The Future Supply of Natural Gas: Key Trends and Challenges

1. The Future Supply of Natural Gas: Key Trends and Challenges Report from PGC B, SG 2 World gas Conference, Amsterdam 5-9 June 2006 Runar Tjersland VP Natural Gas Strategy and Analysis Statoil

2. PGC B, SG 2 - members • Study group had representatives of Dong (Denmark), Eni (Italy), Ina (Croatia), NIOC (Iran), Petronas (Malaysia), Qatargas (Qatar), Sonatrach (Algeria) and Statoil (Norway) • Drafting period: Primo 2004 –primo 2005 Runar Tjersland, Statoil Ottar Skagen, Statoil Jeppe Danø, DONG Jadranka Soldo, INA Saeed Ghavampour, NIOC Simone Ferrari, ENI Alaa Abujbara, Qatargas Rahim Mahmood, Petronas Ahmed Mazighi, Sonatrach Sofiane Ghezali, Sonatrach Flavia di Cino, Tecpetrol

3. PGC B, SG 2 - mandates • Study Group 2 mandates: • Examine developments in global gas supply • Summarise and discuss the main long term trends in, and challenges to, gas supply

4. The Report • Outline and briefly analyse key trends in gas supply around the globe • Describe how individual drivers affect gas supply in individual regions and countries, • Spell out the challenges implied by these trends and drivers. • Four parts. • gives an overview of gas reserves and gas production trends • presents the key drivers and determinants of gas supply. • reports on regional gas production developments • is a summary of main findings. • In addition, five text boxes briefly addresses gas prices, unconventional gas, LNG, geopolitical initiatives to secure gas supply and demand, and GTL.

5. Approach • The paper sets out to examine how individual gas supply drivers play out in individual regions • Supply is not only a matter of gas reserves and other upstream factors • Supply also mirrors the midstream and downstream factors that contribute to – or prevent – the building of successful gas value chains

6. Do we face a gas supply crunch? • Since 2002 gas prices have been consistently high by historical standards • In 2005 they soared to record levels • A range of supply side factors have together with high oil prices and robust gas demand driven prices • Limited production response to price signals in North America • In 2005 natural disaster (hurricane) related losses of supply in the US • Stagnant/declining production in select other upstream countries • New LNG project startup delays • Will prices need to stay high to force alignment between supply and demand?

7. The world is not running out of gas • The global gas reserves to production ratio has since 1980 fluctuated around a gently rising trend • It was 9 years or 16% higher in 2004 than in 1980 • In spite of an 85% increase in annual production • Yet, individual countries and regions struggle to sustain their traditional supply • This calls for further growth in international and interregional gas trade

8. Russia’s ability to increase exports in the face of massive investment requirements and increasing domestic demand The pace of decline of UK, other European production Indonesia’s prioritisation between domestic sales and LNG exports The US’ ability to sustain indigenous production The Middle East’s capacity to deliver on its LNG promise Key supply uncertainties

9. Venezuela-Southern Cone Interconnector? Alaska and Mackenzie Valley pipelines Shtokman pipeline Yamal pipeline Langeled Southern Cone “Gas Ring”? Nigeria-Algeria pipeline? North European Gas Pipeline SCP, Turkey-Greece and Greece-Italy interconnectors, Nabucco West-East Pipeline Longer transportation lines will increase supply costs …

10. … And so will LNG routes from faraway places Onstream Under construction, planned Murmansk LNG Snøhvit Ust Luga LNG Kenai Sakhalin 2 Egypt LNG SEGAS LNG Arzew/Skikda Gassi Touil Venezuela LNG Marsa el Brega ALNG Brunei Bontang Arun Tangguh NLNG Brass River OK LNG Qatargas RasGas ADGAS Oman LNG Yemen LNG Iran LNG Bayu Undan Peru LNG MLNG Gorgon LNG NWS Pluto Equatorial Guinea LNG Angola LNG

11. Main supply side challenges We need to: It will take: If we succeed: • Mobilise the required investments in new gas supply • Connect capital, technology and competence with opportunities • Address remaining geopolitical and regulatory constraints • Prices stabilising in buyers’ and sellers’ joint comfort zone • An end to short-medium term demand destruction • Continued faith in gas as a secure and affordable fuel, no long term demand destruction • Company access • To upstream opportunities • To markets • Foreseeable and stable regulation • Prices supporting the full costs of new value chains • But not making gas uncompetitive