Annual LNG Tech Global Summit
Keynote address by Ms M.J.A. van der Hoeven, Minister of Economic Affairs of the Netherlands about the global LNG market, at the Annual LNG Tech Global Summit, Rotterdam/ 21 October 2008
Ladies and gentlemen,
It is a pleasure to speak to you today, here in the very heart of Rotterdam. I could not think of a more suitable location for looking into the state of affairs in the global LNG market.
Rotterdam harbour, Europe's prime hub for the trade in crude oil and oil products, is now getting ready for its new role as a major European LNG hub. It is to provide regasification and distribution facilities, welcoming LNG ships from all over the world. A true LNG gateway to North-West Europe! Just before summer I launched the construction of an LNG terminal on the Maasvlakte. Two other terminals are currently being considered. I am proud of these significant steps towards realising the Netherland's LNG potential.
Quite apart from geographical considerations, we should also ponder the timing of this LNG gathering. A major credit crisis has hit the financial markets. Many fear its ramifications in the real economy. Some may even say that, perhaps, this is not the time to call for further investments. Yet, and I would like to emphasise this, in order to achieve a properly functioning, globally integrated LNG market it is - most of all - investments we need. To help raise production, to expand technical expertise, to provide for better infrastructure and to improve trading mechanisms. Such investments are vital.
It is my firm belief that we have plenty of reason for optimism provided we work together globally in realising our ambitions for a more advanced, a more flexible LNG market. Consumer countries seek to diversify energy resources in order to establish greater security of supply. Producer do exactly the same with a view to realising greater security of demand. We must join hands and seize the business opportunities that are presenting themselves, on both ends of the LNG chain.
To give you an example. I have just returned from a visit to Qatar, where I held constructive talks with the deputy premier on future LNG supplies from Qatar to the Netherlands. Qatar is developing a huge liquefaction capacity and has shown an interest in becoming an important partner in North-West Europe's LNG-sector.
Evidently, the steady flow of LNG is an absolute prerequisite for further developing a truly global LNG market. Cross-border ties within the industry will contribute to this substantially. But governments have an important role to play too.
As the Dutch Minister of Energy, I am making a continuous effort to bolster relations between governments through bilateral negotiations. Such relations will help shape the global gas market. I have just mentioned Qatar, but on earlier occasions I have entered fruitful talks in for instance Algeria, Angola and Egypt.
You are part of this process too. You are all pioneers, pushing the boundaries towards true globalisation of the LNG market. It fills me with great confidence in future development to see so many of you gathered here today. In this respect, it is hard to overrate the importance of this week's LNG Tech Global Summit.
In this opening address I would like to provide you with some focus for further discussion by drawing on the essential requirements of a global LNG market.
It is important to bear in mind that it is right across Europe that demand for gas is rising fast. At the same time, domestic production levels are falling. As a result, imports will come to exceed exports, ever more so.
Within a few decades, more than 80% of EU gas supplies will need be brought in from outside the Union. This will involve vast quantities of gas with a huge impact on infrastructure and transportation facilities. We are working on long-distance gas pipelines, BBL, Nordstream, Nabucco, to name just three of them. Obviously, this is a slow and complex process, geo-political concerns as well as costs need to be reckoned with. In the meantime, LNG is proving increasingly competitive against pipeline gas and is developing into a substantial complementary resource worldwide. By the year 2020, LNG will in fact constitute about 40% of the global gas market.
Ladies and gentlemen, we may safely say that LNG is in fact conquering the world. Quite literally so. The rapid increase in the average shipping distance of LNG may illustrate this. In 2000 the global average was 5,700 kilometres; in 2007 LNG travelled 6,700 kilometres on average, while in 2010 the average shipping distance will range between 8,000 to 8,500 kilometres. According to the IEA, LNG trade will double between 2006 and 2015, to 393 billion cubic metres a year.
For sure, LNG is currently one of the main drivers behind the globalisation of gas markets.
This provides us with huge investment opportunities, as well as a number of major challenges.
At present three challenges prevail:
First, we need to maintain market stability, especially in times as turbulent as ours.
Second, we need to introduce market mechanisms that may support a sufficient level of flexibility. Security of supply and affordability are important issues in this context also.
Third, we need to develop sufficient expertise and stimulate young people to pursue carriers in the field of gas research.
Let me explore.
First of all: market stability. Gas prices are proving increasingly volatile, generally showing an upward trend. Of course, the sharp rise in oil prices over the past year is partly to blame for this. There's no denying that. Yet, more importantly, we need to take into account market fundamentals. As in the oil market, structural unbalances seem to be at the heart of the matter.
As to LNG, the rapid increase in regasification capacity far outstretches the growth in capacity for liquefaction. This is worrying, as the structural underutilization of regasification capacity is bound to have an impact on prices. Long-term contracts will be renegotiated at an increased price rate. On the LNG spot market, which is expanding as we speak, speculation will increase. What is effectively a shortage of supplies will also diminish LNG's positive contribution to safeguarding energy security. That I would like to avoid at all costs.
I think it is essential that we do our utmost to create an investment climate that is conducive to national and international companies investing in liquefaction capacity. Governments have a role to play here. Though ultimately, of course, it is up to companies to make the right investment decisions. I am a strong advocate of closer cooperation between NOCs and IOCs. Such cooperation can yield fruitful results, as shown in Qatar for instance.
My second point concerns market liquidity and flexibility. We are working towards improving LNG market mechanisms. Exchanges must coordinate their activities and a number of bottle necks obstructing cross-border flows should be solved quickly. This will prove beneficial to consumers. A more efficient utilisation of cross-border interconnectors will lead to lower prices and increase security of supply.
Producers, however, should not suffer from such development. It is important for them to know that there is indeed a market for their LNG transports. That is essential to the system also. Greater transparency and an open dialogue between producer and consumer countries would generate a stronger sense of security of demand. I am in favour of that.
The third major challenge we face concerns present levels of expertise in the field of LNG. We need to involve bright young people in order to realise a global LNG market that is fit for our times.
We face an impending shortage of skilled energy professionals. There is a huge demand for them in the field of oil and gas. And demand is likely to increase further. We will need to enhance specialist training courses and research programmes in this particular domain, if our energy strategy is to be at all successful. As to LNG, technological innovation will help increase liquefaction, it's as straightforward as that.
There is also the bigger picture to consider. Fossil fuels will remain part of our energy future for a long time to come. In 2020 about 80% of our energy will still be generated from fossil energy sources. The energy transition that we are pursuing focuses on security of supply, affordability and a strong reduction of CO2. Fossil fuels too will need to comply with these principles. We focus on the cleanest of these: natural gas. The transition we are aiming at will require creative thinking and a substantial amount of what is referred to as 'brainpower'.
The Netherlands has a strong tradition of research in the field of gas. Our local natural gas reserves will be nearing depletion in about 25 years, so to become part of a global gas market is of particular urgency to us. In the field of LNG we aim to play a distinctive role extending our position as an important gas roundabout to include LNG facilities. We need experts to help us realise this. To promote a high standard of research, we are looking into the possibility of establishing an international, independent LNG research centre in the Netherlands. A decision will be taken in the very near future.
As for now, I hope your visit to Rotterdam will prove to be of inspiration. There is a bright future for LNG, worldwide. International cooperation will help us move forward. And, of course, it is pioneers in the field of production, trade and research that are needed to accelerate the process of globalisation and help establish stable and flexible markets. In other words, your contribution is urgently required!
Thank you.