Remarks by Mark Maddox
Acting Assistant Secretary for Fossil Energy
at the Western Hemisphere Energy Ministers Meeting
Trinidad and Tobago
April 20, 2004

"Enhancing Western Hemisphere Petroleum Trade
and Cross Border Natural Gas Trade"

Thank you and good morning.

It's a pleasure to be here in Trinidad and Tobago with my distinguished co-panelists to discuss the vital role expanded oil and natural gas trade will play in our Hemisphere's energy future. There is no subject of greater importance to our shared energy security.

Energy security is the foundation stone for economic growth, rising standards of living, improved health and peaceful relations among nations. And oil and natural gas are now and for the foreseeable future the dominant elements in the world energy picture. Energy security equals dependable, affordable, environmentally sound supplies of oil and natural gas.

Oil and gas today account for more than 60 percent of the world's energy, a share that is projected to remain essentially constant as world and western hemispheric energy demand increases over the next two decades.

Oil and natural gas are here to stay. Fortunately, the world supply of both oil and natural gas will be adequate for our needs.

But energy resources are unevenly distributed around the world. Some nations are rich in reserves and some have little or no reserves of their own. Virtually all nations, however, have one energy trait in common: rapidly growing demand. To satisfy that demand and ensure that every nation can reap the economic and social benefits of energy security, we must develop a greatly expanded and reliable international network of energy trade.

President Bush recognizes the importance of expanded and strengthened hemispheric and world energy trade relationships to mutual energy security. That is why closer energy trade relationships are a central pillar of his comprehensive national energy policy.

I'd like this morning to discuss:

• The reasons why we believe expanded energy trade should be a high priority of every nation;
• The promising energy trade experience of the United States and its hemispheric neighbors;
• The rich opportunities that a broad energy trade system will bring to all the nations of the hemisphere, and
• The prerequisites for the successful creation of both new relationships and improved relationships with existing energy trade partners.

I'd like to begin by taking a minute or two to survey the current and projected demand and supply picture for oil and natural gas in the Americas. I'll be using the Energy Information Administration's figures for actual consumption in 2001 and projected consumption in 2025.

The EIA projects a 50 percent increase in demand for oil in North America, and a 70 percent demand increase for natural gas over the next two decades. In Central and South America, oil demand is expected to grow by 66 percent, while natural gas demand will leap ahead by 231 percent.

Where will all the needed oil and natural gas come from?

Much of it will come from the Western Hemisphere itself, supplemented by imports from Asia, Africa, the Middle East, and Russia.

The Americas are blessed with 310 billion barrels of proved oil reserves, about 25 percent of the world's total proved reserves of 1.2 billion barrels. Our hemisphere also contains 525 trillion cubic feet of natural gas reserves, about 10 percent of the world's reserve total of 5,500 Tcf. Our Hemispheric reserves are significant but they will not be adequate for our needs.

And just as oil and gas resources are unevenly distributed around the world, they are unevenly distributed around the Hemisphere.

Canada, for example, contains nearly 60 percent of the entire hemisphere's oil reserves, and Central and South America's oil reserves are concentrated largely in Venezuela, followed by Brazil, Argentina and Ecuador.

Our Hemispheres' natural gas reserves are almost evenly split between North America on the one hand and Central and South America on the other. But more than half of Central and South America's gas reserves are located in Venezuela. Gas reserves are also concentrated in Argentina, Bolivia, and right here in Trinidad and Tobago.

The Hemisphere's – and the world's – energy picture can be summed up simply: Sufficient resources for everyone concentrated in geographic regions and countries, and growing demand — everywhere.

The answer to this natural imbalance is a tried and true one: mutually beneficial energy trade arrangements. Outside of Russia and a few nations in the Middle East, I cannot think of any nations that are energy self-sufficient. We all depend, and will come increasingly to depend, on trade to fulfill our energy requirements.

Let's look at a quick snapshot of where we are as energy traders in the Western Hemisphere today.

The United States has a long history of energy trade with partners in the Americas, as well in the Middle East, Africa and, recently, Russia. We rely on imports to supply approximately 11 million barrels of oil per day, 54 percent of our total consumption. Our long-time hemispheric oil trading partners — Canada, Venezuela, Mexico and Colombia — supply about five million barrels of our 11 million-barrel import total.

The nations of Central and South America have joined the United States as an overall oil-importing region, consuming 5.2 million barrels of oil per day while producing fewer than 4 million barrels per day.

North America has historically been self-sufficient in natural gas, with Canada supplying about 15 percent of U.S. natural gas needs in recent years, and the U.S. exporting about half-a-trillion cubic feet of natural gas to Mexico.

Natural gas markets are still in the early stages of development in many Central and South American countries, accounting for about 4 percent of world natural gas consumption in 2001. Reserves are large and production is sufficient to meet current demand. Only Trinidad and Tobago, the leading producer of liquefied natural gas in the Hemisphere, exports gas out of the region.

That's an accurate picture of our hemispheric oil and gas world today - but it will be inaccurate tomorrow. The situation is changing rapidly, and only a sophisticated energy trading system will allow us to keep up with it.

In the United States we project oil imports will grow to more than 20 million barrels per day in 2025, accounting for 70 percent of U.S. energy requirements. The United States is an immense market for oil exporting nations to aim for.

But we are by no means the only interesting oil market, not with oil demand in the nations of Central and South America projected to grow to 8.5 million barrels per day, and production forecast to increase to only 6.7 million barrels per day.

The need for improved or new trading relationships among hemispheric neighbors and other world oil producing nations is becoming an imperative.

To meet our oil supply needs, The United States is working hard to improve existing energy trade relationships and to forge lasting, mutually beneficial partnerships with new entrants to the world energy market here in the Hemisphere and around the world.

Meeting increased demand for oil in the Western Hemisphere is going to require more than trade agreements, however. We will need enormous capital investment in exploration and production, pipeline transportation and manufacturing. That means creating the conditions that attract investors, technology and expertise.

The same is true with respect to natural gas. A recent major study of U.S. natural gas needs to the year 2025 concluded that North American conventional natural gas reserves would be sufficient to meet only 75 percent of the U.S.'s growing gas demand. The balance will have to be made up with Arctic gas and, most important, imported LNG.

The United States imported 230 billion cubic feet of LNG in 2002, most of it from our long-time energy partner, Trinidad and Tobago, which supplied about one percent of our natural gas needs, and accounted for about 4 percent of world LNG trade.

LNG imports to the U.S. doubled last year and they are projected to grow rapidly for the next 20 years. LNG imports could reach 13 billion cubic feet per day — nearly 10 times today's rate — in the year 2025, and account for 15 percent of our total natural gas supply.

That should give you some sense of how important a large and efficient global LNG market is to us.

It is of equal importance to the nations of Central and South America, which are presented with an historic opportunity to participate in the creation of a new, global market in LNG.

As with oil, expanded overland gas trade will require enormous investments in infrastructure, from wellhead to burner tip. That will require the creation of an attractive investment climate.

The investment necessary for the vast expansion of the existing LNG market to global proportions with many new participants will be truly immense, and it's worth taking a minute to concentrate on the LNG phenomenon, what we believe will be the leading role played by the United States in creating a new global market, and what it could mean for our Hemisphere.

Thanks to the recent coming together of several favorable factors, LNG's time has come. Those factors are: rising natural gas prices, technology, safety and demand.

Historically low natural gas prices in the United States, combined with the relatively high cost of LNG, have kept LNG's share of our natural gas market quite low. But higher prices for natural gas seem set to become a permanent feature of the American energy landscape.

Rising prices, combined with technological advances that have lowered the cost of making and transporting LNG, have made LNG price competitive.

LNG operations have a long and excellent safety record. But as the recent LNG incident at an Algerian facility demonstrated, we can never take too many safety precautions when dealing with an energy source. LNG is safe, but we must make it even safer - and we must educate our citizens about LNG's safety, and the important economic benefit it delivers.

The Department of Energy stands ready to assist with this industry's collective safety effort by making our technical expertise available to interested industry and government participants.

The demand for natural gas is growing worldwide, and demand for LNG is growing with it. Twelve countries are active LNG exporters today, and another 10 have seen the wealth-creating potential of their natural gas reserves and lined up as entrants or potential entrants to the LNG market. Venezuela and Bolivia are among those potential entrants.

As the roster of exporting nations grows, so does the list of potential importers. Three more countries will shortly join the 12 current LNG importers, and another seven are actively planning to meet demand with LNG imports.

We see a real need for a network of LNG facilities and LNG trade relationships within the Hemisphere, as part of a larger web of global LNG trade relationships.

Participants must develop gas reserves and liquefaction facilities on the producer end. The LNG tanker fleet will have to be greatly expanded. And liquefaction facilities will have to be built, along with their connections to overland transmission infrastructure.

We estimate the capital requirements for a typical LNG development, from the producer's reserve source to the pipeline grid, to be $5 to $10 billion. To land 15 billion cubic feet of LNG at North American terminals every day in 2025, we must attract investment well in excess of $100 billion.

Fortunately, there is a great deal of investor interest in LNG. There are, for example, dozens of proposals out for the construction of LNG terminals in the United States, Mexico and Canada over the next several years. There are a number of proposed sites in Europe, as well. The Asian LNG market also continues to expand.

The good news is that there appears to be adequate capital available. But how and where it will be invested is uncertain.

Oil companies are exhibiting an incredible degree of fiscal discipline and becoming very sensitive to the impact of investments on their balance sheets. Critical to their making capital available for oil and natural gas enterprises in the Western Hemisphere will be an acceptable degree of risk, and the promise of a reasonable rate of return.

The key to the success of a growing hemispheric trade in oil, natural gas and LNG will be the creation of the conditions throughout the hemisphere that promote investor confidence.

It won't be easy but the nations of the Hemisphere really have no choice. Those nations:

• that are well governed and politically stable;
• that operate under the rule of law;
• that guarantee the sanctity of contracts;
• that offer regulatory certainty, and;
• that establish sound economic policies, fostering enterprise and entrepreneurship such as more open markets, sustainable budget policies, and strong support for development

will attract the necessary investment and unleash the enterprise and creativity of their citizens for lasting growth and prosperity.

Those nations that do not will be left behind. The choice is that stark and that unavoidable.

A discussion of trade also implies an integration of planning and coordination that should not be taken lightly. In recent years, discussions, information exchanges, and coordination in the North American market have accelerated. In an interdependent market it is impossible to plan effectively without coordination.

Your neighbor's demand growth, supply shifts and energy use impact your own. Droughts that impact hydro-generation can have significant implications.

The United States is eager to work with our hemispheric neighbors to promote the formation of hemispheric partnerships in an expanded energy trade network. We are continually working to initiate and improve energy cooperation and trade relationships bi-laterally and multilaterally through regional agreements such as the North American Energy Working Group and the energy component of the Summit of the Americas.

The importance of trade and the bonds of cooperation, understanding and friendship forged by the pursuit of shared interests cannot be overestimated. As President Bush said at the Summit of the Americas meeting last January in Mexico, "Over the long-term, trade is the most certain path to lasting prosperity."

Improved and expanded energy trade relations among the nations of our Hemisphere will underpin and fuel economic growth and development.

There is a great deal of hard work to be done, and an enormous reward to be shared. It is as simple, and as difficult, as that.