From Promise to Performance: Keeping the Momentum of Natural Gas

By John D. Gass, President
Chevron Global Gas

CERAWeek Remarks

The Westin Galleria, Houston, Texas

Thank you, Simon. I am delighted to be here today, and Chevron is pleased to be the CERAWeek's Global Energy Partner for the second year in a row.

It's appropriate that Gas Day is the centerpiece of CERAWeek because natural gas is quickly emerging as the centerpiece of a global energy industry that is undergoing fundamental changes.

We are witnessing a new energy equation, driven by increasing global demand, a more challenging frontier of energy supplies in such areas as deep water and oil sands, and an increasingly complex geopolitical environment.

Within the context of this new equation, it's clear that oil will continue to be the predominant energy source for some time to come. Renewables and alternative energies will play an increasing role in the energy mix, although not on the scale of petroleum products.

Conservation must play a role as well. It is, after all, the cheapest form of new energy. And clean, abundant natural gas will figure prominently in this new energy equation.

While overall global energy demand is expected to increase by nearly 50 percent over the next 20 years, demand for natural gas is projected to increase nearly 70 percent over the same period of time.

Clearly, natural gas is gaining momentum. It is making a transition from promise to performance.

Promise because the world has abundant supplies of natural gas, and those supplies can meet the demand for reliable, clean-burning energy - demand that is being driven by the growth of power generation worldwide.

And the performance that will deliver the promise of natural gas is emerging in the liquefied natural gas (LNG), gas-to-liquids (GTL) and long-distance pipeline projects now underway globally.

Examples of this transition from promise to performance are everywhere. Unprecedented investment is flowing to projects in Africa, Australia, Qatar, the United States and elsewhere.

On the LNG front, there are 13 countries around the world today that export LNG. In the next 10 years, that number is forecast to grow to 22.

Power generation figures prominently in demand for gas. In the United States alone, 90 percent of the power plants built between 1994 and 2004 were gas-fired - some 200 gigawatts of capacity - more than double what the National Petroleum Council had predicted only a few years before.

In short, we are well on our way toward the creation of a global gas market in which gas can be efficiently moved from where it is found to where it needs to be.

That's momentum from promise to performance. And Chevron is helping to lead the way.

In 2005 alone, we achieved a number of important business milestones that have significantly advanced our natural gas strategies.

We signed three Heads of Agreements with Japanese utility companies for LNG from the Gorgon venture in Australia. These agreements move Chevron and our partners closer to commercializing Gorgon's gas resources.

In 2005 we acquired Unocal, which moved Chevron into the top tier of natural gas producers in the Asia-Pacific region.

In the United States, we increased our capacity at Cheniere's Sabine Pass LNG import terminal in Louisiana, where we are also working with Total and my colleague Yves-Louis Darricarrere. We also began the permitting process for an LNG import terminal next to our Pascagoula Refinery in Mississippi.

And in Nigeria, our Sasol Chevron joint venture broke ground for a world-scale GTL export plant scheduled to come online in 2009.

We have high hopes for GTL. We believe it will dramatically impact the natural gas industry and our ability to meet a growing need for clean transportation fuels worldwide. We estimate that by the year 2015, the GTL industry will be producing some 600,000 bpd - about 13 percent of new worldwide demand for diesel.

And yet, while natural gas has momentum, we all know that there is no such thing as perpetual motion.

The global gas business faces some very real challenges - challenges that could slow our momentum from promise to performance.

Currently, the world is experiencing price volatility and tight natural gas supplies.

Here in the United States, hurricanes Katrina and Rita exacerbated an already tight supply situation, and we are most fortunate that the U.S. winter has so far been mild.

As a result of high gas prices, we are seeing industrial gas customers who can switch fuels, make that switch, or, if they cannot - some simply shut down. The price situation has also renewed discussion about alternatives to natural gas, such as nuclear power and coal.

Other challenges to our momentum are geopolitical events, unpredictable tax policies, barriers to accessing new resources and opposition to building of new gas infrastructure.

Given these challenges, how do we maintain our momentum?

How do we continue the transition from the promise of natural gas to the performance of an efficient global market in which the economic and environmental benefits of gas can be fully realized by all?

First, our industry must continue the level of investment required to develop and distribute the world's natural gas resources. And, we must rigorously maintain project schedules.

Second, producing countries must develop policies that promote the development of their gas resources, and ensure that stable investment, tax and royalty regimes are in place.

And third, consuming countries must facilitate the construction of infrastructure that will allow the reliable import of gas supplies in a timely manner.

If they do not, they may be susceptible to continued price volatility and possibly even shortages.

In the United States for example, we must rationalize regulations that create barriers to the efficient development and operation of energy infrastructure - particularly the siting of LNG terminals.

The energy bill passed by Congress last year is a good start, but there is more that we can do.

If we are going to effectively meet demand for natural gas in the United States, the government should also open areas currently off-limits for the environmentally responsible exploration and development of natural gas.

The fact is, we now have the technology and operating expertise to go into areas such as the Arctic, the Rocky Mountains or offshore and develop energy with very minimal environmental impacts.

What we absolutely do not need is a windfall profits tax that some in Congress are calling for. Imposing such a tax would not add one single barrel of oil or one cubic foot of gas to the supply equation at precisely the time that America needs it most.

It is clear that our industry must do a better job of making our case to the public and policy makers.

We must educate them about how global energy markets work, about the technological and environmental advances we have made and why a pragmatic and collaborative energy policy will go a long way to producing energy security for the United States.

This brings me to my final point - the catalyst for maintaining our momentum from promise to performance.

That catalyst is leadership.

Responsible, accountable leadership on the part of all stakeholders is imperative along the entire gas value chain.

The energy industry must provide responsible leadership with its capital, technology and know-how. Producing countries must lead with transparent, stable fiscal regimes, and clear, rapid and predictable approval processes. Consuming countries must lead by recognizing the need to build the necessary infrastructure to meet their demand for gas. And political stakeholders worldwide must lead with policies that promote the sensible, responsible and robust development and use of natural gas supplies.

At Chevron, we believe this kind of leadership is entirely within our reach.

And, if we all respond to the challenge - pragmatically, collaboratively and with ingenuity - we'll create a global gas market that will help produce a more secure energy future for everyone.

Thank you for inviting me to be here today.

Published: February 2006