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Statoil Bullish on Gas Prices, Plans LNG Imports

Statoil Bullish on Gas Prices, Plans LNG Imports

Statoil Energy is bullish on gas prices this winter and over the long haul, so bullish, in fact, it may begin long-term LNG importing in the next few years, company officials said at a press briefing last week at the company's U.S. headquarters in Alexandria, VA.

"One interesting thing that may affect [the supply-demand] equation in the coming years is LNG coming into the U.S. Oil is a world commodity. Natural gas is not. But we see that the technology has changed enough both in terms of processing gas into LNG as well as the shipping and receiving aspects that LNG is becoming a much more viable enterprise not just for Japan but potentially for North America," said CEO David Dresner. "It's one of the roles we hope to play here. We hope to see Norwegian gas hitting our shores here in the next four or five years."

Norway's Statoil, for which the North Sea is home, is the world's second largest exporter of crude oil. Dresner said the company recently discovered gas offshore northern Norway where it's impractical and uneconomic to build a pipeline to northern Europe. One of the options being explored is building an LNG plant there and exporting to North America, Israel and Spain. "That way they could arbitrage the European continent against the U.S. market in the future for gas in the same way they currently arbitrage for crude products on a regular basis. It's good for Statoil, but it's also good for the U.S. because in the long run we're not going to be able to keep up with demand."

Dresner expects this winter to be a significant turning point for gas demand. "After two winters without a winter, I'd say we're due," he said. "We're due with El Nino and so forth. Looking longer term, I think there's lots of reasons to be bullish about the gas market. The fact that oil prices are so horrible is very bullish for the gas market because that means fewer oil wells will be drilled and that's a major source of gas. We expect to see some lesser amount of production of natural gas coming out if the market stays where it is for oil."

Furthermore, most of the gas in the U.S already has been discovered, he said. "[We're just fighting] decline. We have 7,000 wells that we currently operate. We're drilling 200 wells a year. We'll grow our production but it's hard to grow it at a very substantial rate." Other bullish fundamentals include the robust economy, the rapid growth of housing and the abundance of new gas-fired power plants proposed. "There's a whole series of things on the demand side that look very bullish, and there's at least something temporarily on the supply side that will affect the market."

Dresner said Statoil is actively exploring LNG terminaling arrangements, including possibly investing in a revamping of Columbia's mothballed import terminal at Cove Point, MD, or bringing LNG to Citrus Corp.'s Elba Island, GA, import terminal. "Cove Point would require some investment to convert to [import capabilities], but Statoil is not the only one looking at this in the marketplace," he said. "Cove point was very successful, but then in a blink of an eye the marketplace changed. Now it's looking like it will be sustainable both because gas prices look healthy for a good 10 years out certainly and the technology and efficiency of LNG has improved so dramatically."

Rocco Canonica

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