LNG quality and market flexibility Challenges and solutions

Presentation outline Quality specifications for different distribution networks Characteristics of LNGs currently produced Quality adjustment options available to producers and terminal operators Overall optimization: a suggested approach (case study)

Network gas specifications by region Objectives: Safety – non-toxic, non-corrosive Interchangability of gas being distributed  limit variation range of parameters affecting combustion Main parameters covered by specifications: Calorific Value (GCV) per unit volume Wobbe Index (WI = GCV /  relative density) ICF, Soot Index, Yellow Tip Factor, … GCV specs for domestic gas: 3 main regions: Asia (Japan, Korea, Taiwan): high GCV > 1090 Btu/scf UK & US: low GCV < 1065 Btu/scf. In addition, WI < 51,41 MJ/m3(s) for UK Continental Europe: wide range of GCV: 990 to 1160 Btu/scf

Different quality specifications: historical reasons Gas producing countries - specs based on characteristics of local gas : High inert gas content (UK - Groningen) Extraction of C3 & C4 to valorize as LPG Extraction of C2 for petrochemicals feedstock (US Gulf Coast) Need to take different gases from diverse sources (Cont. Europe) Separate networks (H gas & B gas in Europe) Countries using imported LNG from the start – specs based on characteristics of LNG available in the Asia-Pacific basin: LNG with low inert gas content LNG rich in ethane and often also C3 – C4 Adjustment of GCV before distribution, by injection of LPG

Characteristics of LNGs currently produced Japan USA UK

Quality adjustment at the import terminal Options available: LPG injection (butane and/or propane) Japan Nitrogen injection UK, US Extraction of C3+ and even C2 US Gas streaming to users US, Japan Blending with local gas US, UK, Europe Blending different LNG cargoes Everywhere Terminal specs can be quite different to network specs Both specs and available equipment may vary over time Negotiation on a case-by-case basis

Terminal specifications - GCV

Terminal specifications – Wobbe Index

C2+ production from existing plants Petrochemicals  Gas production  GCV  Gas production Petrochemicals  GCV  GCV

LPG extraction at the plant Negative aspects Increased Capex and Opex (extraction units, storage and loading facilities) Marked increase in safety constraints Risk of saturating port facilities Positive aspects Increased amount of feedgas produced LPG easy to valorize better project economics Ethane only worth extracting if petrochemicals outlet nearby

Overall optimization – a suggested approach CONDENSATS GNL EXTRACTION Liquefaction plant GNL Shipping Import terminal GNL

Overall optimization – a suggested approach  Need for a global approach factoring in shipping Case study Delivery of 750 mmscfd to the US Gulf Coast market (~ 5,4 Mt/an) Production in Middle East (North Field type gas) Quality compatible with UK specs to allow rerouting 140 000 m3 tankers Voyage duration 24 days

Three scenarios studied Three quality-adjustment options, but, same amount of energy delivered on the natural gas market No extraction at plant – Injection of nitrogen at terminal (max. N2 content: US 3%, UK 5%) Extraction of GPL at plant and valorization at FOB Arabo-Persian Gulf price No extraction at plant – Extraction of GPL at terminal and valorization at Mont Belvieu price

Scenario 1 – No LPG extraction

Scenario 2 – LPG extracted at plant

Scenario 3 – LPG extracted at terminal

Extra costs vs extra product revenues Case n°1 Case n°2 Case n°3

Extra costs vs extra product revenues Case n°1 Case n°2 Case n°3 Natural gas 280 TBtu/year

Extra costs vs extra product revenues Case n°1 Case n°2 Case n°3 Feed gas 813 884 (+9%) 878 (+8%)

Extra costs vs extra product revenues Case n°1 Case n°2 Case n°3 Extra LPG 500 kt 480 kt Extra condensates 10 kt 10 kt

Extra costs vs extra product revenues Case n°1 Case n°2 Case n°3 Extra costs Nitrogen Injection 220,000 t

Extra costs vs extra product revenues Case n°1 Case n°2 Case n°3 Extra costs LPG extraction, Storage and loading +3 cargoes +7 cargoes

Extra costs vs extra product revenues Case n°1 Case n°2 Case n°3 Extra costs Fuel gas LPG extraction, Storage and loading +3 cargoes +7 cargoes at at feed-gas Henry Hub price price

Extra costs vs extra product revenues Case n°1 Case n°2 Case n°3

Overall optimization - Conclusions Extraction of LPG: Helps boost production from gas field 8 - 9% Profitability OK at current LPG prices Extraction at plant rather than US terminal Need detailed study factoring in real Capex Sensitive to relative LPG prices in Gulf and US Extraction at plant  LNG meets both US and UK specs: GCV = 1052 Btu/scf ; WI = 51.41 MJ/m3(s) Extraction at US terminal  harder to reroute within Atlantic zone, but LNG meets Asian specs: GCV ~ 43 MJ/m3(n) i.e. 1,100 Btu/scf Should factor in impact of LNG composition on shipping costs

Thank you for your attention It’s not necessary to dwell too long on the consequences of September the eleventh, but this event, as well as other industrial disasters which occurred recently in Europe, have initiated an intense debate about industrial risk management, and especially the effects of industrial disasters on inhabited areas. As a result, even tighter safety regulation is likely to be introduced in Europe in the near future. So, we should assume that an additional level of risk management will have to be considered, in response to the increasing sensitivity of the community to the industrial risk.