Morgan Stanley Blue Paper-Global Gas

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March 14, 2011 MORGAN STANLEY BLUE PAPER

MORGAN ST ANLEY RESEARCH

Global Energy 1 James R. Hubbard, CFA
+44 (0)20 7425 0749

Stuart Baker
+61 3 9256 8929

2

Evan Calio

5

+1 212 761-6472

Vinay Jaising
+91 22 6118 2252

4

Theepan Jothilingam, CFA
+44 (0)20 7425 9761

1

Stephen Richardson
+1 212 761-3741

5

Wee-Kiat Tan

3

Global Gas
A Decade of Two Halves
Significant LNG overcapacity will persist for five years, pressuring global gas markets … Against consensus, we do not believe that global liquified natural gas markets will tighten in 2011. There are many moving parts, but the key variable is that we believe China will be able to satisfy its own growing gas needs with increased local production. With no major change before 2015 in OECD countries’ LNG demand, we believe the 2011 oversupply will persist until mid-decade. … but then it all tightens—fast. After 2015, falling local production will dominate in Europe, and in China local gas production growth will eventually moderate. Unless major construction investment decisions are taken soon, we forecast the world to become structurally short LNG. By 2020, the shortfall will amount to about 100 million tonnes of liquefaction capacity (or almost 50% of current capacity). Our counter-consensus view reflects our close analysis of the regional supplydemand mosaic. To understand the regional dynamics and investment opportunities, this report brings together the perspectives of our analysts covering energy, petrochemicals, clean energy, and utilities across the major geographic regions. Six investment themes: 1) CNOOC, Kunlun Energy, Towngas China, Reliance, and CGG should benefit from domestic production increases in China and India; 2) InterOil, Gazprom, Chevron, Santos, Oil Search, BG, Saipem, and SBM should see new contracts in response to the predicted 2015 gas shortage; 3) Lyondell, Dow, and Petronas Chemicals should receive a boon from low gas prices in the US and Asia; 4) GCL-Poly Energy and Trina Solar are well placed for green growth; 5) ExxonMobil, Statoil, ENI, RWE, and E.ON may face challenges from pricing pressures or contract disputes; and 6) Drax, RWE, E.ON, and CEZ are most exposed to lower power prices in most of Europe.

+852 2848 7488

Matthew J. Thomas
+44 (0)20 7425 5387

1

Utilities 1 Bobby Chada
+44 (0)20 7425 5238

Jonathan Cohen
+1 212 761 6851

5

Petrochemicals 5 Paul Mann
+1 212 761 3865

Clean Energy 1 Allen D. Wells, CFA
+44 (0)20 7425 4146

*See page 2 for all contributors to this report
1 2 3

Morgan Stanley & Co. International plc+ Morgan Stanley Australia Limited+ Morgan Stanley Asia Limited+ 4 Morgan Stanley India Company Private Limited+ 5 Morgan Stanley & Co. Incorporated+

Morgan Stanley Blue Papers focus on critical investment themes that require coordinated perspectives across industry sectors, regions, or asset classes.

Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. *=This Research Report has been partially prepared by analysts employed by non-U.S. affiliates of the member. Please see page 2 for the name of each non-U.S. affiliate contributing to this Research Report and the names of the analysts employed by each contributing affiliate. += Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

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