I would like to begin by thanking Mr. Barry K. Worthington, the executive director of the United States Energy Association (USEA), for his invitation to this Ministerial Summit on liquefied natural gas (LNG). It is a pleasure to be here with you today.

I see this important meeting as an opportunity to share my viewpoints on some of the changes taking place in the LNG sector, in the light of the new international environment.

Ladies and Gentlemen,

The energy is an issue that must be placed at the center of all the challenges that must be confronted as our constantly changing world moves ahead on the path to globalization.

The globalization process has come hand in hand with the constitution of large regional economic groups (like the European Union, NAFTA, MERCOSUR, ASEAN, and so on). These economic zones enable member states to rise up to the challenge of the globalization process, tapping into the comparative advantages that their economic development and their endowment of resources provide for them.

Nations, as we know, are interdependent so it follows that courses of action must seek the common good.

Since the tragic events of September 11, 2001, the need to address security from a global perspective is in the limelight more than ever before.

No nation can enjoy long-term security without international stability, and international stability cannot be secured without establishing mutually beneficial economic cooperation, rooted in dialogue and consensus-building.

In this light, hydrocarbons, given their central role in the economy and their particular status in international relations, appear as the challenge. But they are more than that. They also bring development to countries, and they bring countries closer together.

Natural gas helps nurture sustainable development. That factor, paired with its geographic distribution, in particular, can help it ensure all stakeholders enjoy the benefits of economic globalization.

Ladies and Gentlemen,

Forecasts speak of a 3.2 percent per-annum growth in worldwide natural gas consumption for the coming twenty years. Oil consumption, as a point of comparison, is expected to grow 2.2 percent, and coal consumption 1.8 percent. This growth, of course, will be greater in some regions than in others.

Natural-gas consumption in Asia – and, in particular, in India and China - should grow faster than in the rest of the world. Some analysts speak of consumption soaring 4 percent a year there.

Consumption in Europe is to increase from 650 Gm³ in 2002 to about 800 Gm³ in 2010.

According to European Commission forecasts, natural gas should cover 27% of that region’s energy requirements by 2020, as opposed to 24% in 2000. The power generation sector is expected to drive much of this growth, absorbing about 50% of the surge in demand.

Again, according to the European Commission, domestic gas production will shrink to only 2% of total worldwide production. This will increase the enlarged European Union’s reliance on imported natural gas to an estimated 80% in 2030.

The United Kingdom, in particular, is expected to abandon the ranks of natural gas net exporting countries and become a natural gas net importer by 2005. The gas supply is already perceptibly tight, as the fragile gas balance, especially in the winter, has shown.

This trend also applies in the United States, which will rank among the most amazingly dynamic mature gas markets. Demand in the United States, the Energy Information Agency (EIA) reports, should swell from 766 Gm³ in 2010 to 910 Gm³ in 2020.

Domestic production has a number of issues to tackle and will only be in a position to cater for part of the anticipated surge in demand.

The most obvious source of natural gas here is, of course, Canada and imports from Canada will continue. But the United States will need to import a substantial portion of its LNG from elsewhere to stay abreast of the expected demand. In 2025, forecasts suggest LNG will account for 6% of the total supply which, for a market as big as that of the United States, spells a volume of about 60 Gm³.

Traditional gas suppliers as well as new gas suppliers will thereby find new opportunities to strengthen their market shares. But these forecasts also show the nature, and the extent of the challenge to develop and sell new gas reserves.

Ladies and Gentlemen,

Unlike the oil industry, the gas industry has historically grown from two vital legs: Long-term contracts and regional markets (the United States, Europe and South-east Asia) are the other.

That explains why a worldwide natural gas market is virtually non-existent. Only 5% of the production sold around the world is traded between regions. LNG accounts for most of those sales, with prices varying considerably from one region to another.

Accordingly, between 1995 and 2001, while pipeline gas exports grew by 39%, LNG trading increased by 55%. This momentum should gradually start increasing trade between regional markets.

Several factors have fuelled this development. Firstly, technological progress and development of liquefaction plants have helped reduce transportation and liquefaction costs.

Today, there are plans for over fifty regasification terminals to meet the growing demand for natural gas in Europe, the United States and Asia.

Concurrently, new LNG producers have appeared to help cater for the expected increase in demand. Some of these new producers are developing worldwide strategies whereby they aim to secure a sizeable presence in all the regions of the world.

Other factors have also helped open up inter-regional trade. Spot sales are one. The other is the advent of real arbitrage opportunities between markets, in particular between the United States – where LNG pricing conditions have been extremely favorable over the last 3 years – and Europe.

Spot LNG sales have grown considerably and they accounted for around 8% of international LNG sales in 2002.

These short-term transactions have appeared over the past four years firstly as a result of the construction of new liquefaction chains and the expansion of existing plants.

Spot sales help optimize production capacity and LNG-tankers while waiting for new long-term contracts closures. These Spot transactions open a door for emerging operators, an entry key for establishing a presence in the gas markets in the future.

In this respect, I must point out that Sonatrach, due to its sales strategy, ranks among the most active players in the spot-sale segment. In 2002, Sonatrach’s spot sales amounted to over 2 billion m³.

So, yes, these transactions enhance flexibility and optimization. For a natural gas producer, however, they will not be able to replace long-term contracts altogether in the near future. And long-term contracts are the only way to ensure safe and secure supplies.

Only long-term contracts spread the price risk and the volume risk fairly between producers and consumers. Gas processing operations require substantial investment. And financing such large operations to satisfy unpredictable sporadic or event-sensitive demand alone is simply not realistic.

The optimistic outlook on future worldwide demand for gas that I spoke about a moment ago should not mask the difficulties and challenges that all operators and – in particular – natural gas producers and exporters, face today.

The euphoria that swept through Europe a few years ago, for instance, has now subsided as a more complex and less predictable environment has cast doubts on how the region can open up its energy market while also ensuring supplies remain reliable and diversified.

Standard contract frameworks, based on long-term outlooks and on distributing the risk fairly between buyers and sellers (mainly in the form of take-or-pay clauses) were what cemented the construction of European gas markets and helped secure the considerable investment Europe required.

A series of gas directives have instated an open energy market in Europe. But they have fallen far short of allowing energy to flow unrestricted. Numerous restrictions explain this. Certain markets, for instance, are extremely difficult to access. There are glass walls hindering attempts by companies from producing countries to market directly to consumers. And a non-indicative planification of networks has been reintroduced.

Clearly, Europe does not yet provide the same transparency, openness and non-discrimination guarantees that the American market can offer.

These changes in legislative and institutional environments, paired with the sharp growth in demand for natural gas expected over the medium and long term, led natural gas supplying countries to found a consensus-seeking forum devoted exclusively to gas. At this Gas Exporting Countries Forum, member nations can discuss their concerns over these developments, and several other issues of common interest.

The Forum also strives to promote and nurture dialogue between sellers and buyers, and bring them closer together.

Ladies and Gentlemen,

Over twenty research and production partnership agreements have been signed by Algeria with foreign companies over the past three years due mainly to new, transparent and fair contract-awarding procedures. Thanks to this, our oil and gas production capacity is constantly expanding.

Partnerships are now governed by new procedures. Sonatrach, Algeria’s state-owned company, for example, started working on an integrated project with Gassi Touil, applying new upstream-to-downstream partnership terms, for the first time. This partnership spans work to develop fields in this region, transport the gas, build a new liquefaction chain to process a capacity of 4 to 5 million tons per year, and sell the LNG produced.

In line with its international redeployment and its larger business portfolio, Sonatrach is playing an active part in efforts to develop Camisea, a gas deposit in Peru, in association with the Argentinean company Pluspetrol, and American and South Korean firms. Sonatrach holds a 10% stake in the upstream segment and 20% of the transport segment. It is also holding discussions to take a stake in the LNG unit that will export gas to the North American market.

Sonatrach has signed an agreement with Statoil whereby it will sell an Ex-Ship volume of 1 Gm³ a year of LNG. This will help it cement its presence in the American gas market.

Sonatrach also holds a 10% stake in Reganosa, a company that built and now operates an LNG storage and regasification terminal in Mugardos, and a gas transportation system in Galicia, in Spain.

Sonatrach has also joint-ventured with our partner firm BP to supply LNG to Great Britain, one of Europe’s biggest gas markets. Together, they will supply around 5 billion m³ of gas to the British market – i.e. approximately 5% of its total needs – in 2005.

These new LNG deliveries will land at the terminal in the Isle of Grain, on the River Medway. This joint venture won the call to tender for capacity at this regasification terminal. Thanks to this agreement, LNG from Algeria, one of the most competitive and reliable sources, will be brought back to Great Britain’s gas market after a long absence. The first shipment was delivered in 1965, to the Canvey Island terminal, from La Camel in Arzew.

Hydrocarbon transportation and corresponding delivering facilities are the main international or regional priority fields of cooperation that Algeria is actively pursuing with partners in the North and South, to minimize financial risks and reduce government expenditure.

Two contracts have been signed to jointly buy two LNG tankers: one with Itochu and Mitsui, two Japanese companies, and the second in partnership with the Norwegian shipowner, Bergesen. These purchases cost 380 million US Dollars in total. The two tankers are scheduled to be delivered in 2004.

Ladies and Gentlemen,

Algeria has the capabilities and will to satisfy part of the USA’s future LNG requirements.

Algeria is relatively closer to America than other sources of natural gas. Sonatrach, for its part, has earned a widespread reputation for its expertise in the gas chain, and has a proven track record as a reliable LNG supplier.

The contract that Sonatrach recently signed with Statoil bears witness to this. Together, Sonatrach and Statoil have signed an agreement to sell LNG on an Ex-Ship basis to the terminal in Cove Point, Maryland. This agreement involves an annual volume of around 1 billion m³ starting in November 2003.

This terminal’s capacity (7.5 billion m³ a year) is split evenly among three firms, Shell, BP and Statoil, each of which uses it to process 2.5 billion m³ a year.

This terminal is on the East Coast, where gas consumption is high. It benefits from a premium on Nymex reference gas prices, and also allows for substantial savings on shipping costs out of Algeria.

Moreover, Sonatrach’s sales to this market (alone or with GDF via our joint subsidiary MED LNG & Gas Ltd) will exceed 1.3 Gm³ in 2003.

It was from this perspective that Sonatrach decided, in an initial phase, to develop a new LNG chain in partnership with companies that have an outstanding reputation for their know-how.

This is a large-scale project integrating upstream and downstream operations. Plans include developing the Gassi Touil fields, building transport infrastructure, building a liquefaction plant to handle 4 million to 5 million tons a year, and selling the gas jointly.

There are indeed real opportunities in the American market. But there are also a number of uncertainties and restrictions that could hinder new LNG chain developments.

Even if many LNG terminal projects, at different stages of development, are currently envisaged in the United States, the fact remains that their development hinges on the existence of a clear and stable legal framework that can attract all the capital-intensive investment that gas chain development needs.

In Algeria, more than in any other country, we know how much impact changes in legislation can have. We experienced that at home in the 1970s.

The beginning of the liberalization process in the late 1970s led to the termination of supply contracts signed with American companies, contracts involving colossal investments in the necessary liquefaction facilities and shipping infrastructure. That dealt a terrible blow to LNG transport and production capabilities.

Ladies and Gentlemen,

Algeria is already one of Europe’s chief suppliers and, at the present time, European countries absorb 95% of our gas exports, alongside Norway and Russia. Algeria’s presence in this market dates back to the early days of the development of Europe’s gas industry which involved the construction of the first liquefaction plant in Algeria.

We sell 120 million US dollars of gas to American markets. That accounts for 5% of Algeria’s LNG exports and for 22% of the USA’s liquefied gas imports.

Our strategy, once again, involves adjusting and making all the investments we need to make to cater to future demand. Doing so means getting all the main players involved in the gas chain, including those active in our upstream gas segment. This will bring new momentum to our partnership with organizations which are likewise affected by the change.

Algeria has been involved with the greatest adventure that is natural gas for forty years now. Today, its natural gas reserves stand on a par with its oil reserves.