016: $ % of Final Settlement: $ 2.52 Liquefaction Fee: $ 3.50 Total Price Without Shipping Cost: $ 6.02 ICE Brent on 1/27/16: $33.10 MMBtu Conversion: $5.71

22 Asian LNG Market Pricing Developments Platts Japan Korea Marker (JKM) Launched in February 2009 Daily Market on Close Price Assessment of Bids, Offers, and Trades Increasing Interest in Spot and Short-Term Deals Exchange Cleared JKM Futures Intercontinental Exchange Launched JKM Cleared Swap in 2012 (Converted to Futures) 24 Consecutive Trading Months Listed 3/16-12/16 Open Interest of 750 Contracts as of 2/11/16 CME Group Launched JKM Cleared Swap Futures in Consecutive Trading Months listed No Open Interest or Recent Trades

23 Asian LNG Market Pricing Developments 9/14: FOB Singapore SGX LNG Index Launched by SGX and EMC 9/12/14: Japan OTC Exchange (JOE)Lists LNG Non-Deliverable Forward Contract 1/25/16: SGX FOB Singapore SLInG LNG Futures and Swaps Launched 2/22/16: CME Group to List LNG DES Japan RIM Futures to Clear JOE trades

24 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 ICE JKM and SGX SLlnG Daily Settlements for 2/11/16 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $- ICE JKM SGX SLlnG

25 Singapore Developments Government/Energy Market Authority Support Energy Hub Development Development and Operation of the Singapore LNG Corporation SGX Launch of FOB Singapore SGX LNG Index, Swaps, and Futures Increased Competition in the Commodity Exchange Sector 2014: ICE Acquires Singapore Mercantile Exchange renamed ICE Futures Singapore

26 Summary Henry Hub selected due to its location which was relevant to the developing interstate spot market and the related access to Gulf production Physical deals and volumes have steadily declined along with OCS and Gulf regional onshore production Henry Hub continues to be relevant as a benchmark for U.S. Gulf pricing. The start of LNG Gulf exports is a supporting factor through conditioned on world LNG pricing Asian natural gas market interest in alternatives to oil indexation Multiple LNG price indices have developed since 2009: JKM, SGX LNG Index, and RIM. JKM is the most visible to date. The ICE JKM futures contract is the most active as to volume, open interest, and forward pricing. A physically delivered hub location has not yet developed. Such a location could form the foundation for a physical and financial benchmark for Asian natural gas.

27 For further info contact: