otc-natural gas the promise

8/7/2019 OTC-Natural Gas The Promise

1/16

Natural Gas:

The Promise & The Risk

Natural Gas:

The Promise & The Risk

Offshore Technology Conference 2004

Houston, Texas

May 4, 2004

Presented By:Matthew R. Simmons

Offshore Technology Conference 2004

Houston, Texas

May 4, 2004

Presented By:Matthew R. Simmons


2/16

SIMMONS & COMPANY

INTERNATIONAL

For Too Long Natural Gas Was

The Ugly Duckling

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


3/16

SIMMONS & COMPANY

INTERNATIONAL

Gas Slowly Evolved Into

The Energy Swan

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 1973oil crisis

Cold winters created usage bans

(1977-1978)

Environment bans on other fuelsrefocused attention on natural gas

Long safety era eliminated gas fear


4/16

SIMMONS & COMPANY

INTERNATIONAL

Millennium Into 21st Century:

Gas Is Belle of the Ball

Millennium Into 21st Century:

Gas Is Belle of the Ball

Gas became everyones 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 createkilowatts


5/16

SIMMONS & COMPANY

INTERNATIONAL

All Forecasts Pointed To

Surge In Gas Use

All Forecasts Pointed To

Surge In Gas Use

NPC Study 1999: U.S. will use

100 bcf/day by 2015.

Resource base abundant.

Price will stay below $3 through 2015.

IEA World Energy Outlook 2003:

Global gas use over next 30 years

(bcm): 2000 - 2,527

2010 - 3,377

2020 - 4,254

2030 - 5,047


6/16

SIMMONS & COMPANY

INTERNATIONAL

The Flaws Of This Energy DreamThe Flaws Of This Energy Dream North American natural gas peaked in 1973.

Slow growth in 2nd demandsurge came from variousmiracle sources.

Intense infill Canadian gas wells. Lady Fern / Sable Island

Area-wide Gulf of Mexico leasing

Bright spot technology

Coal-bed methane Section 29 tight sand gas

Deepwater gas

The conventional base steadily declined.

Conventional US Gas Production

20

25

30

35

40

45

50

1990 1994 1998 2002

bcf/d


7/16

SIMMONS & COMPANY

INTERNATIONAL

The Rest Of The GlobeFell In Love With LNG

The Rest Of The Globe

Fell In Love With LNG

Three decades of error-free LNG proved the concept

Steady reduction in LNGcost and rising alternateenergy costs made LNG

commercial. A LNG explosion came

from new orders (not by

accident). Stranded gas is everywhere.

LNG costs will steadily fall.


8/16

SIMMONS & COMPANY

INTERNATIONAL

2000 Gas Shock Was North

Americas Wake Up Call

2000 Gas Shock Was North

Americas Wake Up Call

April 2000 : Gas prices shattered$3 ceiling.

December/January 2000-2001:

$10 gas became gas crisis.

Drilling boom broke all records.

Supply barely budged.

Decline rates are 30% to 50% per year!

Houston, we have a problem!


9/16

SIMMONS & COMPANY

INTERNATIONAL

Crisis For Gas Availability

Not Limited To North America

Crisis For Gas Availability

Not Limited To North America

Many other regions have no excess deliverability.

Other key producing gas basins are now indecline.

Could 65% 75% of current gas wells/gas fields bein decline?

Remaining proved reserves are deep or unusual.

Global gas pipeline system is extremely mature. North American grid is World War II vintage.

Newest superhighway: Siberian gas to Europe.


10/16

SIMMONS & COMPANY

INTERNATIONAL

There Is No Silver Natural Gas BulletThere Is No Silver Natural Gas Bullet

All sources of future supply need to

be explored.

Some will work, others might not.

Putting all energy eggs in onebasket is risky.

Resource availability and cost will bemore challenging than technicalhurdles.


11/16


12/16

SIMMONS & COMPANY

INTERNATIONAL

LNG Is Another AnswerLNG Is Another Answer New LNG projects must all work.

Collectively they are a dent infuture supply. U.S. could use forty 7.5 million ton

terminals.

Rest of worlds needs are far higher.

LNG uses 35% of wellhead gas tocreate useable gas.

Each 7.5 million ton project needs 15 Tcf of proved gas reserves tolast 30 years (2.6 billion BOE).

Does the world have scores of

these new gas fields?


13/16

SIMMONS & COMPANY

INTERNATIONAL

The Cost To Create Useable Gas

Is On The Rise

The Cost To Create Useable Gas

Is On The Rise

Steel and iron ore costs

have soared.

This might be temporary

but old costs were too low to grow steelproduction.

What effect will this have on: Long distance high performance gas pipelines?

LNG gas systems?

Offshore deepwater and conventional platforms?


14/16

SIMMONS & COMPANY

INTERNATIONAL

The Role Of Compressed Natural GasThe Role Of Compressed Natural Gas

This is not The Solution but an importantadditional Answer.

Small Is Beautiful might be its greatest

benefit.

Too many LNG countries also need todistribute some gas to regional users whoseneeds are vital but small so far.


15/16

SIMMONS & COMPANY

INTERNATIONAL

Future For Gas:

Everything Has To Work

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


16/16

SIMMONS & COMPANYINTERNATIONAL

Investment Bankersto the nergy

Industry

otc-natural gas the promise

Documents