Energy Sources:

1
Energy Sources  The Emerging Technologies
November 11, 2004Washington, DC

• David M. Sweet
• Executive Director
• International LNG Alliance
• dsweet_at_ilnga.org
• WWW.ILNGA.ORG

2
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

3
What is ILNGA?
4
LNG Ministerial Summit
24 Participating Countries

• Peoples 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

5
RD Funding

• Global upstream RD estimated at 5 B
• Most RD performed by service sector 2 - 4 of
  revenues
• Oil and gas sector RD 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 Properties and Safety

• 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.

-FERC Office of Energy Projects
7
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
  nations LNG imports. The United States imported
  151 Bcf (3.2 million tons) from Trinidad and
  Tobago in 2002.

-U.S. EIA-DOE
9
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.

10
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.

12
The LNG Horse Race
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 LNGs share of the market.
13
(No Transcript)
14
FERCs new policy toward LNG certification

• Hackberry LNG, LLC decision December 22, 2002
• FERC to treat new terminals as first sale
  facilities under Section 3 authority
• No change in jurisdiction over existing
  facilities
• No cost of service tariff
• No open access requirement

15
How Much Natural Gas Is Out There?
Global LNG Supply Facilities
Existing Under Construction Proposed

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

Source Cedigaz, NPC
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LNG Value Chain
Source BG, ALNG, CMS, University o f Houston
(IELE)
17
Improved Technology is Lowering the Cost of
Liquefaction and . . .
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. . . the Cost of Shipping
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These Reduced Costs Combined with High Gas Prices
in North America Portend Substantial Growth in LNG
Cost of re-gasified LNG in North America 2.50
3.50 / mmBtu
Source Platts Gas Daily, FutureSource, UH IELE
20
Supply source heat content could be a problem for
US pipelines
Acceptable BTU Content
Source Conversion Gas Imports, LLC
Estimates
21
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 LPG

Source
22
Characteristics of LNGs currently produced
Source
23
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
• Þ    Negotiation on a case-by-case basis

Source
24
Do you believe the U.S. will face an energy
shortage in the next 10 years?
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.
25
Do you have a favorable or unfavorable view of
Liquefied Natural Gas?
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).
26
What Does Congress Think About LNG Today?

• The following results are from a poll conducted
  by Wilson Research Strategies of McLean, VA
• The sample was 100 Capitol Hill staffers that are
  directly involved with energy policy and current
  energy committees.
• The results have a margin of error of /- 10
• The survey instrument contained 57 questions
• The poll was conducted during the week of March
  24, 2003

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Would you support or oppose the following
facilities in your district or state?
28
In your opinion, how much of a safety risk to
your district or state is each of the following?
29
Anti-import Sentiment Runs High
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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_at_ilnga.org
• Ph 202 312-1244
• WWW.ILNGA.ORG