Natural Gas: The Promise & The Risk

Offshore Technology Conference 2004 Offshore Technology Conference 2004 Houston, Texas Houston, Texas May 4, 2004 May 4, 2004
Presented By: Presented By: Matthew R. Simmons Matthew R. Simmons

For Too Long Natural Gas Was The Ugly Duckling Natural Gas: Could not be transported Could explode Was priced as waste Was flared or stranded Was considered scarce SIMMONS & COMPANY INTERNATIONAL .

Gas Slowly Evolved Into The Energy Swan The Evolution: World War II created gas highway era Post-war gas use became serious LNG became commercial after 1973 oil crisis Cold winters created usage bans (1977-1978) Environment bans on other fuels refocused attention on natural gas Long safety era eliminated gas fear SIMMONS & COMPANY INTERNATIONAL .

Millennium Into 21st Century: Gas Is Belle of the Ball Gas became everyone’s 1st energy choice as 21st century dawned Gas is a perfect energy source – Cleanest fossil fuel – Most efficient energy source – Cheapest to create (ex-transportation) Gas is 1st choice of: – Residential & commercial for heat (keeping warm) – Industry for intense heat (melting and boiling) – Power generation: most efficient way to create kilowatts SIMMONS & COMPANY INTERNATIONAL .

527 3.All Forecasts Pointed To Surge In Gas Use NPC Study 1999: U. – Price will stay below $3 through 2015.S. IEA World Energy Outlook 2003: – Global gas use over next 30 years (bcm): 2000 2010 2020 2030 2.254 5.047 SIMMONS & COMPANY INTERNATIONAL . will use 100 bcf/day by 2015.377 4. – Resource base abundant.

Slow growth in 2nd demand surge came from various “miracle sources”. – – – – – – Lady Fern / Sable Island Area-wide Gulf of Mexico leasing Bright spot technology Coal-bed methane Section 29 tight sand gas Deepwater gas bcf/d 50 Conventional US Gas Production 45 40 35 30 25 20 1990 1994 1998 2002 The conventional base steadily declined. SIMMONS & COMPANY INTERNATIONAL . Intense infill Canadian gas wells.The Flaws Of This Energy Dream North American natural gas peaked in 1973.

A LNG explosion came from new orders (not by accident). Stranded gas is “everywhere”.The Rest Of The Globe Fell In Love With LNG Three decades of error-free LNG proved the concept Steady reduction in LNG cost and rising alternate energy costs made LNG “commercial”.” SIMMONS & COMPANY INTERNATIONAL . “LNG costs will steadily fall.

2000 Gas Shock Was North America’s Wake Up Call April 2000 : Gas prices shattered $3 ceiling. we have a problem!” SIMMONS & COMPANY INTERNATIONAL . December/January 2000-2001: $10 gas became gas crisis. Drilling boom broke all records. “Decline rates are 30% to 50% per year!” “Houston. Supply barely budged.

– Newest superhighway: Siberian gas to Europe. SIMMONS & COMPANY INTERNATIONAL . – Could 65% – 75% of current gas wells/gas fields be in decline? – Remaining proved reserves are deep or unusual.Crisis For Gas Availability Not Limited To North America Many other regions have no excess deliverability. – North American grid is World War II vintage. Global gas pipeline system is extremely mature. Other key producing gas basins are now in decline.

Putting all “energy eggs” in one basket is risky.There Is No “Silver Natural Gas Bullet” All sources of future supply need to be explored. others might not. Some will work. Resource availability and cost will be more challenging than technical hurdles. SIMMONS & COMPANY INTERNATIONAL .

Arctic Gas Is One Answer More Arctic gas is urgently needed: – – – – Siberia Norway Canada Alaska Exploration risk is unknown. – Arctic gas is complicated to transport. Commercialization is a challenge: – Ormen Lange is text book case study. SIMMONS & COMPANY INTERNATIONAL . – Arctic gas is complicated to produce.

LNG Is Another Answer New LNG projects must all work. LNG uses 35% of wellhead gas to create useable gas.S. Does the world have scores of these new gas fields? SIMMONS & COMPANY INTERNATIONAL . Each 7.6 billion BOE).5 million ton project needs ≈ 15 Tcf of proved gas reserves to last 30 years (2.5 million ton terminals. – Rest of world’s needs are far higher. could use forty 7. – U. Collectively they are a dent in future supply.

This might be temporary but old costs were too low to grow steel production.The Cost To Create Useable Gas Is On The Rise Steel and iron ore costs have soared. What effect will this have on: – Long distance high performance gas pipelines? – LNG gas systems? – Offshore deepwater and conventional platforms? SIMMONS & COMPANY INTERNATIONAL .

The Role Of Compressed Natural Gas This is not “The Solution” but an important additional “Answer”. Too many LNG countries also need to distribute some gas to regional users whose needs are vital but small so far. SIMMONS & COMPANY INTERNATIONAL . “Small Is Beautiful” might be its greatest benefit.

Future For Gas: Everything Has To Work Conventional Gas While It Lasts Deep Formation Gas Tainted Gas That Gets Cleaned Arctic Gas Deepwater Gas CBM Gas Coal Gasification LNG Compressed Natural Gas SIMMONS & COMPANY INTERNATIONAL .

SIMMONS & COMPANY INTERNATIONAL Investment to the Bankers nergy Industry .