1. 1 Energy Sources: The Emerging Technologies November 11, 2004 Washington, DC David M. Sweet Executive Director International LNG Alliance dsweet@ilnga.org WWW.ILNGA.ORG

2. 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. 3 What is ILNGA?

4. 4 LNG Ministerial Summit People’s 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 24 Participating Countries:

5. 5 R&D Funding Global upstream R&D estimated at $5 B Most R&D performed by service sector – 2% - 4% of revenues Oil and gas sector R&D 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. 6 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. LNG Properties and Safety -FERC Office of Energy Projects

7. 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. 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 nation’s LNG imports. The United States imported 151 Bcf (3.2 million tons) from Trinidad and Tobago in 2002. -U.S. EIA-DOE

9. 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 increased drilling has been modest.

10. 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.”

11. 11 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. 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 LNG’s share of the market.

13. 13

14. 14 FERC’s 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. 15 How Much Natural Gas Is Out There? LNG supply growing Multiple LNG supply proposals announced Long term LNG supply outlook robust WORLD PROVED RESERVES 2002: 6,270 TCF NORTH AMERICA RESERVES 4% Source: Cedigaz, NPC Existing Under Construction Proposed Global LNG Supply Facilities

16. 16 Source: BG, ALNG, CMS, University o f Houston (IELE) LNG Value Chain

17. 17 Improved Technology is Lowering the Cost of Liquefaction and...

18. 18... the Cost of Shipping

19. 19 Source: Platt’s Gas Daily, FutureSource, UH IELE Cost of re-gasified LNG in North America: $2.50 – 3.50 / mmBtu These Reduced Costs Combined with High Gas Prices in North America Portend Substantial Growth in LNG

20. 20 Supply source heat content could be a problem for US pipelines Source: Conversion Gas Imports, LLC Estimates Acceptable BTU Content

21. 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. 22 Characteristics of LNGs currently produced Source:

23. 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  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. 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

27. 27 Would you support or oppose the following facilities in your district or state?

28. 28 In your opinion, how much of a safety risk to your district or state is each of the following?

29. 29 Anti-import Sentiment Runs High

30. 30 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@ilnga.org Ph: 202 312-1244 WWW.ILNGA.ORG