As 2019 draws to a close, the year I firmly believed we would...

As 2019 draws to a close, the year I firmly believed we would reach FID and commence construction IF it was business as usual without the existence of the trade war, it will be described as uneventful. Lets focus though on the positives that for me are tell tale signs the Magnolia dream will come to life in 2020;

- The Nasdaq listing announcement

- Filing with FERC for .8mt expansion of capacity

Both decisions made that would not of come about if the company’s prospects were fading!

- MOU with DeltaOE. Vietnam’s Power Development Plan 7 is currently in play and what we need is an amendment from the Minister of Industry & Trade to change the Bac Lieu coal fired plant to a natural gas plant. The Prime Minister and National Assembly are applying pressure to get this signed off to fast track the country’s energy goals to switch over to gas! I’m very optimistic about converting this MOU to a SPA!

- KBR/SKE&C lump sum, turn key contract extended on 24/6/19’ with an updated EPC cost of $4.623B based on 8.8mtpa, providing installed capacity EPC cost/ per tonne price US $525. This agreement locks in certainty of cost and capability with a world class EPC contractor... valid through till Dec 31. Only a $260M increase to the previous EPC cost for an additional .8mt, peanuts! It’s a blessing KBR have been willing to extend our partnership over the years during extensive delays to reach FID because I believe there might be a shortage of major, world class EPC contractors (like Bechtel Corp, Chiyoda Corp etc). Maybe KBR could of jumped ship by now if the contractor ascertained our company was struggling to advance its ambitions with Magnolia. Their services are already acquired by Freeport Train 4 & Goldboro’s terminal. “ The race is not just to make final investment decisions on projects but to enter front end engineering & design (FEED) work to lock in contracts before others snap them up “, 3 developers said at Credit Suisse’s Australian Energy Conference in June. “ Unless you’re in FEED in the next 6-9 months, unless you’re in FID in the next 2 years, there’s going to be no-one to build your project “, Oil Search Executive GM Ian Munro told the conference. Oil Search and major partners Exxon Mobil, Total SA are looking to build the $13B, 8.1mt expansion of the LNG plant in Papua New Guinea (but are yet to enter FEED).

Martin Houston, co-founder of Tellurian Inc ($30B Driftwood project), said “ LNG developers who fail to sign major contractors who can offer fixed price construction contracts are likely to struggle to make much profit “. “ We can say to our customers this is exactly the price you’re going to pay. We’re competing with 2nd wave projects that have absolutely no idea how they’re pricing anything “. Houston told the conference.

Below is a comprehensive list of North American projects with their purported cost per tonne, our direct competitors in the race to FID. Will also include a couple of companies who’ve reached FID for interest sake;

Tellurian - 27.6mt $550M Average Per Tonne (@ $15.2B (11mt Phase 1 $700M, 5.5mt Phase 2 $490M, 5.5mt Phase 3 $500M, 5.5mt Phase 4 $380M)

Delfin - 13mt $616M (@ $8B)

Annova - 6mt $500M (@ $3B) Brownfield

Gulf - 11.5mt $696M (@ $8B)

Port Arthur - 13.5mt $670M (@ $9B)

Rio Grande - 17.61mt $543M (@ $9.56B)

Lake Charles - 16.45mt, 4.5mt initial cap 980M (@ $4.4B)

Goldboro - 10mt $1B (@ $10B)

Plaquemines - 20mt $425M (@ $8.5B) VG is dreaming!

Texas LNG - 2mt $500-$600M (@ $1B-$1.2B)

LNG Canada - 14mt $1B (@ $14B)

Calcasieu Pass - 10mt $580M (@ $5.8B)

Golden Pass - 16mt $625M (@ $10B)

Magnolia is undoubtedly the lowest cost per tonne project in Nth America @ 525M for 8.8mt!

Have covered China’s energy story over the years but let’s importantly keep you updated on the country’s forward looking, long term future.

China’s 14th 5 yr Plan (2021-2025), the country’s top level policy blueprint and considered “ one of the most important documents on the planet “ for global sustainability, will be critical to China’s energy transition and global efforts to tackle climate change. The NEA (National Energy Administration) power sector plan will be finalised in late 2021... climate observers paying close attention to how much space the new 14th Plan gives for coal consumption & coal power installation/ development over the next 5yrs.

The 13th 5yr Plan which is currently ongoing, proposed that by end of 2020, granted that total energy consumption grows by more than 2.5% per year, total energy consumption should be controlled within 5 Billion tonnes of coal, non fossil energy consumption increase should be more than 15%, natural gas consumption should reach 10%, mandatory cap on coal @ 58%. The target set for coal was already reached in 2018!

The 5yr Plan, having been created every 5yrs since 1953, provides an overall picture of targets for energy consumption and the share of non fossil fuels in the energy mix.

China’s Power Generation Mix in % from 2015 - 2018;

Oil 516.1mt (18) 19.6%, 489.7mt (17) 19.4%, 472.6mt (16) 19.3%, 452.2mt (15) 18.7%

Natural Gas 195.8mt (18) 7.9%, 166.3mt (17) 6.6%, 144.9mt (16) 5.9%, 141.1mt (15) 5.8%

Hydro 219mt (18) 8.3%, 210.5mt (17) 8.3%, 210.1mt (16) 8.6%, 203mt (15) 8.4%

Renewables 115.5mt (18) 4.4%, 85.8mt (17) 3.4%, 65.7mt (16) 2.7%, 51.8mt (15) 2.1%

Nuclear 53.6mt (18) 2%, 45.2mt (17) 1.8%, 38.8mt (16) 1.6%, 31mt (15) 1.3%

Coal 1534.8mt (18) 58.2%, 1523.5mt (17) 60.4%, 1520.7mt (16) 62%, 1540.4mt (15) 63.7%

Total Energy Consumption 2635.1mt (18), 2521.4mt (17), 2452.9mt (16), 2419.7mt (15), 2393.6mt (14)

Will bring to light how rapidly natural gas consumption is outpacing domestic production in which the latter can not keep up! Note, China’s natural gas consumption growth rate in 2019 is going to be slowed/ capped to around 10% from 17.5% in 2018 amid easing economic growth, pressure on the country’s production, storage & sales network.

Yearly Production % increase from year to year;

2018 - 119.5mt 2017 - 110.4mt (8.3%) 2016 - 102.4mt (7.9%) 2015 - 100.7mt (1.7%) 2014 - 97.3mt (3.5%) 2013 - 90.4mt (7.7%) 2012 - 82.7mt (9.4%) 2011 - 80.6mt (2.6%) 2010 - 73.3mt (10%) 2009 - 65.2mt (12.4%) 2008 - 61.4mt (6.2%) 2007 - 52.9mt (16.1%) 2006 - 44.8mt (18.2%) 2005 - 37.7mt (18.9%)

Average production growth from 2005 - 2018 = 9.4%

Yearly consumption & % increase from year to year;2018 - 209.4m 2017 - 177.8mt (17.7%) 2016 - 155.6mt (14.3%) 2015 - 144.1mt (7.7%) 2014 - 139.4mt (3.4%) 2013 - 127.2mt (9.6%) 2012 - 111.6mt (14%) 2011 - 101.4mt (10.1%) 2010 - 82.2mt (24.2%) 2009 - 68.5mt (20.1%) 2008 - 62.2mt (10.2%) 2007 - 54mt (15.3%) 2006 - 43.8mt (23.2mt) 2005 - 35.6mt (23.2%)

Average consumption growth from 2005 - 2018 = 14.8%

Forecast estimations for LNG demand by 2025/ 2030;

CNPC - In April 2019 stated 110bcm (81.4mt) needed by 2025.

RYSTAD ENERGY - As of May 19’, 95mt by 2025.
LNG LTD - As of Nov 19’ is forecasting 86.5mt as a conservative number by 2030.

SINOPEC - Expecting “natural gas” demand to increase by 82% to 510bcm (377.4mt) in 2030 from 280bcm (207.2mt) in 2018, driven by continued industrial upgrading and urbanisation. Gas demand will mostly come from city gas, industrial usage and gas powered utilities. That’s a required 170mt.

With that figure in mind, say domestic production produces approx 7mt (on the high side) per year between 2019 through till 2030 (average mtpa production 08’-18’ = 5.8mt) that equals 77mt + 28mt has already been contracted to CNPC with Russia through the Power Of Siberia Pipeline + 34mt of fixed pipeline supply China receives yearly from Turkmenistan/ Uzbekistan/ Myanmar/ Kazakhstan... Grand Total 139mt. One could make an approx estimation 31mt (a low estimate) of LNG is required by 2030.

China currently has 50mt worth of SPA contracts locked in to long term contracts so taking into account account the varying future demand numbers from the different sources above, explosive growth is expected for LNG in the region of 30-45mt ++ by 25’/30’.

21 Terminals are currently in commercial operation while in brackets are expansion projects under construction as we speak;

Dapeng 6.8mt

Fujian 5mt (+1.1mt)

Shanghai 3mt (+3mt)

Dalian 6mt

Jiangsu 6.5mt (+3.5mt)

Dongguan 1.5mt

Ningbo 3mt (+3mt)

Zhuhai 3.5mt

Tangshan 6.5mt

Tianjin 2.2mt (CNOOC + 4mt)

Hainan Shennan .6mt

Shandong 4.5mt (+4mt)

Hainan 3mt

Beihai 3mt

Qidong 1.2mt

Yuedong 2mt

Tianjin 3mt (Sinopec + 5mt)

Shenzhen 4mt

Zhoushan 3mt (+7mt)
Fangchenggang .5mt

Wuhaogou .5mt

Total Handling Capacity 69mt

Wenzhou 3mt
Zhangzhou 3mt (+3mt Eventual Exp)
Yancheng 3mt

Jiaxing 1mt

Jiangyin 2mt

Yangjiang 2mt

Shenzhen Guanhu 3mt Penglai 2.8mt

Chaozhou 1mt (+1mt Eventual Exp)

Total Under Construction Capacity 20.8mt + 30.6mt Expansion Capacity Under Construction from commissioned terminals.

In 2018, China’s terminal utilisation rate was at 85%, up from 73% in 2017, 56% 2016. So at this moment in time, the Chinese are looking to contract long term a further 43.69mt (85% x 51.4mt /100) of LNG from under construction capacity minus spot market purchases.

Pipeline Supply since 2016;

Turkmenistan 24.6mt (18), 23.4mt (17), 21.7mt (16)
Uzbekistan 4.6mt (18), 2.5mt (17), 3.1mt (16)
Myanmar 2.1mt (18), 2.4mt (17), 2.8mt (16)

Kazakhstan 3.9mt (18)

LNG imports in 2018 were at 54.3mt, up from 38.9mt (17), 25.3mt (16)

Spot market capacity reached a historic high of 99.3mt in 2018, up from previous record 77.6mt in 2017, 74.6mt in 2016. Spot market/ short term purchases for the big 6 Asian countries & Top 10 worldwide buyers overall in 2018;

China 17.7mt, 8.2mt (17), 5.3mt (16)

Japan14.6mt, 12.2mt (17), 15mt (16)

Sth Korea14.6mt, 8.9mt (17), 4.9mt (16)
India11.5mt, 8.7mt (17), 9.9mt (16)
Taiwan - 9.2mt, 5.4mt (17), 4.5mt (16)

Pakistan - 2.6mt, .12mt (17’), .3mt (16)

Mexico 4.1mt

Argentina 2.5mt

Spain 2.3mt

Egypt 1.9mt

Delving into India’s story. Despite its potential for significant future economic growth, the outlook for gas and LNG demand is problematic. In part this relates to A) the complex system of administered prices and supply allocation between demand sectors B) the lack of a plan to build an extensive gas transmission infrastructure across the country, which is currently constraining gas from reaching consumers and therefore hindering growth rates C) Half of existing terminals operate at well below their capacity purely because of a poor pipeline network grid.

Examples... Kochi & Dabhol have been running at 12% & 2.9% respectively during the fiscal year (1st Apr to 31st March). Ennore with 5mt nameplate capacity will also be under-utilised until 2023 due to delays in the construction of the gas distribution pipeline - expected to import around .75mt in 2019 and 1.3-1.4mt by 2021. On the flip side, Hazira is operating @ 95.5% capacity, Dahej 108.8mt.

India currently has 6 commissioned terminals;

Dahej 17.5mt
Dabhol 5mt

Hazira 5mt
Kochi 5mt
Ennore 5mt
Mundra 5mt

Total Handling Capacity 42.5mt

4 Terminals are under construction;

Jaigarh 4mt (+8mt Eventual Exp)
Jafrabad 5mt

Dhamra 5mt

AG & P Karaikal 1mt (+1mt Eventual Exp)

Total 15mt

As it stands, India’s demand grand total is 57.5mt then add terminal utilisation rate of 87% in 2018 = 50mt of LNG the country requires via long term contracts and spot purchases. Currently 22mt of that total is locked in on long term SPA contracts while 11.5mt was bought on a spot/ short term basis in 18’.

4 terminals highly likely to reach FID;

Chhara 5mt (+5mt Exp)

Krishnapatnam 1mt (+3mt Exp)

Digha 1.5mt (+1.5mt Exp)
Haldia 1mt

” Indian customers are choosing spot cargoes over long term LNG contracts as spot purchases are cheaper “, Prabhat Singh, chief executive of India’s Petronet LNG Ltd said. “ Petronet is considering renegotiating long term LNG contracts with Qatar’s RasGas “. “ Delivered Price Of Spot LNG is $6.30-$6.40/Mmbtu vs $7.50-$8.50/Mmbtu for supplies under long term deals “, Singh stated (Oct 29 19’). Petronet has SPAs in place to buy 7.5mtpa from Ras Gas and 1.44mtpa from Exxon’s Gorgon project in Australia @ $8.25 - $9.50 per mmbtu.

This goes to show where India’s head is at right now, not wanting to commit to long term deals when spot buys are lower priced. That’s the difficulty facing negotiators, trying to convince buyers to look beyond short term pricing and focus 5yrs down the track when supply tightens and prices begin to fly!

Wrapping up my case studies, going to touch upon one country with enormous potential, that totally flies under the radar in comparison to other Asian superpowers. The 56th most populous country in the world in 2019 (23.7M people), one spot behind Australia. The 137th largest by landmass in the world (just 36,193 km2), Australia is 6th with 7,692,024 km2). The Island of Taiwan!

Taiwan currently has an import capacity of 16.5mt from 2 terminals (Taichung 6.5mt, Yang’an 10mt) but it’s terminal utilisation rate is a staggering 122%, best in the world by a country mile followed by India 87%. 1 project is under construction in Taoyuan, 2 1GW (1000MW) combined-cycle gas power plants... 1GW is equivalent to approximately 2mt of LNG (a 500,000 tonne LNG train would give you enough LNG for a 220MW power plant). Due online 2022. Taiwanese Government intends to build 1 GW gas power plants in 10 locations by 2027, equivalent to 20mt, fueling the plants with LNG imported from US and Australia!

In 2016 Taiwan’s power generation mix was as follows; 46% coal, 32% natural gas, 12% Nuclear, 6% Renewables, 4% oil.

In 2017 those numbers were; 37.1% coal, 30.6% natural gas, 10.3% nuclear, 10.6% renewables, 6.2% oil, 5.2% hydro.

By 2025 the Government aims to change the mix to 50% natural gas, 30% coal, 20% renewables. Taiwan is taking giant steps in developing, promoting green energy and the US is primed to take advantage!

A notable mention, Vietnam requires 6000MW (12mt) worth of LNG power plants by 2030.

With very promising developments coming from important Chinese concessions that Trump has long fought for, leaving a “Phase 1” deal imminent, the stars have aligned and readied LNG LTD for a prosperous 2020! The trade war has been the “only” factor that has held Magnolia back from commencing construction... well, possibly coupled with soft spot pricing but I don’t believe the latter would of had an adverse effect on Chinese buyers commiting to long term SPAs. Lets take a look at concessions made so far;

Concessions on intellectual property; From the beginning this has been the US administration’s most important agenda in its trade fight with China, to force an end to systematic and state-backed theft of American intellectual property and tech transfer. China responded this year by the Government passing new IP & foreign investment laws. Under the new regulations which take effect on Jan 1 20’, China will ensure better protection of trade secrets while administrative organs will not implicitly or explicitly force the transfer of technology by foreign investors or foreign invested enterprises. Further more, the country will strengthen and speed up improvements made to standards for patents, trademarks, copyright infringement, counterfeiting judgments, inspection and identification. The law minimises the direct allocation of government resources to the market + direct government intervention in market activities and establishes a punitive damages system for IP infringement. New IP courts to prosecute cases have already been set up.

Lifting of equity caps on foreign ownership of financial services firms; It’s going to allow American companies 100% ownership in insurance companies, brokerage firms, investment banks, commercial banks etc.

Currency commitments; As members of the G20, both the US & China have agreed not to manipulate currency markets for economic advantage.

Increase in purchases of farm products from $40-$50B but will also open up its agriculture markets, lowering regulations and standards and non tariff barriers. China has resumed buying large quantities of soybeans and record purchases of pork.

Commitments to buy more American commercial aircraft & natural gas!

A dispute resolution mechanism; The US at one stage was insistent on an enforcement mechanism to ensure China lived up to its promises. However, the US has relaxed that notion in fairness, so not only the one country is held accountable for a break down in trade agreements.

Will China drop the 25% tariff barrier on imported LNG to be included in the Phase 1 deal?? I believe so, as long as Donald agrees to a gradual tariff rollback. He’ll come around, just like he did when defiant on saying he would not agree to a partial trade pact. Trump’s an antagonistic lunatic but a smart one! He would be foolish to stand his ground on cutting back tariffs and risk losing major farm produce market share while also miss out on potentially reducing the trade deficit with China by $17B annually (according to Morgan Stanley in Jun 19’) through LNG SPAs. This would truly hurt his re-election hopes!

President Donald Trump could be " playing a waiting game “ when it comes to striking a trade deal with China to help his re-election bid, former U.S. Ambassador to China (under the Obama Administration) Max Baucus told CNBC on Wed 28th Aug. " Let's not forget, Donald Trump is, in a certain sense, very smart. Almost brilliant. And maybe in the back of his mind he's going to wait a little bit. Then the stock market is going to zoom up. It will rocket up, and maybe help him get reelected." Baucus said he's not sure how long the world's two largest economies can hold off before striking a deal. “ The question is how long can he wait until something else goes south? “

The funny thing is, China seems fond of Trump if the following excerpts are anything to go by;

9th Nov 19’ China's former chief trade negotiator says the nation wants Donald Trump to be re-elected because he's “easy to read” compared to past American politicians!

Long Yongtu, the former vice-minister of foreign trade in China who aided in the country's entry into the World Trade Organization, says Trump is easy to understand thanks to his daily, unfiltered Twitter posts.

Trump's vocal nature makes him “ the best choice in an opponent for negotiations “ because he's transparent with his agenda, Yongtu said at the Credit Suisse's China Investment Conference on Saturday in Shenzhen. “ We want Trump to be re-elected; we would be glad to see that happen. “

“ He makes the US decision-making process efficient and transparent, because he basically says what it is. The pros of [having Trump] outweigh the cons. We don’t need to spend so much time figuring out what Americans want any more, or search for each other’s real thoughts in the dark, like we used to. “

Yongtu also noted that Trump is unlike his predecessors because he does not pick fights with Beijing on geopolitical issues such as China's grip over Taiwan or Hong Kong. “ Trump talks about material interests, not politics. Such an opponent is the best choice for negotiations. “ Long told the South China Post.

Yongtu, 76, has retired from active ministerial posts and does not speak for China's government. However, many believe that his statements on Trump offer insight into the thinking of China's policymakers and trade diplomacy stance.

By 2025, China will become the world’s top LNG importer and the US the top exporter. It’s tough to imagine both could decouple but it all comes down to Trump... and a few of his famous, see sawing phrases he’s used like a broken record for the past 16 months. “ Maybe we’ll make a deal or maybe we won’t make a deal. I’d like to make a deal but it has to be a great deal and if it’s not a great deal, I won’t make it! “

Did not attend this year’s AGM after being at the last couple. A couple of points in respect to the AGM presentation report;

1) “ Marketing of Magnolia LNG is gaining traction. “ This statement achieves little to drum up support of investors & loyal, long term backers who have held for many, many years who deserve a more promising, projected outlook as to where we stand once the US China trade war has been resolved. Also, a contradictory statement if you take into consideration GVs comments during our last investor conference call on 22nd May praising his marketing team for doing an “outstanding job” while potential customers have commented on that as well. That doesn’t align with negotiations having “gained traction” as this does not portray that we’re knocking on the door of SPAs being concluded as I’ve interpreted from reading in-to words “outstanding job”. 2) We deserve to know the number of MOUs signed and this should of been made known as part of our 2019 milestones! Irrespective of confidentiality agreements being in place that restrict LNG LTD from revealing who we’ve signed with, it was the company’s goal to sign 8 MOUs in 2019... we should not be left in the dark in respect to numbers achieved! Transparency is lacking!

A stone throw away from Magnolia on the west bank of the Calcasieu River at Driftwood, Tellurian CEO Meg Gentle noted to Reuters back in March, whenever the dispute is over, “ Tellurian and Chinese buyers stand ready to do transactions." This is what we need to hear!

As we pull up stumps for another fruitless year, but as I’ve preached for years, LNG LTD has been at the mercy of the macro environment & the trade war. It’s unfortunate but true! That’s the cyclical nature of the business!

We’re still sitting pretty for 2020... I’m expecting fireworks!

LNG demand is proven!!

It’s a matter of when!

I’m signing off for the season.

Stay strong and I’ll leave you with one thought to ponder..... When we pull this off we would of played a huge part of a really special story! Having mastered how to effectively modularize, lower cost, in a faster, more standardized, highly efficient, highly reliable manner through the use of our OSMR technology! Revolutionizing how low cost gas is produced!

Happy and prosperous new year!

JK.