SPEAKERS
John D. Gass President Chevron Global Gas	Darcel L. Hulse President and CEO Sempra LNG
Ahmed Al-Khulaifi Chief Operating Officer Qatar Liquefied Gas Company Ltd.	Michael Stoppard CERA Managing Director (Chair)

Wednesday morning at CERAWeek CERA Chairman Daniel Yergin welcomed the audience to Global Gas Day and thanked The Wall Street Journal, the CERAWeek print media partner, and Microsoft, sponsor of the CERAWeek Central kiosks that provide interconnectivity throughout the conference.

Michael Stoppard, CERA Senior Director, Global Gas, chaired the plenary on “The Globalization of the Gas Market: A Single Market or Many?” and welcomed a panel that included the world’s leading LNG producer by volume, an international oil and gas company with a wide portfolio of gas properties to leverage in diverse markets, and a company focused on the regasification and infrastructure that links regional markets. Mr. Stoppard asked whether the global gas business was in fact born last year. When a July 16 earthquake in Japan shut down the world’s largest nuclear power facility, and a major British pipeline broke, the market refocused to meet those needs. “We saw, perhaps for the first time in the gas industry, the impacts of events on one continent affecting markets on other continents.”

Ahmed Yousef Al-Khulaifi, Chief Operating Officer, Commercial & Shipping, Qatar Liquefied Gas Company Limited, said that gas market globalization is in the forefront of the company’s thoughts. With high growth in India and China pushing up against supply options, he agreed with the National Petroleum Council’s July 2007 report on energy to 2030, which said that to mitigate the energy security risks, all sources must be used—and, he added, carefully considering the challenges of each regarding safety, geopolitics, environment, and infrastructure, among other factors.

Mr. Al-Khulaifi said that the company, “optimistic about the ability of the natural gas industry to play a significant role” in meeting the world’s energy needs, develops costly infrastructure projects to supply markets in Asia Pacific, North America, and Europe. Global LNG production will grow 7–8 percent per year over the next decade, and Qatar has over 450 million metric tons of energy capacity under development.

Trading defines LNG’s regional differences. Some trade gas daily, monthly, and seasonally; others support long-term agreements with flexible swing volumes provided through pipelines. Japan and Korea support firm 25-year LNG contracts. Some see this year’s flows from the Atlantic Basin to Asia to meet spot needs as signifying globalized LNG. But Mr. Al-Khulaifi noted that Asia’s oil development creates a competitive landscape.

“This is not a global LNG market, but one market with a variety of products” providing key benefits: diversity for customers and the ability go where needed. LNG supports three energy security solutions: a diverse supply portfolio, an alternative to overcome problems, and freely functioning energy markets and infrastructure. LNG as a source of energy diversity continues to create positive market effects through global distribution, he concluded.

For John D. Gass, President, Chevron Global Gas, the forces that have shaped regional gas markets will continue to hold sway for some time to come. “Clearly, natural gas is well down the road to becoming global,” he said, with global production and transportation systems and nascent spot markets. Tokyo Electric imported LNG from 13 countries in the past year. But today’s LNG involves complicated arrangements in multiple markets with multiple stakeholders. In his view, geopolitical conflicts, uncertainty about mature gas field production, pipelines continuing as the industry mainstay, and other factors indicate regional dominance. LNG is just 7 percent of total world gas production today, he noted. “A global market will happen, but it’s still a long way off.”

In today’s market, with new demand centers emerging, non-OECD growth will account for more than 70 percent of a 450 billion cubic feet per day market by 2030. But in Asia, for example, much of that will be met by regional suppliers and pipelines. Regional concerns also define the answers to different delivery profiles, the complex questions of project costs and who finances them, and competitive domestic or export priorities. Investments in Kazakhstan, Turkmenistan, Iran, and Russia will likely come from China or India, he noted. The Middle East market must satisfy fast-growing domestic needs with new public-private project partnerships, likely requiring long-term contracts, limiting flexibly.

Even satisfying the concerns for secure supply and demand, gas markets tend to stay with the familiar, leveraging existing producer and consumer relationships rather than creating a new system. As producers and consumers become more flexible, global will emerge, but markets will remain regionally focused for some time to come, Mr. Gass concluded.

Darcel L. Hulse, President and Chief Executive Officer, Sempra LNG, shook his head regarding whether LNG will become global—“I really don’t know”—a truthful comment answered by the laughter of recognition from an audience dealing daily with energy market ups and downs. Mr. Hulse examined what must happen for gas to become a global commodity, citing the ability to interconnect Europe, Asia, and United States; some common pricing signals; and enough liquidity to balance supply and demand. Further questions for a successful commodity market include whether gas will continue to price relative to oil, and when change will happen.

Market interconnection is evident: Middle East gas can flow to the Atlantic or Pacific markets—with price the distinguishing factor. As Europe’s pipeline gas is being called on to meet seasonality, LNG could have greater baseline participation, Mr. Hulse suggested. Europe’s traditional suppliers, Algeria and the Former Soviet Union, decreased market shares as LNG emerged in the late 1990s. With Europe needing storage and reliant on pipelines, Mr. Hulse asked whether value is captured through those traditional investments. He suggested that while the pricing link with oil would be hard to break, doing so could add value, and gas could trade higher than oil. Mr. Hulse went further and suggested, through a deeper look at regional pricing linked to oil, that gas has in fact been a commodity, pricing over time globally at about the same level, even with volatility and pricing differences.

One key will be how the market fundamentals use liquid markets to balance supply and demand. He defined a supply push to 2009–11 as new liquefaction comes onstream, with increasing flows to the United States and prices converging, to be met with a demand pull, perhaps by 2012–16. “Gas will function as a global commodity quicker than most of us think,” Mr. Hulse concluded.

The question and answer period covered regional influences on global pricing, flexible trading, Qatar’s fourth train due in the third quarter this year, the investment balance between regas and liquefaction, and whether an OPEC-like group will emerge for global gas, among other issues.