 One of the more important developments that has been a result of the abundance of natural gas that we have in North America's result of the shale plays is this idea of starting to export liquefied natural gas. As more and more production grew, producers were looking for different outlets and we were importing less and less natural gas over time. So this is sort of a silver lining that we're hoping will happen by the end of 2015 or at the latest early 2016. Here's just pictures of four of the existing LNG import facilities that we have in the United States and you can actually see there's one off of Massachusetts, one off of Georgia, one off of Maryland and one of three that we have in the Gulf Coast region. Now what is liquefied natural gas? It's natural gas that's cool to a minus 320 degrees Fahrenheit. Now what this does is it reduces the volume by over 600 times which it makes it easier to transport and store. So in other words let's just say if we had a cubic foot of natural gas there's a certain amount of BTU within that but the same cubic foot of liquefied natural gas would have 600 times the heating value. So you can see we're storing the liquid or transporting the liquid you are actually storing and transporting a much much higher heating value than with pure methane. So you can see here a ton of liquefied natural gas is equivalent to 47 MMBTUs or 47 million BTU and one ocean-going LNG tanker can hold the equivalent of 3 BCF of natural gas. You can see here the main sources of liquefied natural gas that the US had been importing back in 2012. You can just see some of the countries here the most coming from Trinidad and Tobago. Following by Qatar, Qatar is still the world's largest exporter of LNG and then smaller pieces coming from three other regions. And it is of course a global market as I mentioned you can see Qatar is in the number one spot at the moment followed by Malaysia and Australia. The fact is Australia has some major projects going on off their west coast not only offshore production of natural gas but large facilities one in particular being the Gorgon project which has ExxonMobil as a partner. They will probably overtake Qatar in the number one spot within the next year or so. And then the markets you can see Japan is the largest importer of LNG. Japan has absolutely no natural gas production themselves likewise with South Korea and so they have to import 100% of the natural gas that they do consume. China in the third slot now China has some natural gas reserves but they're not developed yet. They actually have some shale plays. Pricing around the world varies from region to region. In Japan they price LNG landed off of the price of crude oil that's imported. The so-called Japanese cocktail what it amounts to it's the average price for the crude oil that's been purchased as cleared through their customs. And so it really it's Japanese cleared customs crude pricing but it's just referred to as the Japanese cocktail. In Korea and Taiwan again it's the price of LNG landed is tied to the BT equivalent basket of crude oil postings in the UK, continental Europe and Southeast Asia. It's a combination of oil and coal prices again converted to BT U basis and then the pricing for LNG on a BT U basis is equivalent. Now in the United States and Canada we have been traditional importers and we have very limited export facilities but we have a competitive natural gas marketplace as you all know from your studying and earlier lessons we have the New York Mercantile Exchange so we have an open active competitive marketplace for natural gas. Now Russia, China and the Middle East they regulate the price the various countries the governments do and they actually subsidize the price for their citizens. You can see here that because of the growth in the shale gas we have you know steadily declined our imports over the years. Now the US as an exporter some of the reasons that make sense for us we do have a surplus gas supply the shale plays and the tight formations have resulted in abundant relatively cheap supply of natural gas. Three dollars or less is an extremely cheap price for natural gas and the EIA estimates that estimates that we were producing about three BCF a day more supply than we have market for and as I mentioned in the previous slide we have a competitive natural gas based pricing market. This is actually causing some renegotiations of some of the existing global contracts in other words Japan sees the coming of LNG exports by the United States and so they're already talking to some of their suppliers and saying you know look we want to get off of this crude oil pricing type of mechanism in our contracts and convert over to some type of natural gas index. We have existing LNG import facilities those pictures I showed you in the beginning and we actually believe it or not we are exporting virtually at the moment the since we no longer need natural gas imports in the form of LNG what's happening is those entities in the United States who have contracted for tanker loads are literally selling them mid-sea so to speak sending them to different ports rather than coming to the United States and then we actually have had for about 20 years a small LNG export facility off the coast of Alaska in a point called Kenai and that's been operated by Conoco Phillips. You can see here now the red squares represent existing LNG points again off of Massachusetts, Cove Point, Maryland, Elba Island, Georgia and then we have about four in the Gulf Coast area. Now these are going to be the logical facilities to export. They have about 60 to 70 percent of the infrastructure in place already. They can handle tankers for offloading. They have on-shore storage. They have connections with pipeline companies so what they're doing is they're building the gasification excuse me the liquefaction trains. We talked about the fact that the natural gas has to be super cool. Well that takes a liquefaction facility or train to be built so in other words they've got a lot of the infrastructure already in place. So some of these other companies that believe they're going to dive into this particular arena are not going to have the facilities it's going to cost them a considerable amount more investment. You can see here of course the natural gas exports and re-exports by country. Again we have declined in terms of our imports and then all of a sudden you can see we've actually started to do some exporting. And then the ways that it gets to market again this is that logistics and value chain we talked about for natural gas. In the case of exporting LNG you can see here that the wellhead gas is going to move by pipeline to the liquefaction facility and then it gets shipped to a particular port of entry where it's regassified and then distributed to the various areas of need. So it's sort of the opposite process that we've been used to for decades now where we actually receive the LNG and we regassify it and we utilize it through the pipeline system to the various end users. Pricing wise again here in the United States we've got a financial natural gas forward market which you're familiar with is the NIMEX provides price discovery so everyone knows where the price is. Now just currently based on the one year average price for natural gas at Henry Hub it's approximately three dollars and five cents at the time that I put this particular lecture together. Now these are the estimated supply chain costs in U.S. dollars premium BTU. Approximately two dollars and fifteen cents represents the process for the liquefaction. Shipping overseas is about a dollar twenty five. Regassification at the new port of entry is approximately seventy cents premium BTU. So you have total costs of about four dollars and ten cents. So in this particular situation you're really around seven dollars and fifteen cents and I apologize this still says seven oh five on it. Now when we compare that to world pricing you can see that there are not that many places in which current LNG exporters can make money at seven dollars and fifteen cents. Now throughout Asia that's still a pretty good deal and they're still going to make money in parts of South America but over in Europe you could not at the present time export LNG and make money over there. Now this situation has dramatically changed one of the events that created impetus for the U.S. to consider exporting LNG had to be back in March of 2011 with the Fukushima nuclear power plant disaster in Japan. As I mentioned earlier Japan is solely dependent on imports for natural gas and imports in the form of LNG. Well at the time they shut down all of their nuclear power plants. So the demand for natural gas in Japan spiked and we're seeing prices upwards of fourteen dollars per MMBTU. So you can imagine at the time those planning the LNG export facilities at the United States were expecting extremely lucrative business and very very large profit margins such as is not the case today and in fact Japan is looking at relicensing their nuclear power plants again. So the questions are going to become at the end of 2015 or early 2016 when we actually start to export LNG into the global market and become a global player in natural gas. What will the prices be at that time. Now these are some of the proposed terminals. These are facilities who have already been granted permits but not necessarily have been started construction or gotten all the capital investment that they currently need. Now from a regulatory standpoint the issues for U.S. entities to be exporters. First you have regulatory. The Department of Energy provides the first tier of approvals. Now back in 1938 we had the Natural Gas Act and it allowed for the exportation of natural gas to countries which have free trade agreements with the United States to be an automatic process. So the DOE automatically grants permits to entities wishing to export LNG to any country with which the United States has a free trade agreement. Now there has to be special approval if those same entities wish to sell LNG to non-FTA countries. And as the moment we have over 40 permits that have been filed with the Department of Energy. Now that's the easy part. Now the Federal Energy Regulatory Commission which as we talked about before has jurisdiction over all natural gas pipeline facilities. They in fact are going to have to do the final approvals. And again getting back to the Natural Gas Act of 1938. There is a section 7C and that is a requirement that a certificate be filed with the Federal Energy Regulatory Commission for all new facilities. So FERC is going to want to see the project plan. The contracted customers for the LNG exports. The environmental impact studies and anything else that would lead to ultimate approval by FERC. And then from a market standpoint one of the issues is the end users versus the producers. Producers want this market. It represents a substantial increase in demand for natural gas in the United States. However the end users throughout the U.S. are going to become concerned about a rise in natural gas prices as a result. Some of the other issues involved the legislative issues you've got you know on a federal level you're going to have senators and congressmen from the consuming states are going to be concerned about rising prices once we start to export it. And then the same thing at the state level. They're going to be concerned especially the non-natural gas producing states are going to be concerned about rising natural gas prices. And then in certain states there's going to be the concern about fracking. And then environmental groups are opposed to LNG exportation because they believe that all of this gas that's going to be exported is coming from wells where it's shale and it has to be fracked and that's not the case. We have an interstate pipeline grid throughout North America and so the gas is commingled so no specific source goes right to these LNG export facilities.