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U.S. Exports of LNG:
           The Facts
Presenters

    SKM Strategic Consulting
    –   Bob Graham – Principal Consultant
    –   Hope Stevens - Economist
Overview
   Australian Government expectations
   U.S. regulatory approval process
   Lobbying for change
   Are U.S. LNG exports in the public interest?
   –   Review – “Macroeconomic Impacts of LNG Exports from the
       U.S.”
   Existing and proposed projects (U.S.)
   –   Approval status
   –   Total potential volume of U.S. exports vs. capacity shortfall
   –   Capital cost considerations
   –   Commercial arrangements
   Summary
“from my analysis, US gas if it’s allowed – because it is
a very sensitive, ticklish political issue in the US at
the moment – will not be material in terms of our
capacity to grow opportunities in Asia” - Martin Ferguson,
Minister for Resources, Energy and Tourism, at Australian
Resource Conference. AFR 14 Nov 2012.
U.S. regulatory approval process

    Department of Energy (DOE)
    Federal Energy Regulatory Commission (FERC)
DOE approval

    Section 3 of the Natural Gas Act of 1938, as
    amended (NGA), 15 USC 717b
    “The Commission shall issue such [export]
    order upon application, unless, after
    opportunity for hearing, it finds that the
    proposed exportation or importation will not be
    consistent with the public interest”
DOE approval timeframe – Sabine Pass

     Application      • August 2010
    FTA countries



                     Approval for     • September 2010
                    FTA countries     • 1 month




                                      Application
                                       non FTA           • September 2010
                                       countries


                                                      Conditional           •   May 2011
                                                     approval non           •   8 months
                                                     FTA countries



                                                                        Final approval     •   August 2012
                                                                           non FTA         •   15 months
FERC approval
    Mainly focussed on environmental approval
    FERC acts as lead agency and liaises with
    other federal, state and local agencies
    Decides approval to proceed, monitors
    construction and issues final authorisation to
    proceed
    Methods of approval
    –   Traditional process
    –   Pre-filing followed by formal application (now
        80% of proponents)
FERC approval timeframe – Sabine Pass

  Pre-filing   • August 2010




                Formal         • January 2011
               application     • 5 months




                                 FERC           • April 2012
                                                • 15 months
                                approval
Lobbying for change

    LNG exports are facing increased opposition
    U.S. Congress Representative Edward Markey
    (D-MA) has proposed:
    –   Keep American Natural Gas Here Act
    –   North America Natural Gas Security and
        Consumer Protection Act
    Both bills were not enacted
Are U.S. LNG exports in the public
interest?
    The study “Macroeconomic Impacts of LNG
    Exports from the U.S.” was commissioned by
    DOE, and conducted by NERA Economic
    Consulting (2012)
    Global natural gas model, NewERA energy-
    economy model
    Export scenarios
    Key outcomes of the study (overall
    macroeconomic impacts, price impacts,
    socioeconomic impacts)
Export scenarios

    U.S. natural gas demand and supply scenarios
    –   U.S. reference case (no LNG Export expansion)
    –   High shale estimated ultimate recovery (EUR)
        •    Optimistic
        •    EUR per shale gas well for new, undrilled wells 50
             % higher than in the reference case
    –   Low shale EUR
        •    Less optimistic
        •    EUR per shale gas well for new, undrilled wells 50
             % lower than in the reference case
Export scenarios cont..

    Export quota trajectories
    –   Low/slow
    –   Low/rapid
    –   High/slow
    –   High/rapid
    –   Low/slowest
    –   No export constraints (exports based entirely
        on relative economics)
Key outcomes


   The study showed net economic benefits to the
   U.S. economy under all scenarios
   –   Net economic benefits increase with the level
       of exports
   Incomes of natural gas resource owners increase
   (including superannuation funds)
Key outcomes cont…

   Impacts will not be positive for all groups in the U.S. economy
   –   Some increases in U.S. domestic gas prices
       •    Price is constrained by the global market
            – Prices do not rise to oil parity or levels observed in
                  competing regions
            – Exports expected to be ~10 to 15% of US market
            – The largest increase in wellhead prices occurs in
                  2020 - $1.11/Mcf (thousand cubic feet)
                 »   Real, 2010, USD   1 Mcf ~= 1.08GJ

       •     U.S. natural gas consumption
   –   Serious competitive impacts confined to narrow segments of
       industry
   –   Shifts in employment across industries
Key outcomes cont.…


   U.S. exports are projected to displace some
   exports from other LNG exporting regions
    –   Drop in wellhead and city gate prices where
        U.S. exports are competitive
   Drop in city gate prices in importing regions
   leads to increased consumption
Existing approvals (under construction)




                                                                Sabine Pass




http://ferc.gov/industries/gas/indus-act/lng/LNG-approved.pdf
Proposed export terminals

                                                                          East Coast
                                                                             Freeport
                                                                             Corpus Christi
                                                                             Trunkline
                                                                             Cameron
                                                                             Excelerate
                                                                             liquefaction
                                                                             Cove Point

                                                                          West Coast
                                                                             Jordan Cove
                                                                             Oregon




http://ferc.gov/industries/gas/indus-act/lng/LNG-proposed-potential.pdf
LNG exports from the USA
LNG exports from the USA
U.S. Natural Gas Supply Basins Relative to Major
Natural Gas Pipeline Transportation Corridors, 2008
DOE and FERC approval status
Project                            DOE approval    FERC approval


Sabine Pass                •   FTA & NFTA               Yes

Freeport                   •   FTA only                 No
                           •   NFTA pending
Corpus Christi             •   Pending                  No

Trunkline (Lake Charles)   •   Pending                  No

Cameron                    •   FTA & NFTA               No

Excelerate Liquefaction    •   FTA                      No
                           •   NFTA under review
Cove Point                 •   FTA                      No
                           •   NFTA under review
Jordan Cove                •   FTA                      No
                           •   NFTA under review
Oregon                     •   FTA                      No
                           •   NFTA under review
LNG exports from the USA
Commercial arrangements
Project                   Commercial Arrangements
Sabine Pass               •   20 year agreements for tolling service with
                              some take–or-pay /fixed component
Freeport                  •   Tolling service
Corpus Christi            •   Not disclosed
Trunkline                 •   Not disclosed
Cameron                   •   Tolling service
Excelerate Liquefaction   •   Not disclosed
Cove Point                •   Tolling service
Jordan Cove               •   Tolling service
Oregon                    •   Tolling service
Capital cost considerations
Project                   Existing facilities                     Facilities required
Sabine Pass               •   Two unloading berths                •   Two new liquefaction trains (potential for two more)
                          •   5 LNG storage tanks                 •   One additional tank may be needed for fourth train
Freeport                  •   Marine berth and manoeuvring area   •   Liquefaction plant at existing terminal
                          •   Two LNG storage tanks               •   Widening of shipping channel

Corpus Christi            •   None                                •   3 liquefaction trains
                                                                  •   3 storage tanks
                                                                  •   Pipeline (37km x 1.2m diameter)
Trunkline                 •   Storage facilities                  •   Liquefaction plant at existing site (3 liquefaction trains)
                          •   Existing pipeline                   •   < 1km pipeline

Cameron                   •   3 existing storage tanks            •   1 additional storage tank
                          •   Existing pipeline (58km)            •   3 new liquefaction trains
                          •   2 berths
Excelerate Liquefaction   •   None                                •   Two floating liquefaction, storage and offloading units
                                                                  •   Supporting infrastructure
                                                                  •   44km of pipeline (0.9m diameter)
Cove Point                •   140km pipeline                      •   1 new liquefaction train
                          •   7 LNG storage tanks                 •   25MW of new compressors
                          •   Pier
Jordan Cove               •   None                                •   370km pipeline (0.9m diameter)
                                                                  •   4 liquefaction trains
                                                                  •   Pipeline gas conditioning facility
                                                                  •   2 LNG storage tanks
                                                                  •   Loading/unloading berth
                                                                  •   Other supporting infrastructure
Oregon                    •   None                                •   140km of pipeline (0.9m diameter)
                                                                  •   2 LNG storage tanks
                                                                  •   3 liquefaction trains
LNG shipping rates to Asian markets:
 $2010/MMBtu
            To                                      From
                                          Oceania          U.S.
                                            $0.74          $2.81
China/India
                                            $0.90          $2.54
Korea/Japan
                                            $0.63          $2.61
Southeast Asia
Source: NERA Economic Consulting (2012)
Summary
   After 2018, U.S. export projects are well placed to secure a
   large portion of the projected global capacity shortfall
   Use of existing tanks, pipelines and marine facilities, and
   would enhance the economics of some of these projects
   compared to Australian and other competitors
   –   Capital cost for greenfield projects in U.S. is generally
       significantly lower than Australian projects (NERA Economic
       Consulting, 2012)
   Cost assumptions in NERA Economic Consulting (2012)
   report indicate Australia remains competitive with regards to
   LNG transport costs
Questions?




    Bob Graham
    +61 7 3026 8022

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LNG exports from the USA

  • 1. U.S. Exports of LNG: The Facts
  • 2. Presenters SKM Strategic Consulting – Bob Graham – Principal Consultant – Hope Stevens - Economist
  • 3. Overview Australian Government expectations U.S. regulatory approval process Lobbying for change Are U.S. LNG exports in the public interest? – Review – “Macroeconomic Impacts of LNG Exports from the U.S.” Existing and proposed projects (U.S.) – Approval status – Total potential volume of U.S. exports vs. capacity shortfall – Capital cost considerations – Commercial arrangements Summary
  • 4. “from my analysis, US gas if it’s allowed – because it is a very sensitive, ticklish political issue in the US at the moment – will not be material in terms of our capacity to grow opportunities in Asia” - Martin Ferguson, Minister for Resources, Energy and Tourism, at Australian Resource Conference. AFR 14 Nov 2012.
  • 5. U.S. regulatory approval process Department of Energy (DOE) Federal Energy Regulatory Commission (FERC)
  • 6. DOE approval Section 3 of the Natural Gas Act of 1938, as amended (NGA), 15 USC 717b “The Commission shall issue such [export] order upon application, unless, after opportunity for hearing, it finds that the proposed exportation or importation will not be consistent with the public interest”
  • 7. DOE approval timeframe – Sabine Pass Application • August 2010 FTA countries Approval for • September 2010 FTA countries • 1 month Application non FTA • September 2010 countries Conditional • May 2011 approval non • 8 months FTA countries Final approval • August 2012 non FTA • 15 months
  • 8. FERC approval Mainly focussed on environmental approval FERC acts as lead agency and liaises with other federal, state and local agencies Decides approval to proceed, monitors construction and issues final authorisation to proceed Methods of approval – Traditional process – Pre-filing followed by formal application (now 80% of proponents)
  • 9. FERC approval timeframe – Sabine Pass Pre-filing • August 2010 Formal • January 2011 application • 5 months FERC • April 2012 • 15 months approval
  • 10. Lobbying for change LNG exports are facing increased opposition U.S. Congress Representative Edward Markey (D-MA) has proposed: – Keep American Natural Gas Here Act – North America Natural Gas Security and Consumer Protection Act Both bills were not enacted
  • 11. Are U.S. LNG exports in the public interest? The study “Macroeconomic Impacts of LNG Exports from the U.S.” was commissioned by DOE, and conducted by NERA Economic Consulting (2012) Global natural gas model, NewERA energy- economy model Export scenarios Key outcomes of the study (overall macroeconomic impacts, price impacts, socioeconomic impacts)
  • 12. Export scenarios U.S. natural gas demand and supply scenarios – U.S. reference case (no LNG Export expansion) – High shale estimated ultimate recovery (EUR) • Optimistic • EUR per shale gas well for new, undrilled wells 50 % higher than in the reference case – Low shale EUR • Less optimistic • EUR per shale gas well for new, undrilled wells 50 % lower than in the reference case
  • 13. Export scenarios cont.. Export quota trajectories – Low/slow – Low/rapid – High/slow – High/rapid – Low/slowest – No export constraints (exports based entirely on relative economics)
  • 14. Key outcomes The study showed net economic benefits to the U.S. economy under all scenarios – Net economic benefits increase with the level of exports Incomes of natural gas resource owners increase (including superannuation funds)
  • 15. Key outcomes cont… Impacts will not be positive for all groups in the U.S. economy – Some increases in U.S. domestic gas prices • Price is constrained by the global market – Prices do not rise to oil parity or levels observed in competing regions – Exports expected to be ~10 to 15% of US market – The largest increase in wellhead prices occurs in 2020 - $1.11/Mcf (thousand cubic feet) » Real, 2010, USD 1 Mcf ~= 1.08GJ • U.S. natural gas consumption – Serious competitive impacts confined to narrow segments of industry – Shifts in employment across industries
  • 16. Key outcomes cont.… U.S. exports are projected to displace some exports from other LNG exporting regions – Drop in wellhead and city gate prices where U.S. exports are competitive Drop in city gate prices in importing regions leads to increased consumption
  • 17. Existing approvals (under construction) Sabine Pass http://ferc.gov/industries/gas/indus-act/lng/LNG-approved.pdf
  • 18. Proposed export terminals East Coast Freeport Corpus Christi Trunkline Cameron Excelerate liquefaction Cove Point West Coast Jordan Cove Oregon http://ferc.gov/industries/gas/indus-act/lng/LNG-proposed-potential.pdf
  • 21. U.S. Natural Gas Supply Basins Relative to Major Natural Gas Pipeline Transportation Corridors, 2008
  • 22. DOE and FERC approval status Project DOE approval FERC approval Sabine Pass • FTA & NFTA Yes Freeport • FTA only No • NFTA pending Corpus Christi • Pending No Trunkline (Lake Charles) • Pending No Cameron • FTA & NFTA No Excelerate Liquefaction • FTA No • NFTA under review Cove Point • FTA No • NFTA under review Jordan Cove • FTA No • NFTA under review Oregon • FTA No • NFTA under review
  • 24. Commercial arrangements Project Commercial Arrangements Sabine Pass • 20 year agreements for tolling service with some take–or-pay /fixed component Freeport • Tolling service Corpus Christi • Not disclosed Trunkline • Not disclosed Cameron • Tolling service Excelerate Liquefaction • Not disclosed Cove Point • Tolling service Jordan Cove • Tolling service Oregon • Tolling service
  • 25. Capital cost considerations Project Existing facilities Facilities required Sabine Pass • Two unloading berths • Two new liquefaction trains (potential for two more) • 5 LNG storage tanks • One additional tank may be needed for fourth train Freeport • Marine berth and manoeuvring area • Liquefaction plant at existing terminal • Two LNG storage tanks • Widening of shipping channel Corpus Christi • None • 3 liquefaction trains • 3 storage tanks • Pipeline (37km x 1.2m diameter) Trunkline • Storage facilities • Liquefaction plant at existing site (3 liquefaction trains) • Existing pipeline • < 1km pipeline Cameron • 3 existing storage tanks • 1 additional storage tank • Existing pipeline (58km) • 3 new liquefaction trains • 2 berths Excelerate Liquefaction • None • Two floating liquefaction, storage and offloading units • Supporting infrastructure • 44km of pipeline (0.9m diameter) Cove Point • 140km pipeline • 1 new liquefaction train • 7 LNG storage tanks • 25MW of new compressors • Pier Jordan Cove • None • 370km pipeline (0.9m diameter) • 4 liquefaction trains • Pipeline gas conditioning facility • 2 LNG storage tanks • Loading/unloading berth • Other supporting infrastructure Oregon • None • 140km of pipeline (0.9m diameter) • 2 LNG storage tanks • 3 liquefaction trains
  • 26. LNG shipping rates to Asian markets: $2010/MMBtu To From Oceania U.S. $0.74 $2.81 China/India $0.90 $2.54 Korea/Japan $0.63 $2.61 Southeast Asia Source: NERA Economic Consulting (2012)
  • 27. Summary After 2018, U.S. export projects are well placed to secure a large portion of the projected global capacity shortfall Use of existing tanks, pipelines and marine facilities, and would enhance the economics of some of these projects compared to Australian and other competitors – Capital cost for greenfield projects in U.S. is generally significantly lower than Australian projects (NERA Economic Consulting, 2012) Cost assumptions in NERA Economic Consulting (2012) report indicate Australia remains competitive with regards to LNG transport costs
  • 28. Questions? Bob Graham +61 7 3026 8022