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1、Top picks,Buy,Buy,Buy,45,0,%group volumes,16.0%,14.0%,12.0%,10.0%,8.0%,6.0%,4.0%,2.0%,0,6,0,7,0,8,0,9,0,0,0,1,0,2,0,3,0,4,0,5,0,6,0,7,0,8,0,9,0,0,Deutsche BankMarkets Research,EuropeUnited KingdomOil&GasIntegrated Oils,IndustryEuropean IntegratedOils,Date27 August 2012Industry UpdateLucas Herrmann,A
2、CA,LNG into 2020 and beyondStrong outlook for demand growthWith demand growth compounding at c.7%since 1990 gas into LNG nowaccounts for broadly 10%of major IOC production and will rise to nearer 15%by 2020 based on current post FID projects.Yet with a host of new supplyoptions emerging in the US an
3、d East Africa,amongst others,and shale gas apotential threat does sufficient demand exist to monetize the resource nowdiscovered and can price formulae hold?Our analysis of LNG markets arguesfor a doubling in demand by 2025 to 450mtpa with only modest erosionanticipated for current pricing.Best posi
4、tioned for near and long term trendsare BG and Shell with relatively low cost Mozambique a positive for ENI.An awful lot of fluxIOC investment in LNG over the past two decades has proven a strong driver ofproduction growth and a prodigious source of annuity-type cash flows.Compound market growth of
5、7%has reflected both healthy demand from,Research Analyst(+44)20 754-Mark Bloomfield,ACAResearch Analyst(+44)20 754-BG Group(BG.L),GBP1,293.50Royal Dutch Shell Plc(RDSb.L),GBP2,309.50ENI(ENI.MI),EUR17.41LNG value exposure absolute$m and%Group$m NPV1090000,existing end markets but also the steady eme
6、rgence of new demand centers.Yet in a world where shale gas is emerging as a new source of supply andmajor new stranded gas provinces are being unveiled is the industry in dangerof proving up substantial new gas resource at just the time that demandgrowth meaningfully moderates with pricing material
7、ly undermined byincreased competition for supply?,8000070000600005000040000300002000010000,403530252015105%,Demand more than sufficient to ensure continued robust growthOur analysis of the major demand centers argues that where the geographic,Shell,ExxonMobilUpstream,BG,T otalDownstr eam,C hevron,BP
8、%Group NAV,Eni,0%,bias of end market growth will shift significantly from mature JKT towardsemerging China and India,absent a collapse in Asian economies the potentialfor demand growth of c.5%to at least 2025 appears very real.Combined withfaltering supply from founder projects we see the need for a
9、t least 190mtpa ofincremental supply over and above that in construction.With the marginal costof such supply sitting at c$12/13mmbtu Australian Greenfield developments dolook increasingly challenged.Assuming up to 50mtpa of US exports by 2025(likely aggressive in our view)East Africa,however,feels
10、comfortably placedon the cost curve(a positive for ENI in Mozambique and BG in Tanzania).Equally,where Hub plus$6-7/mmbtu may see introduction into price formulaeoil-linkage will,in our view,continue to dominate with the cost of supplydictating that,despite growing buyer choice,terms are unlikely to
11、 sharply fall.,Source:Deutsche Bank estimatesLNG as%IOC volumes to 2020Atlantic expansions(Sakhalin,Tannguh,Qatar,Rasgas,NLNG,Yemen)drive growthFrom 2014 Pacific expansion(Gorgon,Ichthys,PNG,Prelude,WheatstoneQGC,GLNG)drives the next wave,Valuation&risk,0.0%,20,20,20,20,21,21,21,21,21,21,21,21,21,21
12、,22,From a stock perspective the clear beneficiary of the short term trends remainsBG(Buy 1700p)which in our view has stolen a march on its peers at Sabine,Source:Deutsche Bank estimates,Pass and whose forward options look well placed on the cost curve.With 40%of its value and near 30%of its product
13、ion LNG related it is the outstandingplay on the positive trends with significant trading upside should the currentwave of projects face delay.Shells(Buy 2475p)unparalleled range of forwardsupply options combined with its relationships(not least with CNPC)suggest itis better placed than all to choos
14、e where and when to invest offering it muchgreater flex to deliver growth and return.For Total(Hold 42),near termgrowth looks very healthy although worryingly its suite of forward choices nowlook challenged whilst BP(Buy 480p)appears set to lose further ground._Deutsche Bank AG/LondonAll prices are
15、those current at the end of the previous trading session unless otherwise indicated.Prices are sourcedfrom local exchanges via Reuters,Bloomberg and other vendors.Data is sourced from Deutsche Bank and subjectcompanies.Deutsche Bank does and seeks to do business with companies covered in its researc
16、h reports.Thus,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.DISCLOSURES ANDANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MI
17、CA(P)072/04/2012.,27 August 2012Integrated OilsEuropean Integrated OilsTable Of ContentsExecutive Summary.3LNG-Key to the rebuild at Big Oil.3Decade of two halves.4Underlying growth augmented by new demand centres.4LNG supply to 2025 many horses but several will fall.7US exports what should we expec
18、t?.8Where to price-Oil linkage to remain but with a slice of Hub?.11The companies-BG,Shell and Total leaders;ENI lags(for now).12Decade of two halves.14Near term the Asia Pacific basin is short with little scope for relief.14Demand to 2020 and beyond.16Underlying growth augmented by new demand centr
19、es.16LNG supply to 2025.24Many horses but several will fail to reach the FID post.24The supply opportunity with 80mtpa in build,190mtpa of further additions by 2025.24US exports what should we expect?.29Where to price-Oil linkage to remain but with a slice of Hub?.32US LNG exports the chance for the
20、 arbitrageur to rejuvenate.33LNG to 2025:Corporate implications.35An attractive end market offering strong growth potential.35The Companies:Overview.38Comparing and contrasting the LNG majors 2017 vs.2012.38Comparing and contrasting the LNG majors Side by Side.39Appendix A:US exports and European ga
21、s.54Appendix B:US supplier economics.57Sabine Pass-what does it tell us about capacity charge flex?.57Appendix C:Shipping in brief.59Those relying on short term charters risk losing upside.59Appendix D:Portfolios&options.60BG Group:Expanding position,east facing options.60Shell Footprint dwarfs peer
22、s,as do options.61BP Broad legacy position but limited growth potential.62Total A decade of reinforcement now slows.Difficult options.63Chevron Staggering growth to come but very narrow focus.64Exxon Building out from its Qatar dominated base.65ENI Broad spread with Atlantic concentration,Mozambique
23、 key.66Sector Investment Thesis.67Outlook.67Valuation.67Risks.67,Page2,Deutsche Bank AG/London,2006,2007,2008,2009,2010,2011,2012,2013,2014,2015,2016,2017,2018,2019,2020,2000,2001,2002,2003,2004,2005,2006,2007,2008,2009,2010,2011,2012,2013,2014,2015,2016,2017,2018,2019,2020,50,40,27 August 2012Integ
24、rated OilsEuropean Integrated OilsExecutive SummaryLNG-Key to the rebuild at Big Oil,In our September 2011 note entitled Profiting from Big Oils Renaissance we high-lighted that we believed that the major oil&gas companies were transitioning from amodel built primarily on conventional hydrocarbons t
25、o one increasingly built onunconventionals.Across the 2005-15E period we estimated that non-conventionalsources of production would grow at an estimated 8%CAGR as compared toproduction growth in aggregate of just 1%across the same period thereby rising toc40%of portfolio volumes from nearer 20%in 20
26、05.Equally,we argued that beyond altering the sources of production growth the industrywas focused on changing the structure of its cash flow model,with substantialinvestment in duration-type upstream assets being undertaken to offset the deleteriouseffect of the relative decline of the industrys tr
27、aditional source of long duration cashnamely its downstream interests in ex-growth OECD refining markets.The consequencewe argued was that the industry was at an inflexion point,albeit one likely to last yearsrather than quarters,and one where firms were moving at different speeds.Nevertheless,the r
28、ise of non-conventionals,build out of new legacy projects and theestablishment of new alliances were all helping to create a template in which Big Oilwas regaining relevance with the outlook for the cash cycle and resource access/growthstronger than widely perceived.Key to this outlook,amongst other
29、s,was the potential for the industry to benefit fromits growing investment in LNG.For whilst the upfront capital costs of these projectswere very substantial,what they offered industry participants was a 20-year plus sourceof maintenance-capex light,plateau type production generating strong future c
30、ashflows from predictable volumes.Moreover,because of the need of relationships,capital,technology and global infrastructure they also presented the large cap industrywith important barriers to entry and sources of competitive differentiation.One year on and several FIDs later,our perception of the
31、importance of LNG to futuregrowth remains undiminished.Based on projects for which the FID has already beentaken we expect gas into LNG to compound at c.8%over the 2005-20 period rising tobroadly 15%of production by 2020 from c6%in 2005.As the industry bulks up we alsoexpect net cash flows to turn i
32、ncreasingly positive,with the majors seeing a doubling inpre-investment cash flow to c$40bn p.a.at$100/bbl oil by 2020(Figure 2).,The major oil&gascompanies are transitioningBeyond altering the sourcesof production growth theindustry is focused onchanging the structure of itscash flow modelKey to th
33、is outlook is thepotential for the industry tobenefit from its growinginvestment in LNGWe expect gas into LNG tocompound at c.8%over the2005-20 period rising tobroadly 15%of production by2020,Figure 1:Gas into LNG We estimate an increase from6%to 15%of production between 2005-20E%group volumes,Figur
34、e 2:Cash into LNG We see c$40bn of IOC cashflow at$100/bbl by 2020$bn,16.0%14.0%12.0%10.0%8.0%6.0%,Atlantic expansions(Sakhalin,Tannguh,Qatar,Rasgas,NLNG,Yemen)drive growth,3020100,Net cash flow(a+b)Onstream cash flow(a)Post FID in 2012 cash flow(b),4.0%2.0%,From 2014 Pacific expansion(Gorgon,Ichthy
35、s,PNG,Prelude,WheatstoneQGC,GLNG)drives the next wave,-10-20,0.0%Source:Deutsche Bank;Wood Mackenzie Inc RDS,XOM,CVX,BP,ENI,BG,TOTF,STLDeutsche Bank AG/London,-30Source:Deutsche Bank;Wood Mackenzie,Page3,Q408,Q109,Q209,Q309,Q409,Q110,Q210,Q310,Q410,Q111,Q211,Q311,Q411,Q112,Q212,Q312E,27 August 2012I
36、ntegrated OilsEuropean Integrated Oils,Yet as LNG becomes a larger part of the IOCs aggregate production and as such agreater component of its forward growth and capital base,how comfortable are we thatan historic record of healthy growth can continue or that changes in the sources offuture producti
37、on will not undermine price formulae and with them future rates ofreturn?In short,what is the outlook for LNG to 2020 and beyond?Decade of two halvesIn the near term we have little doubt that barring a demand collapse across Asia theglobal market for LNG will exhibit increasing tightness through at
38、least 2015 as growthof 3-4%in supply struggles to keep pace with anticipated 5-6%p.a.demand growth.Already some 20mtpa short,we expect Asian markets to continue to tighten sucking insupply from other parts of the world not least Europe.Moreover,with the projectsexpected to fulfill mid-decade demand
39、at risk of slippage the likelihood must be that thisperiod of tightness is extended.For those on the supply side who are able to contracteither short or long term volumes(BG or the Qataris)the period through 2016 at leastlooks set to be a fruitful one.,As LNG becomes a larger partof the whole how co
40、mfortableare we on the outlook?In the near term we have littledoubt that barring a demandcollapse across Asia theglobal market for LNG willexhibit increasing tightnessthrough at least 2015,Figure 3:The differential in price of spotcharters tells all.Asia is very short supply$/mmbtu,Figure 4:Capacity
41、 build the next threeyears are very lean with delays a risk25.0%,12.0010.00,Delta between UK landed and Japan landed LNG price($/mmbtu)Shipping delta(Nigeria-UK/Japan),20.0%,20.5%,Capacity additions between 2012-2016below historic demand growth with pastexperience suggesting slippage likely,8.00,15.
42、0%,6.00,10.0%,10.9%,7.6%,11.9%,9.9%,11.1%,8.7%,4.00,5.1%,2.00,5.0%,3.5%,3.7%,3.7%,0.4%,0.00,0.0%,2009,2010,2011,2012,2013,2014,2015,2016,2017,2018,2019,2020,Source:Deutsche Bank;Energy intelligence,Source:Deutsche Bank;Wood Mackenzie GLO,Near term great but discoveries,US exports all add longer term
43、 uncertainty,Yet where near term visibility is in our opinion as good as we can remember thediscovery of up to 100TCF of new gas resource off the coast of East Africa togetherwith a flood of export applications in North America argue that the balance in themarket is set to change.Buyers ostensibly l
44、ook set to find themselves in a muchstronger negotiating position.Equally,the emergence of the US as a potential supplysource has raised important questions on the sustainability of the historic linkagebetween contract LNG prices and the oil price,let alone whether a repeat of the USshale experience
45、 in China could materially undermine projected future LNG demand.Thus,where we are confident in the favourable outlook for the market through at leastthe middle of the current decade,push beyond and several questions arise around thesources of supply,the nature of pricing and,perhaps most fundamenta
46、lly,the outlookfor demand.For without demand you dont have a contract.And in an industry whereconstruction costs run in multiple$-billions and speculative build DOES NOT HAPPEN,if you dont have a contract,you dont have a project.Projections for demand aretherefore absolutely fundamental to the suppl
47、y industrys prospects.Underlying growth augmented by new demand centresOver the past two decades the LNG market has grown at a compound rate of c7%p.awith demand driven,amongst others,by strong growth in the developed Asianeconomies(JKT),lower relative pricing and the shift towards lower carbon fuel
48、s.To thePage4,Yet where near term visibilityis robust the emergence ofseveral new sources of supplyraise questions overexecution,delivery and priceThus push beyond andseveral questions arisearound the sources of supply,the nature of pricing and,perhaps most fundamentally,the outlook for demandDeutsc
49、he Bank AG/London,27 August 2012Integrated OilsEuropean Integrated Oilsextent growth has moderated in developed markets on a decade by decade basis thishas been more than offset by the emergence of new demand centres,largely asdeveloping economies have increasingly introduced lower cost gas into the
50、 fuel mix.Figure 5:LNG demand growth two decades of growth at some 6-8%with moderatingunderlying growth augmented by new demand centres,mtpaDemand startDemand endGrowth rate%New sourcesGrowth rate underlying%,1990-200055.9102.76.3%6.3%,2000-2010102.7219.37.9%485.2%,2010-2020E219.3368.75.3%314.4%,202
