Conference on liquified natural gas

His Highness Sheikh Hamad Bin Khalifa, Emir of the State of Qatar
Mr. President,
Honorable Minister,

Excellencies,

Ladies & Gentlemen,

I am very honored by the invitation of His Excellency Abdullah Bin Hamad Al‑Attiyah, the Second Deputy Prime Minister, Minister of Energy and Industry, to take part in the opening of this fourteenth conference on liquefied natural gas (LNG).

Allow me first to express to His Highness, His Excellency and the whole organizational body of this conference, my thanks and at the same occasion congratulate them. for the quality of the preparation of this event.

This fourteenth world LNG " rendez vous" arrives at a turning point in the history of natural gas in the development of the world LNG industry in particular.

This event is an excellent opportunity to inform each other about the current situation and discuss development prospects of the gas industry and more particularly the LNG industry.

Ladies & Gentlemen,

Considering its availability and its quality as a clean energy, interest for natural gas makes it a vital econornic stake in the process of energy globalization. Natural gas is already considered as the premium choice energy for the 21st century.

Assessments converge to confirm. the trend of the strong penetration of natural gas, and in particular in its LNG form, in various markets. The majority of experts expect that demand for LNG will have the most significant progression, compared to the other sources of energy, during the next three decades.

The world export for LNG, recorded in 2002, exceeded 150 billion m3. Japan alone imported 71.9 billion m3 followed by South Korea with 23 billion m3, France with 14 billion m3 and Spain with 12 billion m3.

The Gas industry is today in full evolution LNG which, at the beginning was only a supplement for gas deliveries by pipeline, is becoming gradually a means of decompartinentalization of regional markets, and means for arbitration between these markets.

The spot market and swaps of cargoes become increasingly more frequent. Insofar as it plays an auxiliary role and a regulation role by improving supply flexibility, this phenomenon is beneficial for the consumers as well as for the producers.

We find ourselves in fact at a crossroads between regionalinalization and globalization of natural gas markets. Even if the share of interregional trade for natural gas still remains very weak (6%) compared to intra‑regional trade (94%), it still remains that many new gas projects are transcontinental in nature.

But, let's make no mistake. The future markets that accompany the expansion of LNG trade often suffer from a lack of liquidity. Let's not forget also that the availability of LNG implies heavy

investments and long delays of cost recovery that can only be compensated by long‑tem contracts.

The spot market does not provide any guarantee for long‑term supplies.

Thus, a passage towards a logic of short‑term trade remains exposed to two major risks : (one) a risk of underinvestment in the infrastructure which is one of the pillars of the security of supply, and a two risk of price volatility which may result in tariff shocks for the final consumer.

The recent liberalization of the gas sector in Europe provide several lessons in this respect : no decrease in prices for the final consumer; a rate of interconnection which remains very weak (7% whereas it should have been 30%), an inadequacy between the grid systems management and the production means management, a heterogeneity of the regulatory procedures in the European market, etc.

In the field of regional developments of the international trade of LNG we note that:

Asia posts great potentialities of growth of the gas market. Its consumption should be multiplied by three between 2001 (198 Billion m) and 2025 (623 Billion m3) recording a growth of 4.5% a year. LNG will contribute to a significant degree to the energy demand of the area.

Japan and South Korea consume alone more than 70% of LNG marketed in the world. With the strengthening of the demand of China and India, a strong demand should be forecasted for this area.

In Europe, natural g as consumption will reach, according to the forecast of the European Commission, a growth of 2.9% over the next eight years.

According to forecasts' of the European Commission, the share of natural gas in the energy balance of Europe, will be 27.5% around 2020 against 20% in 2000.

Natural gas consumption in this area, should double by 2025 going from 425 Billion m3 in 2001 to 736 Billion m3 . The European market dependence on imports will reach 80% by 2025.

The opening of the European markets in accordance with the Gas Directive is encountering difficulties related to the disparity between the EC countries in terms of the degree of openness in their markets.

Also, the procedures of access to the gas transport grid system as well as to the storage of products for emerging players still remain to be perfected, in particular at the legislative level, where harmonization between the countries is necessary.

According to the forecasts, made by the International Energy Agency, natural gas in the United States will show a significant increase reaching 766 billion m3 in 2010, and 910 billion M3 2020.

These last years were marked by a strong rise in the prices for natural gas in the US market. This situation is explained in particular by an insufficient number of import terminals of LNG in the United States. In December 2003, during the ministerial summit on LNG held in Washington, Mr. Spencer Abraham, the Secretary of Energy, estimated that 9 new terminals of regasification of LNG will be necessary by 2025, considering that on this date, the United States will have to import 20 times more LNG than in 2002.

According to some analysts the absence of regasification installations could have a very detrimental effect on the sector of power generation.

The United States market, whose potential for the demand of LNG is very important, will have to resort to the reactivation of existing regasification plants and/or resort to new units being planned.

Ladies & Gentlemen,

A question arises for the future: is LNG trade, which contributes to the globalization of the gas markets, able to do without the bilateral contracts in the long run? It would be bold to answer yes to this question.

While the growth of export by pipeline reached 39% between 1995 and 2001, that of LNG trade reached 55% for the same period. This dynamic should lead to the progressive decompartmentalization of the regional markets.

The LNG chain remains capital intensive. A regasification terminal constitutes but the end of the chain. An LNG project can only be designed economically with its corresponding liquefaction plant.

This is why, LNG trade has been based on sales purchase contracts with a duration of 20 to 25 years. Take Or Pay commitments were at the base for securing these projects, this was only a consequence of capital‑intensive nature LNG industry. Investments are high about 5 billion USD for a LNG project with two trains of 6Mt/year (liquefaction, tankers and regasification).

The tremendous development of the LNG industry was only made possible thanks to agreement built on the long tenn, giving balanced advantages to all the parties intervening along the value chain.

These contractual arrangements allow, on one hand, the supplier to protect himself against the financial risks associated with the rigidity of the gas chain and, on the other hand, the importer to secure a reliable supply in the long term at competitive prices. These are the measures that allowed LNG to exist and these are the same conditions that will allow it to continue,

Even if the spot market is regarded as potentially useful, in the sense that it will offer good arbitration opportunities between the large markets, it cannot substitute long term transactions.

Long tenn contracts remain essential for stabilizing the market and for the financing of new projects of LNG exports.

The development of the LNG market offers also considerable opportunities with regards to swaps. These transactions, which are not new in the gas industry, constitute an instrument of cooperation between producing countries. These transactions could intervene either to shorten delivery distances or to meet to better seize new market opportunities commercial specifications of various buyers.

Ladies & Gentlemen,

In the new world configuration of LNG, Algeria will be called upon to play a central role for two reasons:

The first reason is related to its geographical position which makes it a privileged crossroad for the development of the LNG industry. Algeria is indeed on an optimal line between the Atlantic basin and the Pacific basin. Because of its position, Algeria is able to seize market opportunities as much from the East as from the West of our planet.

This is why the recent agreement of partnership with BP (Isle of Graine), will allow Algeria to retum to the British market and to reinforce its position on the Atlantic basin. Through its participation upstream in the gas project of Camisea in Peru, Algeria can exercise its option to export LNG the West coast. On the other hand, Sonatrach signed with Statoil an agreement: for an ex‑ship sale of LNG of 1 Billion m3 / year. This will reinforce Sonatrach presence on the US gas market.

The second reason is that Algeria is in a full phase of regional energy integration thanks to, new gas pipelines like Medgaz, and Galsi, but also thanks to gas‑electricity convergence in Europe which offers new possibilities of reinforcement in the Euro‑Mediterranean basin. Sonatrach holds, as an example, a 10% participation of the capital of Reganosa, a company that will exploit a terminal of storage of LNG, a regasification plant at Mugardos, and a system of gas transport in Galicia in Spain.

In order to respond more appropriately to, the evolution of the worldwide demand for natural gas, the national company Sonatrach has set the target to export 85 billion m of gas in 2010. The development of the fields in the south of Algeria should provide the additional quantities of gas required by this strategic objective. The new train of liquefaction in Arzew (Gassi Touil project), the new gas pipelines (Medgaz and Galsi), and the extension of the transcontinental pipelines (Duran Farrel and Enrico Mattei), will provide the necessary infrastructure for the production and the routing of gas towards the markets.

Recourse to partnerships is a critical instrument in the development of the sector of hydrocarbons in Algeria. This sector diversified and enriched it self during these 1ast three years thanks to the generalization of new procedures, more efficient, as regards to contract signing.

New formulas of partnership were implemented, As an example, SONATRACH has initiated for the first time the launching of an integrated project, which. goes from upstream to downstream, in Gassi Touil. This project programs: the development of the fields of this area, the transport of gas, the construction of a new train of liquefaction with a capacity of at least 4 to 5 million tons a year as well as the marketing of the produced LNG.

Gas exports of Algeria have practically doubled during the last ten years, going from 32 billion m 3 in 1994 to 60 billion M3 in 2003, with 46% in the form. of LNG.

Algeria is ranked second after Indonesia in term of output capacity of LNG. It is also the second worldwide exporter of LNG. Algeria has today 40 years experience, in the field of liquefaction. of natural gas, since the first Algerian gas complex goes back to 1964.

The export capacities (gas pipelines and liquefaction) that Algeria will have at the end of this decade will be thus approximately 95 billion in 3 a year, thus an increase of more than 50% compared to the current capacities.

Ladies and Gentlemen,

Certain importing gas countries which, traditionally, privileged the security of supply, are inclined to set up flexibility as a management principle for the gas industry, without consultation the importing countries.

Thus, the long term gas contract which ensured the security of supply are sometimes challenged, sometimes recognized but not completely as necessary contracts by the partisans of total and immediate liberalization. This situation could have as a consequence the emergence of two types of extreme tensions at the international level: a gas to gas competition between producers that is likely to deprive them of an appropriate return on their investments, and a competition between importing countries to access the gas supplies. Against this possible development, Algeria has chosen the path of dialogue as much with producing countries importing countries.

Such was the position we adopted in response to the, new legal and regulatory framework that the European Commission intended to enact trough the liberalization of the European gas markets, as specified in the Gas Directive of 1998. We considered with other producing countries that the change governing the gas markets should be done and progressively.

Dialogue and consultation the mean though consultation to achieve this objective to while preserving the stability of the commercial transactions.

Such a concern was raised during the Forum of the gas producing countries, held in Algiers' in September 2002 and during the meeting held in Doha' February 2003, when representatives of exporting countries, gas companies, financial institutions and the European Commission, convened of the necessity to preserve log term contracts for their role in the security of supply and their role in the correct functioning countries and the financial backers.

The European Commission now admits the role played by the long term contracts in the development of the European gas market. A recent proposal of a Directive from the European Parliament and the Council relating to energy security of supply recognizes the importance of these contracts in the security of supply of Europe. It establishes as well that these long‑terra contracts constitute a significant element of stability for the external suppliers and make it possible to improve the capacity of these suppliers to continue the development of large projects.

At the 8^th international Forum of Energy which was held in OSAKA (Japan), Algeria had at the time of the meeting of the producing and exporting gas countries stressed the necessity to reinforce the dialogue and consultation between all the players. We are convinced that these two conditions will help the gas industry to develop itself normally and to protect itself from negative effects caused by random changes in international relations.

Ladies & Gentlemen,

Algeria believes in the future of the gas industry and consequently invests to satisfy the coming demand of the LNG industry with confidence, and we are ready to work with all our partners, to actively participate in the satisfaction of the international demand of energy and more particularly that of LNG.

Very early, Algeria has been involved in the gas industry, and having acquired forty years experience, has sufficient resources to continue to play an important role today.

Ladies & Gentlemen, I thank you for your attention and wish you great success in this conference.