1. G2M2™: A New Model of the Global Market for Natural Gas 33 rd USAEE North American Conference Pittsburgh, PA October 26, 2015 Dr. Robert Brooks Founder RBAC, Inc. © 2015, RBAC, Inc. All Rights Reserved.1

2. Presentation Overview Global Market Overview – What is changing in the global market for natural gas? – Who are the key players? – Who are the challengers? – What are the target markets? G2M2: The Global Gas Market Model – What was the development strategy? – What economic principles are used? – What is its scope? – How was it constructed? – How is it used? – What does it predict? (c) 2015, RBAC, Inc. All Rights Reserved.2

3. What is changing in global gas? The dynamics of natural gas and LNG are going through a major shift – The market position of incumbents is eroding – New challengers have arisen – Prized markets have suddenly become uncertain © 2015, RBAC, Inc. All Rights Reserved.3

4. The Incumbents Pipeline Gas – Russia – Norway – Turkmenistan – Algeria LNG – The Middle East – North and West Africa – Malaysia, Indonesia, and Australia (c) 2015, RBAC, Inc. All Rights Reserved.4

5. The Challengers Pipeline Gas – Russia – to Asia? – Azerbaijan – to Europe? – Turkmenistan – to Europe? – Iraq – to Turkey? Europe? – Iran – to South Asia? Europe? LNG – Australia (major new projects) – North America (USA and Canada) – East Africa (Mozambique, Tanzania) (c) 2015, RBAC, Inc. All Rights Reserved.5

6. What’s the Prize? Market growth in Asia – China – India – Pakistan – Southeast Asia Market share in Europe New growth markets – Africa – The Middle East – South America (c) 2015, RBAC, Inc. All Rights Reserved.6

7. How will this game turn out? Vast sums are being spent to create the energy world of the upcoming decades Incumbent positions are not guaranteed Challengers are poised to fight for existing and newly forming markets Robust evaluation of investment proposals and opportunities is a must! – That is what G2M2 is designed to help you do (c) 2015, RBAC, Inc. All Rights Reserved.7

8. G2M2 Development Strategy Experienced and knowledgeable team – RBAC, Inc. Model design, development, and testing Database design System integration – Navigant Consulting, Inc. Model requirements specification Identification of key market factors Data compilation, evaluation, and integration Reality check: do model results make real market sense? Use workable principles from prior successes – GPCM North American Natural Gas Modeling System © 2015, RBAC, Inc. All Rights Reserved.8

9. G2M2 Economic Model Version 1.0: Competitive market approximation – Enhanced Spatial Equilibrium Model (Samuelson) – Non-linear supply, demand, and transport curves – LNG contracts modeled as take-or-pay with limited- flexibility delivery schedules – Approximations permit LP or QP solution Version 2.0: Mixed market model using MCP – First, reformulate model using KKT conditions – Then, replace complementarity conditions for entities with ability to exert market power – Use PATH solver in place of Gurobi (LP/QP/MIP) (c) 2015, RBAC, Inc. All Rights Reserved.9

10. G2M2 Scope Monthly time frame: permits modeling of seasonality Scenario forecast horizon: from now to 2050 – Can “back-cast” from 2006 to now Coverage: more than 100 countries represented – All natural gas producing and /or consuming countries – All LNG exporting and / or importing countries – Large markets divided into sub-country areas USA -> Census Regions Canada, Mexico, Russia -> East and West Nearly 400 gas pipelines: existing and proposed Multiple LNG tankers classes – Q-Max, Q-Flex, conventional grouped by size © 2015, RBAC, Inc. All Rights Reserved.10

11. G2M2 Data Sources 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) LNG Journal LNG Company websites 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) Gazprom and other company websites © 2015, RBAC, Inc. All Rights Reserved.11

12. G2M2 Model Design Methodology Construct the conceptual design – Simple node, arc network models Write the model using AMPL modeling language – Supply and demand equations – Gas flow: node balance equations (spatial / temporal), pipeline inputs, flows, outputs – LNG flow: production, shipping (spot/contract), transportation cost functions, regasification Programmatically create the application – Create the required I/O tables in a relational database – Create the user interface for the application – Create test problems to debug the model Test and iterate – Run test problems and examine the results – Modify AMPL code, re-create application, run tests, and analyze results until the model is working exactly as desired (c) 2015, RBAC, Inc. All Rights Reserved.12

13. G2M2 Intra-Country Model © 2015, RBAC, Inc. All Rights Reserved.13 Consumption Gas Storage LNG Storage Gas Production  Injection Withdrawal  Liquefaction   Re-gas Pipeline Imports LNG Exports LNG Imports Pipeline Exports

14. G2M2 Inter-GPU Pipeline Model © 2015, RBAC, Inc. All Rights Reserved.14 2 Pipe A deliveries to GPU 2 Segment 1 (Pipe A) Pipe A deliveries to GPU 3 4 1 Pipe A receipts from GPU 1 3 Pipe A deliveries to GPU 4 Pipe Link 1-2 Pipe Link 2-3 Pipe Link 2-4 Segment 2 (Pipe A) Segment 3 (Pipe A) Segment 4 (Pipe A) N Segment N (Pipe B) Pipe Intx

15. G2M2 LNG Flow Model © 2015, RBAC, Inc. All Rights Reserved.15 Liquefaction / Export Region (GPU 1) Import Region (GPU 3) Import Region (GPU 2) LNG Tanker Shipment from 1 to 2 LNG Tanker Shipment from 1 to 3 1 2 3 LNG Tanker diversion from 3 to 2

16. LNG Transport Cost Model © 2015, RBAC, Inc. All Rights Reserved.16

17. G2M2 Model Design Methodology Construct the conceptual design – Simple node, arc network models Write the model using AMPL modeling language – Supply and demand equations – Gas flow: node balance equations (spatial / temporal), pipeline inputs, flows, outputs – LNG flow: production, shipping (spot/contract), transportation cost functions, regasification Programmatically create the application – Create the required I/O tables in a relational database – Create the user interface for the application – Create test problems to debug the model Test and iterate – Run test problems and examine the results – Modify AMPL code, re-create application, run tests, and analyze results until the model is working exactly as desired (c) 2015, RBAC, Inc. All Rights Reserved.17

18. Example AMPL Code # balance equations in each segment (gpu) of the pipeline # gpu = geo-political unit (a country or sub-division of a country) # deliveries out of a pipeline segment in a gpu: 1.Deliveries to the gpu 2.Deliveries to gpu’s at cross-border points on the same pipeline 3.Deliveries to other pipelines in the gpu or at cross-border points pipesegmentuse_dlvyprice{(pipeline,gpu,t) in PIPESEGMENT}: pipesegmentuse_qty[pipeline,gpu,t] = sum{(pipeline,dest,t) in PIPEDEM:dest=gpu} pipedelivs_qty[pipeline,gpu,t] + sum{(pipeline,gpu,dest,t) in PIPELINK} pipelinkuse_qty[pipeline,gpu,dest,t] + sum{(pipeline,gpu,topipe,dest,t) in PIPEINT} pipeintuse_qty[pipeline,gpu,topipe,dest,t]; (c) 2015, RBAC, Inc. All Rights Reserved.18

19. G2M2 Model Design Methodology Construct the conceptual design – Simple node, arc network models Write the model using AMPL modeling language – Supply and demand equations – Gas flow: node balance equations (spatial / temporal), pipeline inputs, flows, outputs – LNG flow: production, shipping (spot/contract), transportation cost functions, regasification Programmatically create the application – Create the required I/O tables in a relational database – Create the user interface for the application – Create test problems to debug the model Test and iterate – Run test problems and examine the results – Modify AMPL code, re-create application, run tests, and analyze results until the model is working exactly as desired (c) 2015, RBAC, Inc. All Rights Reserved.19

20. Generated Database Tables and Relations (c) 2015, RBAC, Inc. All Rights Reserved.20

21. Generated User Interface (c) 2015, RBAC, Inc. All Rights Reserved.21

22. Generated Test Problems Geographical entities (gpu’s) Gas supply curves Gas demand curves LNG production capacities and costs LNG re-gas capacities and costs Tanker classes and inventories Tanker day rates, fuel use, fuel cost, etc. Maritime distances between gpu’s (c) 2015, RBAC, Inc. All Rights Reserved.22

23. G2M2 Model Design Methodology Construct the conceptual design – Simple node, arc network models Write the model using AMPL modeling language – Supply and demand equations – Gas flow: node balance equations (spatial / temporal), pipeline inputs, flows, outputs – LNG flow: production, shipping (spot/contract), transportation cost functions, regasification Programmatically create the application – Create the required I/O tables in a relational database – Create the user interface for the application – Create test problems to debug the model Test and iterate – Run test problems and examine the results – Modify AMPL code, re-create application, run tests, and analyze results until the model is working exactly as desired (c) 2015, RBAC, Inc. All Rights Reserved.23

24. G2M2 Tabular Reports (c) 2015, RBAC, Inc. All Rights Reserved.24

25. G2M2 Graphical Reports (c) 2015, RBAC, Inc. All Rights Reserved.25

26. © 2015, RBAC, Inc. All Rights Reserved.26 Scenario Design Forecasting potential impacts of various conditions and events on gas and LNG production, transportation, pricing and demand – Growing shale gas production in new plays and countries – Proposed new gas pipelines or expansions of existing ones – New or expanded LNG import & export terminals – Demand sensitivity to weather and gas price – Effect of economic growth changes on demand – Effect of governmental policies Scenario Evaluation – Built-in reports – Portal to Excel How is G2M2 used?

27. © 2015, RBAC, Inc. All Rights Reserved.27 Natural gas production: where and how fast will it grow? World gas prices: will they converge? if so, when? LNG market share: how will LNG fare against pipeline gas? North American LNG: can the US and Canada compete? New capacity: LNG liquefaction, re-gas, and tankers; new gas pipelines: how much is needed to satisfy future market growth? What issues can G2M2 address?

28. © 2015, RBAC, Inc. All Rights Reserved.28 Where will gas production grow?

29. Will global gas prices converge? (c) 2015, RBAC, Inc. All Rights Reserved.29

30. How much market share for LNG? (c) 2015, RBAC, Inc. All Rights Reserved.30

31. © 2015, RBAC, Inc. All Rights Reserved.31 Can North America compete?

32. © 2015, RBAC, Inc. All Rights Reserved.32 What new capacity will be needed?

33. © 2015, RBAC, Inc. All Rights Reserved.33 Thank you! Questions?

34. © 2015, RBAC, Inc. All Rights Reserved.34 RBAC Contact Information Founder and President – Robert Brooks, PhD: robert.brooks@rbac.comrobert.brooks@rbac.com Contracts & Administration – Liam Leahy, CEO: leahy@rbac.com (818-216-9356)leahy@rbac.com Technical Management – Bethel King, Dir. Market Analysis: bking@rbac.combking@rbac.com – Alan Morrissett, Dir. Software Design: alan.morrissett@rbac.comalan.morrissett@rbac.com – Aaron Brooks, Mgr. Technical Support: aaron.brooks@rbac.comaaron.brooks@rbac.com Sales – James Brooks, Dir. Business Development: james.brooks@rbac.comjames.brooks@rbac.com Contact Information: – RBAC, Inc. – 14930 Ventura Blvd, Suite 210 – Sherman Oaks CA 91403 – Sales & Administration: 818-784-5400 – Technical Information and Support: 818-501-7300 More information: http://www.rbac.comhttp://www.rbac.com