February 12th, 2006:

Associated Press
Midland Reporter-Telegram
02/12/2006
By Toby Sterling
Associated Press
AMSTERDAM, Netherlands — Royal Dutch Shell PLC reported a 4 percent drop in fourth-quarter net profit and a 2 percent decline in sales as lower production and the impact from hurricanes Katrina and Rita outweighed the high price of oil.
Net profit at the world's third-largest oil producer came to $4.37 billion, down from $4.57 billion, while sales fell to $92.8 billion from $95.1 billion.
By comparison, the largest global oil company, Exxon Mobil Corp. reported a 27 percent rise in fourth-quarter earnings.
At the same time, Shell's full-year earnings rose 37 percent to $25.3 billion while sales rose 12 percent to $379.0 billion. The earnings were the largest ever for a British or Dutch company, but are likely to be passed by BP.
Shell's new CEO Jeroen van der Veer tried to emphasize the positive in the results, citing “record cash and earnings” for the full year and “success in exploration and gaining access to new resources.”
The company's main long-term problem is seen as the gap between the amount of oil and gas it is currently pumping and how much it will be able to produce in the future.
Shell is recovering from a major accounting scandal in which it was forced repeatedly to reduce the size of its estimated oil reserves in 2004 and 2005, ultimately forcing the departure of then-Chief Executive Philip Watts. It also led the company to merge its British and Dutch arms into a single company.
Van der Veer Shell said Shell planned to invest $19 billion in 2006, most of that in “upstream” activities: exploration and production. He said the company expects to add around 750 million to 850 million barrels to proven reserves this year, and expects to return to a “100 percent reserves replacement” by 2008.
But Fortis Bank analyst Paul Andriessen said the 2005 rate of 60 to 70 percent replacement was about 10 percent less than he expected. Van der Veer's 2008 target may be seen as unrealistic, a main reason why investors were disappointed with the results, he said.
Still, he was positive about Shell's outlook. “The oil price in 2006 as a whole will probably be higher than it was in 2005 and you'll see that reflected in next year's earnings,” he said.
Despite President George W. Bush's call on U.S. consumers to break their “addiction” to oil, CEO Van der Veer said the global appetite for energy is likely to increase by half over the next 25 years, which means a continued dependency on fossil fuels for a long time.
“No one should underestimate the energy challenge facing us all,” he said, adding that Shell was also investing heavily in biofuels.
Jerry Taylor, a senior fellow at the Cato Institute, agreed that oil will continue to be the main source of global energy for years but said the company's current profits should be seen as exceptional.
Taylor said recent industry deals show oil reserves can be purchased for less than $15 per barrel and new fields are discovered for as little as $9 per barrel, suggesting Shell may reach its replacement targets after all.
More importantly, Shell and others are constantly improving the yield from fields they do develop, he said.
He said the current high oil prices are part of a cyclical boom that will likely lead to over-investment in the industry and a possible price collapse at the end of the decade.
In any case “the lights are not about to go out on the industrial economy,” he said.
For the quarter, Shell's earnings from exploration increased 22 percent to $3.56 billion because of the high prices, even as oil and natural gas production declined in terms of volume.
Hurricane Katrina drove crude oil prices to a high of $70.85 a barrel after it battered the Gulf Coast, and Shell said its crude oil prices were around 29 percent higher in the fourth quarter than a year earlier.
Shell said it expected the hurricane damages to rigs and pipelines to total around $275 million, of which $130 million has already been spent. It said it didn't know how much of that it will ultimately get back from insurance companies.
In Shell's oil refining division, profits fell by 51 percent to $828 million due to lost intake during the hurricanes, and lower refining earnings. The company had also had a $405 million windfall in 2004 due to a revaluation of assets.
©MyWestTexas.com 2006 read more

By JIM KENNETT AND MANASH GOSWAMI
BLOOMBERG NEWS
Powered by Topix.net
(Original publication: February 12, 2006)
Exxon Mobil Corp.'s biggest competitor in the quest for oil reserves isn't BP PLC or Royal Dutch Shell PLC. It's the governments of China, South Korea and India.
Chevron Corp. and Exxon Mobil lost an auction for Nigeria's most promising oil and gas fields last year to companies controlled by South Korea. In Venezuela, Royal Dutch Shell's bid to develop an offshore gas deposit collapsed when Brazil's state oil company stepped in.
The world's biggest publicly traded oil producers are losing reserves to state-run companies willing to pay higher prices for energy needed to fuel growing economies. Petroleo Brasileiro SA, China's Cnooc Ltd. and India's Oil & Natural Gas Corp. have all bought reserves in the past year.
State-controlled oil companies represent “unpredictable competition,” said David Pursell, an analyst at Pickering Energy Partners in Houston. “All of a sudden, Cnooc shows up. What's their cost of capital? I don't know. What's their strategy? I don't know.”
The increasing competition for oil and gas fields is driving up costs, hurting corporate profits, while bolstering crude oil prices by inflating the cost of production. In the early 1990s, less rivalry for fields existed because countries such as China produced more oil than they consumed and prices were lower.
Last year, Chevron bought Unocal Corp. for $17.8 billion, $1.4 billion more than initially planned, after Cnooc made a counterbid. Cnooc at one point offered $18.5 billion for California-based Unocal, which holds reserves in Thailand, Indonesia and Myanmar.
Unocal shareholders accepted Chevron's lower offer after the U.S. Congress threatened to block Cnooc's bid.
More than half the oil and gas reserves that changed hands since 2003, through corporate acquisitions or the sale of drilling rights, went to state-owned companies, BP Chief Executive Officer John Browne said in a speech in Singapore in November.
“Energy is an issue of national security in which governments, and the state companies that they have established, are likely to be involved for a long time,” BP's Browne said.
National oil companies did about 15 major transactions outside their own borders last year, up from two in 2000, said Saad Rahim, an analyst at PFC Energy in Washington. The state companies are a “new breed of competitor” that are driving prices higher and squeezing returns on international projects, Morgan Stanley's oil analysts said in a report in November.
Rebuffed in the U.S., Cnooc last month paid $2.3 billion for a stake in a Nigerian oil field. Another state-controlled company, China National Petroleum Corp., in October acquired PetroKazakhstan Inc. for about $4 billion.
Buying PetroKazakhstan, based in Calgary, gave the Chinese control of about 12 percent of the petroleum production in Kazakhstan. The price per barrel China National paid was about double the price in transactions last year.
Oil output is rising in Kazakhstan, which has about 3 percent of the world's proven reserves.
Nigeria's top oil official, Edmund Daukoru, has said that ties between governments are a legitimate part of the process of selecting partners to develop energy projects read more

A compilation produced from various sources of the five successive downgrades in hydrocarbon reserves which destroyed the reputation of Royal Dutch Shell.

Click on the link below to access a compilation produced from various sources of the five successive downgrades in Shell’s hydrocarbon reserves: –

http://shellnews.net/ShellNewsnet Original news stories/shellnewsnet-reserves-cuts.htm

MOSCOW, (Reuters) – Russia's Energy Ministry said on Friday it had postponed costs approval of Royal Dutch Shell's huge Sakhalin-2 project as it wanted more information to understand why costs doubled to $20 billion.
The ministry said it needed more time to study the revised costs together with Russia's finance, resources ministries and tax bodies. The work is expected to be completed by June.
The postponement is not an isolated case. Other production sharing projects have sometimes worked for an entire year without permission to spend a requested sum.
A lack of approval usually creates operational uncertaincies and slows the implementation of the project.
Shell already shocked investors last year when it doubled the costs for Sakhalin-2, which is set to become the world's largest liquefied natural gas project, and has postponed its launch by at least six months. The ministry said in a statement that it was still concerned that the doubling of costs would delay and cut the profitable share of Russian production. read more

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By Ashley Sanders -The News staff writer Posted: 02/11/06 – 09:52:53 pm CST
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The refurbished home is one of the first residences in a series expected to receive a little TLC from Southeast Texas very own Rebuilding Together Affiliate.
Speckled with white paint and braving brazen wind gusts, volunteers from Motiva Enterprises LLC and Shell worked feverishly Saturday afternoon to remodel a Port Arthur home wrecked by Rita's wild stop-off in Southeast Texas this past fall.
“Right now I am painting the very first shutter,” Lynn Morris, wife of a Shell employee, said as she spread even coats of Behr blue paint on a primered shutter. “This is just a rewarding job. It is nice to be able to help someone else.”
Working in Friday's rain, the team of 20 or more volunteers rolled up their sleeves once again Saturday to put the finishing touches on the home located just inside the 1700 block of DeQueen Blvd.
The group's next stop – five more homes in the next couple of weekends.
In for the long haul
The new plan to revitalize damaged homes in Southeast Texas is being delivered to the region courtesy of volunteers from Rebuilding Together Houston and with much assistance from Motiva and Shell, as well as various churches and charitable organizations in the area.
“Rebuilding Together Houston is the largest affiliate in the nation,” Randy Henry, co-chairman of the Houston based organization said. “We are down here to help Southeast Texas set up their very own affiliate. And we could not have done this without the generous donation of $100,000 by Shell and Motiva.”
Henry said the Motiva/Shell grant will help in getting the Rebuilding Together operations off the ground in the Golden Triangle.
While Henry admits that Hurricane Rita helped get the ball rolling on the new Rebuilding Together Southeast Texas office, he contends that the organization will make a permanent home in the area.
“Right now we are hoping to rebuild 1,000 homes in this area,” he said. “All repairs are free to the homeowner and they have the final say on what color paint and types of work they need done.”
To qualify for Rebuilding Together repairs and renovation work, Henry said the home's tenant(s) must be the owner(s), the people residing in the home must be elderly or disabled and must be considered as low income.
Currently, Shell and Motiva's $100,000 grant is providing for the start up of the Rebuilding Together Southeast Texas affiliate, as well as for the building materials and supplies needed for the home repairs.
“Shell and Motiva are providing the labor, so all of the money being used here is only going to supplies,” Henry said. “We match the labor requirements with the skills of the volunteer. It truly is amazing, these volunteers save about $6-$8 a person per hour in labor – so all of the money can go to more repairs.”
Henry describes the new Rebuilding Together Southeast Texas chapter as an opportunity to “leave a legacy” in the area.
Agreeing with Henry's sentiments is Debbie Breazeale, community program manager for Shell Oil Company.
“We see this as an opportunity to help our community,” she said. “Motiva plans to stay in this area for a long time in the future and this is our way of giving back.”
Breazeale and other Houston based Shell employees are in the area this weekend and next helping the Motiva employees work on their first Rebuilding Together project.
Current Shell and Motiva employees, spouses, retirees, friends and family are working side by side to repair the predetermined homes.
For more information on Rebuilding Together Southeast Texas or to learn how to help the new affiliate, call 892-0140. read more

by David Lynch
11/02/2006
The row between Shell Ireland and the Rossport Five over the controversial Corrib gas pipeline is a “brutal battle” where there will only be one winner, according to broadcaster Eamonn Dunphy. Mr Dunphy told an audience in Trinity College that he believed the roots of the Corrib pipeline controversy lie in the ‘shady corrupt era’ of former governments.
Mr Dunphy was speaking at a public interview on Thursday evening with Micheal O’ Seighin of the Rossport Five, organised by Shell to Sea Dublin campaign: “This is a hugely important case that made a lot of headlines last year, but the media tends to come and go from stories and not follow them until the end,” said Mr Dunphy.
“It has to be said that governments and multi-nationals do not like publicity. In this case, it is a major scandal that has its roots, in my opinion, in the Charlie Haughey, Ray Burke era of corruption in this country.
“And this story has its roots in that shady corrupt era when these boys were creaming it for themselves. The situation is now that the Irish people will have to buy back our own gas, our own resources at the market rate.”
Mr O’ Seighin told the event that the people of his community would not benefit from the development of a pipeline.
“There is nothing in it for our community at all,” he said.
Mr O’Seighin is back in the High Court on Monday along with the other members of the Rospport Five. read more

By Richard Orange
12 February 2006
BP chief executive Lord Browne knows how to put a good shine on bad news. After its rivals Royal Dutch Shell and Exxon Mobil pulled in the biggest UK and US profits for any company ever, BP’s own undershot expectations.
The solution? Trump the competition with an even bigger number – in this case the staggering $65bn (£37bn, E54bn) BP announced it could return to shareholders over the next three years in share buybacks and dividends should the oil price stay at $60.
To BP’s investors, this is no change at all – it’s in line with the existing policy. But it did aggravate charges of profiteering and calls for a windfall tax.
It’s lucky then, that Browne is one of the most articulate defenders of shareholder capitalism around. The real question, he argued, is not whether the oil industry is profiteering, but where the profits go. One in every six dollars of profits generated by BP goes, he said, directly back to UK pension funds via dividends.
This year’s profits mark an industry high. Exxon Mobil made $36bn, Shell $23bn, BP $19.3bn. But they are investing less of their profits, proportionally, than ever before. In 1980-1982, the last time there was such a high oil price, the industry spent 80% of its free cash flow.
Now it is spending 40%. The rest goes to shareholders. Last year, the top five oil companies returned an estimated $76bn to their shareholders, while they invested about $50bn increasing their supplies of oil and gas. This year, they are expected to return some $57bn, according to UBS.
And the companies themselves are actually shrinking. This year, under US rules, Shell only brought enough new oil on to its books to replace 60%-70% of what it pumped out. BP managed 95%.
That the major oil companies pass money back to shareholders rather than invest it themselves when they are averaging 26% return on capital employed, and failing to replace their reserves, the argument goes, is evidence of market failure. Global business as a whole makes a 15% return.
But a recent study by Cambridge Energy Research Associates concluded that what was preventing the oil companies launching more projects was more a shortage of qualified staff than a shortage of invesment cash, as Browne reiterated last week. And if you are earning more cash than you can invest well, better to give the money to shareholders.
It may well go into oil, or alternative energy, or even a vaccine for avian flu. Rather than call on windfall taxes on oil companies to fund renewables, it is better to trust the market. read more

Heather Connon on Patrick Cescau, the chief executive fighting to unite a divided company
Sunday February 12, 2006
Unilever may grow its own bosses but that does not mean they all look the same. In the 1980s, there was Michael Angus, ever-ready with a joke; then there was straight-laced Michael Perry, who fitted Unilever's image of being bureaucratic and boring.
Next came Niall FitzGerald, the ebullient Irishman who breezed in, full of grand visions about ending African poverty and enrolling Britain in the euro. He also had a grand vision for Unilever, called Path to Growth but, by the time he stood down, it was looking as 'blue sky' as the other two ambitions as the group lurched from profit warning to profit warning, missing all of FitzGerald's targets along the way.
Patrick Cescau, the man left to pick up the pieces, has been at the helm less than than 18 months but it is already clear that he has a rather different style. He is, say observers, a detail man, a hands-on operator involved in everything from marketing the brands – Dove's advertisements featuring real women is, he says, 'a signal of what Unilever is all about' – to customer relationships.
'What stands out is that he is involved in day-to-day management decisions – he is not a chairman-like figure,' says Morgan Stanley analyst Michael Steib. 'That is exactly what Unilever needed at this point in time, given that there were so many issues in the business.'
Cescau has earned his place in Unilever's history for becoming its first chief executive. Until last April, the dual-listed group operated with joint chairmen – one for the Dutch arm and one for the UK, and no chief executive. A strategic review following the debacle at Royal Dutch/Shell, which has a similar dual nationality, called for a unified structure. Cescau, the driving force behind the review, took over as chief executive while Antony Burgmans, his counterpart at the Dutch arm, became chairman.
It was a 'profound change', says one insider, giving a clearer distinction between various roles within the company. It also helped Cescau push through the changes needed to get the group back on track much more quickly than in the old two-head-office structure. And, while some investors were disappointed that it did not go the whole hog and move to a single stock market listing, Cescau believes the current structure gives him all the autonomy he needs.
He has wasted no time in stamping his mark on the group. While his slogan 'One Unilever' sounds calm and unifying, it has involved considerable upheaval. The divisional fiefdoms under which the three businesses – health and personal products, food, and frozen foods – were run separately by separate management teams in each country have been merged. That has cost almost a fifth of senior management and many of those who remain have gone through restructuring as Cescau has concentrated on getting closer to retailers, the group's core customers. The changes have been felt right to the very top, where the three old executive teams have been disbanded and replaced with one covering all nationalities and divisions.
And the focus has switched from Path to Growth's fixation with profit margins to boosting market share. 'We can have a better relationship with the [retail] trade who are our customers,' says Cescau. 'We were going to market with two or three different companies, one of which had outstanding sales procedures, while the other one or two were weaker. Now, we are trying to be as good as the best everywhere. Always. So we are being more disciplined in the way we work.'
That has meant a trial project in the Netherlands and in the US of working more closely with supermarkets to ensure it is giving them what they want. It has been so successful that it is being rolled out across the rest of the group. While FitzGerald's reign was all about reducing the variety of products across the group, Cescau has actually started to introduce some new ones 'for example, cheaper ice cream ranges to complement its Magnum range' to ensure it has something to offer in each category.
There are signs that his strategy is succeeding. While the six months or so after he took over as joint chairman in September 2004 were dogged by profit warnings and disappointments, last week's full-year results showed signs of improvements, with profits up by more than a quarter and sales growth accelerating through the year.
But Cescau says this is just the start of a long slog: 'A year ago, we were losing market share; in 2005, we were starting to compete; now we want to try to be winners again.'
He retains the gentle French accent of his Paris birthplace, although he has not worked in France for 20 years. Like all senior Unilever executives, he has spent his 33 years with the group globe-trotting – from Germany to the Philippines, Portugal to Indonesia, and the US to the Netherlands. He has a German wife and two children working in the US, and it is hardly surprising that he does not know how to describe his nationality. Nor has he decided where he will retire in four years or so.
His new billet in London does, however, seem to suit him. 'The excitement and the buzz is extraordinary,' he says. And he goes to his local gym as often as he can to help maintain the focus and energy the job demands.
His first months have been energetic. Accompanying last week's full-year results announcement was the news that he plans to sell off the frozen food business, apart from the 'strategically important' Italian company. That comes hot on the heels of the disposal of the perfume business and the sale of its Dutch food business.
But he earned his Unilever spurs with acquisitions. As director of its food division, he was responsible for integrating the Bestfoods business, owner of the Hellmanns brand, with Unilever's own Liptons business, as well as the rather less successful Slim Fast business, whose sales have been plummeting more or less since it was acquired.
But mistakes like that have never been much of an impediment to progress at Unilever – FitzGerald was running the household products business when it launched a new formulation of Persil washing powder that was found to rot clothes.
The CV
Name Patrick Cescau
Born 1948, Paris
Education ESSEC business school and INSEAD: MBA 'with distinction'
Career Joined Unilever in 1973 in France. He has worked as chairman of its Indonesian business; president of its Lipton business in the US; and group financial director. He was parachuted into the US business to head the integration of Bestfoods in 2000. He is also a non-executive director of media group Pearson. In January 2005 he was awarded the Légion d'Honneur
Interests He and his German wife Imogen moved to London after Cescau took over at the helm in autumn 2004. A regular gym-goer, he also describes himself as a 'voracious reader, a passable golfer and a good photographer' read more

On Treasury model calculations, oil giant's £11bn bonanza becomes an £18bn loss when damage to environment is counted
Nick Mathiason
Sunday February 12, 2006
The multi-billion-pound profits made by major oil companies would be wiped out and turned into deep losses if the environmental damage they caused were factored into their accounts, according to figures based on Treasury calculations.
BP's record-breaking £11bn profit, announced last week, would be instantly transformed into a near £18bn loss once the greenhouse gas emissions from its operations, and from use of its products, are taken into account.
BP is responsible for 1.376 million tonnes of greenhouse gas emissions, 6 per cent of the world total output, and these emissions, when costed out using a Treasury model outlined in the working paper 'Estimating the Social Cost of Carbon Emissions', would devastate BP's profits. The company would end up facing a huge £29bn in environmental charges.
BP has spent millions of pounds on a multimedia advertising campaign extolling its green credentials in a bid to ward off a windfall tax on its profits. But figures calculated by the New Economics Foundation, the influential think-tank, appear to put its 'progressive positioning' in a new light. The calculations would have the same catastrophic effect on the Royal Dutch Shell profits announced earlier this month, the biggest in British corporate history.
NEF policy director Andrew Simms said: 'The way we view economic success in the UK has become a fossil- fuelled fantasy. No accounting system with a hint of common sense would view profiting from the liquidation of a never-to-be-repeated natural asset as a good thing – even less so when it leads to climate chaos.
'The record profits of the oil companies can only possibly be justified if they are used appropriately. To begin with, there should be a substantial windfall tax clearly earmarked to roll out renewable energy technologies and redesign the UK's hopelessly inefficient energy system in favour of a more efficient, decentralised system. Then the UK should pay our shamefully overdue contributions to the special global fund set up to help poor countries adapt to climate change.'
A BP spokesman countered that the group's investments in renewable energy and cleaner fossil fuels proved it was playing a positive environmental role.
BP's environmental record is coming under fresh focus from green campaigners, who have just published a fact-finding report after a visit to Georgia and Turkey, where BP is building a pipeline to take oil out of Baku in Azerbaijan.
Representatives from several non-governmental organisations reported serious concerns over alleged expropriation of land, lack of environmental measures, failure to pay compensation for loss of land and loss of farm income.
A coalition of campaign groups has also written to the chairmen of a host of international banks, including the Royal Bank of Scotland, that lent money to BP on the £1.8bn Baku-Tbilisi-Ceyhan (BTC) oil project.
The letter warns banks that they could face litigation over possible environmental damage caused by an anti-corrosion coating on its pipeline. Last year a scientific report suggested that the pipeline would corrode and was therefore uninsurable, and that Lord Browne, BP's chairman, was aware of the problem at an early stage.
Mika Minio-Paluello of green campaign group Platform said: 'Despite BP's assurances, BTC has become a social and environmental nightmare, and banks must also accept responsibility as financiers, enforce standards and stop funding oil and gas ecological timebombs.'
BP's spokesman said the court action proved that the processes the company had put in place to resolve disputes were working. He added that issues about the coating of the pipeline were no longer relevant, as they had been dealt with last year. read more

BRAD FOSS
Feb 12, 2006
The United States is increasingly going overseas to meet its natural gas needs, setting in motion a significant shift with a familiar, if unpleasant, side effect for the world's largest energy consumer.
As America becomes a bigger player in the global natural-gas trade, its vulnerability to faraway production snags and price gyrations will rise, as will its dependence on energy from the Middle East and other volatile regions.
Unlike oil, natural gas has for decades had the advantage of being a local energy source. It either came from within the United States or by pipeline from Canada. But as North American supplies dwindle and demand grows, the energy industry is investing billions of dollars to ship the fuel across oceans as liquefied natural gas, or LNG.
LNG is still a relatively small source of supply for the U.S. But imports are expected to rise fivefold over the next decade, intensifying the competition with Europe and Asia for natural gas coming primarily from the Middle East, West Africa and countries formerly part of the Soviet Union.
“There's a geopolitical overlay that's going to look similar to oil,” said Michael Zenker, managing director of the global natural gas team at Cambridge Energy Research Associates.
Which means the price that American homeowners, manufacturers and power plants pay for natural gas will increasingly be linked to the weather in Europe and the pace of economic growth in Asia _ not to mention the political stability of countries such as Russia, Iran and Qatar, which combined hold more than half of the world's natural gas reserves.
The reverse is also true. “A surge in U.S. demand could effectively raise the price for spot LNG cargoes, affecting the price in Japan and other countries,” said George Beranek, a manager in the global gas group at PFC Energy in Washington.
Fuel-hungry America is already the third largest LNG importer behind South Korea and Japan, according to Energy Department statistics. Spain and France are other major importers today, while China and India are expected to be significant players down the road.
Until recently, the North American natural-gas market was an island unto itself with an abundant resource, and prices were relatively cheap. A supply disruption in the Gulf of Mexico might temporarily drive up prices, but a problem with natural gas output in the Persian Gulf would have virtually no impact.
The fact that natural gas is cleaner-burning than heating oil and coal only burnished its public image, and demand grew rapidly during the 1990s as it became the fuel of choice for heating new homes and running new power plants.
Gradually, though, U.S. _ and then Canadian _ output began to taper off. Producers drilled many more wells, but still could not offset the depletion of existing wells while satisfying rising demand.
To bridge the gap, LNG imports tripled in the '90s, rising to 226 billion cubic feet (67.8 billion cubic meters) per year by 2000. And they nearly tripled again by 2004, climbing to 652 billion cubic feet (195.6 billion cubic meters), or 3 percent of the country's total natural gas consumption.
But there is still not much of a supply cushion in the U.S. natural-gas market, which is a major reason why prices climbed steadily in recent years _ and then skyrocketed after Hurricane Katrina disrupted output in the Gulf of Mexico. Natural gas futures averaged $9.01 (A7.53) per 1,000 cubic feet (300 cubic meters) in 2005, more than five times the price in 1995.
Meeting the country's anticipated demand by 2015 could require the U.S. to import more than 10 billion cubic feet (3 billion cubic meters) per day of LNG, according to government and industry statistics. That's greater than the amount of gas it will get from Canada via pipeline.
The competition for LNG will be most pronounced in the spot market, a small piece of the global trade in which tankers are usually directed on short notice to wherever the price is highest. But analysts said it could also affect long-term supply contracts because those deals are benchmarked to futures prices, which rise and fall based on short-term events. The U.S. buys LNG primarily on the spot market.
The industry prefers to sell at least a portion of its LNG through long-term agreements to help pay for the large capital investments needed to build critical infrastructure, including plants to liquefy the natural gas, refrigerated double-hulled ships to transport it and terminals on the receiving end to regasify the fuel. It also gives producers a measure of confidence that there will be a market for their supply.
Indeed, companies such as Exxon Mobil Corp., Royal Dutch Shell Plc and BG Group _ the largest importer of LNG into the U.S. _ are making multibillion-euro (multibillion-dollar) investments up and down the LNG supply chain, creating what one BG executive referred to last fall as a “global virtual pipeline.” The U.S. has five LNG import terminals today, with four more under construction and dozens more proposed.
Some analysts say the U.S. is already feeling the impact of global events that a decade ago would not have registered the slightest ripple in its natural gas market.
For example, UBS natural gas analyst Ronald Barone noted in a recent report how U.S. supplies tightened in January because LNG originally scheduled for delivery at a terminal in Cove Point, Maryland, was redirected to Europe. European demand for natural gas rose over the past year, analysts said, because of a new import terminal in Britain and a drought that sapped strength from Spain's hydropower sector.
In fact, much of the LNG shipped to the U.S. from Trinidad _ the biggest supplier to the U.S. _ is actually contracted for delivery to Spain, which resells the fuel it does not need into the U.S. market. But as Spanish utilities required more LNG to help fuel power plants, fewer shipments were available to the U.S.
“When things go bad, the U.S. is currently the one that suffers worst because it's mostly a spot market. It's the market of last resort,” said Gavin Law, head of the global LNG practice at consultant Wood Mackenzie in Houston.
But Cambridge Energy's Zenker said there's another way to look at the situation, one that underscores how the booming LNG business is rapidly connecting natural gas consumers around the globe like never before.
In order to lure back LNG cargoes from the U.S., Spanish utilities paid a premium to the already soaring market price at the Henry Hub, a key Gulf Coast delivery point.
“One could say the Spaniards are paying a price for U.S. hurricanes,” Zenker said. read more