SPEAKERS
Emmanuel Egbogah Special Advisor to the President on Petroleum Matters Federal Republic of Nigeria	Mohamed Meziane Chairman and CEO Sonatrach
David Hobbs CERA Vice President and Managing Director of Global Research (Chair)

After the plenary David Hobbs, CERA Vice President and Managing Director of Global Research, introduced the Special Address on Global Markets and Key Suppliers and mentioned the privilege of hearing two influential speakers from Africa.

Emmanuel Egbogah, Special Advisor to the President on Petroleum Matters for the Federal Republic of Nigeria, discussed Nigeria’s strategy for developing its gas reserves, which are second only to Algeria’s on the continent, and meeting global gas demand. Nigeria has about 40 percent of Africa’s gas reserves, around 180 trillion cubic feet. Dr. Egbogah noted that non-OECD countries in general have aggressive development agendas as gas consumption will overtake consumption in OECD countries within two years.

In Nigeria oil development formerly took precedence, but that picture is changing, Dr. Egbogah said, with a new gas strategy “to create as much value from gas as we do from oil and address the associated environmental issues.” To that end, a ministry department to oversee gas development is being established. The key drivers for development are optimizing Nigeria’s share and competitiveness in high-value export markets, leveraging gas for rapid domestic industrialization, and preserving energy security for sustained economic development. Gas can meet two of the country’s greatest problems, power availability and agricultural sector demand for fertilizer. Nigerian development is geared to its Vision 2020 plan: by that year, to be one of the top 20 producing nations. Current imbalances, said Dr. Egbogah, are due to the domestic and export markets competing for infrastructure funding, but domestic development now has a higher priority.

He detailed four key supply determinants—gas reserves, infrastructure, pricing and fiscal terms, and financing and investment—and the strategies to deal with each issue. Although until recently gas was considered a nuisance, now the industry is working to discover and document high potential exploration hot spots. The gas reserves growth strategy in turn depends on adequate funding, supported by appropriate gas pricing and a fiscal regime that will guarantee a good return on investment, he noted. New legislation is designed to address these issues.

Just two days previously Nigeria’s president signed a gas pricing policy establishing tariffs for electricity and for gas-reliant industries. Both liquid petroleum gases and natural gas liquids will be used domestically rather than exported, with the amount to be determined by the new minister for gas development. Dr. Egbogah described the new tariff structures designed to switch disincentives to incentives. He also described the significant market opportunity for LNG, which the country began exporting in 1999. The current six trains will grow to seven trains by 2013, and new LNG developments have made significant progress, he noted.

The new gas policy will require building new pipeline infrastructure to all regions, establishing a competitive framework to grow independent power projects, increasing gas reserves to meet short- and medium-term demand, and changing existing gas structures to encourage third-party participation. He concluded with a quote from the African Oil Policy Initiative Group White Paper, adopted by the US Congress, that linked Nigeria and the United States as strategic partners. “African oil is not an end, but a means to a more rapid African economic development and a greater US energy security,” goals that Dr. Egbogah said were strongly supported by Nigeria’s new gas policy.

In the second Special Address on Global Markets and Key Suppliers Mohamed Meziane, Chairman and Chief Executive Officer of Sonatrach, reminded CERAWeek delegates that Algeria was the first country to export LNG and described the coming gas market globalization. “The tight link between gas producers and consumers has led to a convergence of interest between various parties,” he said. With large investments being made across the LNG value chain and with new investments still required, financing constitutes an arbitration tool between markets. Planning must facilitate shifts between markets to take advantage of prices, Dr. Meziane noted.

“Natural gas has emerged as an energy source of choice,” he said. Global gas dynamics will continue to change because of the increasing use of gas for power, the declining domestic production in consuming countries, deregulation of markets, environmental concerns, and markets competing on price for LNG as interconnections increase. The producer-buyer balance is based on share risk, the former assumes a volume rise and the later assumes a buyer’s risk. Dr. Meziane particularly noted the role of technology, which has made things possible for LNG at the lowest cost and opened up new markets and new opportunities. LNG volumes will more than double by 2015, he said.

This fast growth may lead to a global market, but globalization faces uncertainties, risks, and challenges. Demand growth is accelerating because of rapid economic development, closely linked to ongoing demand for services and consumer goods. The industry faces problems recruiting skilled staff to handle the boom in oil and gas projects. Changing environmental needs will influence the strategies operators choose, Dr. Meziane said.

Producers and buyers are trying to cover risks through alignments with upstream and downstream operations and by restructuring. LNG does not require long-term contracts, but it is a capital intensive industry, he noted. More integrated companies are securing their own supply through long-term contracting, as more flexible plant becomes available. Players must now develop a coordinated approach.

Sellers and buyers can take advantage of synergies with downstream penetration and marketing, Dr. Meziane said. Algeria is restructuring its industry to offer a stronger commitment through flexibility, optionally, and diversification. He mentioned joint projects to integrate gas with the downstream: in Spain through a marketing affiliate selling Medgas pipeline gas by 2009, and in Italy with a company to increase Algerian gas volumes through the Tunisia pipeline. These follow on the Isle of Grain terminal project by Sonatrach and BP providing regas capacity of 4.7 billion cubic meters within a few miles of London. Three nonbinding agreements broach penetration of the US gas market through leasing regas capacity in Louisiana, the Gulf of Mexico, and Texas. Sonatrach is also studying opportunities for joint marketing in the United States.

Different forms of marketing and development will benefit producers and consumers and help secure profits along the entire value chain for gas, Mr. Meziane concluded.

In the question and answer session, Dr. Meziane called strong partnerships a main strategic decision for Sonatrach, which revised regulations for contracts awards for complete transparency. Dr. Egbogah said Nigeria is also rewriting its licensing guidelines for a possible round in 2009–10. Both speakers commented on the possible trans-Sahara pipeline bringing Nigerian gas north, and gas flaring was discussed. Both Nigeria and Algeria are hoping to cease all flaring by 2010.