LNG Shipping October 2006

Hauke L. Kite-Powell

Outline

LNG shipping in context shipping demand and supply

trade projections fleet development implications for fleet utilization

trends and risks

charter terms short term (spot) trades structural changes

Natural Gas Consumption

2000 1800

Far East & Oceania

1600 1400 million tons/year 1200 1000 800 600 400 200 0 1990 1995 2000

Africa Middle East Eastern Europe & FSU

Western Europe Central & South America North America

LNG Consumption
about 6% of world natural gas consumption

120

100 Turkey Belgium Italy France Spain Taiwan South Korea Japan USA 20

million metric tons

80

60

40

0 1990

1995

2000

LNG Fraction of Natural Gas Consumption

450 400 350 million tons/year 300 250 200 150 100 50 0 USA

1-2%

USA

pipeline LNG

92%

Asia
100% 86% 49%

27%

4%

Europe
26% 25%

Japan

South Korea

Taiwan

Spain

France

Italy

Belgium

Turkey

LNG Supply

120

100

million metric tons

80

60

40

20

Trinidad USA Australia Indonesia Malaysia Oman Qatar Abu Dhabi Brunei Nigeria Libya Algeria

0 1990

1995

2000

LNG Shipping Demand: Established Trade Routes

Pacific basin:

Arabian Gulf Japan, Korea, Taiwan (40%) Malaysia Japan, Korea, Taiwan Indonesia Japan, Korea, Taiwan (20%) Australia Japan (10%) US (Alaska) Japan Algeria Europe, US Nigeria Italy, Spain, France, Turkey (15%) Libya Spain Trinidad Spain, US

Map removed due to copyright restrictions.

Atlantic basin:

The LNG Supply Chain

typical capital cost ($ billion)

contribution to cost of delivered LNG ($/million BTU)

gas production liquefaction plant LNG shipping receiving & regasification terminal total

1-2 2-3 1-2 0.4 - 1

0.5 1.0 1.7 2.4 0.5 1.6 0.5 1.0

4-8

3.2 6.0

US gas price, $nominal/mBTU 0

LNG cost band (US)

19 90 19 92 19 94 19 96 19 98 20 00 20 01 .2 20 01 .4 20 01 .6 20 01 .8 20 01 .1 0 20 01 .1 2 20 02 .2 20 02 .4 20 02 .6 20 02 .8 20 02 .1 0 20 02 .1 2 20 03 .2 20 03 .4 20 03 .6 20 03 .8

US Gas Price and LNG Cost

Outline

LNG shipping in context shipping demand and supply

trade projections
demand for LNG & import facilities LNG supply (liquefaction trains)

fleet development implications for fleet utilization

trends and risks

charter terms short term (spot) trades structural changes

LNG Demand Growth, 2010

Asia: 7% annual growth
India and China new importers; projections revised upward Taiwan and South Korea Japan stated goal of increasing gas fraction

seasonal demand peaks

United States: 30% annual growth?

gas consumption: 450 mt/year; LNG 6 mt (2003) import capacity: 20 mt/year (all four facilities open)
existing terminals plan to expand to 30 mt/year proposals for 50 mt/y only a few of these are likely to be built Gulf Coast, Mexico terminals: strong progress

Europe: 5% annual growth

import capacity 35 mt/y may build to 80 mt/year by 2010 UK as import hub? progress on terminal plans

LNG Consumption

141.7 mt in 2005 about 6% of world natural gas consumption growth to 2012:

Asia: 8% Europe: 4% Americas: 20%+

300

Americas 250

200 Europe

L N G , m t/y

150

100

Europe Asia

50

Asia

2005 imports

2012 imports, base case

12

North American Import Facility Projects USA (1)

Cabrillo Port Calhoun LNG Compass Pass LLC Corpus Christi Corpus Christi Bay Crown Landing Freeport Northeast Gateway Gulf Gateway Cameron LNG Broadwater Oxnard, CA TX offshore LA TX Corpus Christi, TX NJ TX Gloucester, MA offshore LA Hackberry, LA Long Island Sound 6.0 mt/y 6.5-7.5 mt/y 7.5 mt/y 19.5 mt/y 7.5 mt/y 9.0 mt/y 11.5 mt/y 6.0 mt/y 3.7 mt/y 11.0 mt/y 7.5 mt/y BHP Billiton Calhoun LNG Conoco Phillips Cheniere Energy Occidental BP Freeport LNG Excelerate Excelerate Sempra Energy TransCanada, Shell 2008 FERC pending 2009 startup pending CG approval Q4 2007 constr. OK FERC approval 2005 2008
EIS OK

under constr. shipboard regas, 2007 shipb. regas, operating under constr. 2007 startup 13

North American Import Facility Projects USA (2)

Main Pass Pearl Crossing Pelican Island Sempra Eng. Port Pelican Sabine Pass Golden Pass Terminal Island Ventura Vista del Sol Gulf Landing offshore LA offshore LA Galveston, TX Port Arthur,TX offshore LA LA Sabine Pass, TX Long Beach, CA offshore CA Corpus Christi, TX W.Cameron, LA (offshore) 18.7 mt/y ? 9.0 mt/y 11.0 mt/y ? 20-30 mt/y 15.0 mt/y 7.5 mt/y 7.5 mt/y 7.5 mt/y 7.5 mt/y Freeport McMoRan ExxonMobil BP Sempra ChevronTex Cheniere Energy ExxonMobil, Qatar Petro Mitsubishi, ConocoPhillips Crystal Energy ExxonMobil Shell 2009 2008/09 MarAd appr. pending approvals on hold no firm plans EIS OK 2009 on hold final approvals 2008 startup 2009 2008

14

North American Import Facility Projects non-US

Bear Head Canaport Gros Cacouna Keltic LNG Point Tupper Calypso & High Rock Altamira Coronado Islands Costa Azul Manzanillo Point Tupper, Nova Scotia St. John, New Brunswick Quebec Goldboro, Nova Scotia Nova Scotia Bahamas 7.5-11.0 mt/y 3.7 mt/y 3.7 mt/y 3.7-14.0 mt/y 3.7 mt/y 6 mt/y Anadarko Petroleum Irving Oil, Repsol YPF TransCanada, Petro-Canada Keltic Petrochemical Statia Terminals El Paso, Florida P&L, Tractebel Shell, Total, Mitsui Chevron Sempra Energy Mex. state power co. 2008 under constr.; delayed (07) 2008 under constr. 2008 2007-09

Tamaulipas, Gulf Coast Baja California Baja California Colima, Mex

9.7 mt/y 5.2-10.5 mt/y 7.5 mt/y 3.7 mt/y

nearing completion 2008 approved 2007 approved 2007 15

LNG Supply

300

250

200 LNG, mt/y

Norway & Russia Americas Arabian Gulf Africa Pacific

150

100

50

0 2004 export capacity 2012 exports, base case

16

New LNG Supply Projects:

Under Construction/Advanced Planning
source Algeria Angola Australia Egypt Equatorial Guinea Indonesia Iran Malaysia Nigeria Norway Oman Qatar Peru Russia Ukraine Venezuela market Europe, US Europe, US China, Japan, US Europe, US US Pacific Asia (India) India/Japan Europe, US US, Europe Europe, Korea Pacific & Atlantic basins Mexico Japan, Korea ? Atlantic basin plans expansion, online 2006 1 project, startup 2007 3 projects, startup 2004 to 2006 4 projects, startup 2004 through 2006 1 project, startup 2007 expansion plus 1 new project, startup 2007 3 possible projects (Pars field), startup 2009 3 new projects plus recent expansion expanding capacity, online 2006/07 1 project, startup 2005 expansion, online 2005 expansion plus 3 large new projects 1 project, startup 2008 1 large project, startup 2006 one LNG plant, startup 2007/08 2 projects, startup 2004 and 2008 17

Shipping Demand Projection trade route distance increasing

average 2,300 nm today Oman/Qatar to Europe: 4,000-6,000 nm Oman/Qatar to N. America: 8,000 nm

base case growth to 2010: 19%/year

low case 11% high case 25% strongest growth 2007/08/09

18

Outline

LNG shipping in context shipping demand and supply

trade projections fleet development implications for fleet utilization

trends and risks

charter terms short term (spot) trades structural changes

LNG Tank Designs: Spherical Tank (Moss)

Photo removed due to copyright restrictions.

LNG Tank Designs: Prismatic Membrane Tank

Photo removed due to copyright restrictions.

LNG Fleet, Q2 2006

200 ships 23.9 million m3 cargo capacity vessel classes:

Med-max: 75,000 m3 Conventional: 135-160,000 m3 Atlantic-max: 175,000 m3 Q-flex: 215,000 m3 (20+ on order) Q-max: 260,000+ m3 (first orders just placed)

well maintained (only 4 large LNG vessels scrapped to date), but retirements coming
22

$million, 125-150,000 m3 LNG ship 100 150 200 250 300 350 400 450 500 50 2005$ nominal 0

(Conventional LNGC)

Newbuilding Price

19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04

23

$ million (nominal)
100 150 200 250 300
90 .1 91 .1 92 .1 93 .1 94 .1 95 .1 96 .1 97 .1 98 .1 99 .1

Newbuilding Price Projection 150,000 m3 LNGC

Newbuilding Price Forecast 150,000 cbm LNG Vessel

high low base

20 00 .1 20 01 .1 20 02 .1 20 03 .1 20 04 .1 20 05 .1 20 06 .1 20 07 .1 20 08 .1 20 09 .1 20 10 .1

24

Orderbook (as of late May 06)

Yard
remaining 2006 deliveries 2007 deliveries 2008 deliveries 2009-10 deliveries

Daewoo, Korea Hyundai, Korea Samsung, Korea Kawasaki, Japan Mitsubishi, Japan Mitsui, Japan Universal, Japan Koyo Dock, Japan Hudong, China Izar, Spain Chantiers de lAtlantique, France

5 -4 3 1 -----3

8 10 9 2 3 -1 1 1 1 --

14 8 11 3 4 1 -1 2 ---

9 6 11 1 1 -1 1 2 ---

25

million m3 capacity 0.0 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 0.5 1.0 1.5 2.0 2.5

Fleet Growth Projection

26

million cubic meter LNG capacity 0.5 1.5 2.5 0 1 2

0 2 4 6 8 10 12 14 16 18
age

LNG Shipping Supply: Fleet Age Profile

20 22 24 26 28 30 32 34 36 38

LNG Fleet: Major Owners (2003)

Owner
Mitsui OSK Lines (MOL) Malaysia International Shipping Corp. (MISC) Qatar Liquefied Gas (MOL, NYK, K Line) Shell Group National Gas Shipping Co. (Abu Dhabi) Nigeria LNG ProNav Schiffahrtskontor (Germany; MOL affiliate) Australia LNG Ship Operating (Shell, BP) Golar LNG Hyundai Merchant Marine SNTM-HYPROC (Algeria)

Fleet
5 outright; interests in 38 11; interests in 16 10 9 8 8 8 6 6 6 6

Orderbook
interests in 15, firm 5 firm 3 firm 1 firm

4 firm

1 firm, 2 options 4 firm, 2 options

LNG Fleet: Major Charterers (2003)

Pertamina RasGas Petronas Adgas NWSSS Brunei LNG Gaz de France Nigeria LNG

27 ships 19 ships 15 ships 8 ships 8 ships 7 ships 6 ships 6 ships

Indonesias state oil&gas co.

Ras Laffan, Qatar (63% Qatar Petroleum, 25% ExxonMobil, 4% Itochu, 3% Nissho Iwai, 5% Korea Gas Corp.) Malaysias national petroleum corp.

Abu Dhabi Gas Liquefaction Limited (Das Island, Abu Dhabi), part of Abu Dhabi National Oil Company (ADNOC) Group Northwest Shelf, Australia (Woodside Energy, Shell Development, BHP Petroleum, BP Developments, Chevron Australia, Japan Australia LNG) Bruneian government and Royal Dutch Shell

Semi-public French gas company

Finima, Bonny Island, Nigeria (Nigerian National Petroleum Corp., Shell Gas, Elf, Agip)

LNG Fleet: Major Operators (2003)

Shell Tankers Golar Nippon Yusen Kaisha (NYK) Line Mitsui OSK Lines (MOL) ProNav Schiffahrtskontor (MOL affiliate) Hyundai Merchant Marine SNTM-HYPROC (Algeria)

13 ships 13 ships 10 ships 8 ships 8 ships 6 ships 6 ships

Outline

LNG shipping in context shipping demand and supply

trade projections fleet development implications for fleet utilization

trends and risks

charter terms short term (spot) trades structural changes

Fleet Utilization Projection

80

75 LNG fleet theoretical utilization (%)

70

65

60

55

50

45

40 2000-2002 2003 2004 2005 2006 projected 2007 projected 2008 projected 2009 projected 2010 projected 2011 projected 2012 projected

32

Conventional LNGC Short Term Charter Rate Projection

80 short term charter $1,000/day high 70 60 50 40 low 30 20 2006 2007 2008 2009 2010 2011 2012
33

base

Outline

LNG shipping in context shipping demand and supply

trade projections fleet development implications for fleet utilization

trends and risks

charter terms short term (spot) trades structural changes

Trend: Shorter Contracts

traditional contracts: 20-25 years, bareboat today: typically shorter (10 years and less) time charters, more flexible (that is, more risk and opportunity for owners) no commodity market (yet)
each potential fixture negotiation involves a select, small number of possible vessels rates based largely on delivered energy content cost

Outline

LNG shipping in context shipping demand and supply

trade projections fleet development implications for fleet utilization

trends and risks

charter terms short term (spot) trades structural changes

Spot Market Growing

excess supply capacity underutilized fleet demand fluctuations and import terminal capacity
Atlantic market (US) Pacific market (Korea, Japan, India)

compartmentalized

LNG Spot Market

LNG trades of 2 years or less duration (estimated)

12

10

million tons/year

8 Asia 6 Europe

US

0 1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Spot Trade Participation

75% of short term fixtures have been vessels within their own contract trades (particularly on Pacific routes) most spot voyages to date on Atlantic routes, Atlantic owners
Africa, Arabia to Europe, US Trinidad to US, Europe

Asian routes & vessels becoming more engaged (MISC)

Fleet Utilization and Short Term Charter Rates

short term charter rate, 1,000$/day

140 120 100 80 60 40 20 0 60 65 70 fleet utilization rate % 75 80 historical forecast

Outline

LNG shipping in context shipping demand and supply

trade projections fleet development implications for fleet utilization

trends and risks

charter terms short term (spot) trades structural changes

Changing Shipping Field

Traditional Asian players (Japan, Malaysia) positioning for Atlantic market, spot trade role Acquisitions
Teekay (Tapias) Golar (stake in K Line)

New players Greek owners

Anangel Tsakos Energy Navigation Dynacom others

LNG Shipping Trends

More choices in power plants

Dual fuel diesel-electric Traditional slow-speed diesel w/reliquefaction Gas turbine?

Greater range of vessel capacity and regas options More flexible/efficient fleet utilization

Delivered Cost of LNG

delivered cost of gas

3.50

3.00 LNGC 150 LNGC 250 LNG-RV CNGC $/mmBtu

2.50

2.00

1.50
1, 00 0 2, 00 0 3, 00 0 4, 00 0 5, 00 0 6, 00 0 7, 00 0 8, 00 0 9, 00 0 10 ,0 00 50 0

trade route distance, nm

Summary: LNG Shipping Prospects

Opportunities: for the long run, trade is set to grow; ships are needed spot market growth has been lucrative fleet utilization has been high newbuilding prices are low Risks: catastrophic accident could derail (US) terminal plans project delays can slow trade growth strong fleet growth -utilization rates headed down short-term risk shifting to owners (contract patterns) technological change

Summary
LNG trade volume to grow by 80-130% to 2010
import facilities?

LNG spot market has softened; rebound not likely until 2006/07 ordering is accelerating; 2008 slots filling fast; newbuild prices firming up new entrants: acquisitions, speculative ordering shift in time charters and growing spot market are pushing LNG toward the standard bulk shipping market model within limits