Major integrated oil company leaders and energy ministers from 25 natural gas producing countries around the globe converged on Washington last week for an OPEC-like summit to promote cooperation in a worldwide LNG market predicted to rival the oil market. The United States will be the dominant consumer.

Near the close of the two-day meeting top Mexican, Indonesian and U.S. government energy officials presided over the signing of a letter agreement for the export of LNG from Indonesia to Mexico, with a large portion of regasified product destined for U.S. West Coast markets.

“Indonesia has the gas, Mexico has the place and the U.S. has the customers,” said Indonesian Energy Minister Purnomo Yusgiantoro, describing the deal. And U.S. Energy Secretary Spencer Abraham said he was happy to see the goals of the LNG Summit evidenced so quickly in the cooperative agreement (see related story).

Addressing the more than 500 attendees earlier Abraham said the United States is going to be “the center of activity in the growing, global LNG market” in the years ahead as it attempts to fill in for declining production with imports. He cited the “major challenges to the success of so large and complex an undertaking,” which will entail the complete realignment of the gas supply chain.

“That means the development of gas reserves and liquefaction facilities on the producer end. It means the expansion of the LNG tanker fleet. And it means the siting and construction of [vaporization] facilities and their connection to the North American transmission infrastructure.”

Abraham said the capital requirements for a “typical LNG development, from the producer’s reserve source to the pipeline grid,” would be $5 billion to $10 billion. “Thus, if we want to have 15 Bcf of LNG reaching North American terminals every day in 2025, we must attract investment well in excess of $100 billion.”

Federal siting and permitting of regasification and associated facilities will have to be expedited as well, he noted. “We will also have to address objections to new terminals based on environmental and safety concerns. Success in this will require a concerted effort to educate the public on LNG’s importance to the American economy, and on the environmental and safety record of the industry.”

Abraham believes LNG’s safety record should allay the concerns of the public. “A record of 33,000 carrier voyages covering 60 million miles over a 40-year period without a major accident is compelling evidence of this energy sources’s safety.” Still, Abraham said the DOE currently is working with private-sector safety experts and the National Association of Regulatory Utility Commissioners to “ensure even greater safety and security in LNG operations.”

“The time is right for these discussions” on LNG because the “price is now right for LNG to compete in the American and other natural gas markets,” the energy secretary noted. “Historically, low natural gas prices in the United States, combined with the relatively high cost of LNG, have kept LNG’s share of our natural gas market quite low — on the order of 1-2%. That price environment has changed.”

The market is growing among suppliers and consumers. On the producer side 12 countries are active LNG exporters today, and another 10 are potential entrants to the LNG market. The roster of LNG importers is on the rise as well. “Three more countries will shortly join the 12 current LNG importers, and another seven are actively planning to meet demand with LNG imports,” he said.

Once the U.S. builds up its LNG infrastructure, Abraham told the foreign ministers that “suppliers from South America and the Caribbean, the Pacific Rim, the Middle East, Europe and Africa will find the American market to be both transparent and convenient from a shipping perspective, an important consideration when calculating costs and profits.”

Very heavy security surrounded delegates to last week’s conference, and the identification of speakers and representatives was kept secret up until the last minute. Persevering trade press and business wire services, as well as foreign reporters, gained access, but general news reporters were not in evidence. Even the hometown newspaper, The Washington Post, apparently missed the convergence of energy notables.

Oil company executives agreed the growth of the LNG market will depend on massive, multi-billion dollar investments in many complex projects to develop the resources, the expensive liquefaction and regasification facilities and specialized tankers. And all of this will have to take place with governments in both the producing and consuming nations providing political stability and rational regulatory oversight.

“We have a shared sense of urgency,” said Peter Robertson, vice chairman of ChevronTexaco. “Large reserves around the world await development.” What is needed now is “a new and shared commitment to a partnership among producers, infrastructure developers and customers.”

Robertson and other oil company executives cited higher prices in the U.S. and technology advances that significant cut the cost of building the LNG infrastructure. Utilization of new gas technology has contributed to efficiency gains in liquefaction, transportation, and regasification, while recent advances in LNG ship size and terminal tank design have produced cost savings of more than 30% since the late 1990s.

Industry executives predicted development of the LNG industry to facilitate worldwide trading of natural gas in the same matter that oil is traded. An LNG market with supplies moving easily around the world in a similar fashion to the oil market should depress gas price volatility.

“We must work for a future in which the immediate development of new resources and flexibility in fuel choices provide more balance to the North American natural gas supply and demand equation,” ExxonMobil Chairman Lee Raymond said in a speech to the LNG Summit delegates. “With so much at stake, failure is not an option.”

Increased access to LNG supplies will inject more flexibility into the gas market, making it similar to the flexibility enjoyed by the oil market. Raymond said this should help to moderate price volatility. “LNG will allow the market to adjust to unexpected shortfalls in domestic supply.” Without flexibility, imbalances equal price volatility, Raymond added, saying he was borrowing part of his text from Federal Reserve Chairman Alan Greenspan.

Energy Secretary Abraham said the U.S. would need to triple the number of existing terminals for importing liquefied natural gas (LNG) and realign its entire gas supply chain. He projected that the United States, which imported only 230 Bcf of LNG in 2002, could import as much as 13 to 15 Bcf/d — more than 20 times the current rate — by the year 2025, accounting for 15% of the nation’s total natural gas supply.

But before this can happen, “we estimate that we will need as many as 13 large LNG facilities in North America, nine more than exist today, to reach [that import] volume,” Abraham said during the second day of the summit, which was sponsored in part by the Department of Energy (DOE).

Daniel Yergin, a prominent energy expert and chairman of Cambridge Energy Research Associates, had a different estimate of U.S. LNG use, saying it would grow to make up one/fourth of supply. Within 10 years, the U.S will overtake Japan as the leading importer of natural gas. Development needs to proceed on a fast track if it is not already too late, Yergin said, noting long lead times.

Malcolm Brinded, managing director of Royal Dutch-Shell, said LNG imports will drive U.S. gas prices lower than current levels, but not to the very low levels of the past. “Higher cost domestic supplies rather than LNG will tend to set the marginal price.”

Brinded added that with the increasing globalization of the LNG trade, “global [gas] prices are likely to converge, with rapidly growing U.S. demand affecting prices in the Asian Pacific and European markets.” He does not expect a large LNG spot market to develop, saying spot gas is likely to be limited to 10% of the LNG market. “But I believe the basis of the industry will remain long-term contracts of 15-25 years as the essential enabler of the required investment in LNG supplies — more than $100 billion globally over the next decade.”

Most executives attending the summit stressed the need for global cooperation and trust to back the long-term commitments necessary to fund the high front-end capital investment for LNG development. Raymond said worldwide LNG development “depends on cooperation through the whole value chain.”

“Consuming countries need to recognize that they have an important role to play in facilitating timely energy development,” ExxonMobil’s Raymond said. “They can do this by creating reasonable regulatory regimes that will allow facilities to be designed and built without undue delay or unnecessary cost and relying on free competition and market solutions to meet future demand.”

Both Patrick Manning, prime minister of the Republic of Trinidad and Tobago, and Ali Ibrahim Naimi, minister of petroleum for the Kingdom of Saudi Arabia, urged investment in the development of upstream resources in their countries. Leonid Alexandrovich Trotko, first deputy minister of energy for the Russian Federation, also endorsed cooperation among the producing and consuming countries in a world market. It was noted that while Russia currently exports natural gas via pipeline, that country’s vast resource base could also support LNG exports.

LNG offers the only large supply of gas that can be brought on in a short time horizon, said James J. Mulva, CEO of ConocoPhillips, whose company is involved in two arctic gas development projects. While those cannot be brought online until sometime in the next decade, Mulva said that even if both the Mackenzie Delta and Alaska pipelines were in service, they would not fill the gap. He also did not see much promise in energy bill measures to improve the economics of high cost, marginal stripper wells.

There were some doubters however. Paul Koonce, CEO of Dominion Transmission, noted the big difference in the National Petroleum Council (NPC) report in 1999 that showed the United States with more than adequate supplies. The follow-up, published earlier this year, showed the nation running out of gas. Koonce said he was “skeptical that the situation was that good in 1999, and that bad more recently.”

Responding to questions, Koonce said that so far, Dominion was not signing long-term fixed-price contracts for LNG. “There’s a question as to whether LNG is the right answer.” Dominion has looked at long-term contracts tied to oil, but has yet to sign any, Koonce said.

Looking ahead, Keith Meyer, president of Cheniere LNG, said he expected contracts to be signed possibly with ceilings, floors and reopeners.

Don Felsinger, group president of Sempra Energy Global Enterprises, also questioned the difference in NPC supply estimates in just a four-year time span. Estimates “missed by a big margin. We haven’t done a good job of assessing resources.” Felsinger added that one of the biggest frustrations is not being able to get timely and accurate data. He criticized Department of Energy data gathering, saying that data available out of the Gulf of Mexico was a year-and-a-half old.

There were several other developments on the LNG horizon last week. American Petroleum Institute (API) President Red Cavaney announced at the LNG Ministerial Summit that gas and oil industry associations will launch a new LNG coalition, The Center for Liquefied Natural Gas, in January. The coalition will provide public education regarding LNG and advocacy functions (see related story).

The Energy Information Administration (EIA) kicked in with a well-timed study, “Liquefied Natural Gas Market: Status & Outlook,” released early last week that showed U.S. natural gas consumption increasing by almost 4 Tcf between 2002 to and 2010, while domestic gas production rises only 1.5 Tcf in the same timeframe. The difference between consumption and production will be made up by imports, most of which will come in the form of LNG, EIA said (see related story).

Houston-based Cheniere Energy Inc. announced it would be submitting permit applications for two proposed Gulf Coast liquefied natural gas (LNG) facilities to FERC today. The facilities, if approved, would be built in Sabine Pass, LA and Corpus Christi, TX. in time for the 2007-2008 heating season (see related story).

And not to be left out, the staff of the Federal Energy Regulatory Commission released a new report, the “New England Natural Gas Infrastructure Study,” saying that construction of additional gas pipelines and at least three LNG import terminals will be necessary for New England to meet its growing gas supply needs through 2010 (see related story).

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