I appreciate that introduction, as well as everything the USEA and the Center for LNG have done and are doing to educate the public about ways to solve our energy challenges in the coming years.

I am very glad to be here for this important symposium as we explore the future of natural gas and the role it can play both in this country and around the world.

I hardly think it is being alarmist to say that with respect to natural gas, our country has a problem. Indeed, that problem is rather clear cut. And it is one that, in many respects, encapsulates our nation’s larger energy situation as we look ahead several decades.

Natural gas represents about a quarter of all energy consumed in the United States. It is used for electricity generation … as an industrial feedstock … and for many other uses.

The advantages natural gas has over coal – both economic and environmental – have grown increasingly evident in recent years. Compared to coal, it is a relatively clean fossil fuel. Gas production and use entails lower capital costs, shorter construction lead times, and higher efficiencies. And it produces a much lower factor of greenhouse gases.

These are just some of the reasons gas-fired power plants now account for more than 80 percent of new electricity generation.

The attractiveness of natural gas, however, seems to be something of a poison pill in that our nation is threatening to grow overly dependent on this source of fuel.

The reason this is a problem is quite clear.

And this problem is nowhere better spelled out than in the groundbreaking study on natural gas prepared by the National Petroleum Council two years ago.

The study was drawn up to provide insights on energy market dynamics over the next several decades. It was designed to look very closely at the potential implications of new supplies, new technologies, new perceptions of risk, and any other evolving market conditions that might affect the potential for natural gas demand, supplies, and delivery over the next two decades.

That study fired a warning shot across our bow, saying – quote – "North America is moving to a period in its history in which it will no longer be self-reliant in meeting its growing natural gas needs; production from traditional U.S. and Canadian basins has plateaued" – end quote.

Domestically, the United States produces a large share of the natural gas we currently consume – about 85 percent. We are forced to import the balance. Most of the imports are received via pipeline from Canada.

But as the NPC study warned, in the next few decades that combination isn’t going to be enough.

In the next 20 years alone, the Energy Information Administration estimates that natural gas consumption in the United States is expected to increase by nearly half, from 22 trillion cubic feet per year now to almost 31 trillion. This is set against the backdrop of soaring worldwide natural gas consumption, which is expected to fully double over the same timeframe.

So our demand is growing steadily, but not our ability to meet it.

The NPC study’s claim that North American production has plateaued is becoming more and more evident when you look at the numbers. More wells are being drilled … yet production is not increasing.

The average number of rigs in use in the U.S. increased 26 percent in 2003, and 18 percent in 2004. In April of this year, 1,157 rigs were drilling for natural gas in this country, a number 10 percent higher than the peak in 2001. More rigs chasing less and less gas.

These numbers bring our dilemma into a sharper focus.

If we expect demand to soar, as every trend suggests … and if we are finding ourselves increasingly unable to meet that demand … then how are we going to spare consumers from price shocks? How are we going to continue to power our growing economy? How are we going to generate the electricity to keep the lights on in our factories, our homes, and our schools?

This issue doesn’t just boil down to the numbers and statistics and percentages I have shared with you. Those are abstractions.

It boils down to real people … mothers and fathers … school administrators … business owners. Higher natural gas prices in recent years have directly impacted residential and industrial energy consumers. The fertilizer and chemical industries, in particular, have been hit hard. Jobs have been lost and livelihoods threatened.

I expect Secretary Gutierrez will have something to say on this when he speaks in a few minutes.

But let me just say that these are real problems that we must address. And we must address them with a long-term strategy that ensures we will have adequate supplies of gas – not to mention other fuels – for the next several decades.

The reason we all are here today is because LNG seems to offer a solution to our dilemma, as well as to the growing demand for natural gas that we will see all around the globe.

The world’s proven natural gas reserves are roughly six quadrillion cubic feet.

And there are much greater potential reserves in Russia, the Caspian, the Middle East, Australia – even, in parts of the United States – that are not yet accounted for in that figure.

So enough natural gas exists to meet the world’s needs comfortably well into this century. The challenge is to get it to the places whose growing economies need it. And that is where liquefied natural gas comes into play.

This is an exciting time for the LNG industry, because we are in the midst of a monumental economic transition. We are transitioning to a worldwide natural gas market, whereas before the globe was divided into many isolated markets.

Because of the challenges of transporting gas, price spikes in one place traditionally had no effect on prices in any other region. In the past, if the United States were to experience a cyclical shortage of gas, it would not be possible to import from, say, Russia.

We often pair "oil and gas" together in one term. We speak of the "oil and gas" markets, as if they are almost exactly alike.

In many ways they couldn’t be more different. While a global market for crude oil has effectively existed for a century, the transportation difficulties surrounding natural gas have resulted not in one market, but many regional markets that are balkanized and segregated.

But thanks to liquefication and regasification technologies … thanks to infrastructure investments … thanks to specially designed LNG double hulled tankers … that is coming to an end.

We are starting to envision and to create an integrated, worldwide market for natural gas. And that worldwide market, giving American consumers access to natural gas reserves all over the globe, will go a long way to helping secure our nation’s energy position. It will go a long way to creating more stable energy environments in other parts of the world as well.

The possibilities for augmenting U.S. natural gas production with LNG are considerable. Indeed, we have even seen recent increases in our LNG imports, mostly from Trinidad and Tobago and Algeria. In 2002 we imported 229 billion cubic feet. Last year we imported nearly three times that figure (652 billion cubic feet). That is still a tiny fraction of what we use, but it shows the potential for LNG to help provide stability to the natural gas market in the United States.

By my way of looking at it, there are several things that must be done to assist the creation of the worldwide market for LNG we see emerging.

One is that we must address worldwide product quality compatibility. Some countries produce higher heating value natural gas and have designed their export facilities to ship that higher BTU LNG without stripping out the heavier, richer components. A number of countries, such as Japan, have designed their import facilities and electric power generation plants to use that LNG and its resulting higher heating value regasified product.

In the U.S., however, we have developed our electric power system to use lower heating value pipeline gas and cannot use the higher quality gas interchangeably – in part because of more stringent emissions standards. So we need to deal with that situation, and we are working with our counterparts in other countries and with experts in industry to address it and, we hope, to facilitate a greater level of LNG traffic.

Another requirement will be the emergence of a workable spot price market mechanism. Traditionally, LNG has been sold under long-term contracts, linking specific production in one country to delivery in another. More recently, some spot cargoes have become available and have been sold on a spot basis.

Further, there will have to be development of an LNG tanker fleet capable of carrying a much larger volume of traffic than at present. We are seeing that to some degree already. I understand Qatar has announced plans to order about 70 tankers, for instance, which could well help them become the world’s largest exporter of LNG.

These are some of the practical steps that must be taken. There are more challenging ones as well.

One of these is to engage other nations at the highest levels on LNG issues. We have done this at the Department of Energy. Two years ago the Department teamed up with the USEA to hold a very successful international LNG conference with government and business leaders from around the world.

Several weeks ago I was in Moscow discussing LNG issues with my counterpart, Energy Minister Victor Khristenko. That meeting followed on the joint statement President Bush and President Putin issued at their Bratislava summit in February. At that time, they called for increasing U.S. commercial investment in Russia "so as to create additional capacity for LNG in Russia, and also with the aim of increasing LNG exports to world markets."

Similarly, I traveled to Azerbaijan, where I met with Azeri, Turkish, and Georgian leaders about methods for developing natural gas reserves in the region. Turkey is considering building an LNG facility at Ceyhan, which could make Eurasian gas available to Europe and beyond.

A number of countries are making a sizeable investment in LNG. We are working closely with the governments of Qatar, Australia, Algeria, and other nations to develop the infrastructure and create the regulatory climate for enhanced LNG trade.

And finally, in order to build a workable global market for LNG, we will have to increase international measures to guarantee the safety of LNG transport … and we must seek solutions to issues surrounding the siting of LNG facilities in both producing and consuming countries.

We are taking a variety of steps in each of these areas. On the domestic front, the energy bill we expect Congress to pass in the next two months will address a number of LNG issues, particularly relating to federal siting authority.

We are also working to increase the safety of LNG transportation and storage.

I'd like to take a moment to speak to this issue. I take a very personal interest in safety, for several reasons, not the least of which is that I worked in the LNG business when I was chairman of the Cabot Corporation. During my tenure, Cabot owned the LNG terminal in Massachusetts.

Safety was of paramount concern to me then. It is of paramount concern to me now. LNG shipments entail an extremely high level of security – as they should – and I think the Coast Guard does a tremendous job.

There will always be safety concerns with LNG, as with any flammable material. It would be irresponsible to ignore that fact.

In fact, safety has always been at the forefront of any discussion of LNG, even before September 11^th, 2001.

I want to acknowledge the excellent safety record the LNG industry has compiled. There have been more than 33,000 carrier voyages covering 60 million miles over nearly 45 years … and not one major accident. That is a credit to the LNG industry … as well as to the United States Coast Guard, which oversees this transport. They are very capable, and have been very serious about safety for years.

In addition to the safe transport and delivery of LNG, people often forget that in the U.S. we have tremendous experience at nearly 100 storage and regasification facilities … and these have an equally impressive safety record.

Since the September 11^th attacks, however, concerns are naturally heightened.

For that reason the Department commissioned our Sandia National Laboratory to investigate ways to address the safety concerns of a post-September 11th world to make sure we can safely and securely trade in LNG with an absolute minimum of risk.

The Sandia report, which was issued last December, evaluated potential credible threats to an LNG vessel; it assessed the possible hazards and consequences from an LNG spill; and it identified possible prevention and mitigation strategies that could be implemented to reduce the risks of a large LNG spill over water. It is the only study that provides guidance on the use of risk-based management and planning to significantly minimize the threat to public safety from an LNG spill.

The report contains a number of extremely important conclusions. Among the most important are that risks from accidental LNG spills are manageable with current safety policies and practices, while risks from intentional events can be significantly reduced with appropriate security, planning, prevention, and mitigation.

We are very heartened by these findings. We will continue to push forward on the issue of safety, and continue to search for the safest ways to receive and transport LNG.

I know you feel the same way. So I encourage you to take your cooperative partnership with the Coast Guard as seriously as you can, and work with them to make LNG shipments as safe as possible.

The simple fact is that we cannot import LNG to this country unless we can be sure we can import it safely. We must be determined to make sure that we can.

Ladies and gentlemen, I want to thank you once again for inviting me, and for putting together this valuable forum. You are to be commended for what you do … finding solutions to some of the nation’s most pressing – and vexing – energy problems … taking risks … and doing the work necessary to ensure long-term and fundamental energy security for the American people.

I look forward to partnering with you on these and other issues in the coming months and years.

Media contacts:
Anne Womack Kolton, 202/586-4940
Drew Malcomb, 202/586-5806

Location:
Washington, DC