North American LNG Exports: Trends, Challenges and Opportunities

©2012 Navigant Consulting, Inc. 0
Confidential and proprietary. Do not distribute or copy. ENERGY

North American LNG Exports

Alaska LNG Summit 2012
Valdez, Alaska

Bob Gibb, Associate Director
September 13-14, 2012

©2012 Navigant Consulting, Inc.
Confidential and proprietary. Do not distribute or copy.

D I S P U T E S & I N V E S T I G AT I O N S • E C O N O M I C S • F I N A N C I A L A D V I S O RY • M A N A G E M E N T C O N S U LT I N G

Important Notice

This presentation was prepared by Navigant Consulting, Inc. exclusively for the benefit and internal use
of the Alaska LNG Summit 2012 and its attendees . No part of it may be circulated, quoted, or
reproduced for distribution without prior written approval from Navigant. This presentation is
incomplete without reference to, and should be viewed solely in conjunction with the presentation
provided by Navigant.

September 13-14, 2012

©2012 Navigant Consulting, Inc. All rights reserved. Navigant is not a certified public accounting firm and does not provide audit, attest, or public accounting
services. See www.navigantconsulting.com/licensing for a complete listing of private investigator licenses. Investment banking, private placement, merger,
acquisition and divestiture services offered through Navigant Capital Advisors, LLC., Member FINRA/SIPC.


Company Overview

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About Navigant » Energy Practice

Navigant’s Energy Practice

Our Energy Practice includes more than 330 staff and works with companies and
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Table of Contents

1 North American Gas Supply and Demand

2 Role of LNG Exports

3 The Road Ahead


Section 1 – North American Gas Supply and Demand



3 The Road Ahead


World Recoverable Shale Gas Resources

Top 20 Countries
Technically Recoverable Shale Gas Resources
(trillion cubic feet)
China 1,275 Poland 187
United States 862 France 180
Argentina 774 Norway 83
Mexico 681 Chile 64
South Africa 485 India 63
Australia 396 Paraguay 62
Canada 388 Pakistan 51
Libya 290 Bolivia 48
Algeria 231 Ukraine 42
Brazil 226 Sweden 41
Total 6,429

Source: U.S. Energy Information Administration

U.S. Historical Annual Average Dry Gas Production

According to the EIA, U.S. annual average natural gas production at the end of
2011 was at its all time high, exceeding the previous high of 21.7 in 1973 by 1.3
Tcf.

24,000
23.0 Tcf
23,000
21.7 Tcf
22,000

21,000

20,000
Bcf

19,000

18,000

17,000

16,000

15,000

14,000
1973

1975

1979

1981

1983

1987

1989

1991

1995

1997

1999

2003

2005

2011
1977

1985

1993

2001

2007

2009

North American Shale Map

Shales cover much of North America.


Shale Abundance Confirmed

Industry/governmental associations* have confirmed what Navigant
first identified in 2008.

1. The potential supply of natural gas is far greater than thought just a
few years ago.
2. The potential supply of oil is also far greater than previously thought.
3. The US needs the oil and gas resources even as efficiency reduces
demand and alternatives become more economically available on a
larger scale.
4. To gain the benefits of natural gas and oil will require
environmentally responsible development.

* National Petroleum Council (Sept. 15, 2011)


U.S. Historical Monthly Average Dry Gas Production

Throughout 2011 and halfway through 2012, U.S. total gas production was
increasing, although there is some flattening.


ENERGY

Confidential and proprietary. Do not distribute or copy.

D I S P U T E S & I N V E S T I G AT I O N S • E C O N O M I C S • F I N A N C I A L A D V I S O RY • M A N A G E M E N T C O N S U LT I N G

Coal to Gas Switching of Existing Power Plants

Coal to gas switching will continue with abundant gas supply and low prices,
contributing to increased demand for natural gas in power generation.


Section 2 - Role of LNG Exports, Facility Update



3 The Road Ahead


Role of LNG Exports, Facility Update

Japanese Market

» All 50 reactors in the country idled, with 2 returned
» Increased LNG demand by 10-12 mtpa (1.3-1.6 bcfd)
» KEPCO warns 15% less power than that needed to meet
peak demand
» Japanese PM quoted without nuclear power ‚Japanese
society cannot survive‛
» 2020 demand estimated at 60-90 mtpa (7.9-11.8 bcfd)
[currently 79 mtpa (10.3 bcfd)]
» At $5-6 in U.S., European exports marginal

Source: All – CWC LNG News


LNG Exports

The New Paradigm – LNG Exports from North America?

» Gas shale potential is situated across North
America, including Canada which should
experience the first new LNG project to
export LNG from North America at Kitimat,
BC.
» Cheniere Energy’s Sabine Pass announced
sale to its 4th major customer Korea Gas in
Jan ‘12 following announced sales to BG,
GAIL and Gas Natural Fenosa and is likely
to be the first LNG export project on-line in
2015/16 in the U.S.
» LNG exports should support the
oversupplied North American market as
coal retirements begin to slow.
» Currently 16 U.S. (2 West Coast, 2 East
Coast, 11 Gulf, 1 Alaska) and 3 Canadian
projects with combined capacity of nearly
29 Bcfd are going through the export and Source: Canadian National Energy Board

construction approval process.
» Not all projects are likely to go ahead.


Role of LNG Exports

Recent EIA figures show the U.S. (and by extension, North America)
becoming a net natural gas exporter by 2022.

Figure 1: U.S. a Net Natural Gas Exporter by 2022
90

85

80

75
Bcfd

70

65

60

55

50
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
U.S. Dry Production U.S. Consumption
Source: Navigant/EIA


Role of LNG Exports

The Bottom Line – There’s enough supply responsiveness for a lot of
demand.
» Navigant’s view is that if Producers stay on track, there is at least 10 Bcfd of
room to increase demand without causing excessive prices.
» Can they stay on track?—Yes, likely.
» What if demand grows more than the highest case or something happens to
slow supply development?
o DOE is clearly being careful in its permitting process for non-FTA nations
(the real market) for LNG exports.
o EIA has been directed to study the same overall supply-demand issues as
addressed by Navigant. Early studies from EIA however have been
disappointing.
o For Cheniere LNG Export project at Sabine, the DOE left room to trim back
the authorization if supply/demand became too tight. Recently the DOE
have provided clarification on this and suggested they would not re-
regulate.


Section 3 - The Road Ahead



3 The Road Ahead


Challenges Ahead for North American LNG Exports

Implications of North American LNG Exports

» LNG exports appear to be able to offer a ‘solution’ to the current
market upset as a result of the ‘success’ of the gas shale.
» By assisting the ongoing development of gas shale resources, LNG
exports appear at the right time and the right place for a North
American gas market in need of sustainable markets offering promise
to both domestic consumers and producers.


Key
CONTACTS
Bob Gibb| Associate Director
Austin, TX
bob.gibb@navigant.com
512.493.5407

Gordon Pickering | Director
Rancho Cordova, CA
gpickering@navigant.com
916.631.3249

Rick Smead | Director
Houston, TX
rsmead@navigant.com
713.646.5029

©2012 27

North American LNG Exports: Trends, Challenges and Opportunities

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