Partnership: The Prime Imperative for Building A Global LNG Future

By Peter J. Robertson, Vice Chairman
ChevronTexaco Corporation

First LNG Ministerial Summit, Dec. 17, 2003

Washington, D.C.

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I'm very pleased to see so many of our partners -- and future partners -- here today. And I thank Secretary Abraham, the Department of Energy (DOE) and the U.S. Energy Association for organizing this summit.

Clearly, our participation here reflects a shared sense of urgency to come together and discuss our mutual gas and energy-trade interests.

We know the liquefied natural gas (LNG) industry faces multiple challenges: financial, regulatory and structural, to name just a few. But we also know that we stand on the threshold of a great opportunity.

Large reserves of natural gas around the world await development. There's a growing desire by many countries to benefit from this abundant and clean-burning fuel. And today, we have the know-how and technology to connect the reserves and the markets much more economically than we could in the past.

The studies by Cambridge Energy Research Associates and the National Petroleum Council make it clear that time is of the essence. And thanks in part to U.S. Federal Reserve Chairman Greenspan, LNG is in the energy spotlight. He recently told the U.S. Congress that Americans cannot "encourage the use of environmentally desirable natural gas while being conflicted on larger imports of LNG." I assure you, he won't get any argument on that point from me.

We face three major requirements in building the new global LNG industry:

  • First, on the supply side, we must create economically sound LNG export projects to ensure that gas-rich countries can commercialize their vast resources and capture the economic benefits they need.
  • Second, on the consumption side, we must establish a solid network of import facilities to marry the world's LNG resources to their best markets. These facilities must be built on a stable regulatory and economic foundation to ensure reliable, long-term service to customers at competitive prices.
  • Third, we have to link these costly components through transportation and value chains that can withstand the twists and turns of a changing LNG marketplace.

But knowing all of this is no guarantee of success. No, we're going to need something else. We're going to need a new and shared commitment to partnership as a prime imperative throughout the LNG industry.

The interdependencies of LNG projects are well-known; the hurdles are high and so is the urgency of getting new supplies to consuming countries. So we need producers, companies, governments, communities and customers to embrace the combined challenges of the new LNG era. And that means greater collaboration, flexibility and speed than ever before. In an industry as young as LNG, with so many new relationships to be formed, this will not be an easy task.

Fortunately, we have the lessons of the past and a number of more recent successes to show us what is possible with partnership. We owe a debt to the early exporting pioneers, such as Algeria and Alaska.

The LNG industry's reputation also owes much to the partnership between the North West Shelf project in Australia and its major customers in Japan.

Now almost two decades old, this project has set a high standard for flexibility and supply security. And last year, after months of hard work involving our company and all the other partners, North West Shelf project launched a future LNG supply relationship with China.

The Gorgon project in Australia is also raising partnership and collaboration to a new level.

  • As the operator, ChevronTexaco is working hard to keep the project moving forward with our close partners ExxonMobil and Shell.
  • On the marketing side, I'm proud to say that China is strongly interested in becoming both a Gorgon LNG customer and an equity partner.
  • The Gorgon project has signed memoranda of understanding to bring LNG to the West Coast of North America.
  • In Western Australia, we've taken special care to involve the public in Gorgon. And our project plan will protect the environment through both wildlife conservation and greenhouse-gas mitigation.
  • The Gorgon team has worked diligently with the West Australian government to design an economically-viable project certain to deliver both jobs and major economic benefits in the years ahead.

    I want to extend special thanks to Premier Geoff Gallop of the state of Western Australia, who joined with us recently to meet with leaders in Mexico and California to promote Australian LNG as a long-term solution to West Coast energy needs here in North America.

But Australia is only one important element of the LNG-partnership story.

Russia has long been a steadfast gas-supplier to its neighbors through its pipelines. With its enormous reserves, with the Sakhalin LNG project advancing with multiple partners, and with new projects proposed in the far north, Russia has the potential to become a key LNG supplier.

I commend Secretary Abraham for his vision of an LNG bridge from Russia to North America — yet another potential example of the unifying power of energy-trade relationships.

Certainly, we can see this power at work today in Africa, which has a long history as a key oil-supplier to the United States and other countries. And now, in addition to the developments in Algeria, we're seeing solid progress in the expansion of Nigeria's existing LNG facilities. This will no doubt serve to strengthen and expand energy trade relationships even further.

At the same time — also in Nigeria — ChevronTexaco and our partners are making excellent progress on the new Brass LNG development. More than an export project, Brass is part of a broader effort to monetize more West African gas and ultimately end flaring once and for all.

I believe Brass is progressing also because of our long-standing commitment to working with communities. And I'm proud to say that ChevronTexaco this year received the U.S. Secretary of State's award for Corporate Excellence for this and other partnership efforts.

Clearly, the U.S. government believes LNG has great potential to make a major contribution to sustainable development in Africa.

Of course, no discussion of LNG partnerships would be complete without Qatar, which has set such a high standard for attracting foreign capital to its gas industry.

Clearly, the role of government leaders in all the gas-exporting countries is critical to global LNG expansion. And Qatar has demonstrated that success awaits those who offer their partners flexibility, sound fiscal regimes, competitive terms, sanctity of contracts, and long-term security.

So, I'm pleased that this very business-minded Middle East country has joined us here today, and I wish them well in hosting the LNG summit next March in Doha.

As for the United States, numerous countries now stand ready to form LNG partnerships with us.

Dan Yergin, in the current issue of Foreign Affairs, tells us that North America will be "the key future growth market for LNG."

Clearly, LNG from a variety of sources can help fill large gaps in future gas supply — and enhance regional energy security. So it's no surprise that Cambridge Energy Research Associates and others are predicting an "incoming tide" of LNG to North America. With about 25 prospective import-terminal projects being discussed, some experts are even worried about overbuilding.

But I believe only the soundest will be able to go forward. And they will need to be highly skilled marketers — and market makers — who can assure customers that they can rely on LNG to meet future energy requirements.

LNG projects require extensive government review, complex business and contract relationships, huge capital investments and fairly long lead times. So while overbuilding might be a concern to some, I'm much more concerned about failing to build enough import capacity soon enough.

This is why I'd like to ask business and government leaders on North America's West Coast to join with us and recognize both the opportunity and the urgency of the continent's supply/demand situation for gas.

The National Petroleum Council estimates that the United States will need a seven-fold increase in LNG supplies. Failure to establish this capacity quickly could lead to gas-supply shortfalls and volatile prices later in this decade, with dire consequences for the economy. That's the bad news.

The good news is that we know how to prevent it. We can solve this future problem before it happens.

Building new LNG facilities to secure new supplies of clean-burning gas is a sure way to address some of the highest priorities of the North American West Coast: economy, employment, environment and quality of life.

I hope the dialogue about West Coast LNG can soon be moved to the top of the regional agenda, because uncertainty is the enemy of LNG investment. And uncertainty about energy is the enemy of economic development.

Lastly, there's another, crucial partner we need to embrace: the general public.

We know that LNG is an industry with an outstanding safety track record, but we must appreciate that not everyone knows this.

In North America and especially the West Coast, we cannot go forward unless people are fully informed and supportive. They need to feel that their views are being heard. This is one big reason ChevronTexaco changed its plans for the proposed LNG import terminal in Baja California.

We started out with an onshore proposal. But it soon became clear that tourism, the environment and the coastal lifestyle are extremely important to the people there. So our proposal now is for a gravity-based structure terminal offshore and almost out of sight.

We hope that, with this change, Mexican leaders and the general public will choose ChevronTexaco as Baja's LNG partner for the future.

After all, our neighbors and fellow citizens are the ultimate end customers of the LNG industry. They are the beneficiaries of the West Coast's growing emphasis on clean-burning natural gas as the fuel of choice.

Californians in particular may not appreciate being reminded about what can happen when energy supplies run short.

Nonetheless, we can't afford any fear or confusion about LNG or the time required to approve and build the facilities needed to provide it.

In both California and Baja California, a number of LNG companies are already providing some great educational materials. And I want to commend the DOE as well for its outreach program to the National Association of Regulatory Utility Commissioners.

The goal of the program is to raise awareness about LNG and the need to make balanced and timely decisions about adding new import facilities. Still, I believe the LNG industry needs to do more.

People and elected officials want to know if these facilities are safe, and they want to know if they are necessary. One of our jobs is to help them understand the answer to both those questions is an emphatic "yes."

I believe we can find balanced solutions that respect the environment and respond to the needs of both neighbors and the regulatory process. I believe this partly because of ChevronTexaco's successful permit process for our Port Pelican LNG terminal.

This is the first facility permitted under the new Deepwater Ports Act, which is both efficient and thorough.

We can now proceed with the remaining project approvals and construction, knowing we have support from the DOE, the National Maritime Administration, the Coast Guard and Department of Transportation, among others.

Pelican will be North America's first offshore LNG terminal and the first to use a gravity-based structure. We intend to begin commissioning in 2007.

And well before this decade is over, our export projects in Africa and Latin America are expected to supply enough LNG to Port Pelican to generate 1.5 billion cubic feet of gas per day for North American consumers and businesses.

At ChevronTexaco, we're proud to be working with so many of you to create the LNG future.

  • We're a long-time partner in the North West Shelf project.
  • We're advancing a new export project in Angola and working closely there with our partner SONANGOL.
  • We're working on new export projects in Australia, Nigeria and Venezuela, seeking to serve customers in Asia, Europe and the United States.
  • We're determined to make Port Pelican a standout LNG project.
  • We hope to help both Mexico and California build the LNG re-gasification facilities they need.
  • Our new Global Gas organization, formed in recognition of the rapidly evolving gas business, is specifically designed to achieve success at every link in the value chain.

Throughout the 20th century — what some call the "Oil Century" — our industry proved its ability to deliver energy to the world. And we learned a great deal about how best to do that. Now we need to take what we've learned from past decades of oil politics and often discord and create a new climate of gas diplomacy and security.

I believe that our LNG industry can harness the world's great gas resources and match them to the world's gas markets for the greater good of all partners.

Our participation in this summit shows we're ready to work together to make the LNG dream a reality. I have the highest confidence in our product, in the global energy business and in our government and industry partners here and around the world.

We look forward to working with you in the years ahead.

Thank you very much.

Updated: December 2003