The 22nd World Gas Conference

By George L. Kirkland, President
ChevronTexaco Overseas Petroleum Inc.

New Liquefied Natural Gas (LNG) Markets Leaders Forum

Tokyo, Japan, June 3, 2003

Ladies and gentlemen, I appreciate the opportunity to be on this panel and to represent ChevronTexaco. This is ChevronTexaco's first exposure to the World Gas Conference as a new merged company, and at the same time, we are very pleased to announce the opening of our new International Gas office in Tokyo. In that vein, my comments this afternoon will really be directed toward liquefied natural gas (LNG) in the Pacific Basin.

This panel is focused on new LNG markets, and from our vantage point, those markets are changing rapidly. If Korea exemplifies the "new" LNG customer, Japan remains steadfast as the world's largest LNG importer and the market that launched the LNG industry as we know it today. There are also great opportunities in China, and ChevronTexaco is pleased to be part of the North West Shelf Project in Australia, which will supply China with its first LNG. Winning this contract underscores the market advantage of LNG from Australia where my company is the largest owner of gas resources. We're pinning a lot of our future gas business in Australia and the vast resources of greater Gorgon.

We also believe that the key to a strong Asia-Australia LNG strategy is a strong North America LNG strategy: one that puts the world's biggest gas market — the United States — squarely in the bull's eye. As U.S. pipeline gas supply becomes more challenged, LNG offers a realistic supply alternative. U.S. LNG imports have jumped almost tenfold since 1996 but still only amount to just a few days' supply a year. Obviously, there is enormous upside for growth.

From the ChevronTexaco perspective, we believe LNG from Gorgon is going to supply those new markets in North America, and it is also going to go to Asia. In fact, we hope some of you may be our Gorgon customers. We're moving ahead with Gorgon. We're convinced that the market is ready for the kind of security and reliability it offers.

Gorgon is part of a major LNG ramp-up by ChevronTexaco, and it is a part of a huge energy blessing that North America and the Asia Pacific region can share. Having a strong liquid market in North America also puts more gas into the logistics and trading mix for Asian customers who want flexible terms. This is one way that the emerging North American market will create value for Asia.

With this view, it is no accident that ChevronTexaco is launching a major growth-focused LNG strategy. We think the market is huge, and we believe the game is changing in favor of new entrants. Let's look at three factors that have impacted LNG in general and Gorgon specifically:

  • LNG is the fastest growing part of the world energy business. Natural gas is growing faster than any other major energy source.
  • The cost of LNG infrastructure is coming way down — a 50 percent drop between 1970 and 1995, and the costs are still falling. Why? Because LNG carriers are getting cheaper as the numbers grow — 50 vessels are under construction and will increase the size of the global LNG tank ship fleet by nearly 40 percent — and new technologies are reducing liquefaction and regasification plant costs.
  • And finally, contracts are moving from fixed to flexible. Customers want competitive prices — prices linked less and less to oil, and they want variable volumes and upstream equity.

Gorgon shows why new entrants are well-positioned to meet the needs of this rapidly changing LNG market. Gorgon can take advantage of new technologies and, with reduced infrastructure costs, be very competitive. Gorgon boasts a huge resource base that can serve customers interested in term deals as well as those in the large and liquid North American market. Gorgon builds on the Australian legacy of safety, capability and reliability represented by the North West Shelf. But it also represents an exciting new world-class supplier of LNG and offers the promise of "skin in the game" to its customers who seek equity.

In conclusion, the new LNG game will be good for everyone. Making LNG markets more competitive can only heighten the appeal of the "LNG solution" for supplying natural gas to markets both new and mature. It means a cheaper clean energy source, stronger economies and a better environment for all.

Updated: June 2003