Sonatrach keynote speech to the WGC2015

 Natural gas, a fuel of choice for sustainable development

 Excellencies, distinguished delegates, ladies and gentlemen,

It is a great pleasure to be here today and address the World Gas Conference, one of the most prominent events of the gas industry.

The Conference theme for today is “natural gas: a core pillar for a sustainable future of the planet”. This theme is timely and especially fitting.   Indeed, a United Nations Summit on the post-2015 development agenda will take place in September in New York. One of its objectives is to agree on Sustainable Development Goals for the period up to 2030. They will likely include energy and climate change. Moreover, by the end of this year and in this city of Paris, a landmark United Nations Climate Conference is scheduled to be held, with the objective to agree on a new international climate regime.

In line with today’s theme, the topic of my talk is about natural gas as a fuel of choice for sustainable development. I believe that the concept of sustainable development, with its three intertwined and mutually-supportive pillars of economic development, social progress and the protection of the environment, is the adequate framework for assessing the benefits, the impacts and the choices that are associated with energy supply and use, today and in the future.

I will cover the global energy scene and natural gas in particular, before focusing on Algeria and Sonatrach.

The demand for energy is set to grow in the decades to come, driven by demographics, economic expansion, and improved standards of living.

According to United Nations projections, global population is expected to rise from 7.1 billion in 2013 to 9 billion in 2040. More than 90% of this increase occurs in developing countries, where population rises from 5.5 billion to 7.3 billion.

This is accompanied by a relentless expansion in urbanization. By 2040, around 63% of the global population is expected to live in cities. This trend is even more visible in developing countries, especially Asia, where urban population is set to rise by 1.7 billion. The number of megacities, with populations of more than 10 million, will also dramatically increase.

Another driver is the rise of the middle class in developing countries, with sufficient disposable income to satisfy its modern energy needs for mobility, housing, leisure and other services.

These demographic trends combined with productivity improvement result in a continued expansion of the world economy. Under OPEC’s outlook reference case, the global output is expected to rise in real terms from 73 trillion US dollars in 2013 to 180 trillion in 2040. Developing countries will contribute by about three-quarters to this expansion, in particular China, India and other Asian countries. However, in terms of GDP per capita, OECD countries will continue to benefit from the highest levels. In developing countries, the picture is rather mixed: China and India see a significant rise, while Africa will continue to suffer from low levels of income per capita. The proportion of the poor, though declining, remains nevertheless too high in many developing countries, especially in Africa.

Demographics, economic expansion, and improved standards of living are all conducive to higher demand for energy. Continued improvement in energy efficiency helps moderate such growth in energy needs. Policies and technology are also key drivers of energy demand and supply.

Projections by various institutions indicate that global energy demand by 2040 could be higher by more than 35% compared to 2010. Even the low range of this projected demand growth is massive: this is equivalent to the consumption in 2010 of Europe, the Middle-East, Africa and Central and South-America, taken all together.

While developing countries, in particular in Asia, contribute the most to this energy demand growth, nevertheless, OECD countries will continue to consume per capita more than twice than developing countries by 2040.

I wish to also underline that unfortunately energy poverty will likely remain a feature of the global energy scene. Today, around 1.3 billion people lack access to electricity and 2.7 billion rely on traditional biomass for cooking. Ensuring universal access to energy services by 2030 as currently envisaged by the United Nations would require an immediate and dramatic intensification of global efforts, including in terms of financial support.

In satisfying growing world energy needs, all energy sources are expected to contribute. To this end, fossil fuels are expected to continue to play a dominant role. Their share in 2040 will only slightly decline compared to the level of 80% today. Nuclear, hydro and biomass supply will grow at an average rate of between 1.5 and 1.8% per annum, andrenewables, mainly wind and solar, will rise at the fastest rate.

Fossil fuel resources are plentiful. But developing new supplies requires massive investments, huge financial resources, and ability todevelop complex projects, manage risks, attract and retain skilled human resources, master innovative technologies and show excellence in conducting operations. This is a huge challenge. Our industry past record makes me confident that it will be up to the task in the future.

Our industry faces another important challenge, that of the protection of the environment, both at the local level to respond to air quality concerns, and at the global level, to deal with the issue of climate change. There is no silver bullet.

First and foremost, energy efficiency should be improved at a much higher pace than in the past. It is the cleanest of all sources of energy.

Renewables are part of the solution, but they still face limitations in terms of cost, intermittency, land footprint and acceptability. Nuclear can contribute to mitigation efforts. Carbon capture and storage has a high mitigation economic potential, but is only a long-term solution given its today’s high costs.

Natural gas is,I believe, the fuel of choice to satisfy world growing energy needs while reducing air pollution and limiting greenhouse gas emissions. It is available, affordable, and the cleanest of fossil fuels.

Natural gas remaining resources are plentiful. With recent technological progress, they are even more abundant. They exceed 200 years of current consumption when unconventional resources are accounted for.

Natural gas is affordable. Given its high efficiency and reliability, it offers a competitive option for power generation, provided adequate carbon pricing is considered to take fully into account the environmental benefits of natural gas.

These benefits include more than half less specific greenhouse emissions than coal, much less CO₂, NO_x and particulates emissions than oil in the transport sector, and even less land ecological footprint than renewables.

The future of natural gas is bright. Benefiting from the fastest growth since 2008, demand for natural gas is expected to continue to rise, particularly in Asia. Most institutions expect it to be more than 65% higher in 2040 compared to 2010. US demand risessubstantially, as it benefits from expanded shale production. However and paradoxically, in the EU, a region that positions itself at the forefront of environmental stewardship, coal was displacing natural gas in the power generation sector, taking advantage of cheap imports from the US and too low carbon prices. As a result, demand declined sharplysince 2010. Medium-term prospects are at best for a stagnant demand, with a resurgent slow growth in the longer term.

Supply will come from a greater diversity of sources and the contribution of unconventional gas will grow, especially in the United Sates. While production in the EU is set to decline, it expands elsewhere and new producers will emerge, particularly in East Africa.

Natural gas trade expands, with Asia becoming a major import center and the US likely a natural gas exporter. LNG trade in particular will sharply rise, creating further linkages between regional markets.

This bright future of natural gas faces a great challenge: investment. The IEA estimates that cumulative investment required to meet growing demand and compensate for natural decline in gas production reaches 8.8 trillion US dollars by 2035. This is huge. It underscores the capital intensive and long-term nature of the natural gas industry. The gas industry has flourished in the past mainly because security of supply and security of demand were considered as the two faces of the same coin. We believe that the stable and balanced relationship between producers and consumers, as epitomized by long-term contracts, should remain the cornerstone for a healthy development of the gas industry.

Ladies and Gentlemen,

I wish to turn now specifically to Algeria and Sonatrach.

As you are aware, Algeria is a pioneer in the LNG industry. In September last year, we have celebrated the fiftieth anniversary of the first LNG plant in the world, the Camel unit in Arzew, and the first commercial LNG shipment to Canvey Island in the UK, followed immediately thereafter by another shipment to France.

Since then, what has been achieved is remarkable. The giant HassiR’melfield and many others were put on stream, a dense pipeline system was put in place, and four LNG plants were built. In addition to satisfying growing domestic needs, Sonatrach was able to export around 1.5 trillion cubic meters of natural gas to Europe, the US and Asia. With no interruption even under the most difficult circumstances, Sonatrach has earned its title of a fully reliable supplier.

Today, Sonatrach has set up an ambitious development plan, aiming at increasing its reserves, bringing on stream new fields, and reinforcing its transport and export capabilities.

Since 2010, discoveries and reserve growth in mature fields helped increase the volume of reserves by around 5%. A sustained exploration effort will be carried out in the next five years. Part of this effort is dedicated to unconventional gas. Algeria is well endowed in shale gas resources, with some preliminary estimatesindicating a level of resources as high as 700 tcf. The objective of the appraisal programme is to assess the recovery and commerciality of shale gas, while understanding, quantifying and mitigating potential environmental impacts. I wish to underscore that the latter is of particular importance with regard to Sonatrach’s policy aiming at minimizing the footprint of its operations.

In addition to investing in mature fields to maximize recovery, no less than fourteen new fields,with a total capacity of 42 bcm per year, are expected to be put on stream in the next five years.Half of this number of fields will be developed in partnership with other international companies.

As a result of this effort, primary natural gas production is expected to increase by 13.5 % in 2019 compared to 2014. Three new pipelines with a total length of 1700 km and a new gas dispatching center will be added to the transport infrastructure.

In terms of investment, the development of the gas chain requires a level of around 40 billion US dollars over the five-year period.

One priority objective is to satisfy domestic demand. The fast rate of growth observed in recent years is expected to continue. By 2019, domestic demand will reach a level of 45 bcm. This is 41% higher than in 2014.

Sonatrach will be able to exportup to 65 bcm in 2017 and thereafter, especially if gas demand in the EU is healthier than in the recent past.

Two other features are prominent in Sonatrach development plan. The first relates to human resources. It is our firm belief that competent human resources are key to the success of Sonatrach, a companytotaling a workforce of around 50 000 people. Our efforts to attract and retain skilled persons and improve their capabilitiesshould be sustained, even in this low oil price environment.

The second relates to health, safety and environment. Let me underline the commitment of Sonatrach in this regard with two examples.

The first is on gas flaring, which Sonatrach has successfully reduced to a low level of around 4% last year. We are working to further reduce it to less than 1% by 2019, with the long term objective to ban routine flaring in our operations.

The second example is on the complementarity between solar and natural gas, the theme of the second day of this Conference. Sonatrach has put on stream in 2011 a 150 MW solar – natural gas combined cycle power generation plant, with 20 % of plant capacity based on solar energy. This hybrid design aims at improving our knowledge and experience in order to harness the great solar potential of the Algerian Sahara, one the sunniest places of the world.

Ladies and Gentlemen,

To sum up, I wish to emphasize again that natural gas can contribute to providing the energy required to eradicate poverty and ensure socio-economic development of anexpanding world population, while responding to air quality and climate change concerns.

Sonatrachwill continue to fully satisfy Algerian domestic natural gas demand, and to remain a reliable supplier and a major actor in the international gas market.

We firmly believe that the brighter future of the natural gas industry is possible through a dialogue between producers and consumers aiming at promoting a balanced and stable relationshipthat takes into account the capital-intensive and long-term nature of the gas industry and the need for both security of supply and security of demand.

In this connection, I wish to stress the fundamental role that long term contracts have played and should continue to play in the future to ensure the necessary financing of gas projects, and to underscore the need for a fair gas price that takes into account the exhaustible and non-renewable nature of natural gasand its advantages in terms of efficiency and environmental protection.

Ladies and gentlemen,

Thank you for your kind attention.