The Road to Competitiveness for East Coast LNG: Are We There Yet? - PowerPoint PPT Presentation

The Road to Competitiveness for East Coast LNG: Are We There Yet?

Canadian Energy Research Institute Overview Founded in 1975, the Canadian Energy Research Institute (CERI) is an independent, registered charitable organization specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors. Our mission is to provide relevant, independent, and objective economic research of energy and environmental issues to benefit business, government, academia and the public. CERI publications include: • Market specific studies • Geopolitical analyses • Quarterly commodity reports (crude oil, electricity and natural gas) In addition, CERI hosts a series of study overview events and an annual Petrochemicals Conference. Page:

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Presentation Outline Supply and East Coast LNG: Sourcing and Demand in the Specifics and Transportation of Atlantic basin Competitiveness Natural Gas Page:

Atlantic Basin LNG EXPORTER PERSPECTIVE Consumers: • Europe • South America • Central America and Mexico • India Suppliers: • US and Canada • Norway and Russia • Middle East • Africa • Central and South America Page:

Atlantic Basin SECOND LARGEST GAS MARKET Last 17-y 5-y Demand Growth 2000-2017, bcf/d 90 30% Demand, +20 +4.3 80 25% bcf/d 70 60 20% -4% -1% % of world 50 15% 40 demand 30 10% 20 23% Gas % in 5% 10 energy supply 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Power, Sectors’ Buildings, Europe Latin, Central America and Mexico India % of world growth Industry Source: BP Statistical Review 2018, CERI Page:

Atlantic Basin MARKET OPEN FOR IMPORT Domestic Balance: 2017 And Change for the Last 5 Years (%) Supply Demand Reserves life Net Import 25 years 82 bcf/d 47 bcf/d 35 bcf/d 0% +5% -7% +10% Source: BP Statistical Review 2018, CERI Page:

Atlantic Basin TRADE FLOWS 2017 Share Central America 0.2 Europe Russia, CIS 53% Pipeline and Mexico 17.4 0.5 27.7 bcf/d 20% Africa 0.4 0.7 14% USA LNG 8.6 bcf/d Middle East 12% South America India 1.9 1% Other Source: BP Statistical Review 2018, CERI Page:

Atlantic Basin Demand Outlook DEMAND OUTLOOK 2040 60 Demand Supply 50 growth Opportunity 40 10 bcf/d +19 bcf/d 30 75 mtpa 20 Europe: 6.5 bcf/d 10 India: 5.9 bcf/d 0 2017 2025 2030 2035 2040 Central, South Europe demand Central, South Amercia and Mexico India America and Mexico: -2.6 bcf/d Source: IEA World Energy Outlook 2018, CERI Page:

European Market In Focus WELL SUITED FOR MORE LNG Total Planned regasification regasification +8 bcf/d 22 bcf/d 6.5 bcf/d ~50 mtpa Lack of supply: Page:

European Market in Focus 3-y Imports LNG growth COMPETITION AT THE MARKET bcf/d bcf/d Russia 18.3 0% +4 Norway 11.0 4% +1 Netherlands 4.2 0% -0.1 Africa 6.3 42% +1.8 Other Europe 2.7 3% - (inc. UK) 87% 13% Qatar 2.3 100% - Other (inc. Iran) 1.7 1% +0.3 41 bcf/d 6.3 bcf/d South and 1.0 100% +0.1 Central America USA 0.3 100% +0.3 Source: BP Statistical Review 2018, CERI Page:

European Market In Focus KEY DEVELOPMENTS SHAPING THE FUTURE Policy and Issues Supply • Existing import: 47 bcf/d • Energy transition to renewables • Potential expansion: 6.5 bcf/d and lower carbon fuels • Geopolitical risks of increased Supplier’s plans in the near future: energy dependence from Russia • Russia: + 7.8 bcf/d (Nord Stream 2, Arctic LNG 2) • Declining supply from Europe • USA: + 5 bcf/d (LNG) North • Africa: + 3 bcf/d (LNG) • Qatar: + 2 bcf/d (LNG) Source: EIA, IGU, LNG Journal, CERI Page:

East Coast LNG Projects Bear Head LNG Saguenay LNG 8-12 mtpa 1.1-1.6 bcf/d 11 mtpa 1.5 bcf/d Goldboro LNG AC LNG 5-10 mtpa 4.5-13.5 mtpa 0.7-1.3 bcf/d 0.6-1.8 bcf/d Page:

Key Differentiators West Conducive Abundant WCSB / Competitive Proximity to Moderate temperature regime Marcellus gas operating costs Markets capital costs Securing Lack of domestic experience High transportation transportation in LNG Plant delivery costs Page:

Supply Cost, Eastern Canada LNG, 8 mtpa, Greenfield, Merchant, AECO-C natural gas Supply Cost USD CAD Captial cost 2% $ 11.01 $ 13.77 Supply cost 5% Feed Gas cost $ 2.65 $ 3.31 Captial cost 6% 24% THREE MAJOR $ 3.67 $ 4.59 Transportation Feed Gas cost cost COMPONENTS $ 3.33 $ 4.16 Transportation cost Operating cost 30% $ 0.69 $ 0.86 Operating cost Corporate taxes • Transport $ 0.50 $ 0.62 Corporate taxes 33% Carbon tax $ 0.18 $ 0.23 Carbon tax • Feed gas $ 0.68 $ 0.85 Total taxes Sensitivity analysis: Key metrics (billion USD, nominal): • Capital costs 14.0 CAPEX $ 7.7 CAPEX/tpa ($) $ 962 13.0 $11.2 12.0 OPEX $ 8.3 Corporate taxes $ 9.2 11.0 Natural Gas 10.0 and Transportation $ 85.7 Carbon and LNG Incom 1.9 $ 9.0 8.0 -75% -50% -25% -10% 0% 10% 25% 50% 75% OPEX CAPEX TRANSPORT GAS PRICE Source: CERI Page:

Jurisdictional comparison with the US GoM TAX DIFFERECES Taxes, $/mmbtu • 6% in total supply cost 0.8 0.7 • Approximately twice as 0.6 0.5 in GoM 0.4 0.3 0.2 0.1 0 East Coast LNG Lousiana LNG Texas LNG Corporate tax Carbon Tax Page:

Transportation options and costs Total cost, Key issue Source Transport route and cost $/mmbtu Dawn to NS NIT to Dawn 1 New 1,600 km, $5.5 bln WCSB $1 $3.3 Building CAPEX pipeline interprovincial pipeline $2.3 PA to Dawn 2 Marcellus $3.1 $0.8 New 340 km $1 bln Fracking ban / Horton 3 CAPEX pipeline proving resource Bluff, NS $0.42 $0.42 Available Mainline -> TQMS -> PNGTS (Dracut) -> M&NP 4 WCSB capacity / $3.4 $1 $2.4 Expansion cost Source: CERI Page:

Natural Gas Cost COMPETITIVE CANADIAN GAS • Canadian gas edges US Henry Hub gas prices • EIA Outlook 2019 suggests a steeper Henry Hub growth: to $10 dollars nominal by 2050 Source: CERI Page:

Capital Costs AT THE HIGHER END OF NEW PROJECTS Capital costs, $ per tpa (with pipeline costs except for Qatar and Nigeria) 3,000 Pipeline costs (gray) 2,000 1,000 - Qatar Nigeria Angola Africa, AU Prelude AU QCLNG AU North AU Gorgon West East US GoM US GoM Yamal, LNG LNG Golar FLNG West Shelf Canada Canada Greenfield Brownfield Russia FLNG Source: CERI Page:

Competitiveness Landed LNG cost at UK, $ per mmbtu Oil- 14 linked contract 13 12 $100 11 $90 10 HH*115% + 3.5 + 0.75 = $9.44 $80 9 HH*115% + 2.5 + 0.75 = $8.44 $70 8 7 $60 6 $50 5 4 3 2 1 0 US, brownfield, LA US, greenfield, TX Eastern Canada, Eastern Canada, Eastern Canada, Qatar Russian pipeline Marcellus, NS AECO, NS Horton Bluff Shale, gas NS CAPEX Feed gas Transport OPEX Corporate taxes Carbon Tax Shipping Source: CERI, Rystad Energy, LNG Journal Page:

Path to Competitiveness Taxes: Oil- linked Fiscal incentives contract Gas cost: $100 $90 Integrated gas $80 Transport cost: $70 Shared pipeline cost $60 $50 Reaching toll reductions Capital cost: Plant expansion Efficient technology Page:

Are We There Yet? 1. European market and India present supply opportunities for East Coast LNG 2. Competition is strong and comes from Russia, Africa, Qatar, and the US, and Australia 3. Quebec, New Brunswick and Nova Scotia have attractive large shale gas resources, but they are inaccessible for current proponents aiming at LNG delivery by 2025 4. Costs can be cut to be competitive in the European there but not without a coordinated effort, specifically on the midstream side Page:

Thank You for Your Time WWW.CERI.CA CANADIAN ENERGY RESEARCH INSITUTE @CERI_CANADA

Additional slides Page:

Atlantic Basin TRADE FLOWS CHANGE - LAST 3 YEARS Bcf/d Central America -0.1 Europe Russia, CIS +4.3 Pipeline and Mexico +0.5 +0.2 +7.6 bcf/d +2.9 USA +0.4 +2.4 -0.5 Africa LNG +0.3 Other +1.8 bcf/d South America India -0.6 Middle East +0.2 0 Page: