Business Models for the LNG Industry in the 21 st Century Theo Oerlemans Fred Adamchak Poten & Partners, Inc. LNG14 Qatar 22 March, 2004

LNG 14 POTEN & PARTNERS The LNG Business  Strong and Accelerating Global Growth  ~14% in 2003; doubling to 270 MMt/y by 2010?  Drivers:  Cost reduction throughout the industry  New gas markets such as China and India  Projected pipeline gas shortages in the US  High gas prices in Europe and USA  Markets are Increasingly Competitive  Main players need to deal with increasing risk  Creating vertically integrated business structures  Increasingly Global, Complex and Dynamic  Project structures need to change

LNG 14 POTEN & PARTNERS Asia-Pacific Area: Growth LNG demand to grow from ~ 75 MMt/y in 2003 to ~ 140 MMt/y in 2010

LNG 14 POTEN & PARTNERS Atlantic Area: Growth ( ) LNG demand to grow from ~ 43 MMt/y in 2003 to ~ 135 MMt/y in 2010

LNG 14 POTEN & PARTNERS Business Models From the 20 th to the 21 st Century……. From:  Dedicated pipeline- type structure  Few large regional customers with long- term contracts  Index-based long- term pricing formulae  Fixed destinations  Project-based shipping  Buyer-based project financing To:  Flexible, global multi- client environment  Global portfolio with long-term and short- term sales  Dynamic, market based pricing  Destination flexibility  Global commercialised shipping  Market based credit structures

LNG 14 POTEN & PARTNERS Blurred Roles of Sellers and Buyers…  Upward integration:  Asian buyers increasingly participate in shipping, liquefaction and production  Downward Integration:  In Atlantic Basin, IOC’s and NOC’s secure shipping, terminal capacity and participate in gas marketing  Branded LNG:  IOC’s sell LNG without identified source  Potential conflict and transparency problems between different roles

LNG 14 POTEN & PARTNERS Changes in Business Organization  Marketing requires faster decision making  More delegation and less shareholder control  Liquefaction plants becoming effective tolling facilities  Need to clarify shareholder roles as:  LNG Sellers  LNG Buyers  Marketing advisors

LNG 14 POTEN & PARTNERS LNG: A Bright Future, but:  The Industry needs continuous innovation to meet competitive challenges  Costs control in all phases from production to receiving  New approaches to sales and business structures  Adapting to the increasingly complex environment  Participants take on Increasing Risks  Project implementation without full purchase commitment  Increasing integration throughout the LNG chain

LNG 14 POTEN & PARTNERS Thank You for Your Attention