James Kendell (EIA director of oil and gas division): EIA's outlook for 2020 for natural gas (from Energy Outlook 2002) has a number of assumptions:

• Business as usual
• No new laws (such as drilling in ANWR)

We project a 2% increase in annual consumption of natural gas, most of which will come from electric generators. Other consumers will be industrial, residential, commercial, and CNG vehicles.

We project an increase in natural gas production, from advancing technology, especially offshore, and natural gas wellhead price, which is increasing.

We project increases in imports from Canada especially, but from other countries also

We expect that the planned expansion of existing LNG facilities in the US will bring about a 4-fold increase in consumption in the US.

Recoverable reserves: unconventional reserves are the highest, then non-associated onshore and offshore. In the past 7 of 8 years, our reserves have increased. We predict the reserves will be enough to meet expected consumption.

Production: it is highest in the lower 48 in non-associated conventional onshore locations. Next is unconventional non-associated in the lower 48 states. Third is lower 48 non-associated onshore.

Imports: we'll see an increase from 3.5 MCF to 5. 5 MCF by 2020, mostly from Canada. Mexico is expected to be a net importer to 2020. With Cove Point opening soon, we'll see LNG imports rise. In 4 separate projections (models), LNG will rise substantially in all, but at varying amounts.

LNG is very sensitive to price of natural gas. Technology is assumed to proceed at a normal pace. With slower technology, wellhead prices rise, and with rapid technology change, prices drop.

Summary: With the projected increase in both imports and projection, supplies will be sufficient to keep up with demand without an increase in price.

In 2 weeks, EIA puts out its next forecast, to 2025.

Don Juckett, FE : I'll be talking about US gas consumption and past drivers of consumption. The variability has been due to legislative and legal events of the past 50 years. These rulings have caused natural gas market to work more efficiently.

Imports: they are very important to the US gas supply and we are increasingly looking to increase imports. By 2020 these will increase by 16.7%. Canadian imports via pipeline dominate.

LNG imports: we import 68.5% from only 6 countries, especially Algeria and Trinidad.

In 2001, Mexico became a significant importer of natural gas from the US. This will continue to increase.

US LNG trade was more aggressive than global LNG trade and growth.

Gas fired power generation is driving the natural gas market, and driving up the US consumption rate. More than ½ of demand in 2020 will be from power generation.

We have 4 LNG terminals. There are ~ 15 more proposed in the US, Mexico, Caribbean and Canada. There are more LNG terminals proposed worldwide, given US projected growth.

What was the difference between the 1970s and 2000s with regard to the natural gas and LNG markets?

1. Gas market is now deregulated to a large extent
2. Power market is deregulated, with new participants
3. The cast of players in LNG has expanded to pipeline and construction companies, among others
4. There is a more competitive LNG value chain.

Issues to watch: siting pipelines, environmental sensitivities, worldwide LNG market, recent trading issues, and technology cost reduction.

Issues and opportunities:

1. New and diverse supplies - competition for capital for investment
2. Demand supply proximity: new paradigm for LNG use is Boston, which has a 1500 MW power generation to be powered by LNG.
3. Market development: base load demand and commodity market - will one develop for LNG?
4. Regulatory: open access, technology, coastal zone management
5. Public perceptions: siting, safety, security

National Petroleum Council study will look at LNG and is due out soon.

Robert Dixon (EERE): Discussed future technologies. Electric and home heating sectors are being shaped by natural gas. The NEP is a roadmap to guide DOE efforts and goals:

• To enhance energy source diversity, security, to increase reliability and efficiency;
• Distributed energy technologies, which are small and more efficient;
• EE/DOE goal: to increase efficiency and integrate the new smaller technologies into our national grid.

There are regulatory barriers. The grid transmission system network needs to be upgraded.

Technology related to Distributed Energy Resources:

• Technology development: fuel cells, microturbines;
• Technology "packages": integrated CHP systems;
• End use integration: demand side management, sensors;
• Electric and gas integration: load management;
• Distribution system: powerparks, microgrids;
• Transmission system: high temperature superconductivity.

Goal is to move toward integrated system with all the above. We are not there now.

Hydrogen: the natural gas sector will shape our future hydrogen economy of the US, especially in transportation and electricity.

FreedomCar: goal is to mass-produce hydrogen car with related infrastructure developed simultaneously, which will reduce environmental impacts from transportation and reduce oil consumption.

Fuel cells for buildings: the technology is improving.

Dr. Sid Ali Betata : Algerian Legislation: There is a new Hydrocarbon Law of Algeria under proposal. Its scope covers all upstream and downstream. It's objective is to form a competitive free market, create transparency in contract award, increase environmental standards, separate the government and commercial roles, and loosen price controls.

The new organization:

Contractors will control most aspects of production. The maximum duration of a contract is 37 years: 7 years of exploration and 25-30 years of exploitation.

Sonatrach will have the option of 25%-30% interest as a non-operator. It will commercialize any gas discovery in partnership with the contractor.

Contractors can import foreign exchange to cover local costs, or can use local currency to cover local costs.

Upstream fiscal package: surface rent; royalty based on production level, to be paid in cash; complementary income tax; petroleum revenue tax; and exemption from all other taxes.

Downstream fiscal package: imports and sales are free; a decrease in price controls, to be implemented through a transition phase of 5 years for petrol prices and 10 years for cars.

Pipeline transportation: open access and implementation of a tariff system.

Ali Hached , Sonatrach, and Mr. Bensalem , Sonatrach: Prospects for LNG exports: Sonatrach is the 12th largest oil company in the world. Over the next decade, Algeria will see numerous natural gas fields. We will add 30 BCM by 2006. Algeria is also adding capacity to its transportation network. We have 6 ships now and we are building 2 more to be complete by 2004. We are adding supply customers throughout Europe, Tunisia and US.

Sonatrach is seeking to use deepwater technology to build a pipeline to France and Spain.

There is a new LNG train planned to be built, part of Gassi Touil Integrated Gas Project, which includes expanding and marketing the LNG.

US regulatory restraints: process approval for new terminals: there have been no new terminals approved for 20 years. Existing terminals cannot handle future supply.

Mark Prescott , Coast Guard: Legislation and impact of developing offshore LNG terminals. Regarding legislation:

• There is a proposal to add national gas to the Deep Water Port Act, which has cleared both house and senate.
• There is a provision to the Port Security Bill, expected to pass after Congress returns. It removes "managed access" restrictions; it removes geographical area restrictions; it addresses NEPA compliance.

Licensing: USGS and Maritime Administration (MARAD) are responsible. There is a $100,000 fee for application, which will be increased to $350,000. This covers the cost to the government to process the application.

Several companies are interested in deep water port projects.

Robert Cupina , FERC: FERC's role in regulating LNG terminals: DOE has authority over LNG imports. FERC has authority over siting, and services such as open access. Final authorization depends on EIS. But FERC issues a preliminary determination within 6 months and this is helpful for business decisions.

Open access: access and capacity cannot be discriminatory. There is an open season for initial capacity allotment. It is uncertain if this will apply to new LNG terminals.

Regulatory approaches: the import model is low to no regulation.

Access: 2 transfer points: open access starts at entry into the terminal, or open access can start upon entry into the pipeline. The terminal is treated just as a processing plant, with no determination of service.

Site review: EIS under NEPA; cryogenic design and tech review, such as spill constraints, fire, safety; and post-authorization inspection program.

Remote siting versus siting near market area:

• Advantages near market area: it is difficult to build new pipelines;
• Offshore disadvantages: offshore terminals have technology difficulties;
• Onshore siting disadvantages: Greenfield, brownfield contamination issues and environmental issues.

Minister Khalil and Secretary Abraham : (not available)

Elmer Danenberger : Discussion of use of existing technology to support increased LNG imports: There is a lot of interest in offshore LNG facilities. A leading natural gas source is our own outer continental shelf in the Gulf of Mexico, as well as Canada.

We have a lot of reserves, and it's hard to get permission to drill for them

Deep water offshore has a lot of potential: 60% of our offshore production is in water over 1000 feet under.

Much of our offshore technology will apply to LNG as well. Over 27,000 miles of pipeline already exist offshore in the Gulf.

Neil Ritson : (Burlington Resources): Discussion of smaller gas accumulations in the LNG story. Burlington Resources (BR) has interests in Algeria and has been active for ~10 years. It is an upstream gas producer and supplier.

Netback profits are higher for sales to Europe compared to the US. Why do we deal with the US then? BR wants to diversify its market. They want to deal with Europe and the US both. Also, BR can find ways to lower costs, such as using high cost gas locally to avoid internal tariffs.

David Nagel , BP Algeria: Consumption of NATURAL GAS is increasing globally. Algeria is well-placed to address this increasing consumption due to location, resources, and existing infrastructure.

BP's outlook for natural gas market in the Americas is that traditional sources of natural gas will not be able to supply America's increasing consumption. It will need additional sources: BP projects a gap of 5 TCF across North America. It needs, however, a more progressive regulatory environment, which BP testified before FERC recently.

Rodney Schmidt , Petroleum Finance Corps: How has LNG affected the natural gas market? It has caused it to overcome the distance issue with natural gas. It is changing the shape of business:

• Over time, through 2007, Trinidad, Nigeria, Algeria and Qatar will be the main exporters, but Norway and others are beginning to compete;
• The sector has moved from a monopoly to intense competition

Supply deliverability capability in the US: there used to be a gap, but not any more. This makes it difficult for new capacity to increase.

Trends: smaller supplies are entering the market and competition is increasing.

Paul Cicio , Industrial Energy Consumers of America: 37% of demand for natural gas is from manufacturers, especially chemical, plastics, cement and paper. The demand is forecast to increase by 12% by 2010 (to 9.4 TCF).

The Industrial sector differs in 3 ways in terms of its use of natural gas:

• Push for cogeneration onsite for efficiency and environmental reasons. It lowers cost, lowers emissions and increases efficiency. However, new cogeneration facilities are prohibitively expensive.
• Natural gas is used as a fuel as well as a feedstock: up to 60% of natural gas used by manufacturers is fuel, and 40% is feedstock. Efficiency is up because it helps manufacturers stay competitive
• Price change affects manufacturing on a global scale: higher prices push manufacturers to other countries.

Energy crises in last 30 years always are followed by a recession in the US, affecting the manufacturing sector by lowering manufacturing or moving manufacturing overseas.

US natural gas prices are above Europe and Latin America. The US trade deficit is at record levels as a result. As demand increases, supply must go up. Therefore, LNG supply must go up and barriers to increase this supply must come down.

Gordon Shearer , Poten and Partners: Practical considerations for LNG Terminals and Capacity in the US: opportunities and obstacles for Algerian LNG.

All 4 of the US LNG terminals are under expansion and are due to be complete before 2006, except Boston (Nov. 2002). But:

• All capacity is committed already to term business.
• Firm access and cost of access is not subject to open access.
• New terminals are slow to be approved.
• Cove Point: (BP, Shell and Statoil import from Trinidad, Nigeria and Norway) - current users have access to new capacity.

So we have a lot of capacity but it's not accessible.

Quality limitations also restrict the market:

• Not all LNG can remove heat value necessary for US market
• If LNG is very heavy, it has a hard time mixing with US fuel supply.
• Sonatrach has lower BTU LNG than most.

Operational logistics create further restrictions:

• Limited storage at Everett.
• Shared berthing rights at Cove Pt and Elba
• Channel traffic congestion and transit times at Lake Charles

Obstacles can be overcome:

• Capacity release rules are created for natural gas, not LNG. FERC should simplify them.
• Sonatrach has opportunities with the US not available with Europe. The US can absorb all the LNG sent it.
• US regulatory regime is predictable and evolutionary, not revolutionary.

Robert Hill , AABE: Using best practices to increase exports of LNG from Algeria to the US: Many in the industry foresee a 30 TCF market within 10-15 years. However, this will require supplies at a reasonable price. Price spikes cause demand to decrease.

High gas prices now provide an opportunity for LNG to capture a large market share (currently it's 1%). Also, US gas production is down, so imported LNG provides a long term solution. Also, the US can absorb all the LNG offered, so it offers a large market for LNG producers around the world.

LNG offers opportunity to mitigate future natural gas price swings, and the US market provides the LNG sector the chance to grow significantly in the next decade.

It also provides the opportunity for small and medium-sized businesses to enter the sector.

Kenneth Yeasting , CERA:
Demand: as natural gas power generation capacity increases, demand will increase. Most demand will be from the power generation sector.

Supply: projection to 2010 is that there is a decrease in productive capacity. (This is different from what previous speakers today have said.) Exception is Canadian where natural gas production will increase. North America will need to import more.

The ships that are on order exceed liquefaction capacity, so it is an investment risk. There is price volatility as well, and limits to Europe's ability to absorb any LNG that the US cannot take.

Q & A Period:

David Goldwyn: Joint Marketing Arrangements: how to put these in practice with new hydrocarbons law?

Ali Hached: This concept is new to us. Sonatrach has no experience with forming marketing partnerships, or even marketing alone.

Gene Steadman: What can we do to alleviate the natural gas prices that affect manufacturing sector? EIA presentation makes everything look rosy, but the assumptions are wrong. Prices are increasing, and reserves may be there but they are not getting out. Also, pricing for LNG imports is a big issue. It's good for foreign firms, but bad for US firms who use imported LNG. Who is responsible for the price floor and ceiling.

Vicky Bailey: EIA is independent. I defer to EIA.

Jim Kendell: Prices in the market do not represent the fundamentals. Winter is coming and prices reflect the uncertainty in the market. We also cannot predict the weather. Regarding price, we know there is a connection between price and manufacturing losses.

John Brodman: the market shifts and changing prices provide an opportunity for increasing efficiency. Equilibrium shifts all the time in the market.

Question: There is a disconnect between EIA and CERA. Why are we talking about LNG from Algeria when there is a lot of natural gas from the US in the lower 48 states?

Kendell: the new forecast in 2 weeks will go to 2025, and it will explain better why we are looking at LNG, with all the US natural gas.

Closing Remarks:

Minister Khalil : There are 2 main issues addressed today:

1. Supply and demand
2. Access to terminals

We need to continue our bilateral efforts. As for integration, the industry is moving in that direction, spreading risk throughout the chain.

Vicky Bailey : Natural gas is now more than 20% of consumption. Demand is up. It's the fuel of choice for environmental reasons. Its price is low and it's plentiful. What happens tomorrow? US and Algerian business sectors need to move forward with what we've built today here at this summit.

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