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Energy Sources:  The Emerging Technologies

November 11, 2004

Washington, DC

David M. Sweet

Executive Director

International LNG Alliance

dsweet@ilnga.org

WWW.ILNGA.ORG

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What is ILNGA?

ILNGA represents broad based LNG interests

ILNGA is sponsored by USEA, the US member of the World Energy Council

ILNGA serves as the US representative on LNG to the International Gas Union

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What is ILNGA?

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LNG Ministerial Summit

People’s Democratic Republic of Algeria

Republic of Angola Republic of Argentina Australia Commonwealth of the

Bahamas Bolivia Brazil State of Brunei Darussalam Canada Arab Republic of Egypt Equatorial Guinea Republic of Indonesia

Italy Mexico Norway Sultanate of Oman Peru State of Qatar Russian Federation Kingdom of Saudi

Arabia Republic of Trinidad and

Tobago United Arab Emirates United States of

America Republic of Venezuela

24 Participating Countries:

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R&D Funding

Global upstream R&D estimated at $5 B Most R&D performed by service sector –

2% - 4% of revenues Oil and gas sector R&D spending is

relatively low compared to other industries

Collaborative research efforts such as GTI have been slashed

DOE budget proposed $729 million for fossil research (only $41 million originally requested for oil and gas)

6

LNG is natural gas in its liquid state at -259º Fahrenheit - it is commonly stored and shipped at slightly above atmospheric pressure.

LNG is odorless, colorless, non-toxic - it neither explodes nor burns as a liquid.

LNG vapors are flammable only in concentrations of 5% to 15% with air and will not explode in an unconfined environment - the ignition temperature is more than 500º Fahrenheit higher than gasoline.

In the past 40 years there have been more than 33,000 LNG ship voyages without a significant accident or cargo spillage.

LNG Properties and Safety

-FERC Office of Energy Projects

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LNG Markets are Poised for Growth

North American natural gas demand will continue to outstrip productive capacity

Market fundamentals support growth in LNG trade Revamped regulatory structure will spur

infrastructure investment US economy requires additional gas supply for

system reliability and growth

8

United States: LNG Activity Expanding

U.S. LNG imports in 2003 are expected to reach 540 Bcf (11 million tons), up from 229 Bcf (4.8 million tons) in 2002.

The United States is both an importer and an exporter of LNG. LNG has been produced in and exported from Kenai, Alaska, to Japan for the last 30 years, exporting 63 Bcf (1.3 million tons) in 2002.

While historically Algeria was the United States’ largest supplier of LNG, since 2000 it has been far surpassed by Trinidad and Tobago, which now serves as the source for a full 66 percent of the nation’s LNG imports. The United States imported 151 Bcf (3.2 million tons) from Trinidad and Tobago in 2002.

-U.S. EIA-DOE

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The NPC View on Gas Supply

Finding: Traditional North American producing areas will provide 75% of long-term U.S. gas needs, but will be unable to meet projected demand.

The rate of production decline is increasing.

Production response from increaseddrilling has been modest.

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The NPC View on LNG

“Finding: New, large-scale resources such as LNG and Arctic gas are available and could meet 20-25% of demand, but are higher-cost, have longer lead times, and face major barriers to development.”

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The NPC Balanced Future

“Finding: A balanced future that includes increased energy efficiency, immediate development of new resources, and flexibility in fuel choice could save $1 trillion in U.S. natural gas costs over the next 20 years. Public policy must support these objectives.”

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The LNG Horse Race

mmcf/d market shareExisting 3,755 6%Permitted 6,690 11%Application Pending 23,167 39%

33,612 56%

Existing terminals supply a small share of the US markets for natural gas.

Permitted, new terminals will increase the share of LNG entering the markets.

Applications pending will add considerably to LNG’s share of the market.

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Existing Terminals with Approved ExpansionsA. Everett, MA : 1.035 Bcfd (Tractebel – DOMAC)B. Cove Point, MD : 1.0 Bcfd (Dominion – Cove Point LNG)C. Elba Island, GA : 1.2 Bcfd (El Paso – Southern LNG)D. Lake Charles, LA : 1.2 Bcfd (Southern Union – Trunkline LNG)

Approved Terminals1. Hackberry, LA : 1.5 Bcfd, (Sempra Energy)2. Port Pelican: 1.6 Bcfd, (Chevron Texaco)3. Bahamas : 0.84 Bcfd, (AES Ocean Express)*4. Gulf of Mexico: 0.5 Bcfd, (El Paso Global)5. Bahamas : 0.83 Bcfd, (Calypso Tractebel)*

Proposed Terminals and Expansions – FERC6. Freeport, TX : 1.5 Bcfd, (Cheniere / Freeport LNG Dev.)7. Fall River, MA : 0.8 Bcfd, (Weaver's Cove Energy)8. Long Beach, CA : 0.7 Bcfd, (SES/Mitsubishi)9. Corpus Christi, TX : 2.6 Bcfd, (Cheniere LNG Partners)10. Sabine, LA : 2.6 Bcfd (Cheniere LNG)11. Corpus Christi, TX : 1.0 Bcfd (Vista Del Sol/ExxonMobil)12. Sabine, TX : 1.0 Bcfd (Golden Pass/ExxonMobil)13. Logan Township, NJ : 1.2 Bcfd (Crown Landing LNG – BP)14. Lake Charles, LA: 0.6 Bcfd (Southern Union – Trunkline LNG)

Proposed Terminals – Coast Guard15. California Offshore: 1.5 Bcfd, (Cabrillo Port – BHP Billiton)16. Louisiana Offshore : 1.0 Bcfd (Gulf Landing – Shell)17. So. California Offshore : 0.5 Bcfd, (Crystal Energy)18. Louisiana Offshore : 1.0 Bcfd (McMoRan Exp.)

Planned Terminals and Expansions19. Brownsville, TX : n/a, (Cheniere LNG Partners)20. Mobile Bay, AL: 1.0 Bcfd, (ExxonMobil)21. Somerset, MA : 0.65 Bcfd (Somerset LNG)22. Belmar, NJ Offshore : n/a (El Paso Global)23. Bahamas : 0.5 Bcfd, (Seafarer - El Paso/FPL )24. Altamira, Tamulipas : 1.12 Bcfd, (Shell)25. Baja California, MX : 1.0 Bcfd, (Sempra & Shell) 26. Baja California - Offshore : 1.4 Bcfd, (Chevron Texaco)27. California - Offshore : 0.5 Bcfd, (Chevron Texaco)28. St. John, NB : 0.5 Bcfd, (Canaport - Irving Oil)29. Point Tupper, NS 1.0 Bcf/d (Bear Head LNG - Access Northeast Energy)30. Searsport, ME : n/a31. St. Lawrence, QC : n/a (TCPL and/or Gaz Met)32. Lázaro Cárdenas, MX : 0.5 Bcfd (Tractebel)33. Gulf of Mexico : 1.0 Bcfd (ExxonMobil)34. Providence, RI : 0.5 Bcfd (Keyspan & BG LNG)35. Mobile Bay, AL: 1.0 Bcfd (Cheniere LNG Partners)36. Cherry Point, WA: 0.5 Bcfd (Cherry Point Energy LLC)37. Cove Point, MD : 0.8 Bcfd (Dominion)38. Corpus Christi, TX : 1.0 Bcfd (Occidental Energy Ventures)*US pipeline approved; LNG terminal pending in Bahamas

Existing and Proposed Lower-48 LNG Terminals

(plus Canada and Mexico)

March 2004

FERC

Office of Energy Projects

A

C

1 3 5

2 4

28

722

23

6

19

24

9

178

D

21

18

15

2931

30

32

16

25

26

1133

1012

34

13

B

27

3520

14

36

37

38

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How Much Natural Gas Is Out There?

• LNG supply growing• Multiple LNG supply proposals announced• Long term LNG supply outlook robust

WORLD PROVEDRESERVES 2002:

6,270 TCF

NORTH AMERICARESERVES4%

Source: Cedigaz, NPC

ExistingUnder ConstructionProposed

Global LNGSupply Facilities

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Source: BG, ALNG, CMS, University o f Houston (IELE)

LNG Value Chain

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Improved Technology is Lowering the Cost of Liquefaction and . . .

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. . . the Cost of Shipping

19

0.001.00

2.003.00

4.005.00

6.007.00

8.009.00

Jan-91 Jan-95 Jan-99 Jan-03 Jan-07

$/m

mB

tu

Source: Platt’s Gas Daily, FutureSource, UH IELE

Cost of re-gasified LNG in North America:

$2.50 – 3.50 / mmBtu

These Reduced Costs Combined with High Gas Prices in North America Portend Substantial Growth in LNG

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1,1601,141 1,134 1,132

1,122 1,118 1,116 1,114 1,110

1,041

1,0111,000 1,000

1,375

1,082

900

950

1,000

1,050

1,100

1,150

1,200

1,250

1,300

1,350

1,400

He

at

Co

nte

nt

(Btu

/cf)

Supply source heat content could be a problem for US pipelines

Source: Conversion Gas Imports, LLC Estimates

Acceptable BTU Content

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Different quality specifications: historical reasons

Gas producing countries - specs based on characteristics of local gas :

High inert gas content (UK - Groningen) Extraction of C3 & C4 to valorize as LPG Extraction of C2 for petrochemicals feedstock (US

Gulf Coast) Need to take different gases from diverse sources

(Cont. Europe) Separate networks (H gas & B gas in Europe)

Countries using imported LNG from the start –specs based on characteristics of LNG available in the Asia- Pacific basin:

LNG with low inert gas content LNG rich in ethane and often also C3 –C4 Adjustment of GCV before distribution, by injection

of LPGSource:

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Characteristics of LNGs currently produced

Source:

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Quality adjustment at the import terminal

Options available: LPG injection (butane and/or propane) Japan Nitrogen injection UK, US Extraction of C3+ and even C2 US Gas streaming to users US, Japan Blending with local gas US, UK, Europe Blending different LNG cargoes Everywhere

 

Terminal specs can be quite different to network specs

Both specs and available equipment may vary over time

    Negotiation on a case-by-case basisSource:

Do you believe the U.S. will face an energy shortage in the next 10 years?

67% 63%71%

7%7%

7%

26% 29%23%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Total San Diego MSA San Fran MSA

No

DK/Refused

Yes

San Francisco MSA residents (71%) are more likely to feel that there will be an energy shortage within the next 10 years than their San Diego MSA counterparts (63%), though a majority in

both regions concur.

Do you have a favorable or unfavorable view of Liquefied Natural Gas?

13% 16%10%

16%15%

18%

31% 25%36%

28% 36% 21%

3%

8% 5%10%

3% 3% 3%

1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Total San Diego MSA San Fran MSA

Very Unfavorable

SomewhatUnfavorable

DK/Refused

Never Heard Of

No Opinion

SomewhatFavorable

Very Favorable

While 3 in 10 respondents from both regions have favorable opinions of Liquefied Natural Gas (LNG), San Diego MSA residents are significantly more unaware (36% - Never Heard Of) of

LNG than San Francisco MSA residents (21% - Never Heard Of).

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Would you support or oppose the following facilities in your district or state?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

DistributedGeneration

Units

New Gas-fired Power

Plant

LiquefiedNatural Gas

Facilities

Oil and GasWells

NuclearPower Plant

Old CoalBurning

Power Plant

DK/Refuse

Strongly Oppose

Somewhat Oppose

Somewhat Support

Strongly Support

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In your opinion, how much of a safety risk to your district or state is each of the following?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Energy

Shortages

Nuclea

r Power

Pla

nt

Old C

oal B

urnin

g Power

Pla

nt

Oil an

d Gas

Wel

ls

Liquef

ied N

atura

l Gas

Fac

ilitie

s

New G

as-fi

red P

ower P

lant

New C

lean

Coal

Power

Pla

nts

Distri

buted G

ener

atio

n Units

DK/Refuse

Minimal Risk

Moderate Risk

Significant Risk

Huge Risk

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Anti-import Sentiment Runs High

Importance for the US That 99% of Natural Gas Used in the US Is Produced in North Am erica

How important do you feel it is for the United States that 99% of the natural gas used in the United States is produced here in North America?

96%

72%

23%

4%

93%

69%

24%

6%

93%

73%

20%

5%

92%

64%

28%

7%

95%

74%

21%

5%

0% 20% 40% 60% 80% 100%

TOTALIMPORTANT

Very Important

SomewhatImportant

TOTAL NOTIMPORTANT

Feb-03Sep-02Apr-02Feb-02*Sep-01

*Split Sam ple; n=458

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ILNGA – The Voice of the LNG Industry

David M. Sweet

Executive Director

International LNG Alliance

1300 Pennsylvania Ave., NW suite 550

Washington, DC 20004-3022

dsweet@ilnga.org

Ph: 202 312-1244

WWW.ILNGA.ORG