GLOBAL GAS DAY HIGHLIGHTS

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? With a perspective form the world’s largest LNG supplier by volume, Ahmed Yousef Al-Khulaifi, Chief Operating Officer, Commercial & Shipping, Qatar Liquefied Gas Company Limited, said that gas market globalization can help satisfy energy security concerns and meet the world’s energy needs, providing flexibility to consumers and to producers. Given regional differences in demand profiles and trading “This is not a global LNG market, but one market with a variety of products,” he said. For John D. Gass, President, Chevron Global Gas, the regional forces shaping gas markets will continue to hold sway. “Clearly, natural gas is well down the road to becoming global,” he said, with global production and transportation systems and nascent spot markets. But even with new demand centers emerging, given complicated arrangements in multiple markets with multiple stakeholders, gas markets tend to leverage existing producer and consumer relationships rather than create a new system. In his view, geopolitical conflicts and pipeline dependence, among other factors, indicate regional dominance. “A global market will happen, but it’s still a long way off.” Darcel L. Hulse, President and Chief Executive Officer, Sempra LNG, examined how gas could become a global commodity, citing interconnectivity, common pricing signals, and enough liquidity to balance supply and demand. He asked whether gas will continue to price relative to oil, and when change will happen. He suggested that gas might already be acting as a commodity, and while the gas pricing link to oil would be hard to break, doing so could add value, and gas could trade higher than oil.

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 development strategy for its gas reserves, second only to Algeria ’s on the continent. Oil formerly took precedence, but a new gas strategy seeks “to create as much value from gas as we do from oil,” establishing a new ministry department to oversee development, support documented reserves growth, and encourage financing and investment. New legislation amends tariffs; domestic growth will support both new pipeline infrastructure and electricity sector growth, including a competitive framework for independent power projects. Nigerian LNG will grow to seven trains by 2013. Gas reserves will be developed to meet short- and medium-term demand and sustain the country’s ongoing economic development.

In the second Special Address on Global Markets and Key Suppliers, Mohamed Meziane, Chairman and Chief Executive Officer of Sonatrach, said the tight link between gas producers and consumers has led to a convergence of interests. “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. 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, including sustained economic growth, staffing requirements, and environmental concerns. Producers and buyers are trying to cover risks through alignments with upstream and downstream operations, and by restructuring plans. Players must now develop a coordinated approach. Sellers and buyers can take advantage of synergies with downstream penetration and marketing, as Algeria has done in the United Kingdom, Spain, Italy, and is beginning to do in the United States.

The morning’s Critical Issues Forums covered the new financial structures changing the global gas business, the view of GreY2K and the need for skilled oilfield workers, regional security risks across all continents, new technologies in gas, and the global strategies for gas arbitrage.

CERA Chairman Daniel Yergin thanked Lazard, the Global Financial Partner of CERAWeek 2008. George Bilicic, Managing Director and Head of Global Power & Energy for Lazard Fréres & Co. LLC, gave the luncheon toast, thanking CERA and CERAWeek for their important role in deciphering the increasingly diverse and complex energy industry.

Keynote Luncheon speaker Linda Cook, Executive Director of Gas and Power for Royal Dutch Shell plc, spoke about heightened attention to energy worldwide, which brings into focus “the energy challenge and three hard truths”: rising demand, security of supply, and environmental concerns. “A broad portfolio of energy sources,” dramatically increased energy efficiency, implementation of smart and coordinated greenhouse gas policy, and new technology development, she said, are needed to address these hard truths. She then explored the role of natural gas and Shell in meeting the energy challenge and requirements for future success.

In a Special Address, J. Craig Venter, Chairman of the J. Craig Venter Institute, presented the ideas behind “designing and synthesizing life,” a new phase of biology that aims through metabolic engineering to synthesize genes and create species. He predicts that in the next 10 to 15 years, some of the technologies his organization has been working on could disruptively transform the energy industry. Dr. Venter and his team use the 10 million genes of simple life forms found in the oceans, the air, and various species as “design components of the future.” Some of them have led to applications for energy. He cited the problem of carbon dioxide (CO₂) emissions. The conversion by microbes of the carbon in coal into methane, for instance, could have a huge impact. Similar microbial processes could be used to break down oil sands and tar sands. There are also microbes that convert CO₂ into methane. The hurdles for these technologies are scalability, cost, and efficiency, but with all that is going on in his field, Dr. Venter believes that “things are going to start changing even faster than they already have.”

The afternoon's three Industry Plenaries gave delegates a choice of key discussions by major figures in the global gas industry, on the new gas geopolitics, new North American unconventional gas supply, and Asia’s future gas balance.

Philippe Joubert, Executive Vice President, Alstom, offered a toast to open Wednesday’s Global Energy Insights, chaired by CERA Chairman Daniel Yergin. CERA experts Jed Bailey, CERA Managing Director, Emerging Markets Group; James Burkhard, CERA Managing Director, Global Oil Group; Thane Gustafson, CERA Senior Director of Russian and Caspian Energy; Vera de Ladoucette, CERA Senior Vice President, Senior Director, Middle East Research; Lawrence J. Makovich, CERA Managing Director, Global Power Group; Michael Stoppard, CERA Senior Director, Global Gas; and Chi Zhang, CERA Director, China Energy, offered their views on regional energy developments and pressing industry issues.

Dr. Yergin posed questions to the panelists on economic, political, price, and supply issues. Mr. Gustafson spoke about Russia’s currently prosperous and stable environment and Vladimir Putin’s “constitutional experiment” which will keep him near the seat of power after Dmitry Medvedev’s almost certain election. He characterized the Putin era as “the best decade Russia has ever had” but acknowledged that the period of coasting on gas assets was at an end. Mrs. de Ladoucette commented on the cooling of the Iran nuclear issue and the impact on markets. She emphasized the need for a stable legal climate in Iraq before companies will commit funds and staff in the region. Mr. Bailey explained the significance of the defeat of President Hugo Chávez’s referendum in Venezuela, and the concept of striking a balance between government-driven and market-driven strategies for wealth growth and distribution. Mr. Zhang spoke about the links between the US and Chinese economies and on the Chinese government’s shift in focus from industrialization to social services. Continuing on the theme of the economy, Mr. Makovich said that in the industry slowing growth is “front and center,” next to the climate change issue, and that the US economy is working off imbalances. Regarding cap-and-trade versus a carbon tax, he said that economically the carbon tax “is the simplest and most efficient way to solve the problem,” but that from a political standpoint “tax proposals are dead on arrival.” Mr. Burkhard projected oil prices for 2008 at $85 for WTI and commented on disentangling the risk premium, which he called “a tricky business.” Mr. Stoppard’s remarks focused on the outlook for LNG globally and in the United States, the difference in sentiment between the short- and long-term views, and the three-way competition for supply among Asia, Europe, and North America, saying that North America will have sufficient supply but that it will be seasonal and fluctuating. The session concluded with questions concerning biological alternatives to fossil fuels, with panelists agreeing that challenges of lead time and scale would be immense, and that this would be a very long-term prospect.