JAMES
A. BAKER III
INSTITUTE FOR PUBLIC
POLICY
RICE
UNIVERSITY
Algerian Minister of Energy and Mining
Mr. Chairman,
Mr. Director of the Baker Institute,
Excellencies,
Ladies and Gentlemen.
Allow me first of all to thank Mr. Edward P. Djeredjian, Director of the Baker Institute for the kind invitation to take pare to the meetings.
It is an honor for me to tackle,
according to your wishes, the following topic: “Gas
Forum for Producing Countries”. It is indeed a significant and sensitive
subject matter. To save time for the debate,
I shall confine my statement to general ideas and more concise useful features.
Ladies and gentlemen,
Natural gas is regarded as a first
choice energy for the 21st Century given its availability as a clean energy. It
is increasingly important for power generation. Natural Gas contributes in promoting
renewable energies for the combined solar- gas power stations. The share of natural gas in
the world energy consumption has been regularly increasing during the last two decades. It
is practically the same share that coal has (24%) and it is bound to further increase for
the coming years, it will reach 28 % in 2030.
Natural reserves are sufficient enough
to meet adequately the market demand for the next decades. However, geographical
distribution of those reserves is not matching the size nor the expected increase of
different markets. While gas consumption of OECD countries is set to increase more than in
the past, their gas reserve which is not even 10%
of world reserves continue to decline.
On the other hand, OPEC member countries
have not only oil reserves but gas reserves as well which represent 44% of world reserves.
Thanks to new discoveries and to a better assessment of existing fields, world reserves
are regularly increasing. Gas pipe exchanges between neighboring countries and continents
constitute a major part of the internal gas trade (79%). LNG industry dynamism is set to
last for a long time because of improved technologies that reduce costs.
LNG production will gain momentum
because of increased capacity of both liquefaction units and LNG tankers, and opening up
and extension of new maritime gas routes. Nowadays LNG tankers can travel more than 10 000 km. Liquefaction
units and LNG terminals are developing to benefit from the new access to gas fields. This
is the challenge for an industry which has
been massively investing in development and exploitation of new reserves, new liquefaction
facilities as well as transportation and re-gasification.
LNG global trade has more than doubled
during the early 90’s till the year 2003 reaching a record high level of 168 billion
cubic meters. There will be a further increase during the coming years to reach 220 to 270
billion m3 per year in 2010, according to the International Energy Agency
estimates.
LNG production is a capital intensive
process, requiring huge amount of investments and the re-gasification terminal is just the
final phase of it.
A re-gasification project is
economically feasible if huge upstream investments are provided for, including
re-gasification plant, transportations (LNG tankers) and re-gasification facilities at
final destination. Investments are guaranteed through partnership formula, mutually
beneficial and spread over a long term
period.
This is how the take-or-pay agreements
based on long term contracts (20 to 25 years) generated the LNG process and its
development.
Contract provisions ensure the supplier
protection against financial risks associated to the gas chain requirements and in the
same time ensure, to the importer, long term reliable and sustainable supply at
competitive prices.
Some gas importing countries which in
the past were more in favor of supply
security are now regarding flexibility as an important management principle of the gas
industry without consultation with the producers.
Therefore, long term gas contracts which
ensured security of supply are sometimes questioned and sometimes favorably regarded but
not openly stated by the advocate of immediate and full liberalization. This harmful
situation for all parties may trigger international tensions:
§ A
competition between gas producers that may deprive them from a fair price and may lead to
investment decline.
§ Competition
between importing countries for access to gas supply which may unbalance the market.
Tensions may induce all parties to take measures to protect their interests, in this respect it is worth to recall the experience undergone by the oil sector.
Although the spot market is considered
as potentially fruitful since it offers good arbitration possibilities for huge contracts,
it could not replace long term transactions.
Long term transactions are indispensable
for market stabilization and for funding new export projects.
Development of LNG markets presents interesting commercial response using swaps that help optimizing transportation means. These transactions are an adequate tool for cooperation between gas companies to grasp market opportunities and meet consumer needs. They only complement long term contracts.
Ladies and gentlemen,
Natural gas global demand will increase because of power production needs. Market segmentation according to important consumers regions is as follows:
§ North
American market with long term power shortage risks will be in 2025 the largest consumer of natural gas and LNG,
equivalent to 538 billion m3, to meet the important need of power generation.
According to experts, LNG is an attractive option for the American economy. According to
estimates, for the year 2010, American imports may reach 15 to 19 billion tons per year
(20 to 26 BCN) this explain the renewed interest in the USA for re-habilitating and
launching new re-gasification plants.
The insufficient number of LNG import terminals in USA may lead to a shortage of gas
supply, in the long term.
His Excellency Spencer Abraham, Energy
Secretary, during the LNG summit in Washington last December stated : « We
shall need nine new re-gasification terminals before 2025 since at that time we will have
to import 20 times more LNG than in 2002 » For the moment there are only four
operational terminals. However, the Federal Energy Regulation Commission has indicated
that there are thirty projects in the pipeline.
§ Economic
development in Asia, with the highest potential growth will most probably triple its
consumption between 2001 (198 billion m3) and 2025 (623 billion m3).
Growth rate of gas demand will reach 4.5% per year including an important LNG share. For
the region, this kind of energy is linked to vital economic stakes.
Japan and South Korea are already
consuming more than 70% of globally marketed LNG. Given India’s needs and China
emergence as the new world future workshop, tensions on the demand are to be expected.
§ Europe
consumption will double in 25 years from 454 billion m3 in 2001 to 736 billion
m3 in 2025. 60% of the European market demand will be covered by imports. It
has already been indicated that for 2015 there will be a supply deficit of approximately
250 billion m3. The region will continue to implement deregulation policies
already announced since the opening up of gas and electricity markets.
Security of supply and problems
resulting from market opening will be the prevailing factors in the strategies of concern
to natural gas stake-holders. European market is however still characterized by rigid
conditions due to the transition period leading to a really open, free, and transparent
market.
Ladies and gentlemen,
Globalization and structural changes of the world economy have prompted general economic and institutional reforms affecting major energy sectors dominated hitherto by public monopoly and large private international operators.
In the past, separate gas and
electricity markets, were managed by monopolies and state controlled in the name of
national energy independence and obligation of public service.
In this regard, the case of Europe is
particularly interesting.
De-regulation process introduced new legal provisions that
challenged the basis of the European gas market and its relationship with the other
producing countries.
Problems arising from liberalization of
European market underscore differences among European countries, differences related to
the various levels of market opening : Access to transportation networks and storage
facilities by emerging actors.
Consequently, gas producers and European
countries are facing a great deal of
challenges.
All parties will have to imagine new
cooperation schemes, more equitable, which
take into consideration profit and risk sharing. To this end, the need to meet increased
European demand for natural gas should be harmonized with the need to engage in huge
investments with long term depreciation.
Security of supply for consumer
countries and the guarantee of equitable and fair prices for producers require new
strategic partnerships adapted to the new international energy scene. This matter has to be dealt globally.
In such circumstances, Algeria has
chosen dialogue and consultation with producers, consumers and companies. We consider this
approach as the most appropriate tool to ensure stability of trade transactions and
operators’ interests.
We have adopted this attitude vis-à-vis the new regulatory framework that the European Commission was about
to establish in order to liberalize its gas market. Like other producers we believe that
any change in gas market regulations should be carried out through consultations. We have
raised this concern during the Forum of Gas Producing Countries held in Algiers in
September 2002 and Doha in February 2003. Representatives of exporting countries, gas
companies, financial institutions and the European Commission agreed on the need to
preserve long term contracts given their major role in ensuring security of supply, the
smooth running of market and the preservation of producers’ interests and donor
countries as well.
The European Commission has finally
recognized the positive effect of long term contracts on the harmonious development of gas
market and on the security of supply for Europe in particular.
Ladies and gentlemen,
In order to benefit from the opportunities created by structural changes of the gas industry and its formidable increase, gas companies of producing countries are facing major challenges :
§ Their
positioning in upstream worldwide in order to increase their reserve, and diversify their
market.
§ Direct or
indirect unlimited access to markets,
§ Continuous
enhancement of their performances in general and cost control in particular.
In this regard, Algeria has adopted for
its energy and mine strategy, an approach of opening, transparency and competition.
Partnership option has been and remains a
major tool in our domestic and external strategy.
Within its international redeployment
and activity enlargement, Sonatrach is taking part in the development of CAMISEA (Peru)
gas field in partnership with the Argentinean Pluspetrol Company and US and South Korean
companies. Sonatrach has 10% of the upstream
sector and more than 20% in the transportation sector. Discussions are carried out in
order to take shares in the LNG unit to complete the project in which reach Mexican and
North American markets.
Sonatrach holds 10% of equity capital of
REGANOSA, a company in charge of building and managing an LNG storage terminal and
regazéification plan at MURGADOS (Spain) as well as transportation network in Galicia.
Sonatrach, in a joint-venture with BP
will supply LNG to one of the major European gas market, i.e., the British market. This
market will receive around 5 billion cubic meter for the year 2005, which represent 5% of
market needs.
As for transportation, two contracts
were signed in 2003 for a joint acquisition of two LNG tankers ; one contract passed with
two Japanese companies Itochi/Mitsui and the second with Norwegian ship owner Bezgesen for
a total amount of 380 millions $. Both LNG tankers will be operational by 2005.
Ladies and gentlemen,
Being an oil and gas producer, Algeria
is closely following the energy market development, at a global and European levels; its
development and energy strategies are build upon partnership and cooperation opportunities
with producers, industrial operators, dealers and consumers.
For the past three decades, Sonatrach
has acquired a world renown expertise on the whole gas chain. It holds an exceptional
geographical position and benefits from its dual resources capacity that are LNG and
natural gas.
Algeria has all the necessary will and
assets to meet part of the US future energy demand for LNG.
Algeria is relatively close, compared to
others non-american natural gas sources, and it is a reliable partner, given Sonatrach
well known expertise over the gas chain process and as LNG supplier.
Best proof of it is the recently
signed contract between Sonatrach and Statoil. Both countries have signed a sale contract
on a ex-ship base for the Cove Point Terminal (Maryland), for a yearly amount of 1 billion
cubic meter as from November 2003. the Terminal capacity is 7.5 billion cubic meter per
year, equally distributed (2.5 billion m3/year) between Shell, BP and Statoil.
This East coast Terminal, located in a
gas’ consumers area, will benefit from gas price premium compared to the reference
Nymex price and will allow for significant savings in shipping costs from Algeria.
Moreover, since last year, Sonatrach
sales’ to US market, without or with GDF, in a joint subsidiary (MEDLNG & GAS
Ltd) have reached 1.3 Gm3.
In this perspective, Sonatrach has
decided, as first step, to develop a new LNG chain in partnership with competent
companies.
This huge integrated project, from
upstream to downstream, provides for the Gassi-Touil fields development, transportation
infrastructures, building of liquefaction unit of 4 to 5 Mt/year minimum, and a joint gas
marketing.
There is no doubt that the American
market offers a lot of good opportunities, however there are number of uncertainties and
constrains that may hamper the development of new LNG Chains.
Many LNG terminals projects exist in the
USA; however their development is linked to a clear, stable legal framework that may
promote capital intensive investments as those needed for the gas chain.
Algeria is in the unique position to
bear testimony to the impact brought about by the legislative changes undergone during the
Seventies.
Because of the liberalization process carried out at the end of
70’s many supply contracts passed with US companies were cancelled, although huge
investments were made in the liquefaction and shipping sectors. This situation has had an
adverse impact on LNG production and transportation means.
Ladies and gentlemen,
As early as the Sixties, Algeria has
decisively adopted the gas option and since then has participated in its extraordinary
saga.
We are confident and optimistic about
the future of the gas industry and we are calling for international gas partnerships to
meet future needs of consumers countries.
I thank you for your kind attention.