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BACK TO THE FUTURE FROM NICE TO BARCELONA

Peter W. Glass Vice President Marketing, Chevron Global Gas, Gorgon Project Ciara Lowe Marketing Communications Advisor Chevron Global Gas Perth, Western Australia pgla@chevron.com

ABSTRACT The US philosopher Santayana once said thatThose that forget the lessons of history are condemned to repeat them. With this in mind, and with the LNG Industry expanding at an almost exponential rate, attracting as it might, a host of new players, this paper attempts to take stock of where weve been, as an industry, over the last two decades. The views are not necessarily those of the authors, rather they attempt to precis the views of various presenters at previous LNG Conferences in this series, extracting issues and views from the past that may still have relevance today.

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INTRODUCTION As the crow flies, the journey of some 500 kilometres from Nice to Barcelona is a short hop. For the LNG industry though, that same journey represents the last 18 years of spectacular development which has seen the global market expand at a compound annual growth rate (cagr) of 7.4% from 52 mtpa to approximately 160 mtpa. (Refer Figure 1). The choice of the LNG 9 Conference in Nice as a starting point for this retrospective review of our industry is made, no more/ no less than it happens to reflect the writers personal experience, having enjoyed the particular privilege of attending all of the seven LNG series conferences from LNG 9 (Nice) through to LNG 15, here in Barcelona. The purpose of this paper is therefore to look back and, using the papers from past conferences as a mirror, reflect on past predictions and see what we can learn from our forebears. In keeping with what seems to be our industrys convention, discussion will focus on the three principal markets for LNG, namely the United States, Europe and the Asia Pacific.

180 160 140

LNG Imports (mtpa)

120

CAGR = 7.4%
100 80 60 40 20 0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Year

FIGURE 1. Global LNG Trade (1989 2007) REGION BY REGION - REVIEW United States At LNG 9 (Nice - October 1989), Rebecca McDonald (Panhandle Trading Company) and Gordon Shearer (Cabot LNG Corporation) likened the outlook for LNG into the United States to a Phoenix- the majestic bird that lived for five hundred years then,

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instead of dying, burned itself on a funeral pyre and rose alive with renewed youth to live another long and productive life. Their optimism for the USA market was shared by (the late) Malcolm Peebles, then at Shell, who in his paper entitled World LNG Trade at a Crossroads took an each way bet that the USA market would rise based on the moderate increases in oil price (then at $ 15/bbl), environmental concerns favouring gas and a progressive decline in indigenous gas supplies from the early 1990s. Through LNG 10 (Kuala Lumpur May 1992), Gordon Summers, also from Shell, remained upbeat about the US market. In noting the continued existence of a surplus deliverability bubble, he foresaw a future where a downward deliverability trend of domestic supply, together with a deregulating US market and increased usage of gas for Power Generation would lead to an increased LNG demand. His forecast for US LNG in 2010 was a healthy 38 mtpa. By the mid 1990s however, any optimism for LNG development into the USA had all but evaporated. A paper by Sylvie Cornot- Gandolphe (Cedigaz) at LNG11 (Birmingham, July 1995) noted, in an otherwise promising outlook, that the United States can only provide a limited outlook for LNG, mainly because the price of gas on the American market does in fact make it difficult to implement large scale LNG Projects. Peebles, by now a consultant, at the same conference went further, declaring that For sure the LNG boom in the US is over, if only because it never began. Perhaps as a straw in the wind for todays escalating predictions for the US LNG market, he went on to acknowledge that many soothsayers (including himself) had forecast at LNG 5 (1977) that the LNG flow to the US by 1990 would be somewhere between 40mtpa (low case) and 90 mtpa (high case). Apparently, these projections were generally accepted by industry at the time. The actual result for 1990 was 2 mtpa. At LNG 12 (Perth May 1998) the US market outlook was generally ignored, and we were reminded of this point at LNG 13 (Seoul May 2001) by Chris Evans (Shell), who recalled a Houston press report of circa 1998 which said the US market for imported LNG went the way of bell bottomed pants and lava lamps. Recounting that some of his family were then wearing bell bottomed pants, his main message was that we had entered a major transformation of the Atlantic Basin market with the start up - and rapid expansion - of two new LNG supply projects, namely Nigeria and Trinidad, coinciding with an increase of Henry Hub Gas prices which were then consistently above $3.00/mmbtu. Perhaps the Phoenix of 1989 had at last emerged a decade on (Refer Figure 2).

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16

14

12

LNG Imports (mtpa)

10

1998 - 2004 CAGR = 41%

8

1989 - 1998 CAGR ~ 0%

0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Year

FIGURE 2. North American LNG Demand (1989 2007) James Ball of Gas Strategies, also picked up on this theme in Seoul describing how the Game had changed. He spoke of a game of two halves; a dynamic Atlantic half and a struggling Asian half, coming to terms as it was with the Asian financial crisis of 1997/1998. By implication his observation was one of a role reversal between the US and Asia within the space of half a decade. James described the US position as being buoyant, and observed that $3.50/mmbtu prices would indeed encourage plenty of LNG to flow to the US. He also warned that price spikes as high as $10/mmbtu (a level that had been reached in California in late 2000) could also be expected to choke off demand quite rapidly or provoke a hostile regulatory response or, even worse political intervention. Mr Faisal Al Sawaidi from Qatar Gas presented a Middle East supplier perspective on LNG pricing and described a re-awakening market in the United States, linking it to Qatars strategic location (and its massive North field) and the desire of Qatargas to find flexible price solutions to all markets. Despite the bullishness of the (early 2001), I could find no forecast for the US market in the LNG 13 Proceedings However, a very different picture emerged three years on at LNG 14 (Doha March 2004) where it seemed that the re-emergence of North America in our industrys mindset had come full circle. Peter de Wit (Shell) boldly titled his paper Creating New Markets for LNG The Global Impact of North America and he left us in no doubt that the US will become a major consumer of LNG during the next decade (2010+). Further, he predicted that . North America will be a significant globalizing factor for the LNG industry with the

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prospect that its demand will tighten supply, extending the choices for suppliers and create competition for LNG, capital and human resources in the industry. Europe At LNG 9 (Nice, Oct 1989), in a paper entitled LNG in the Coming Decades: How to Satisfy a Growing Demand in a Tough Competition, M. Valais, and P. Roth from the Institut Franais du Ptrole/Technip (France) addressed the issue of Europes rapidly declining indigenous natural gas reserves. Faced with these declining indigenous gas reserves, particularly in the traditional source countries of Norway, United Kingdom and the Netherlands, Valais and Roth predicted Europe would need to turn to LNG as an energy supply into the future. In 1987 Europe was sourcing only 25% of its natural gas supply from LNG. Valais and Roth estimated that by 2000 that number would increase to 35% and by 2020 as much as 50% would need to come from imported LNG. All being well politically, the USSR would be a shoe-in to become the major LNG supplier to Western European markets, and even went as far as to predict that the USSRs LNG exports to Europe would reach 65 million m3 (49 mtpa) by the end of the century. In Valais and Roths view, Algeria and to some extent Libya who in 1989 were the sole suppliers of LNG to Europe, would also increase their supply to European countries from 14 million m3 (10.5 mtpa) in 1987 to 25 million m3 (18.75mtpa) by 2000. The only reason it would not be more was because Europe would have to compete with Algerian and Libyan domestic demand and of course, new higher paying customers, such as the United States, Tunisia, Morocco and Japan. But Europe was in no danger, because it would be able to satisfy some of its demand by seeking supply from new LNG suppliers like Qatar and Nigeria or even by securing natural gas via pipeline from Iran. By LNG10 (Kuala Lumpur, May 1992), just three short years later, the energy industry and indeed the world had changed way beyond any predictions even Valais and Roth could have made. The Gulf war had broken out and political and economic instability in Eastern Europe was having a severe impact on international trade and commerce. The energy market was also a casualty of these world events. Valais and this time his colleague Roze of Gaz de France, continued the theme of declining European natural gas reserves and the need for LNG importation and reaffirmed in a paper entitled What role for LNG in Europe? Outlook for Supply and Demand that LNG was set to dominate the energy industry in Europe. By this time, environmental concerns were increasing particularly around pollution and greenhouse gas. Countries within the European Community as well as some northern European countries seemed to be uniting to impose taxes on carbon inefficient energy sources. Valais and Roze wrote that energy companies were up in arms over this as they did not want to increase the publics control over their investment choices. However, these environmental constraints opened even more doors for CO2 friendly natural gas and LNG. There followed an increase in regasification terminals in France, the UK, Italy, Spain, Belgium, Greece, Turkey, Portugal, Germany, Finland and Poland.
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Algeria was still providing Europe with 90% of its LNG requirements but the authors predicted this would change as technology developed and ships were able to cope with longer journeys to transport LNG. Leaping forward in time to 2000 at LNG13 in Seoul, Ben Hollins, Paul Sankey and Antonio Barbalho from Wood Mackenzie updated us on the subject of LNG in Europe in a paper entitled The role and Impact on the Liberalising European Energy Market. It seems by this time that LNG had enjoyed some of the success predicted by Valais and his colleagues and the European Community, now called the European Union was importing 30 bcm (22.5mtpa) of LNG per annum, up from 20 bcm (15mtpa) in 1995. And Hollins and co predicted that this would increase further to 40bcm ( 30 mtpa) by 2015. The actuals are in Figure 3.
50 45 40

LNG Imports (mtpa)

35 30

CAGR = 7.9%
25 20 15 10 5 0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Year

FIGURE 3. European LNG Demand (1989 2007) Asia Sir Dennis Rooke, the then Chairman of the British Gas Council, fascinated us all at LNG 9, with a retrospective on the evolution of LNG from its first cargo in 1964 to Canvey Island to the early commercial business between Algeria and France at a time when the world was gripped by Beatle mania. Whilst Europe was the commercial crucible, the main game in the subsequent two decades was in Asia. In particular, Japan, with its lack of natural energy resource and its profound drive for energy security, led the way and by the time the industry gathered in Nice in 1989, imports to Japan were 35 million tonnes per annum, representing circa 70% of global trade (refer Figure 4).

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Granted, South Korea (1986) and Taiwan (1990) were just getting started, but with the start up of Australias North West Shelf (NWS) Project dominating the Nice proceedings, we were reminded that Japan had, with the NWS Project, secured supply from six (of eight) base load supply sources.
100 90 80 70

CHINA INDIA TAIWAN KOREA

LNG Imports (mtpa)

CAGR = 6.5%

60 50 40 30 20 10 0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

JAPAN

Year

FIGURE 4. Asian LNG Demand (1989 2007) Despite the hype surrounding the NWS, Nogami san (Osaka Gas) was warning that LNG was already being seen as an inflexible source of energy and was somewhat being relegated to the role of a mid merit fuel in the future plans of Japanese Power Utility companies. His clarion call was for the rigid conditions of LNG contracts with regards to volume (Take or Pay) and Price were in need of review a new equilibrium must be found between buyers and sellers At LNG 10 (Kuala Lumpur 1992) Kagiyama-san (Tokyo Gas) predicted the coming of a Third Phase for the industry where the increasing number of Buyers and Sellers from many countries would create greater diversity of geography and scale. His key message though was not related to commercial opportunity rather it was that Safety cannot be allowed to be compromised by the entry of new players. This message continues to resonate strongly today. Also at LNG 10, Gordon Summers (Shell International Gas) predicted that by 2010, ten to fifteen new projects would be required to satisfy the then top end growth prediction of an incremental demand of 75 million tonnes per annum, both in the Far East (+50 mtpa) and Atlantic (+25 mtpa). He warned though of three specific challenges to growth, namely cost containment, finding the right price for LNG and minimisation of project (political) risk. He also discouraged thoughts of the development of a world market for LNG citing the high cost of transport. Nor was he a supporter of a spot market for LNG predicting

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that. The need for long term contractual security for sellers and buyers alike will continue. LNG 10 created a milestone (of sorts) with the first paper on the Starting of the LNG Industry in China. No, not a multinational pitch for an integrated Terminal/Power Project somewhere near Hong Kong, rather an academic treatise of the potential use of LNG as an auto bus transport fuel which concluded with a prediction that Of course, the international cooperation shall be very necessary in the process of building the LNG system (in China). No sign yet of India!... Its coming out party had to wait until LNG 12 in Perth. By the time of LNG 11 (Birmingham 1995), Peebles, who had all but written off the future of the USA market and who was none too optimistic on Europe either, concluded that the Boom Years for LNG in Asia would continue, albeit the growth emphasis would swing away from Japan. Sylvie Cornot Gandolphe (Cedigaz) was far more pessimistic, observing that the low level of prevailing energy prices does not encourage the implementation of highly capital intensive new projects. As an illustration, she observed that almost ten years will have elapsed between the last grassroots project (NWS) and the next one, Qatargas, due to start in 1997. The warning was clear.Whilst much was being done, technologically, to reduce the capital costs of the LNG chain, supply would continue to struggle to keep pace with potential demand without improved pricing signals. Predictably, Yoshida san (Tokyo Gas) disagreed. If Sellers seek easy price rises, the evaluation of LNG in the market will fall rapidly and the future development of the LNG project will be badly affected. It must be recognised that LNG is subject to severe competition with other fuels in the energy market. He was no fan of the spot market either, warning that as we have begun to see the short term LNG trade, there is a view that the LNG market tends to have a characteristic of Open Market.such fluidity will prevail only in part and mutual cooperation between buyers and sellers will continue to be indispensable in each LNG Project which has the shape of Closed Chain. LNG 11 was also noteworthy for the contribution of Richard Kinder (Enron) who promoted the idea that market intermediaries, such as his own company, which bring needed risk management and aggregation skills to the LNG supply chain, can be invaluable in ensuring the growth of LNG into the new millennium. As that new millennium approached, the LNG market in Asia was attempting to deregulate. In many ways LNG 12 (Perth 1998) was an aberration. The conference timing was in the aftershocks of the Asian Financial crisis, which amongst other consequences, led to a period of procurement paralysis where short term loss of demand, particularly in Korea,

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created market imbalances with respect to supply and demand projections. In Asia, not much happened for three years or so. As is well known, during 1998, the Korean Government announced a privatisation process for Korea Gas (Kogas) the monopoly state owned LNG importer. In his paper at LNG 13 (Seoul - 2001), Mr Donglin Lee (Kogas) reminded the industry that deregulation of the natural gas market was well underway, commenting that. With the restructuring of natural gas market and introduction of competition, the industry would see the dynamics of market efficiency, through which it would gain a momentum and grow further. Nice words, but also at LNG 13, James Ball (Gas Strategies) noted the uncertainty surrounding the liberalisation of Kogas and lamented that in the meantime, the market appears to need more gas but the uncertainties introduced by liberalisation have inhibited Kogas from buying. He went on to observe that It would be a pity if, as a result, the market does not expand as rapidly as it could. When we got together in Doha in 2004 for LNG 14, Jaeseoung Choi (Kogas) described that downstream Asian markets were in the middle of the liberalisation process. However, for Kogas, and Asia more generally, the pricing implications of the 2002 Guangdong Project were more noteworthy. Once again Price issues held centre stage. WHAT HAVE WE LEARNT? Givens From a statistical viewpoint, the industry figures are spectacular: In the 18 year time span under review (1989 2007), the global LNG market has tripled in size (Refer Figure 5) from circa 52 mtpa (1989 actual) to 155 mtpa (2007 estimate). Year Region Asia Europe Americas Total 1989 (act) mtpa % 38.5 74.0 12.5 24.0 1.0 2.0 52.0 100.0 2007 (e) mtpa % 98.0 63.2 39.0 25.2 18.0 11.6 155.0 100.0

FIGURE 5. Summary of LNG Demand (By Region) Regionally, growth in trade has started to move away from Asia, albeit with American demand coming off a low base. Supply points (by country) have grown dramatically from eight in 1989 to thirteen today (refer Figure 6).

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Supply Points Algeria Alaska Libya Brunei Abu Dhabi Indonesia Malaysia Australia Qatar/RasGas Nigeria Trinidad Oman Egypt

1989 1964 1969 1970 1972 1977 1977 1983 1989

2007

1997/1999 1999 1999 2000 2004

FIGURE 6. Summary of LNG Supply Points (Country) Receiving countries (and terminal numbers) have similarly expanded, approximately doubling from eight (27 terminals) to seventeen (63 terminals) Refer Figure 7. Receiving Country UK France Japan Spain Italy USA South Korea Belgium Taiwan Greece Puerto Rico Dominican Republic Portugal Turkey India China Mexico Totals 1989 1 2 14 3 1 3 2 1 0 0 0 0 0 0 0 0 0 27 2007 2 3 27 7 2 4 4 2 1 1 1 1 1 2 3 1 1 63

FIGURE 7. Summary of LNG Receiving Points (Country/Number) The LNG Shipping fleet has more than tripled from 66 vessels in 1989 to 215 vessels (2007 est.) Refer Figure 8.

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250

200

Number of LNG Ships

150

100

50

0
1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Year

FIGURE 8. LNG Shipping Fleet (Cumulative 1965 2006) INDUSTRY TRENDS What then have been the issues and events that have shaped the LNG Industry in the last two decades? Here are my top ten Market Deregulation Although the pace and style of market deregulation/liberalization has differed significantly from country to country, there is no doubt that this process has been one of the most significant influences on our industry over the last two decades. The transition to full competition in both the US and UK has, more or less, been completed during the period under review. In the US, market deregulation, which began in the late 1980s, initially had a negative effect on the LNG industry as excess domestic gas supply collapsed the gas price. Removal of gas price controls also led to contract disputes with Algeria leading to a prolonged period where two receiving terminals were shut in. That said, deregulation has, over time, created a deep and fungible US market where natural gas is freely traded with prices are set by the balance of supply and demand. Coupled with an active forward market, the commercial environment has matured to permit increased activity. By contrast, Asian deregulation, particularly in Korea has, and continues to be stop/start. On balance, over the period in review, this has created uncertainties for market participants, who, through indecision, may have lost commercial opportunity to expand the LNG market in that region.

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European Spot Opportunities (1995) A medium term supply disruption from Algeria to Spain during 1995 caused the Spanish company Enagas to seek alternate supply and, improbably, the North West Shelf, all the way from Australia, found itself able to supply a number of cargoes over a period of months. What is important here is not the specifics of the deal itself, rather that the event signalled an (irreversible) alteration to the Japanese (and Australian) point to point mindsets, justified at the time by buyers permitting sellers to assist a fellow buyer in distress. The event, followed by similar deals from Abu Dhabi, ushered in a period of shortterm trading between the two major basins Atlantic and Pacific (although we cant forget the one off Algerian cargo to Japan in 1989 nor the Indonesia cargo to the US in 1986). In any event, it contributed to the emergence of the spot market of today. Qatar (1997) In the early 90s, Qatar was perceived as a supply source distant from markets with high political risk, particularly to supply (through the Straits of Hormuz etc). So, whilst it took time, particularly for Japanese Buyers to get comfortable with a middle east supplier, the start up, and subsequent rapid expansion, of supply from Qatar ultimately created the low cost producer benchmark for other producers to aim for. The geographic location of Qatar, at first seen as a major disadvantage, has turned out, in todays world, to be a distinct positive with increased scope to play worldwide. Maybe the lesson here is that the LNG world is indeed getting smaller and remoteness is now much less an issue. Kyoto Protocol (1997) As an industry, we all subscribe to the notion that Gas is good, but it took the signing of the Kyoto Protocol in 1997, to cement this idea in the minds of government policy makers across the globe. Whether signatories to the Protocol or not, gas in now firmly entrenched as the fuel of choice in the minds of government policy makers. This will have long lasting implications on the role of natural gas going forward. Asian Financial Crisis (1997) Whilst the impacts on LNG demand proved to be short lived, the Asian Financial Crisis was a wake up call to would be suppliers, who had become somewhat immune to the cyclical nature of business. As James Ball put it- too much supply was too optimistically chasing too little demand in the short run. The Asian financial crisis also had another effect. Korea shipyards had built large LNG ship building capacity because of the Oman and RasGas FOB contracts and the prospects of further Korean demand and new ship orders. After the financial crisis, Korea turned to export markets and bid prices on new ships down significantly.

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Asian LNG Tenders (2002/2003) The consequences of the Asian Financial Crisis were, however, far reaching. The most visible attribute was the creation of an interlude of LNG market activity characterized by excess supply, more buyer flexibility, lower prices and reduced price linkage to oil. The then Sellers, particularly greenfield types, responding to unfamiliar tendering processes from Buyers, chased volume rather than value. In particular, the Guangdong procurement process of 2002 and to a lesser extent, the later tendering processes in Korea and Taiwan, leveraged the Buyers advantage to the fullest extent. Whilst John Banner et al (NWSALNG) used LNG 14 (Doha, March 2004) to elegantly describe the competitive advantages that won the day, the broader market was in transition, attempting to understand the signals that the process(es) had sent to the industry. With the benefit of hindsight, the outcomes may be seen to have been a low tide mark for the industry, particularly from a sellers perspective. However, and perhaps accidentally, the Guangdong process in particular caused Sellers, particularly Qatar, a losing finalist, to re-evaluate their overall marketing strategies. On balance, what seems to have emerged is an environment where Sellers, whilst being mindful of real Asian demand, are chasing the highest paying market, managing, as best they can, the issue of diversions. Capital Cost Reduction Cost reduction was big in the late 1990s, and major improvements in unit costs of LNG production were achieved, led by Atlantic LNG and Trinidad and Oman. The introduction of Phillips Cascade process and re-emergence of Bechtel as an LNG EPC contractor may well have played a role in reducing liquefaction costs. Lower cost LNG plants enabled the introduction of 5 new base LNG projects in the 1997 2000 period, namely Qatargas (1997), Trinidad (1999), Nigeria (1999), Oman (2000) and RasGas (1999) representing a 50% increase in the number of LNG plants worldwide. All five sites promptly began expansion plans, at lower cost/ton than Greenfield sites. Thus the industry created the basic infra-structure to fuel significant, low cost, growth of LNG supply. At the time of writing this paper, the cost trend has, however, reversed with significant increases being reported, particularly to Greenfield Projects (e.g. Sakhalin 2, Gorgon). With Buyers not (yet) ready to embrace higher prices and sellers not believing in the sustainability of high oil and gas prices, the resulting squeeze is significantly delaying development of new LNG supply.

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Japanese Nuclear Problems (2002) Whilst Japanese government energy policy has consistently held a special place for Nuclear Power, its (in) ability to increase the utilisation of nuclear energy has led to ongoing uncertainty about Japans fuel mix and the role of LNG. This is a perennial issue that the industry at large continues to wrestle with. Notwithstanding, the shut down of all of TEPCO's nuclear power plants in 2002, an event which caused a massive (unplanned) increase in LNG demand, created a shift of attitude, from buyers and sellers alike, in many areas of LNG contracting. In stark contrast to comments made a decade earlier by Yoshida san, Hashimoto san (TEPCO), in describing his companys needs for additional LNG procurement as a consequence of the 2002 nuclear power incidents in Japan, described a maturing LNG market where TEPCO could access short term spot purchases of LNG as spare capacity from Malaysia Tiga and from Oman. His conclusion at LNG 14 is however most insightful Healthy development of the LNG market requires an appropriate combination of short term contracts that enable the short term and spot markets to make the most use of existing facilities and long term contracts that enable the launch of new projects Trading (From 2000) A dictionary definition defines trading as The act or process of buying, selling, or exchanging commodities, at either wholesale or retail, within a country or between countries. From the rigidities of 1989, where buyers bought and sellers sold, we now have buyers becoming sellers and vice versa. Other, non traditional trading entities have also been drawn to the market, substantially increasing the number of players in the game. The trend looks to be irreversible. Trading raises another interesting point. With domestic production no longer meeting demand in liberated markets like the US and UK, producers that had gas marketing subsidiaries to sell their domestic production also got into the game as buyers and in turn traders. We now have most major IOCs, including Shell, BP, Total, Exxon Mobil, Repsol, ConocoPhillips and Chevron purchasing LNG to supplement indigenous production in their marketing portfolios. Price The Price of LNG, or more importantly, the perception of Price, has, more than any other dimension shaped the Industry and, as a fundamental, it will continue to do so ad infinitum. There is little surprise that the US market was inactive during the 90s, with LNG Prices somewhere in the $2.00 - $2.50 range (refer Figure 9).

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12.00

72.0

CRUDE OIL (RHS)

10.00

62.0

Gas / LNG Price (US$/mmbtu)

52.0

42.0

6.00

32.0

JAPAN (LHS)
22.0 4.00

EUROPE (LHS)
12.0 2.00

US (LHS)
0.00 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

2.0

-8.0

Year

FIGURE 9. Gas and Oil Prices (1989 2007) What ultimately made the US market attractive was the natural gas price rise in about 2000 when the average wellhead price in the US went from an historic level of $2.00 $2.20 to over $3.50 - $4.00 in 2000. This was, at the time, approaching crude oil parity on a heating value basis. In turn, higher prices also prompted re-opening of US terminals Elba Island in late 2001 and Cove Point in 2003. The Price story doesnt end there. As we all know, since LNG 14 in Doha, prices globally have continued to rise and images of LNG prices north of $10/mmbtu are commonplace. One consequence of this absolute level of Price has been to significantly lessen the impact of the cost of shipping to LNG transactions. In turn this has cemented the notion that the industry has become and should remain globalized. Industry players, especially those focused on the Market rather than the Buyers, perhaps overconfidently, believe that LNG from any supply point can, and should, find a market almost anywhere in the world. This model is fine, assuming the availability of shipping an ingredient very much absent until the late 90s. We are now witnessing an aggressive and somewhat speculative expansion of the LNG Fleet. Will the model be sustainable in the future? As a footnoteWho in 1989 would have considered it sensible to store LNG on the high seas, awaiting improved seasonal prices before offloading?

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8.00

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CONCLUDING REMARKS The nature of this paper has been, by design, a retrospective looking backwards, not forwards. As such, the authors, who by the way lack any qualification to do so, will refrain from attempting to make predictions for the future. Rather, the conclusions will attempt, in no particular order of importance, to draw out the So what aspects of our research Firstly, and somewhat gallingly, Peebles was right!. In 1989, he concluded his paper as follows:....The LNG industry is at a crossroads. Today, there are more factors working in its favour than against it. This situation may not last indefinitely, but if the opportunities are grasped quickly, there is no reason why international LNG trade should not at least double, possibly treble, over the next 20 years. Lets go and do it.! We, collectively, have done it, surpassing even his optimistic predictions. On balance, the predictions for the Asian and European markets, including projections for their future look to be robust. The jury is still out though for the US market. Whilst the arguments for demand growth for gas, especially for power generation, together with a weakening domestic production forecast are well founded, the assumption that LNG will fill the gap still needs to be validated. In particular, the issue of demand destruction in the face of sustained higher prices appears underestimated. Additionally, it is not clear where will the LNG supply come from, especially given a potentially strong demand from Asia. Whilst it is undeniable that the LNG industry has changed dramatically in the last two decades, the industry is, and is likely to remain, extraordinarily conservative by nature. With, parallels to the Old Economy/New Economy arguments of the dot.com era, the more we move away from the traditional model, the more we seem to return to it. Lastly, the industry has done an excellent job in maintaining safety and reliability, albeit with less success, as its primary core values. In this endeavour we must be ever vigilant - To repeat Kagiyama san at LNG 10, . It is imperative that high level safety measures are provided across the board, without exception within the industry, and that these high levels of safety be strictly observed by all members of the industry.

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REFERENCES CITED LNG 9 - Conference Proceedings (Nice, October1989) Sir Dennis Rooke - LNG Industry A Retrospective M.W.H Peebles - World LNG at a Crossroads R.G.Shearer and R. McDonald LNG - Phoenix of the US Gas Industry Y.Nogami, F.Nakano, H.Ozaki - Japans Gas Utility Business and Conditions of LNG Supply

LNG 10 Conference Proceedings (Kuala Lumpur, May 1992) G.G. Summers - LNG The Challenge of Growth M.Valais, J.Roze - What Role for LNG in Europe? Outlook for Supply and Demand I. Kagiyama - Evolving Framework of the LNG Industry: Expected Growth and the Importance of Safety

LNG 11 Conference Proceedings (Birmingham, July 1995) M.W.H.Peebles - Are the Boom Years of LNG over? P.R.Sullivan, L. Mutch - Managing Uncertainty in World-Wide LNG Demand We know less than we think S.Cornot-Gandolphe - Development prospects for International LNG Trade H.J Hawkshaw, A.R.Flower - Will LNG Supplies be Developed to meet Asian LNG Demand to 2015? F.Yoshida - Hurdles to overcome for the New LNG Projects A Buyers View R.D.Kinder - Worldwide LNG Trade; Expansion into the 21st Century

LNG 12 Conference Proceedings (Perth, May 1998) H.K.Kim - Deregulation and Energy Demand in Korea P.Bancourt - What is LNGs Future in Europe?

LNG 13 Conference Proceedings (Seoul, May 2001) C.Evans - The Atlantic Basin: Transforming the Marketing of LNG B.Hollins, P.Sankey, A. Barbalho - The Role and Impact of LNG in the Liberalizing European Energy Market J.Ball - Old World, New World, Tomorrows World; How LNG has Changed since LNG 12 D.Lee - The Status and Deregulation of Natural Gas Markets in Korea

LNG 14 Conference Proceedings (Doha, March 2004) P.De Wit - Creating New Markets for LNG The Global Impact of North America T.Hashimoto - The Conditions of LNG Contracts Attracting Users What Sort of Contracts Can be Expected?

Others R.Todd - How the Atlantic Trade has Unfolded and Possible implications for the Pacific San Diego Conference November 2006

PS1-5.17