1. Impact of New Waves of LNG in the Asia Pacific Gas Market: Future of LNG Market in Asia Jinseok Sung Gubkin Russian State University of Oil and Gas Department of International Oil and Gas Business 33rd USAEE/IAEE North American Conference The Dynamic Energy Landscape 25 October 2105 Windham Grant Hotel Pittsburgh, USA Session 10 Liquefied Natural Gas (LNG)

2. Contents  Impact of new LNG from Australia, USA and Russia on the Asia Pacific LNG market  (1) Change of demand and supply balance in the Asian LNG market before and after the oil price fall  (2) LNG price movement  (3) LNG pricing competition LNG Oil indexation vs Henry Hub linkage Conclusion

3. 2010-2014 Sellers’ market Period of increasing demand and high LNG price

4. 2010-2014 LNG Demand/Price Demand 30% up LNG price rocketed By over 50% Source : Customs data (Japan, South Korea), LNG Industry (GIIGNL), Modified by author It looked as if LNG demand in Asia will keep on increasing and price will stay high all the time 2011 Fukushima disaster

5. 2015 Beginning of LNG oversupply Decreasing demand and low oil/LNG price

6. 2015 End of sellers’ market Beginning of LNG market oversupply LNG import volume in 2015 in comparison with 2014 (%)Sharp fall of LNG price in 2015 Source : Customs Data (Japan/Korea), Ministry of Economy, Trade and Industry Japan, Modified by author Together with oil price, LNG import also fell in major importing countries Decreasing demand + incremental supply + low oil price=Shocking fall of global LNG price

7. Natural gas contract situation and demand outlook before oil price plummeted China was already over-contracted even before slow-down of demand Source : CNPC, IEA, GIIGNL, K.Kushkina (Neftegazovaya Vertical,July/2014), media source, author Improvement of domestic Gas production Pipeline import from Central Asia Competition with other fuels in the Domestic market, coal, LPG etc.

8. New LNG projects adding large amount of extra volumes into the market When demand began to falter in the LNG market Source : World LNG Report (IGU) Delay/Cancellation of projects in Canada, Australia and Russia

9. LNG pricing system in the Asia Pacific market Traditional oil indexation LNG pricing vs linkage to Henry Hub

10. 2011-2014 High crude oil /low Henry Hub price period Source : Trade statistics of Ministry of finance, Japan (Modified by author) If oil price stayed over $100, US LNG could have absolutely price-competitive

11. Before crude oil price shock/ LNG pricing Competition JCC linkage vs HH linkage After/ intense price- competitions between all projects Shocking oil price fall made price-differential between each project more narrow, intensifying competitions Oil indexed LNG >>> HH linked LNG JCC less than $60/barrel Oil indexed LNG > HH linked LNG JCC $60/barrel-$70/barrel Oil indexed LNG = HH linked LNG JCC $70/barrel-$80/barrel HH linked LNG > Oil indexed LNG JCC $80/barrel-$90/barrel HH linked LNG >>> Oil indexed LNG JCC over $90/barrel * In case of Henry Hub $3/mmbtu-$5/mmbtu Little price differential between oil indexed LNG and HH indexed LNG when oil price approx. $$70-$80/barrel and HH $3/mmbtu-$5/mmbtu

12. Conclusion  Low oil price will affect not only US LNG exporters but also existing LNG exporters using oil indexation, making LNG export less profitable.  Oil price decrease made price differential between JCC LNG and HH LNG very narrow and LNG linked to one pricing system is not much more price-competitiveness than another.  Low oil price and faltering demand in major markets made competitions among sellers to unprecedented level.  If Henry Hub price stays under $3/mmbtu level like in 2015, it is expected that US LNG can maintain price-competitiveness even in low oil price market environment.  Oversupply in the Asian LNG market is expected to continue into the upcoming years.

13. Thank you for your attention! USAEE/IAEE North American conference The Dynamic Energy Landscape Pittsburgh, Windham Grand Hotel, USA 25 Oct-28 Oct 2015 Jinseok Sung Gubkin Russian State University of Oil and Gas Department of Oil and Gas Business Faculty of International Energy Business 65, Leninsky prospect, Moscow, Russia Jinsok.sung@gmail.com