Natural Gas: A Redefinition
John D. Gass, President
ChevronTexaco Global Gas
Cambridge Energy Research Associates (CERA) Week 2004
It's a great pleasure to be here at CERA Week, and to be a participant in the global gas plenary session.
What a chance to exchange ideas and to share insights and experience with people in the industry. I'm especially honored to join this morning's panel and my distinguished colleagues to talk about the fastest growing part of the energy business, at the forefront of our industry's pursuit of growth and value, natural gas.
I'm sure we'd all agree that natural gas is going through an exciting change, a transformation really, and in important ways it is redefining the energy business.
In the years ahead, natural gas will redefine a significant part of energy's marketplace, creating new commodity markets and weaving a tighter fabric between buyers and sellers. Natural gas is already redefining our companies. Natural gas is even redefining itself. And, finally, and most importantly, natural gas is redefining the geo-political world in which all of us live.
These crucial, redefining roles for natural gas could only be driven by powerful forces. And, in fact, two powerful forces are actually sweeping natural gas: growing world demand and shrinking costs for liquefaction, shipping and conversion.
Growing World Demand
In Europe, natural gas demand is projected to grow 2 to 3 percent per year for the next 20 years, from roughly 45 to 65 billion cubic feet a day. In North America, where producers are having to drill more and more wells just to stay even, gas demand is projected to grow roughly 1 percent per year, from 70 to 85 billion cubic feet a day, over the same period.
Then, the second force: lower cost LNG as the global enabler of natural gas. New metallurgies, economies of scale and improved design have cut the costs of LNG facilities and tankers by as much as 30 percent just in the past few years. These impressive savings are hastening the globalization of natural gas.
In fact, through 2020, on the way to replacing coal as the world's second most important primary fuel, gas is expected to grow twice as fast as oil. In the United States alone, demand for LNG will be eight to ten times what it is today, according to calculations by many people. Natural gas will lead the way as the world shifts to lighter fuels and enters a whole new era of energy.
But the natural gas business is doing much more than simply grow – it is becoming a truly different business and one that is redefining the marketplace.
Emerging Global Gas Market
As the United States, Europe and Asia increase LNG imports over the next 10 years, the emergence of a new global market for gas, much as the one that currently exists for oil, becomes all but inevitable. In fact, we are already seeing LNG cargoes being redirected in mid-ocean from one customer to another. For those of you who follow American football, it's like a quarterback changing signals at the line of scrimmage. In football, they call it "audibilizing." In our business, it's flexibility. It's taking advantage of LNG's increasing diversity of suppliers and customers in ways that ensure gas gets to where gas is needed most. It's also an important first step in the globalizing of natural gas.
Nobody could "audibilize" in the days when delivery of natural gas halted at the end of a pipe or flowed within the strict confines of a point-to-point LNG market.
Today, economic gains, advances in technology and the emergence of North America as a major LNG importer are helping us break out of that hard-pipe, point-to-point world. Future relationships between customers and suppliers are being redefined, replacing a straight line with a global web, one that will link buyers and sellers anywhere and everywhere. And that means new and compellingly attractive opportunities for both parties. Customers can look forward to more options, more stable and more competitive prices and more diversity (and indeed security) of supply. Producers can tap previously unopened markets, meet once unattainable environmental goals and commercialize their gas resources.
At my own company, last year's approval in principle by the Western Australia government for a Barrow Island LNG plant together with a letter agreement with China (which is still subject to completion of formal contracts) pave the way for a new source of natural gas for that country. In West Africa, LNG will help us find a home for formerly "stranded" natural gas from our oil operations – and reduce greenhouse gas emissions by millions of tons per year.
"Energy's Stepchild" No Longer
Natural gas is redefining our companies. Why do I say this? After all, my firm, like others, has been finding, producing and selling natural gas for 100 years. ChevronTexaco drilled for natural gas in California in the early 1900s, formed a natural gas department in 1911, and laid the world's largest diameter pipeline at the time – a gas pipeline – in 1930. But over the years, as the oil business internationalized, gas became energy's stepchild.
But not any longer. Those days are gone forever, and we are reshaping our companies to meet today's burgeoning demand for natural gas. At ChevronTexaco, for example, we've brought together, under one organization, the components of the gas value chain – marketing and business development, shipping, regasification, pipeline, power generation and gas-to-liquids – into the ChevronTexaco Global Gas organization. This organization came into being just eight months ago to meet the competitive challenge of today's gas business and to develop markets for our significant gas resources around the world. Over the next decade, we're looking at investing billions of dollars to build a high-impact gas business for our company.
Natural gas is even redefining itself. I'm thinking primarily, but not exclusively, of gas-to-liquids conversion and of the great potential I believe GTL holds, especially for transportation fuels.
Today, driven mostly by European demand, diesel is the crude barrel's fastest growing cut. But in the United States and elsewhere, conventional diesel has been held back for performance, environmental and "image" reasons. Compared to conventional diesel, GTL diesel contains no sulfur, no aromatics and boasts impressive power ratings.
But GTL's potential goes beyond converting methane molecules to diesel fuel. It extends to lubricant base oils and waxes. Indeed, I believe GTL will redefine the marketplace for synthetic lubricants, making these products far more cost-competitive and widely available than is the case today.
Big Investment Required
Amid all this change, however, one thing isn't changing. Despite all the cost improvements, staggering investments are still required to take part in this business.
Developing new "greenfield" LNG plants calls for outlays of $2 billion to $3 billion each – and more than a dozen such projects are on the books now. Regasification costs are another $500 million to $1 billion. And every LNG ship costs from $150 million to $200 million. World-scale GTL plants, I might add, require similar-size investments.
It will take big players with deep pockets, not to mention the commercial and technical capability and courage, to step out on such a stage. But the curtain is lifting on a great natural gas play for our companies and for humankind.
At the beginning, I suggested that natural gas will redefine our world in positive ways. Clearly, the impact of projects such as those I've described goes well beyond economics.
Pipelines – for example ChevronTexaco's planned West African Gas Pipeline – greatly enhance prospects for regional cooperation. And as more and more natural gas goes to sea the cultural and commercial distances that separate nations like Australia, Qatar, India and China will shorten dramatically. LNG from Angola will heat homes in the American Midwest. GTL fuels from Nigeria will power diesel cars in Europe. New economic and trade relationships will blossom and bind the developing and developed worlds.
I haven't even mentioned the environmental gains offered by natural gas, gains that will reduce greenhouse gas emissions for entire nations. Nor have I mentioned the chance for greater industrial diversity, especially for developing countries.
Of course I must add that the recent Algeria tragedy sadly reminds us all that our responsibility and No. 1 priority must always be safety. Our industry's track record is good, but we must never become complacent in this area. I am confident we can and will meet this challenge.
In closing, in the 20th Century, it took partnership, among companies, communities and countries, to launch a global oil business. In the 21st Century, it will take the same spirit of collaboration to launch a global natural gas business. And just as decades ago oil redefined energy as a new engine of economic growth, today natural gas is redefining energy in ways that can lift lives and lift hopes.
Working together, and only by working together, we can ensure the world realizes the full economic, environmental and social promise of natural gas.
Updated: February 2004