Links offering some hope, page-3

LNG Exports
Golden Age of LNG: JERA President Sees Long-Term Growth
but Flat Pricing
The Takeaway:
This year may be a turning point for LNG markets as buyers, who've sat on the sidelines for several years and refrained from signing new contracts with LNG export terminals, begin to
change their tune. U.S. gas production remains robust and prices are low, bolstering
confidence that Henry Hub-linked contracts can offer long-term savings relative to their oil-
linked peers. Yuji Kakimi, president of JERA Co, the largest LNG buyer in the world, is
expected to tell attendees at this week’s CERAWeek conference in Houston that he sees
long-term growth in LNG demand keeping pace with projections (5-6% annualized) but that
much hinges on prices remaining below $10/MMBtu. In an interview, he argued that emerging market buyers cannot afford to make investments in LNG import infrastructure if the price rises in pace with oil. U.S. export terminals are among the only proposed projects that can
conceivably profit at $10/MMBtu, and we expect U.S. projects will sign new long-term contracts in 2017, boosting fortunes for projects like Cheniere’s (LNG) Corpus Christi, LNG
Limited’s (LNG.AU) Magnolia, and Tellurian’s (TELL) Driftwood LNG project, among others.
› Long-term contracts for LNG have been few and far between for several years, as the crashing oil price chilled enthusiasm for the super-cooled fuel. Nonetheless, the long lead-time for new export terminals and steady demand growth should coax buyers, like Kakimi’s JERA, back into the market in 2017. LNG demand reached 265 million metric tons in 2016, rising 6.8% from 2015. Much of the growth came from China, which imported 27.5 mtpa (37% year-over-year growth), India, which imported 19
mtpa (27% YoY), and Egypt (7.5 mtpa, 192% YoY). Japanese and Brazilian imports declined in aggregate by 6.5 mtpa (Japanese demand fell 3% and Brazilian demand fell 84%). Over the medium-term, we expect Japanese imports to continue to decline as the country restarts its nuclear fleet. Meanwhile, emerging markets like China and India more than offset these losses.
› By the early 2020s the LNG market is expected to be tight, assuming that demand growth among non-traditional buyers continues. The most common question, however, is how U.S. projects can tap into these markets, considering that buyers tend to have lower credit quality than traditional buyers in Europe, Japan, and South Korea. Our answer is that large portfolio buyers, including Kakimi’s JERA, will drive the “golden age” of LNG.

Portfolio buyers like Shell (RDS.A) have their pick of the litter among U.S. LNG export projects, for now. Eventually, buyers need to pick their pony and sign contracts in order to ensure that incremental LNG is hitting the market in the early 2020s. We estimate that some 435 million tons of export capacity
will be online by the end of 2021, up from about 350 million tons today. Accounting for depletion of older fields and typical capacity factors, the market for LNG should begin to appear tight in aggregate by the early 2020s, but periodic tightness could happen much sooner. The
increasingly seasonal nature of LNG buying (and associated price spikes, like when Asian prices last quarter reached $9/MMBtu or more on the spot market) will require a higher proportion of LNG capacity relative to annualized demand.