Global Gas Markets:

Pulling in Opposite Directions

at the Same Time
Benjamin Schlesinger and Associates, LLC
Bethesda, Maryland
EIA 2012 International Natural Gas Workshop
August 23, 2012
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Agenda
Introduction
Gas supply: shale gas (and shale oil)
Gas demand
Global markets and risks
Discussion.




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BSA 28 years of gas and energy
advisory services.
Economics, pipeline tariffs,
contracting, price risks.
Research & training
Negotiation of gas contracts
Due diligence Review for
lenders in financing of LNG,
power plants, gas storage
Expert in courts & arbitrations,
testified in 16 jurisdictions.
500+ assignments, 27 nations.
Clients: Energy buyers & sellers, electricity
and heating plants, gas and oil pipelines,
banks, governments, universities.
Expertise Major Assignments
Power generators
Lenders
Pipelines/traders
LNG projects
Regulators
Expert testimony

UNECE
European pipelines
GdF Suez, Repsol, BG
Eastern Europe
West African pipeline
Sonatrach (Bechtel)

Japan gas utilities
Mitsubishi
Philippine NPC
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UN Economic Commission for Europe
(ECE) 2012 LNG Report
Current State and Prospects of LNG in the
UNECE Region:
LNG Markets
The LNG chain
Regulation of LNG
Physical, operational issues
Status: Fall 2012.

4
Qatars 7.6 Bcf/day has balanced
global LNG markets.
7.6
3.1
3.1
2.5
2.4
2.0
1.9
1.3
1.1
1.0
3.6
Bcf/day
Qatar
Indonesia
Malaysia
Australia
Nigeria
Trinidad & Tobago
Algeria
Russian Federation
Oman
Egypt
All Others
5 Source: ENI 2012, from BP Statistical Review 2011 (data for CY 2010).
Shale gas revolution drivers price,
technology and market structure.
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2000 2002 2004 2006 2008 2010 2012
G
a
s

P
r
o
d
u
c
t
i
o
n
,

B
c
f
/
d
a
y

Other Barnett
Fayettevillle Woodford
Marcellus Haynesville/Bossier
Eagle Ford
Despite the words, Americans
really dont have a grip on this.
Most U.S. policy, economic,
adademic and government
studies still rely on outdated
information, e.g., from
Internet/Google searches.
This steep growth rate cannot
and will not continue in the
future.
6 Source: BSA 2012, from ARI thru 2010, FERC/Bentek 2011, BSA estimates 2012.
2010
I n gas alone, the US has added 4.8
MBD equivalent since 2002.
1.5
2.2
2.5
6.1
2.4
4.2
10.5
-
2.0
4.0
6.0
8.0
10.0
12.0
Holland Qatar Norway EU, Total Venezuela I ran Saudi
M
B
D
,

e
q
u
i
v
a
l
e
n
t

Annual US shale gas production (increased amount only)
Source: BSA 2012, from BP Statistical Review 2011 & BSA/ARI/FERC (est. shale production).
Gas Production, 2010 Oil Production, 2010
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North Americas hydrocarbons price
gap is crippling natural gas E&P.
$-
$5.00
$10.00
$15.00
$20.00
J
a
n
-
0
1

J
a
n
-
0
3

J
a
n
-
0
5

J
a
n
-
0
7

J
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-
0
9

J
a
n
-
1
1

J
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-
1
3

J
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1
5

J
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7

J
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-
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9

$
/
M
M
B
t
u

Henry Hub Acutals
WTI Actuals
Brent Actuals
Henry Hub Futures
WTI Futures
Brent Futures
Source: BSA 2012, from NYMEX August 17, 2012 Closing; Platts. 8
Shale-rich North Dakota is now the
2nd largest US oil-producing state.
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
J
a
n
-
0
2

O
c
t
-
0
2

J
u
l
-
0
3

A
p
r
-
0
4

J
a
n
-
0
5

O
c
t
-
0
5

J
u
l
-
0
6

A
p
r
-
0
7

J
a
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-
0
8

O
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0
8

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0
9

A
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1
0

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1

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1
1

B
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/
d
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,

t
h
o
u
s
a
n
d
s

Field Production of Crude Oil, Thousands of B/D
North Dakota
California
Alaska
Texas
9 Source: BSA June 2012, from EIA.
Most surplus gas will be spent
replacing coal in aging power plants.
10
- 10 20 30 40 50 60
50 years or older
40-50 years old
30-40 years old
Newer than 30 years
Capacity, GW
Age of Coal-Fired Power Plants in Coal Country
Source: BSA 2012, data for 20 Northeast and Mid-West states from EIA, plus Ontario.
12%
27%
33%
28%
Old King Coal has been
dethroned in US electricity generation.
0
20
40
60
80
100
120
140
160
180
2007 2008 2009 2010 2011 2012 thru
May
G
W
h
,

t
h
o
u
s
a
n
d
s

p
e
r

M
o
n
t
h

Coal
Oil
Gas
Nuclear
Hydro
Renewables
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Replacing old coal with new gas cuts
CO
2
emissions by 70%.
Carbon emissions:
Chemical advantage: Gas
burning emits 46% less CO
2

than coal.
Efficiency advantage of new
gas CCGTs versus old coal
boilers: 55-60% vs. 31-33%.
Carbon emissions savings
from fuel cycle as well.
Other pollutants reduced or
prevented, especially sulfur,
particulates.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
COAL GAS
12 Source: BSA 2012.
Market dynamics suggest 6-7 Bcf/day
can readily be sold abroad.
Status = inevitable:
All six brownfield projects are
approved for free-trade partners
Sabine Pass is fully approved
FID will depend on commercial
throughput contracts.
In Canada, Kitimat is approved.
US politicians argue about
impact on gas, electricity prices
But gas prices are already
unsustainably low.

2.2
2.8
2.0
1.0
2.5
0.5
US LNG Export Applications,
11 Bcf/day
Sabine Pass Freeport & FLNG
Lake Charles Dominion Cove Point
Cameron Southern LNG
13 Source: BSA 2012; data in chart from US Department of Energy, 31 May 2012.
Europes demand for US imports will
rise with supply & nuclear issues.
Plunging European gas
production is intensifying
winter supply crises, and is
building LNG demand.
In less than a decade, the UK
has transformed from exporter
to LNG importer on scale
soon to exceed Spain.
The Nord Stream pipeline
entered partial service in June
2011; other lines are planned
from the Middle East.
0
50
100
150
200
250
300
1990 2000 2010 2020 2030
E
U
2
7

G
a
s

P
r
o
d
u
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t
i
o
n
,

B
C
M

United Kingdom Netherlands
Germany Hungary
Romania Italy
Poland Denmark
Other
Source: UNECE Sustainable Energy/Working Party on Gas LNG Report, 2012, from Gas Strategies, 2011. 14
European gas trading caught hold in
the 2009 recession..
Russian gas dominates at oil-
indexed prices
Northwestern points emulate
the contract market:
NBP, the marker, is no Henry.
Even less liquidity at TTF,
Zeebrugge, Gaspool.
Spain is 80% LNG-based.
EUs grand plans for gas
infrastructure are encumbered
by market mechanics.
15
Source: EU Sept 2011, courtesy Gas Strategies, Ltd.
Fukushimas impact on gas demand
cannot be understated.
Worst-case Japan nuclear
plant capacity availability
came true in Winter 2012.
Source: M. Toyoda, Institute of Energy Economics-Japan, October 2011. 16
Exports of LNG from the US will
remain in the money through 2020s.
$5.40 $5.40
$3.06 $3.06
$0.83
$0.35
$1.06
$0.44
$13.02
$11.03
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
Japan .. UK
JCC, NBP forward
Regas tariff
Panama Canal
Boiloff
Fuel
Vessel charter
15% + $2.25
Henry Hub - Jan-15
Gulf to Japan Gulf to UK
Source: Deutsche Bank Global Markets Research, 10/2011. 17
Conclusions & Thoughts:
US shale gas production is here to stay, but increases will soon
flatten: the solution to low prices is, of courselow prices!
Shale is changing US role in energy, with deep impact on fossil
fuel, renewables, energy financings, balance of trade, security.
Most reporters are behind the curve, blindsided and confused.
The world has huge shale resources, but equally huge barriers,
hence little risk to US exports till late 2020s.
Institutional and cultural impediments, generally closed gas markets,
public royalties, other priorities, lack of a competitive E&P sector.
US exports will be muted as the surplus is spent at home in
CCCTs and, later, directly as LNG and CNG vehicles.
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Benjamin Schlesinger and Associates, LLC
The Bethesda Gateway
7201 Wisconsin Avenue, Suite 740
Bethesda, MD 20814
Phone: (301) 951-7266 Fax: (301) 951-3381
Visit us at www.BSAenergy.com
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