Energy Business Group Investor Meeting. December 13, 2012 Mitsubishi Corporation Energy Business Group

Transcription

1 Energy Business Group Investor Meeting December 13, 2012 Mitsubishi Corporation Energy Business Group

2 Contents 1. Overview of Energy Business Group 1 Organizational Structure 2 Business Performance (Positioning in MC) 3 Value Chain 4 Measures Focused on Future Growth 5 Global Expansion of Energy Resources Business 6 Equity Share of LNG Production / Equity Share of Oil and Gas Production and Reserves 2. Outline of Business Divisions Natural Gas Business 1 Outlook for LNG Demand by Country/Region 2 Diversifying LNG Supply Sources 3 List of Existing LNG Projects 4 Outline of Projects in the Pipeline Donggi-Senoro LNG Project Shale Gas Development in Canada/LNG Canada Browse LNG Project in Australia Wheatstone LNG Project in Australia Natural Gas Development in Papua New Guinea SGU Project in Iraq Cameron LNG Project 1

3 Contents 3. Outline of Business Divisions E&P Business 1 Environment Surrounding the E&P Business 2 List of Major Projects 3 Overview of Kangean Project in Indonesia 4. Outline of Business Divisions Petroleum Business 1 Organizational Chart for the Petroleum Business Division 2 Environment Surrounding the Petroleum Industry 3 Key Initiatives 5. Outline of Business Divisions Carbon & LPG Business 1 Major Products in the Carbon Business 2 Key Initiatives in the Carbon Business 3 LPG Business/Astomos Energy 4 LPG Business Value Chain 2

4 1. Overview of Energy Business Group 3

5 Headcount Group headcount: 591 Head Office: 392 Japan: 100 (including 54 secondees) Overseas: 99 (including 48 secondees) Business Investees No. of business investees: 94 Japan: 41 Overseas: 53 Overseas sites No. of Group overseas sites: 28 Asia: 13 (including Oceania) Middle East: 7 North America: 2 Europe: 3 Russia: 1 Central and South America: 2 4 Carbon & LPG Business Division Petroleum Business Division Namikata Terminal Business Unit LPG Business Unit Specialty Carbon & Graphite Business Unit Petroleum Coke Unit Carbon Materials Unit Petroleum Feedstock Unit Utility Feedstock Unit Industrial Petroleum Marketing Unit Petroleum Supply & Marketing Unit (As of October 1, 2012) Organizational Chart Energy Business Group Natural Gas Business Division B Shale Gas Business Unit Donggi-Senoro Project Unit Global Gas Unit New Business Development Unit Sakhalin Project Unit Middle East Natural Gas Business Unit Indonesia Project Unit 1 Organizational Structure Natural Gas Business Division A Senior Vice President Officer for E&P Australia Unit Malaysia Project Unit Brunei Project Unit E&P New Business Development Unit Asia E&P Business Unit Africa, Europe and America E&P Business Unit New Business Development Office Energy Business Group Administration Dept. Energy Business Group CEO Office

6 2 Business Performance (Positioning in MC) (Billion yen) 5, グループ Group 全 Company-wide 社 4, , , , , , , , Year Ended March 2009 Year Ended March 2010 Year Ended March 2011 Year Ended March 2012 Year Ending March 2013 (Forecast) Oil price (Dubai) $81.8 $69.6 $85.7 $110.1 (Assumption) $108.2 Exchange rate yen 92.9 yen 84.2 yen 79.1 yen ( ) 79.7 yen Impact of changes in oil price on earnings (net income): for every $1/bbl increase (decrease) in the oil price, net income will increase (decrease) approx. 1.0 billion yen on a full-year basis. 5

7 3 Value Chain Natural gas (LNG) Petroleum Crude oil Petroleum products Carbon LPG Upstream Liquefaction/marketing Trading Transport Malaysia LNG 3 MIMI(NWS/Browse) Sakhalin Energy Investment MI Berau B.V. (Tangguh) Tomori E&P (Donggi) Canada shale gas Papua New Guinea Wheatstone MCX MCX USA MCX DUNLIN MPDC Gabon MEDCO Angola Japan Oil EMPI Brunei LNG Malaysia LNG (1 & 2 & 3) MIMI(NWS/Browse) Sakhalin Energy Investment Oman LNG MI Berau B.V. (Tangguh) DSLNG PEW (Wheatstone LNG) LNG Canada/ U.S. LNG Export E&P Petroleum Business Division Trading Southeast Asia Middle East West Africa Australia PDS Supply of raw materials / Primary manufacturing and processing Coal coke Petroleum coke Coal tar Carbon & LPG Business Division International shipping fleet / terminals Diamond Tanker PDI Logistics / trading Logistics / trading CELT Inc. Marketing / storage Kanokawa Terminal Onahama Petroleum PDI Sekiyu Cokes Kogyo MC Carbon Ryoshin Bulk Trans Astomos Energy Joint venture with TEPCO BST (Brunei) IGTC(NWS) * Blue text represents business investees Primary distribution / refining Showa Yokkaichi Sekiyu Secondary manufacturing / processing / carbon products SG Chemicals Joint venture project in China (MZAS/ Nanjing Baoning Chemical Industries) Nihon Electrodes Industry Namikata Terminal Natural Gas Business Divisions Storage Astomos Energy Domestic distribution / trading Mitsubishi Shoji Sekiyu MC Energy Dia Shoseki Logistics MC Carbon Primary distribution / wholesaling End users Power companies Gas companies Petroleum companies Steelmakers Aluminum manufacturers Petrochemical industry Automakers General industry Paper and pulp manufacturers Electronics manufacturers Food manufacturers Ceramics industry Electrode manufacturers New Business Development Office 1Biomass fuel 2Fuel cell / hydrogen usage 3Power generation business 4 On-site power supply (co-generation) 5Geothermal business 6

8 4 Measures Focused on Future Growth Management vision: A unique and sustainable energy company (All in the name of creating an enriched society through energy) Business environment: Petroleum and gas: Tight supply-demand over the medium and long terms intensified competition for resources Nuclear issue increased demand for natural gas and petroleum Shale revolution expanded use of gas (transport, electricity, petrochemicals) 1 Build a structure that generates steady business earnings by achieving balanced growth of resource businesses (natural gas, LNG and E&P) and non-resource businesses (petroleum, carbon and LPG) Aspirations: 2 Maintain and expand the Group s industry presence by expanding natural gas (LNG) business domains, which form the core of the Group s earnings 3 In non-resource businesses, maintain a strong presence in the Japanese market, while promoting globalization of business centered on Asia and emerging countries. 7

9 5 Global Expansion of Energy Resources Business U.K. North Sea Development/ Production (Crude oil) Canada Shale Gas Development Projects Iraq SGU Sakhalin II LNG U.S. Gulf of Mexico Development/ Production (Crude oil) Oman LNG Liberia Exploration (Crude oil) Angola Development/ Production (Crude oil) Gabon Exploration/ Development/ Production (Crude oil)) Browse LNG North West Shelf LNG Wheatstone LNG Kimberly Exploration (Crude oil/ Natural gas) Investment in MEDCO Malaysia LNG Kangean Development/ Production (Crude oil/ Natural gas) Brunei LNG Donggi-Senoro LNG Tangguh LNG Papua New Guinea Exploration/ Development (Natural gas) Venezuela Development of Orinoco heavy oil (Crude oil) 8

10 6 Equity Share of LNG Production / Equity Share of Oil and Gas Production and Reserves (Million tons/year) Equity Share LNG 持 of 分 LNG 生 産 能 Production 力 年 2007年 2008年 2009年 2010 年 2011年 2012年 2013年 2020年 Target: 10 million tons タングー* Tangguh* サハリンⅡ* Sakhalin II* カルハット Qalhat (Oman) (オマーン) オマーン Oman 西 Western オーストラリア* Australia* マレーシア3* Malaysia III* マレーシア2 Malaysia II マレーシア1 Malaysia I ブルネイ Brunei (Thousand BBL/Day) 天 Natural 然 ガス gas 原 油 コンデンセート Crude oil/condensate Equity Share of Oil and Gas Production (Yearly Average)* *1 Oil equivalent. Includes consolidated subsidiaries and equity-method affiliates *2 Participating interest equivalent. Includes reserves based on original standards set by MC (est.) * Owns upstream working interest Crude il/condensate 0.22 Billion BBL Natural gas 0.91 Billion BBL MC s Reserves Total * 1 * Billion BBL (As of December 31, 2011) 9

11 2. Outline of Business Divisions Natural Gas Business 10

12 1Outlook for LNG Demand by Country/Region LNG demand is projected to increase approximately 1.5-fold to 370 million tons in 2020, from 240 million tons in (million tons/year) Actual Actual Est. Est. VS 2011 Est. VS 2011 Asia-pacific region Japan Korea Taiwan China India Other Asia Chile, Mexico (Pacific Coast) Atlantic region Europe North America (Excl. Pacific Coast) (6) 8 (5) Others (Middle East, Central & South America) Worldwide total

13 ②Diversifying LNG Supply Sources LNG exporting regions, which are currently centered on Asia and Oceania, will expand to North America, Africa and other regions. (There were 20 supplying nations in 2011.) East Siberia West Canada West Siberia Sakhalin ｻﾊﾘﾝ Europe U.S. Qatar China East Africa East Australia (CBM) Brazil Existing supply regions New supply regions LNG importing regions 12

14 3List of Existing LNG Projects Start Project MC s Role Shareholding 1969 Alaska LNG Sales to Tokyo Electric and Tokyo Gas; Negotiation support; Import agent *First introduction of LNG to East Asia Brunei LNG Investment in liquefaction and sales; Negotiation support; Import agent; Shipping 25% 1983 Malaysia LNG 1989 North Wes Shelf LNG (Includes crude oil development) Investment in liquefaction and sales; Negotiation support; Import agent * 3 Projects: Satu, Dua (FID 1992) and Tiga (FID 1999) Investment in upstream, in liquefaction and in sales; Negotiation support; Import agent; Shipping *First joint venture with Mitsui & Co., Ltd. 5-15% 8.3% 2000 Oman LNG Investment in liquefaction and sales 2.8% 2004 Qalhat LNG (Oman) 2009 Sakhalin LNG (Includes crude oil development) 2009 Tangguh LNG (Indonesia) 2010 Shale Gas (Canada) Investment in liquefaction and sales; Import agent; Shipping * Global sales and arbitrage operations Investment in upstream, in liquefaction and in sales; Negotiation support; Import agent *Joint venture with Mitsui & Co., Ltd. (LNG FID 2003) Investment in upstream, in liquefaction and in sales; Negotiation support *Joint venture with INPEX Corporation (FID 2005) Investment in upstream, and in development. Joint development with Japanese utility and gas companies *North American natural gas business 4% 10% Approx. 9.9% 30-40% 2014 (Plan) Donggi- Senoro LNG (Indonesia) Investment in upstream, in liquefaction and in sales - together with KOGAS (FID 2011) *Taking on operatorship of LNG plant Approx. 45% 13

15 4Project Pipeline: Donggi-Senoro LNG Project MC s first-ever LNG project that it leads through to establishment of the plant The Donggi-Senoro LNG Project has been started in Indonesia to produce and sell liquefied natural gas (LNG). MC is the largest shareholder in this project, which is the first to be led by MC from planning through to plant operation. From 2014, the project plans to produce approximately 2 million tons of LNG per year. Through this project, MC will build on the LNG business know-how and functions it has cultivated over many years since its first operation in Alaska in 1969 to ensure an even more stable supply to Japan and the East Asia region. Location of plant construction Suburban Luwuk, Banggai Regency, Central Sulawesi Province With shareholders coming from Japan, Indonesia and South Korea, this is the first all-asian LNG project. 14

16 4Project Pipeline: Shale Gas Development in Canada/LNG Canada Cordova region Montney region Period of Entry September 2010 February 2012 Exploration Zone Reserves 540 km 2 in Cordova Embayment, northeastern British Columbia 5-8 trillion cubic feet ( million tons) 1,667 km 2 in Montney Cutbank and Dawson, British Columbia 35 trillion cubic feet (720 million tons) Equivalent to 9 years worth of Japan s gas consumption MC s share 30% 40% Operator Penn West (50%) Encana (60%) Peak production output Approx. 0.7 billion cubic feet/day (approx. 5 million tons/year, 2018) Approx. 3.0 billion cubic feet/day (approx. 5 million tons/year, 2018) Promoting LNG development (LNG Canada) through a partnership represented by Shell (40%), along with Japan, China and Korea (20% each) Cordova Montney Production Period Features Over 50 years Chubu Electric, Tokyo Gas, Osaka Gas, JOGMEC (3.75% each), and KOGAS (5%) are also participating as partners. Half (50%) of the gas produced will be sold in North America through CIMA Energy, a US gas marketing company in which MC has a 34% share. Over 50 years Partnered with Encana, Canada s largest natural gas producer As one of Canada s largest shale gas assets, this prime project offers outstanding productivity and cost competitiveness. Immense contribution to Canada s economic growth (project will create 14,000 new jobs) 15

17 4Project Pipeline: Browse LNG Project in Australia Gas and Condensate Fields Japan Australia LNG (MIMI) Pty. Ltd. is a joint venture between Mitsubishi Corporation and Mitsui & Co., Ltd. In September 2012, its subsidiary officially participated in the Browse LNG Project promoted by Woodside Petroleum Ltd. FID is planned for the first half of LNG plant Project Partners Location of Gas and Condensate Fields Proposed LNG Plant Location LNG Production Reserve (estimated by Woodside Energy) Woodside Browse, BHP Billiton Petroleum (North West Shelf) Pty Ltd., BP Developments Australia Pty Ltd., Chevron Australia Pty Ltd., Shell Development(Australia)Proprietary Limited, Japan Australia LNG (MIMI Browse) Pty Ltd Browse Basin, 425km off Broome in Western Australia James Price Point in Kimberley, Western Australia 12 million tons per annum (4 million tons 3 trains) * Potential expansion to 25 million tons per annum Gas: 15.5 trillion cubic feet Condensate: 417 million barrels FID Planned first half

18 4Project Pipeline: Wheatstone LNG Project in Australia 17

19 4Project Pipeline: Natural Gas Development in Papua New Guinea Outline Exploration, appraisal and development of natural gas in Papua New Guinea Licenses Licensed Equity Positions LNG Production Nine onshore licenses in Papua New Guinea s Western Province Talisman, MC and others licensed equity positions will average 40%, 20% and 40%, respectively in these nine licenses. Approx. 3 million tons (period undetermined, pending confirmation of gas reserves) * Equity interests in the LNG project have yet to be determined. By harnessing the complementary strengths of MC s LNG project development and execution capabilities and Canada-based Talisman s natural gas exploration, development and production capabilities, MC is considering developing LNG from natural gas produced in Papua New Guinea. 18

20 4Project Pipeline: SGU Project in Iraq Project to effectively utilize associated gas (currently most of such gas is flared), which is essential to Iraq s economic recovery. In the future, the project expects to export LNG (FID: from 2015 / 4 million tons a year) Outline Collect and refine associated gas from three oil fields in Basrah Province, and supply products domestically in Iraq and for export. Syria Iran Operating company Basrah Gas Company (South Gas Company 51%, Shell 41%, MC 5%) Baghdad Handling volume 2 billion standard cubic feet/day (16 million tons/year) Basrah province Start of operations LNG 2013 After sufficient domestic gas supplies are achieved, make a FID on LNG as soon as feedstock gas is available. Saudi Arabia Basrah 19

21 4Project Pipeline: Cameron LNG Project Cameron, Louisiana Tolling business scheme U.S. gas producers U.S. gas market Gas supply agreement Spot purchase Cameron LNG JV Tolling agreement Mitsubishi Corporation Pipeline companies Pipeline agreement Project operator FID Start of operations Liquefaction capacity Marketing Existing facilities Feed and EPC Contractors SPAs Cameron Interstate Pipeline Sempra LNG Q Q 4.0MTPA 3Train Tolling Service (The three companies GDFS, Mitsui & Co., and MC are currently conducting negotiations as tollers.) 3Tanks 2Berths FEED: Foster Wheeler, EPC: tender planned LNG purchasers Against the backdrop of the shale gas revolution, MC seeks to achieve LNG exports from the U.S., which has abundant gas reserves, and sell part of this gas to Japan. 20

22 3. Outline of Business Divisions E&P Business 21

23 1 Environment Surrounding the E&P Business Persistently high oil prices and continued firm demand for crude oil According to World Energy Outlook 2012, the IEA average crude oil import price is expected to increase to $125 by Despite high oil prices, crude oil demand is projected to continue to expand, mainly in Asian emerging countries such as China and India. Trend and outlook for global crude oil demand and crude oil prices through 2035 Expectations for unconventional resources, and the opening of new frontiers In North America, development of unconventional resources has heated up. Recently, there have been high hopes for shale oil in response to sluggish natural gas prices. Tackling the challenge of technically difficult regions, such as great sea depths and the Arctic Ocean. Trend and outlook for U.S. crude oil and natural gas production through 2035 Source: World Energy Outlook 2012 Note: Crude oil prices represent IEA average crude oil import prices. Source: World Energy Outlook 2012 Energy policies are attracting attention The importance of fossil fuels, such as oil and natural gas, is being reaffirmed following the nuclear accident in Japan. In this context, the energy policies of various countries are attracting attention. MC s Initiatives in the E&P Business Obtain and provide stable supplies of resources Promote a growth strategy focused on the value chains (upstream) of the LNG and petroleum businesses Contribute to earnings over the medium and long terms 22

24 2List of Major Projects Project Equity interest (MC, net) Partners Status Crude oil/gas Gabon (Baudroie Marine field, Merou Sardine field, Nguma field and others) 50.00~ % Total/Perenco Exploration/development /production Crude oil Angola (Block 3/05, 3/05-A) 10.20% Sonangol/ENI/ and others Development/production Crude oil U.S. Gulf of Mexico (K2 project) 11.60% Anadarko/Eni/ConocoPhillips/ NOEX/Ecopetrol Development/production Crude oil U.K. North Sea Dunlin Oil Field 30.00% Fairfield Energy Development/production Crude oil Kangean, Indonesia 25.00% JAPEX/EMP Development/production Gas/crude oil PT. Medco Energi Internasional Tbk.of Indonesia 19.97% Encore International Listed company - Liberia (Block 10) 10.00% Anadarko/Repsol Exploration Crude oil 23

25 3Overview of Kangean Project in Indonesia Overview In May 2007, MC and Japan Petroleum Exploration Co., Ltd. (JAPEX) participated in the Kangean PSC by acquiring a combined 50% working interest. Through their management of Kangean Energy Indonesia Ltd., MC and JAPEX are promoting this project as the de facto project operators. Production started in Terang gas field, the core project in Kangean, in late May (A gas volume of 300 Million Standard Cubic Feet per Day at the peak period is planned to be produced and distributed across East Java Province.) MC plans to develop the Sirasun and Batur gas fields going forward. MC is also conducting feasibility studies of the potential for additional exploration and development within the Kangean PSC. Structure of Partnership 24

26 4. Outline of Business Divisions Petroleum Business 25

27 1Organizational Chart for the Petroleum Business Division (November 2012) E&P Petroleum Business Strategy Planning and development of business division strategies, personnel and general affairs, environmental management Energy Business Group Group CEO Office Upstream Business Office New Business Development Office Energy Business Group Administration Dept. Key Business Investments -Petro Diamond Incorporated (PDI) -Petro Diamond Singapore (PDS) Petroleum Business Div. Natural Gas Business Div. A Natural Gas Business Div. B Carbon & LPG Business Div. -Showa Yokkaichi Sekiyu -Mitsubishi Shoji Sekiyu -Dia Shoseki -MC Energy -Onahama Petroleum -Diamond Tanker Petroleum Supply & Marketing Unit Import, export and offshore trading of crude oil and petroleum products Management of petroleum refining and sales businesses Responsible for business investees (PDI, PDS, Showa Yokkaichi Sekiyu, Mitsubishi Shoji Sekiyu Group, Dia Shoseki Group) Industrial Petroleum Marketing Unit Import and sales of heavy oil, lubricant oil and asphalt to industrial firms Responsible for business investees (MC Energy) Utility Feedstock Unit Trading in crude oil, heavy oil and ships for electric utilities Responsible for business investees (Onahama Petroleum, Kanokawa Terminal, Diamond Tanker) Petroleum Feedstock Unit Import and offshore trading of naphtha, condensate and gasoline components, and ship freight transactions Responsible for business investees (Central Tanker) 26

28 2 Environment Surrounding the Petroleum Industry Japan Gradual decrease in petroleum demand due mainly to Japan s declining population and environmental measures. Reduction in refining capacity in line with the Act on Sophisticated Energy Supply Structures. Clear demarcation of winners and losers among refineries, distributors and sellers and further industry realignment. Unpredictable energy mix (restart of nuclear power plants) and uncertain petroleum demand from electric utilities Overseas Gradual decrease in petroleum demand in OECD countries due mainly to declining populations and environmental measures Sharp increase in petroleum demand in emerging countries in step with vigorous economic growth. Changes in commercial flows of petroleum triggered by the Shale Revolution Consistently high crude oil prices 27

29 3 Key Initiatives Japan Relentlessly strive to maintain and increase share of the domestic market by maintaining and strengthening MC s outstanding sales network and leveraging its competitive supply capabilities and capacity to adjust for changes in supply and demand. Overseas Expand new business by capturing growth in buoyant demand for petroleum products in the Asia-Pacific region, which is undergoing rapid economic growth. Electric power Provide stable supplies to meet increased petroleum demand from electric utilities amid suspended operation of nuclear power plants, and revise MC s petroleum supply structure in anticipation of future demand. 28

30 5. Outline of Business Divisions Carbon & LPG Business 29

31 1 Major Products in the Carbon Business The carbon business develops non-resource businesses involving raw materials and supplies essential to industry, leveraging Company-wide resource businesses. Petroleum Coke Unit 1 Protect and expand existing business interests) 2 Strengthen value chains by securing new sources of petroleum coke 3 Enhance existing businesses by securing new inventory sites and promoting fuel conversion Speciality Carbon BU Promote the manufacturing, development and commercialization of anode materials for lithium-ion batteries Aluminium-Related Carbon Materials Office 1 Promote the manufacturing and sales of anodes for aluminum smelting in China 2 Promote the manufacturing and sales of pitch coke for China 3 Expand business utilizing a BF carbon block cathode manufacturer 4 Establish a One-Stop Service for every carbon product for aluminium smelting. Carbon Materials BU 1 Expand existing businesses and develop new businesses in such fields as graphite electrodes, carbon black feedstock oil, needle pitch coke, etc. 2 Promote the needle pitch coke manufacturing and sales business in Korea 30

32 2Key Initiatives Key Division Initiative I Capture earnings in growing markets Demand for aluminum is projected to continue growing steadily over the medium and long terms. (Year ended March 2012: 43 million tons year ending March 2021: 68 million tons) The Division is working with the aim of capturing growth in the aluminum market as a One Stop Servicer for aluminum smelters. The Division is working to strengthen its presence in the aluminum industry in collaboration with manufacturers of carbon materials for aluminum smelters worldwide. To this end, measures also include overseas business investments. Projected Demand for Aluminum (million tons) e12 e13 e14 e15 e16 e17 e18 e19 e20 Key Division Initiative II The Division offers cutting-edge fine carbon materials, such as lithium-ion battery anode materials and crucibles for manufacturing silicon for solar cells. The market for lithium-ion battery anode materials is expected to experience significant expansion. (Year ended March 2012: approx. 60 billion yen year ending March 2021: more than 500 billion yen) Having established a development and manufacturing company for anode materials, the Division is working to commercialize the manufacturing and sale of these materials, from the supply of raw materials to hightemperature thermal treatment and other operations. Anode materials for lithium-ion batteries Major fine carbon products Crucible for manufacturing silicon for solar cells Carbon brush for wind power generation Graphite materials for hightemperature gas furnaces 31

33 3LPG Business/Astomos Energy Established an LPG operating company with one of the world s largest trading volumes and Japan s largest share through a business integration in Astomos Energy s bases (Branches and terminals) [Branches] Domestic: 10 locations (Major cities) Overseas: 2 locations [Supply structure] Import terminals: 10 locations) Secondary terminals: 6 locations Mitsubishi Liquefied Gas Co. Features of Astomos Energy Integrate and capture synergies between overseas operations (trading functions) and domestic operations (primary distribution functions) Outline of Astomos Energy Established: April 1, 2006 Business activities: Import and sales of liquified petroleum gas (LPG), overseas LPG trading (Ship ownership) Shareholders: Idemitsu Kosan Co., Ltd. 51%, Mitsubishi Corporation 49% Number of Employees: 347 (as of April 2012) Sales: billion yen (year ended March 2012) Trading volume: Approx. 3.7 million tons in Japan; total global trading volume of 9.4 million tons (one of the world s largest) Overview of Liquefied Petroleum Gas (LPG) * National LPG storage terminal based on a subterranean rock storage system Namikata Terminal a wholly owned subsidiary of MC, is scheduled to operate the facility (storage of LPG, chemicals and petroleum) under contract. * 450,000 tons of LPG will be stored in a subterranean rock storage system 180m below the surface. LPG is a gaseous fuel consisting primarily of propane and butane. LPG is utilized by around 50% (approx. 25 million households) of all Japanese households as a fuel for residential and commercial use. LNG is used extensively across roughly 95% of Japan s land area. LPG is an environmentally friendly, distributed form of energy (used to address the Great East Japan Earthquake). 32

34 4LPG Business Value Chain Demand for associated LPG is projected to increase substantially in step with increased LNG production in the Middle East and shale gas development in North America. Astomos Energy has the advantage of a robust fleet of ships. Leveraging this strength, the company aims to drive expansion in overseas commercial flows of associated LP gas. Backed by its dominant procurement capabilities, Astomos Energy will strive to strengthen its wholesaling and retailing capabilities in Japan, with the view to rapidly addressing major earthquakes and other emergencies by leveraging the features of LPG. Looking ahead, the company will continue working to upgrade its functions. By building an integrated value chain spanning LPG procurement to transport and receiving terminal operations, along with wholesaling and retailing in Japan, Astomos Energy is developing a stable business model as a nonresource business. Astomos Energy is helping to ensure crucial aspects of energy security for Japan. These include stable procurement and transport of LPG leveraging one of the world s largest fleets of ships, and fuel procurement and supply through the operation of LPG receiving and transport terminals in Japan. Astomos Energy is developing business in fields close to consumers through retail sales and related businesses (Enefarm, etc.). The company also supplies LPG to electric utilities (for power generation) and gas companies (for heating). In these ways, the company plays a role in providing crucial social infrastructure. 33

35 Shale Gas Business Source: theengineer.co.uk

36 Impacts from the Shale Gas Revolution Enormous Reserves Proven Natural Gas Reserves Technically Recoverable Shale Gas Resources 6,609 tcf + 6,622 tcf = 13,231 tcf Reserves-to-production ratio: 63 years Reserves-to-production ratio: 127 years Exploration and appraisal suggest resource base will expand going forward (Source: US Energy Information Administration April 2011 World Shale Gas Resources ) 2

37 Conventional Natural Gas Reserves *Japan s entire import volume consists of LNG sourced from conventional natural gas. Shale Gas/Silt Gas Diffusion into the air Diffusion into the air Natural flow under internal gas field pressure 3The cap rock acts as a lid, trapping the gas. 2,000~3,000m ガス 移 動 Conventional natural gas 2 Due to the lowpermeability of the rock, the gas moves through fissures Cap rock Shale 1 Due to low permeability, gas cannot be recovered by vertical drilling alone. Horizontal drilling is also required. 2 Hydraulic fracturing (fracking) of the rock enables extraction of the gas from the resulting fissures. シール Reservoir rock Source rock 30~100m 1 Over many years the gas rises (most of it diffuses in the air from the ground surface) Source rock 1,000~2,000m Mudstone and limestone, etc. Cap rock has very low permeability, preventing upward migration of the gas. Sandstone, etc. This rock is highly permeable, allowing the gas to move through it. Mudstone and shale, etc. Source rock contains organic compounds that form the gas. The key point is whether a gas field can be discovered or not (exploration projects). Silt and shale, etc. Gas formation and storage has completed in these rocks, but the gas remains dormant in them due to their low permeability. Seismic exploration and test wells provide sufficient data to ascertain the position, depth, and amount of oil and gas reserves, so there is no exploration risk. The main determining factor is how much can be recovered economically (similar to coal extraction). Due to the low recovery rate from a single well and severe attenuation in productivity, multiple wells must be drilled continually (by the same token, the pace of excavation can be adjusted in line with demand, similar to the manufacturing business). 3

38 The Shale Gas Revolution Transforming the Energy Situation in the US (and the World) The US is transforming itself from net importer of LNG to a net exporter (planned) (LNG receiving terminals for over 150 million tons now operate at around 10% capacity). This is one factor behind easing of global demand for natural gas, which enabled Japan to step up procurement following the March 2011 disaster. (LNG project built to meet projected US demand now had extra capacity to sell). Projection for US Natural Gas Supply Sources The supply-demand gap that was previously to be filled by LNG is now filled by gas from unconventional resources. Unconventional resource gas currently supplies around 50% of demand, projected to increase to 75% by Shale gas plays a major role in this. US projected to be virtually self-sufficient by Trillion cubic feet (510 million tons) 20 (410 million tons) Unconventional: 50% 11% 14% 2009 Imported LNG Shale gas Unconventional: 75% 15 20% Onshore conventional gas 8% 9% Offshore conventional gas 10 8% 28% Tight sand gas 22% 5 8% Coalbed methane 7% Gas associated with oil Alaska 0 2% 9% 7% % 46% Source: US Energy Information Administration Energy Outlook % 4

39 Canada LNG Export Scheme Develop new reliable supply sources that can provide stable supply over the long term (1) Stable government administration and relationship between Japan and Canada; federal, provincial and territorial governments strongly support LNG exports (2) Located relatively close to Japan (about 10 days from western Canada) (about 40 days from the US Gulf of Mexico; reduced to 26 days after Panama Canal expansion completed) (3) Enormous reserves but low domestic demand (population: 34 million 300 million in the US) 5

40 Canada LNG Export Scheme Private & Confidential Several green field projects for Canada s western seaboard are currently being examined, including new construction of LNG bases and pipelines. Source:Kitmat LNG(2012) 6

41 MC s Shale Gas Business Cordova Region Montney Region Participation date September 2010 February 2012 Exploration zone Recoverable shale gas resources Cordova Embayment, northeast British Columbia, Canada, 540 km trillion cubic feet (100 to 160 million tons) Montney Cutbank and Dawson, British Columbia, Canada, 1,667 km 2 35 trillion cubic feet (720 million tons, equivalent to approx. 9 years of annual consumption in Japan) MC s share 30% 40% Acquisition cost C$450 million (approx. \36 billion) C$2,900 million (approx. \229 billion) Operators Penn West Exploration(50%) Encana Corporation(60%) Peak production volume Approx. 700 million cubic feet per day Approx. 3,000 million cubic feet per day Production period Over 50 years Over 50 years Operation cost Features Approx. C$2,200 million (Approx.\180 billion) *MC's share Chubu Electric, Tokyo Gas, Osaka Gas, JOGMEC (3.75% each), and KOGAS (5%) are also participating as partners. Half (50%) of the gas produced will be sold in North America through CIMA Energy, a US gas marketing company in which MC has a 34% share. Approx. C$6,000 million (Approx.\480 billion) *Project 100% baisis Partnered with Encana, Canada s largest natural gas producer As one of Canada s largest shale gas assets, this prime project offers outstanding productivity and cost competitiveness. Immense contribution to Canada s economic growth (project will create 14,000 new jobs) 7

42 LNG Exports from Canada: LNG Canada Project Shell, KOGAS, CNPC and MC will transport feedstock gas from their respective shale gas assets in Canada s British Columbia and Alberta provinces via a pipeline. The gas is to be liquefied at a plant on the west coast (Port of Kitimat, British Columbia) and LNG exports planned to commence from Shale gas assets Gas liquefaction plant (Port of Kitimat) - 6 million tons per year x 2 trains - Consider to expand 2 additional trains Partners Shell, KOGAS, CNPC, MC =40%, 20%, 20%, 20% Schedule - Aim to make final investment decision by Plan to start production by 2019 Pipelines (approx. 700 km) Contracted building and operation of large diameter pipeline to TransCanada, a major pipeline company in Canada 8