Liquefied natural gas (LNG) imports will drive U.S. gas prices lower, but expensive domestic supplies still will keep the price floor higher than historical levels, Malcolm Brinded, managing director of Royal Dutch-Shell, said Wednesday at a two-day LNG Ministerial Summit in Washington, DC.

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.”

Brinded was joined by a number of executives from major oil and gas companies in addition to energy ministers from gas producing countries around the world, including Saudi Arabia, Indonesia, Venezuela, Algeria, Trinidad and Tobago, the Russian Federation and Qatar. The summit was sponsored in part by the U.S. Department of Energy.

The general consensus at the summit was that the time is right for 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, executives agreed.

“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. “With so much at stake, failure is not an option.”

Stating that most of the natural gas that North America will consume six years from now is not yet in production, Raymond emphasized that economic development of diverse supplies, such as LNG, is needed to meet growing energy demand and to replace inevitable declines in existing production.

Outlining a number of challenges to harnessing the full potential of LNG, Raymond said it is necessary to implement consistent and complete policies that, when encouraging the use of natural gas, must also address the need for additional gas supplies, including LNG.

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.”

The ExxonMobil chief said LNG will be an important contributor to the 1% annual U.S. gas demand growth, noting that it will make multiple sources of gas supply necessary with an “increasing quantity coming from distant sources.” He said consumers need all the gas they can get from all possible sources. He highlighted his company’s $12 billion project with Qatar Petroleum to supply LNG to the United States for a 25-year period and the company’s long-term 1.2 Bcf/d LNG production activities in Indonesia to supply Asia Pacific markets.

Raymond also noted that increased access to LNG supplies would inject more flexibility into the gas market, making it similar to the flexibility enjoyed by the oil market. He 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.

“Consuming countries need to recognize that they have an important role to play in facilitating timely energy development,” 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.”

Raymond suggested that countries can move LNG development forward by creating an environment conducive to large, long-term investments in the infrastructure needed to meet growing gas demand in Asia Pacific, Europe, and North America, along with provision of a stable legal framework, predictable tax structure, sanctity of contracts, an impartial court system, respect for intellectual property, elimination of duties, transparency in procurement, and workforce security.

“Working together, governments and national oil companies can play a constructive part by encouraging and facilitating the growth in capacity that will be crucial to satisfying the world’s demand for energy over the coming decades,” he said. From an environmental standpoint, “the benefits of natural gas make it attractive for both the manufacturing sector and for power generation throughout the world.”

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.

Addressing the fear and uncertainty with which the U.S. general public customarily regards new technologies in the industry, Raymond stressed, “Nothing is more important to our industry than the safety and health of our employees and the people with whom we come in contact in the conduct of our business. We need to communicate that message to the public, make clear our commitment to operating safely, and discuss the management systems we have in place to ensure that the highest standards are met.”

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

Many companies noted that 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.

“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.”

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.

In addition to opening up channels of dialogue, some companies, such as Cheniere Energy, announced new LNG projects. Cheniere said it would file applications Monday with FERC for two new LNG terminals along the Gulf Coast of Texas (see related story).

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.

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