36th USAEE North America Conference, CAN LNG PAVE THE ROAD TO PARIS? How can natural gas help the world reach the Paris agreement How about some alternative backgrounds for European and Asian presentations? - I would keep this as it is without spending extra time, but open for great alternatives if you have suggestions.  - NL 36th USAEE North America Conference, Washington D.C., U.S.A. 24 September 2018 Robert Brooks, PhD, RBAC Ning Lin, PhD, RBAC © 2018 RBAC Inc. All Rights Reserved. G2M2 is a registered trademark of RT7K, LLC and is used with its permission.

Role of LNG in reaching Paris Agreement Why What How Why discussing LNG on reaching Climate Policy Goal? (IEA 2017): Gas becomes the largest fossil fuel in replacement of coal and oil along side with low-carbon technologies and efficiency improvements. LNG is playing an important role in global gas market, and it continues growing rapidly. What to analyze here? Deep-dive of gas and LNG requirements in two scenarios: New Policy Scenario (NPS) – accepted existing country commitments, aligned with Paris agreement but not guaranteed Sustainable Development Scenario (SDS) – scenario designed to reach both Paris Agreement and sustainable energy goals defined by UN How? - Scenario modeling on RBAC’s G2M2® platform (global natural gas forecasting system) Q1 – What takes in gas and LNG requirement for reaching Paris Agreement? Q2 - Are there any regional difference in LNG requirement? Q3 - What are the impacts on gas and LNG prices? Q4 – Any implications of strategic positioning and capital investments Natural gas becomes a bridging fuel to low carbon future, and LNG is the fastest growing segment for global gas market.

G2M2® Global Gas Market Modeling System Monthly forecast (helpful to capture seasonality) Can back-cast to 2011 Currently forecasts to 2050 Time period All natural gas producers / consumers Supply curves based on field level projections with price elasticities Demand curves includes ELC and non-ELC with customized elasticities. 100+ Countries 400+ pipelines and 600+ underground storages Existing Under Construction Proposed and user defined  Pipelines and Storages Q-Max / Q-Flex ARC 7 Conventional (5 size groups) Multi-Tanker Classes LNG Contract and infrastructures Customizable and calibrated Customize assumptions (supply, demand and infrastructure) to create scenarios Fully calibrated model based on regular database updates. 148 sellers and buyers including 45 portfolio players 310 long and medium term contracts 300 + LNG terminals (liquefaction & regas) A partial equilibrium model of global natural gas, with detailed network which connects gas supply to demand through both pipeline network and LNG shipping.

Data sources for G2M2 database International Group of Liquefied Natural Gas Imports (GIIGNL) International Gas Union (IGU) Gas Infrastructure Europe (GIE) U.S. Energy Information Agency (EIA) U.S. Federal Energy Regulatory Commission (FERC) U.S. Department of Energy (DOE) Canada National Energy Board (NEB) Rystad Energy LNG Journal LNG Company websites Navigant Consulting Panama Canal Authority (ACP) Suez Canal Authority (SCA) Timera Energy BP Statistical Review 2007-2014 International Energy Agency (IEA) Joint Organizations Data Initiative (JODI) European Network of Transmission System Operators for Gas (ENTSOG) East European Gas Analysis (EEGA) Sea-Distances.org (for LNG path mileages)

G2M2 Supply / Demand Areas: GPU GPU means “Geo-Political Unit” (Country or Sub-Country Unit)

Global gas trade has been growing, and LNG has become more important LNG’s share of global gas trade has grown from 32% in 2011 to 45% in 2017 Global trade has grown 30% from 2011 to 2017 LNG: Average annual growth rate 2011-2017: 10.4% Pipeline: Average annual growth rate 2011-2017: 1.1%

Especially in the Asia Pacific region

New LNG projects have brought major market changes Traditional suppliers such as Indonesia, Trinidad, Yemen, and Egypt have lost ground to new players such as Angola, Papua New Guinea, USA and Australia.

More LNG Liquefaction Capacity Growth is coming… 67% of LNG capacity growth from 2017 onward is expected from just 3 countries: the United States, Australia, and Russia.

What is total requirement of gas reaching the Paris Agreement What is total requirement of gas reaching the Paris Agreement? IEA New Policy vs Sustainable Development Scenario: Global gas balance (BCM) NPS: stacked area by region SDS: total as marked line NPS: stacked area by region SDS: total as marked line In order to reach Paris Agreement, gas consumption starts to plateau after 2025. In SDS, total gas consumption is about 845 BCM by 2040 compared to that in NPS. Note: Deliveries are about 8% lower than production due to fuel use and losses.

Where to cut back? Reduction required between two scenarios concentrates in OECD regions, and mainly in pipeline and domestic production 90% of the further decline comes from developed regions, such as North America, Middle East, Europe and FSU, Asia’s use of natural gas must grow in the sustainable development scenario. LNG requirement change is minimal between two scenarios, which implies LNG plays a relatively more important role in SDS.

LNG production and deliveries grow 100% by 2040. Role of LNG in Sustainable Development Scenario: Global LNG balance by region (BCM) LNG production and deliveries grow 100% by 2040. While production is distributed among all regions, 96% of deliveries are concentrated in Asia (86%) and Europe (11%). Note: Deliveries are about 1% lower than production due to boil-off in transit.

Sustainable Development Scenario : Asia’s demand outpaces production and needs growing imports As Asia’s gas consumption is forecasted to grow at 2.8% CAGR 2017-2040, outpacing the growth in total production (1.4% CAGR). Imports of gas is required to fill the gap and grows at 4.5% CAGR.

Yet most of Asia Imports growth is supported by LNG 2/3 of imports to Asia is in form of LNG.

82% of growth in LNG comes from three regions: North America, Australia and Africa Top four origins for LNG: North America, Australia, Middle East and Asia (Indonesia and Malaysia) While new LNG suppliers from North America, Australia and Africa bring 82% of incremental growth.

Sustainable Development Scenario : China’s rapid demand growth needs growing imports Our current China’s gas growth is forecasted to be at CAGR 4.5% between 2017 to 2040. This requires about 2.5 times more of imports needed, even with robust growth from domestic production due to current constraints of upstream production and transportation in place.

China Imports is mainly supported by LNG going forwards 75% of Chinese imports is in form of LNG in 2040, requiring incremental ~218 BCM of LNG imports (vs. 2017). In SDS: Over 90% of LNG imports is from these four regions for China – Australia and PNG (43%), North America (24%), Malaysia (15%) and Indonesia (9%)

China LNG: Most future imports not yet contracted: More risk or opportunity? After surpassing Korea to be the no. 2 largest LNG importer in the world, China continues to grow its need for LNG. But it has only contracted for about ½ of 2025’s expected demand and about 1/3 of what it will need in 2030.

While total volume remains the same, US LNG flows pattern changed between scenarios: North East Asia remains to be the optimal destination. New Policy Scenario Sustainable Development Scenario NE Asia is a preferred destination for US LNG. As Japan cuts back in gas consumption LNG is redirect to China. In SDS, China becomes strategically more important as a LNG market for US.

NPS vs SDS price index forecast In the near-term, LNG export expansion in North America raises prices there but helps to lower prices in Asia. Longer term, prices rise but not to levels seen before 2015. Sustainable development scenario leads to further reduction in natural gas consumption, hence, further reduction in price leads to decline in price back to current level in 2040.

Summary: Key aspects of LNG in reaching the Paris Agreement LNG is the fastest growing segment of supply in the past 8 years, and it will remains to be the fastest segment at 2.5% CAGR even in sustainable development scenario Remains to be the fastest growing segment of supply options Concentrate in US, Australia and Russia Large investments of LNG capacities under way Asia is the only region remains positive growth of gas consumption, and 82% of incremental growth is LNG imports, from Australia, North America and Africa Most LNG incremental is for Asia Price of LNG becomes sustainably competitive in a low-carbon future (SDS), which implies more competition among LNG suppliers. More intense price competition among LNG suppliers China becomes a more strategically important buyer for US LNG under the scenario or reaching Paris Agreement, while other traditional developed markets would be cutting back in gas demand. US and China’s LNG trade relationship becomes more important

Contact Information Ning Lin, PhD, Executive Director Global Gas, ning.lin@rbac.com Robert Brooks, PhD, Founder, rebrooks@rbac.com Contact Numbers Administration (281) 506-0588 Contracts and Sales (281) 506-0588 ext. 126 Direct (281) 506-0588 ext. 124 More information: http://www.rbac.com