GNL CHILE EXPERIENCE AND BUSINESS MODEL Presenter Alejandro

GNL CHILE EXPERIENCE AND BUSINESS MODEL Presenter: Alejandro Palma – GNL Chile Co Author: Rafael Gonzalez – GNL Chile Owned and presented by Host IGU Member Supporting Association Company logo here

Topics • • • GNL Chile Introduction The Business Model Annual Delivery Program Construction ADP Modifications Results of the Business Model Conclusions

GNL Chile Introduction • • GNL Chile is the main importer of LNG in Chile. Using the Quintero LNG Terminal, it delivers Natural Gas to 3 direct long term customers: A power generator (Endesa), a refinery (Enap) and a distribution company (Metrogas). In the secondary market, 2 other power generators and a distribution company receive natural gas. LNG Quintero Terminal

GNL Chile Introduction • The central zone of Chile supplied solely by GNL Chile, concentrates 80% of the natural gas demand in Chile. • Quintero LNG Terminal has a send-out of 3. 75 mtpa, 310, 000 m 3 of storage. • An expansion plan to complete 5 mtpa and 460, 000 m 3 of storage overall is underway. LNG Quintero Terminal

GNL Chile Introduction Jetty: 1, 900 m long, 12. 5 m high Vap Capacity: 3, 75 mtpa Storage Capacity: 336, 000 m 3 Anti seismic and tsunami design

The Business Model Limited Storage Capacity Developed by a Pool of Buyers 3 companies and potentially more in the future. Relatively small sized sponsors Aggregation of demand was required Was the traditional Tolling Model the optimal solution? Due to high cost o the antiseismically designed tanks. Security of Supply was critical No alternative natural gas supply

The Business Model Direct Agreement Payments for LNG and Credit Support LNG Suppliers (Long Term or Spot) Gas Buyers GSA TUA SPA / MSPA GNL Quintero

The Business Model Offtakers Suppliers LNG LNG LNG MARKETING COMPANY LNG Requirements for LNG Suppliers • Investment Grade credit rating • Accession to a common arbitration system (only for long term suppliers) • FM including main transportation pipelines • Compatible programing

The Business Model LNG Quintero Terminal

Annual Delivery Program construction 1. GNL Chile receives from the Gas Buyers the daily requirements for the next year and aggregates. Gas Buyer must request annual quantities compatible with their respective SPAs.

Annual Delivery Program construction 2. GNL Chile receives from the programed cargoes from all Suppliers and combines with the aggregated demand to build a draft ADP. LNG LNG LNG Supply, demand physical limits of the terminal may lead to an ADP that is not be “feasible”

Annual Delivery Program construction 3. GNL Chile discusses with Gas Buyers (to adjust their requirements) and Suppliers (to adjust their deliveries) to make a feasible ADP. LNG LNG LNG If there is no agreement, GNL Chile may run a “default procedure”. Once there is an agreement, the ADP, including the daily rights of each Gas Buyer, is established.

Daily Operation Every day, each Gas Buyer has the right to nominate its daily programed volumes for the ADP. But they have also the flexibility to nominate more or less than the program: • Each Gas Buyer can nominate less than programmed, as long as the increase in the LNG stock does not affect the unload of subsequent cargos. • Each Gas Buyer can nominate more than programmed, debiting future programmed volumes, or because there are volumes that where programmed and not nominated for the previous days of the contract year.

Daily Operation To allow the use of these flexibilities, GNL Chile informs to each Gas Buyer the minimum and maximum limits for the nomination. GNL Chile also informs to all Gas Buyers, their own program and the overall program, so they can plan ahead

ADP Modifications Gas Buyers can request changes in the ADP, requesting an increase in the programmed volumes (which will be reflected in purchasing of Spot Cargos) or a decrease in the programed volumes (leading to a cancellation or diversion of a Cargo). In both cases, the requested changes are integrated in the ADP as long as they don’t affect the rights of the other Gas Buyers. This may require some negotiations among Gas Buyers. There are rules in place to prevent this negotiations and allow this changes to happen “automatically”

ADP Modifications

5 weeks Spot cargo ADP Modifications CCGT demand (8 weeks).

ADP Modifications Higher inventory the original ADP Lower inventory than original ADP The Gas Buyer that is requiring the Spot cargo: ü Must have enough Gas Entitlement to sustain the lower inventory ü Will be responsible for demurrage to the extend it is caused by the higher inventory

Results of the Business Model One of the highest utilization rates in the world Flexibility (6 -8 spot cargoes and cancellations/diversions during each contract year) Quintero Terminal 2014 World Average 2014 Source: GIIGNL – The LNG Industry 2014, GNL Chile

Results of the Business Model In Chile there is no Third Party Access regulation. Nevertheless, GNL Chile has developed 2 Open Seasons, which were based on European Regulations: • Open Season I (2011): 10 participants. 1 requested capacity in the nonbinding phase, no firm commitment. • Open Season II (2014): 19 participants. 8 requested capacity in the nonbinding phase, 2 contracted the capacity and signed GSAs. • Although not formally an Open Season, all potentially interested parties where invited in 2004 when the project was developed.

Results of the Business Model • Business Model allowed flexible conditions for Open Seasons, including a minimum contracted capacity of 0, 6 mcm/d: ü A customer contracting the minimum capacity may be supplied with an SPA with 2 – 3 cargoes per year, and have a flat/distributed demand through the whole year ü Terms options: 10, 15 or 20 years

Results of the Business Model ü Active Secondary Market (~50%) ü LNG generates up to 30% of Chilean main power grid. ü Highly dependant on Hydrology

The Business Model Truck Loading Facility

The Business Model • More than 1 million tons of LNG delivered by truck • Truck Loading Facility Distances of more than 1. 000 Km • LNG distributors access through Secondary Market

Conclusions Pros ü Easy Sharing Storage Capacity ü Annual Program Optimization ü Demand can be aggregated ü New Users Easy Access ü Tolling Tariff Cons Ø Off-takers have indirect connection with LNG Suppliers Ø SPA negotiations have to respect boundaries

Thank you