 Good afternoon, ladies and gentlemen Can I ask you to please take your seats? Well, thank you. Thank you all very much for coming out on on such a hot and humid day and want to Welcome everyone this afternoon to the presentation by the International Energy Agency of their medium term oil and gas markets review Those I haven't met I'm guy Caruso of the energy and national security program here and behalf of Frank Verastro the head of the program I want to welcome you all and thank you all for being here To hear from The IEA and it's you know some of its most Experienced Experts Today we're going to hear About the outlook for Oil and gas markets that go out goes out to 2015. This is an initiative that Was started in the IEA about five years ago and it fills that gap between the monthly oil market report which typically goes out 12 to 24 months and The long-term outlook which typically goes out about 20 years, so it it's it's an outlook that Looks at the both the oil and gas markets in one combined publication for the first time and it It is one of those that when you think about What are the things that can affect The medium term the investments that have been made both on the demand and supply side pretty much in in place So those decisions have been taking and taken as well as many of the policy issues So this focuses in on what does what do these investment decisions these policy decisions that are in place What impact will they have over the next three to five years, so? Clearly even even with that There are wild cards and the most obvious one is the oil spill and it's an impact on both oil and gas markets In this time frame, so we're lucky enough to Be able to hear from three of the IEA's leadership Today and it's starting with ambassador Richard Jones Dick as a senior Diplomat who left the Foreign Service to join the IEA about 18 months ago as the deputy executive director and Dick has had a Wealth of experience and including for ambassadorships and other senior positions and in Energy producing countries for the most part and the latest Ambassadorship before leaving the Foreign Service was in Israel extremely important Position, but he's also served in producing countries like Kazakhstan, Kuwait, Saudi Arabia, so it brings enormous knowledge of the region oil and gas producing region as well as an understanding of the politics and the and the international issues He'll be followed On the oil market Outlook by David Fife. David is the division head for oil Markets and industry in the IEA has been in that position for several years, but had had more than 20 years of experience analyzing oil markets in the IEA and for Consulting firms in the UK and David's Native country is Scotland. He'll be then followed by Ian Cronshaw Who is the head of the division that deals with natural gas and other? fuels such as the Nuclear and renewables as well as electricity market so Ian brings a More than 30 years of experience and many senior positions within the Australian government and ministries that have dealt with energy and so we're really very fortunate today to have three very knowledgeable and expert presenters and that we're going to try to leave a fair amount of time for Q&A because I know this is a very Experienced and knowledgeable audience want to hear from from you what what your Issues are what you'd like to hear from the IEA leadership. So without Any further ado, I want to ask Ambassador Jones to kick it off with with an overview and then Followed by David then Ian well, thank you very much guy for that Opening introduction, I don't think I appreciate all that high praise, but I'll take it anyway Anyway, good afternoon ladies and gentlemen First I want to thank you again guy and all your friends at see all our friends at CSIS for hosting today's launch of the medium-term oil and gas markets 2010 as Always the warm welcome and efficient organization afforded by CSIS has been outstanding The MTO GM as we call it is a brand new report as Guy mentioned combining our annual review of natural gas Market trends with the regular medium-term projections. We generate for the oil market These markets are different in many ways, but they're all there are also areas of Convergence and we are seeing increasing interaction between oil gas and power markets We therefore decided to present our medium-term analysis together and to allow our readers to draw their own conclusions The two lead authors Who have been introduced will shortly provide you with more details But first let me point out some of the key similarities and differences between the two markets Review some of the central findings from the publication First in terms of comparisons between the two fuels. We see many similarities upstream Multi-billion-dollar investments in both oil and gas frequently are made by the same countries companies and in many cases in the same reservoir Downstream the two fuels have in the past competed head-to-head in power and industrial markets These interactions continue today Even though the oil use has become much more concentrated in the transport and petrochemical sectors than before In terms of market structure and pricing oil is a genuinely global commodity while gas markets Although globalizing remain bound by some key regional constraints including difficulties in transportation and distribution Beyond this however the two markets face some similar challenges a Central similarity is uncertainty Uncertainties in the global economic environment Over the pace at which future supplies can be developed uncertainty surrounding the strategies for improving end-use efficiency and The perennial uncertainties surrounding market data for both markets Finally, we're also seeing a trend in which many international oil companies Confronting barriers to access for new oil reserves and amid economic and technological improvements in the ability to tap gas Are enriching their business portfolios by adding gas to oil We only need to consider the experience of 2008 2009 when US production rose by Combined 48 billion cubic meters largely from non-conventional sources to appreciate the game changing power That innovative technology combined with sustained investment has These are some of the reasons behind our decision to present the two market outlooks together this year We hope their combination into one document will be of use to all of you and other market watchers Turning now to the medium-term outlook both oil and gas are enjoying a degree of breathing space in 2010 from the rapid tightening in markets. We envisaged just one year ago the recession of 2008 2009 Curved economic activity and with a demand for both fuels Oil and gas markets are now starting to show signs of recovery But the impact of the recession differs across regions and the outlook remains very uncertain In both oil and gas we see notable differences between non OECD and OECD Markets with strong growth in China India and the Middle East Compared to weaker or flat demand elsewhere, especially in the fragile European economy Of course these contrasting trends make it harder to foresee market developments in the medium term with confidence Let me comment for a moment on investment our report calls for further sustained efforts in this regard and the call for more investments may seem at least a bit strange at a time of plentiful OPEC spare capacity and Reports of a gas glut thanks to ample LNG and non-conventional gas sources While the supply side outlook does look easier than it did a year ago project lead times remain stretched investment has Has to match not only increasing demand, but also production declines at mature fields. In fact the ratio is about three to one Of a decline versus new For oil such production declines may amount to more than three million barrels per day What's more geopolitical risks in the ever-present possibility of game-changing events such as the deep-water horizon disaster Are uncertainties that could transform the upstream outlook in relatively short order Thus our message on investment remains strong The world needs timely and adequate investment in spite of potentially easier markets short and medium term As the CEO of an oil major put it in a recent discussion that I witnessed the best time to invest is when the market is low Before I turn to the demand outlook, let me pause for a moment to comment on the deep-water horizon Disaster this is a catastrophe that well could have been avoided We appreciate that the US government is now exerting great efforts to mitigate the impact of the oil spill and That ahead of the results of its major inquiry into the incident deep-water activity has naturally been affected The disaster's short-term market impact has so far been minimal Producing fuels have not been affected, of course For the longer term much will depend on the precise cause identified and the measures implemented to prevent any repeat of this catastrophe as mentioned in our MG MT-YO GM report has an example We're drilling we're drilling delays of one or two years to result from the disaster the impact on new deep water projects Could curb 2015 US Gulf production by 100 to 300,000 barrels per day Although it's unlikely similar delays worldwide could ramp that number up to 800 to 900,000 barrels per day And here I should know that note that offshore production today Accounts for a third of global oil supply will be even more important for ensuring our longer-term supplies Half of new additions to supply Towards 2015 will be offshore Moreover a world oil demand is expected to continue to grow despite interjectic efforts to promote clean energy and energy Efficiency in several countries policy measures arising from this calamity therefore need to be balanced Accelerating the use of cleaner sources of energy and greater end-use efficiency While at the same time acknowledging the need to sustain investment in new sources of oil and gas Including those in deep water Now back to the publication Economic recovery should bring renewed growth in demand for oil and gas This demand will be concentrated in non OECD countries But of a course projections of demand are never 100% certain This publication Exams the impact of several different combinations of GDP growth and oil intensity thereby elucidating a variety of potential market outcomes For the longer term we clearly need to devote more attention to improved end-use efficiency and diversification of fuel supplies Including from zero carbon sources If we are to maintain more comfortable oil and gas markets This is why we are highlighting a third a scenario for the longer term in this report in which we show that Accelerated improvements in energy efficiency could enable strong economic growth without excessive tightening of the supply demand balance Such an approach could maintain spare capacity for oil at close to the current five to six million Barrel per day level while slowing the expected steady increase in demand for OPEC crude The potential benefits of keeping energy efficiency front and center in the policy framework are clear as President Obama reiterated recently we must move toward new towards new cleaner sources of energy and redouble our efforts on energy efficiency Finally, I'd like to mention the importance of improvements in both oil and gas market data This is vital if we are if we are to genuinely understand what the future may hold Oil data have continued to improve in terms of transparency global coverage and timeliness Nonetheless much remains to be done to improve their coverage of non OECD markets Gas data is unfortunately much weaker in almost all respects both in and outside the OECD But especially outside of the OECD as a partner organization in the joint oil data initiative or Jodi We fully support the the decisions to extend Jodi to gas market data We believe this will lead to better information on markets and more timely investment decisions It should also help to reduce episodes of excessive price of volatility or at least mitigate them So let me close by saying again That I hope you like this new joint publication as data improves for gas It is our hope to include more integrated modeling and analysis in future editions So I'm now pleased to ask David Fife editor of the oil section of the report and then Ian Cronshaw to take you through the main highlights of Medium-term oil and gas markets 2000. Thank you Thank You Ambassador Jones and thank you guy and a big big thank you to CSIS for Customary well organized well attended events. It's very pleasing to see Such a distinguished audience to discuss our our medium-term outlook for the market We've already heard about some of the rationale of pulling these two sets of projections together and we've already heard a little bit about Some of the sort of methodology or the approach that we take this is not an aspirational sort of policy document this attempts to be An analytical view of what is likely to occur in our view by 2015 Given the investments that are already taking place giving given the policies in terms of fuel efficiency In terms of price subsidies, etc. That are currently in place or can be envisaged Being implemented over the next three to five years So it's very much an attempt to see where we think it most likely In my case the oil sector will be by by 2015 When we look at the the exercise this year and the projections this year There's a certain sense of deja vu plus a change plus a la même chose there are some similarities with the projections that we generated a year ago, but some Important differences we fork focus of course as as usual on market fundamentals while at the same time acknowledging that Economic and or macroeconomic and financial factors have played a role and it ebb and flow role In terms of influencing markets over the past couple of years What about starting points? Well, we we have a an underlying Price deck that is rather higher than it was 12 months ago when we did the 2009 set of projections We'll talk about that a little bit more in in a moment We do at least have The beginnings of economic recovery underway, which is not really something that 12 18 months ago We could have been particularly certain about and although there is some Continuing doubt about the sustainability and the pace of that economic recovery Nonetheless, it is a slightly more optimistic view than we confronted in spring 2009 that said there's still a sufficient number of Uncertainties on the macroeconomic side that encourage us to retain a sort of demand-side scenario approach And we'll talk about that a little bit more in a moment As we've already heard the non OECD really is the driver on the demand side We think basically that OECD oil demand Has peaked and he's unlikely to rise again Over this outlook period so all of the action is really happening in markets a where visibility Fundamentals is more patchy than it is for the OECD And but be also importantly where there are some market distortions including things like price subsidies Which helps sustain The level of demand growth over this outlook period and we'll talk a bit more about that In general terms, we're a little bit more optimistic this year on the supply side than we were 12 months ago. We're not complacent about supply. We still think global oil supply Or the ability of the industry to expand supply is constrained and Will remain so but nonetheless the baseline has shifted rather higher as prices have proved to be rather stronger And spending levels have been more robust than we envisaged even 12 to 15 months ago We've seen an impact in higher spending both in terms of mature field decline and also new project delivery Which has come in rather ahead of our expectations From 2009 as I say partly because of higher spend and some progress in bringing down costs from the sort of 2007-2008 peaks That we saw a couple of years ago. The big question is how sustainable is that easing on the supply side? There are several things going on not least On the Gulf Coast which could indeed Lead to stretching project lead times and higher project costs in the months and years ahead Which is obviously something we need to to take account of When we look downstream, we are still very very pessimistic about the prospects for the OECD refining sector We think there's quite a lot of rationalization still to come In that in that segment of the industry Under pressure from some of the demand growth areas where capacity is being expanded Overall the pictures of market balances that are a little bit more comfortable than we were envisaging 12 months ago And even six months ago when we did our our interim update of these projections But really sustaining that slightly more comfortable position For the market beyond 2015 is going to depend as we've already heard on the pace at which investment can be Funneled into the industry and also the extent to which the impetus which has been given to efficiency gains by high prices Continues over the medium and longer term Some starting points for our projections We deploy basically the future strip as our pricing assumption For our for our projections looking forward and it's interesting to note that compared to a year ago prices are between 50 And $20 higher through that five-year future strip than they were Last year so that clearly is something that has quite an impact Certainly on the supply side and to some extent on the on the demand side as I said We continue to run with a couple of scenarios for the macroeconomy We take our cue from the sort of consensus view Amongst some of the major financial institutions including the IMF So our base case is is pegged on a level of growth of around about four and a half percent on a trend basis Going forward, but we recognize the degree of macroeconomic uncertainty that is out there by Deploying a lower GDP case of around 3% per annum on an underlying basis Looking forward. We're not specifically factoring in your zone crisis or Double-dip or whatever. We're just simply trying to acknowledge that Economic recovery may be retarded by some of the imbalances that exist In in national budgets and in international capital flows We're tying that in this year. However with a degree of sensitivity on the pace of Efficiency gains going forward The higher GDP case We're deploying efficiency gains of about 3% per annum in oil use intensity And that is basically what we've seen over the past five or six years Intrinsically under a rather lower GDP case and implicitly slightly lower levels of prices you would expect Gains in end user efficiency to be slightly lower and all we're plugging in there is the sort of 15-year average of around about 2% annual gains In end use efficiency. So those are some of the starting points for the projections and when we when we look at it on the demand side Here are some of the results and really the the difference just to put it very very quickly By 2015 the difference between those two cases is around 2.1 million barrels per day. We're looking at a world of Either 92 million barrels per day of 2015 demand or something closer to 90 million barrels per day And it's the difference between growth of 1.1 1.2 million barrels per day every year And under the base or higher GDP case and a world of seven to eight hundred thousand barrels per day of annual growth going forward and really that may not seem all that much of a difference, but you know in a An oil market that works at the margin. That's actually quite an important difference Going forward, but you can see some of the different sort of combinations of GDP growth and potential efficiency gains and how those shift 2015 demand going forward on the right-hand side. So clearly there's a very high degree of sensitivity In any sort of forecasting exercise of this this type and and we believe in just setting out some of the ranges of oil demand That we could expect under these different combinations going forward, but you know our bottom line is Demand growth of something around a million barrels per day on an annual annualized basis going forward I'm not going to dwell on this too much because this is really sort of obvious But the bulk of that demand growth is coming from outside the OECD We think OECD oil demand has has has peaked Has leveled off. We think there are structural changes that continue to take place in the OECD They're happening in the power generation And the industrial sector with oil being backed out by gas and other fuels And we're seeing or we certainly have seen over the past two to three years I think a sea change in attitudes on this side of the Atlantic in terms of Vehicle fuel efficiency and so on that we think will probably remain embedded Over this outlook period and particularly with the sort of price Assumptions that we are deploying of sort of seventy five eighty five dollars per barrel Going forward based on the future strip So all of the action in terms of demand growth is coming out of Asia the Middle East to some extent Latin America all Not coincidentally markets where the end-use price of energy is very highly subsidized and therefore the income effect and The depressant effect on prices in terms of domestic what people pay domestically for fuel Gives us fairly strong levels of growth In these markets going forward and transport and petrochemicals for us remain the key sectors as oil use becomes increasingly concentrated in premium end-use sectors Can't talk about oil but demand without referring to the puzzle that is China and of course data issues here become Fairly important because everyone trying to monitor oil demand developments in China is is working with a very incomplete set of cards We have very poor visibility on actual demand within the Chinese market There are some question marks even about Economic data coming out of China and of course it makes forecasting very very difficult, but nonetheless we still see this economy Generating around half of expected global demand growth going forward Which is obviously very very significant and this is pinned on an assumption of something like 9 to 10 percent annual annual GDP GDP growth going forward Generating about half a million barrels per day each year of incremental oil demand, which is obviously very very important looking forward a Quick word on on oil on price subsidies and it's something that the IA has been mandated by The G20 to look into along with some partner organizations going forward And it's it's a piece of work which fatty beryl's team that works on the world energy outlook will be reporting upon in in November Estimates of around $550 billion spent on energy subsidies In 2008 albeit that's probably a high point in terms of of energy prices But obviously introduces a number of distortions into the market And it's worth pointing out that for example in the Middle East In in our outlook period through 2015 probably around 70 percent of what OPEC Middle Eastern member countries are doing in terms of expanding crude capacity is going to be gobbled up by local demand growth in large part because of the presence not not only of rapidly growing economies, but the The existence of high levels of end-user price subsidy And it's obviously something that is a huge financial burden on some of these economies now Places like India are beginning to grapple with this sort of issue, but when we make these projections. We're not Forecasting that all of these subsidies are going to be taken away overnight We have done some work in the broader IA which suggests that 2020 oil demand were subsidies to be phased out over the next 10 years 2020 oil demand could be as much as five or six million barrels per day lower Than in a case where they were kept in place now by 2015. What could the impact be? It's difficult to say we haven't really done that that exercise It makes a little bit less sense for the shorter term But clearly one to two million barrels per day off 2015 oil demand in the event of lower price subsidies would have ever a fairly large impact on the market Turning to the supply side as I said, we're a little bit more optimistic than we were a year ago We see growth of about five point five million barrels per day in total global supply capacity Going forward the baseline is is looking rather higher Non-opec surprised on the upside in 2009 Russia, Colombia, the North Sea and Mexico Some of those producers facing inexorable decline in production, but higher levels of spending and higher prices meant that decline was slightly less steep than we and some others were expecting as I say it's it's it's It's no reason for complacency and as Ambassador Jones mentioned We still lose something between three and three and a half million barrels per day of Global capacity each year because of decline. So it's a huge number. It's just it's not Some of the increased spending and higher levels of prices has helped offset some of that decline going forward We think probably the supply side can manage about a million barrels per day net averaged over five years Going forward So clearly you can see the sort of tipping point in our global balances If demand growth is more than a million barrels per day or if it's less than a million barrels per day Sources of growth are quite important It's important to point out that crude oil is not the key source of growth or conventional crude is not the key source of growth Going forward actually gas liquids generate about 55% of the expected growth in global oil supply through 2015 much of that derived from some of the LNG projects that are being developed in the Middle Eastern Gulf Also as gas producers tap deeper wetter formations and curb flaring So NGLs have a huge impact on the supply balance going forward We've also got things like biofuels and non-conventional oil from places such as Canada Going forward. So it's not really a story about conventional crude oil, which looks rather more static in overall terms It's much more about the other liquids and becoming increasingly so In this forecast non-opaque as I said looking rather stronger than we expected Last time around I've mentioned the key sources Canadian oil sands Brazil deep water pre-salt biofuels making an important contribution Columbia heavy oil from Columbia and the Caspian are key sources of supply growth there and some of the the usual suspects on the right-hand side of the graph in terms of maturing production in OECD producing areas of course Any forecast is merely that it's a forecast and it can be thrown off course by any One of a number of key elements. We've already talked about Deepwater horizon and the Mocondo well We don't factor a sharp slowdown in deep water production into our our projections But we acknowledge that something between 300 and 900 Kbd of impact by 2015 is possible as Ambassador Jones already mentioned I think it's just worth noting that the the transferability of what happens in terms of new Regulatory regime and new operating practices in the US Gulf it may not automatically transfer to other Administrations because a lot of changes were made in terms of deep water operating regimes in Europe and elsewhere after the Piper-Alpha disaster in 1988 But we're going to be watching that and and factoring in some allowance for delays in deep water as as some of the remedies suggested after Mocondo become clearer and also clearly Doubts about decline rates can spending be sustained at mature assets That's a slow decline at older depleted fields. That's a big question And clearly on the right-hand side you of that graph You can see how important that is a 1% swing In assumed decline rates going forward can shift the supply side by anything up to 2 million barrels per day So we're not complacent about our own forecasting model And we we try and track field-by-field decline as we can on a monthly basis in our oil market report Looking to OPEC very quickly I mean we've got about 2 million barrels per day of crude capacity growth out of OPEC half of that is coming from Iraq So our bottom line assumption is that Iraq can probably manage about three and a half million barrels per day by 2015 Compared to about two and a half million barrels per day today There's a lot of uncertainties surrounding that Outlook, but it's a little more optimistic than last year purely on the progress that has been made in the joint venture Projects there. We don't think six million is doable in that sort of time horizon But we do think there is some upside Compared to existing capacity levels in Iraq, but the challenges are huge in terms of investment in terms of a Political structure being in place that would allow that expansion to take place and in terms of midstream and downstream Capacity to get the oil to market whether that's in terms of domestic refining in Iraq or whether it's Getting it out to export To markets to growth markets going going forward Saudi Arabia we keep a fairly flat profile of just below 12 million barrels per day We think Saudi Arabia or we assume Saudi Arabia will continue to play this up swing Supplier role going forward and then we think they're going to do a bit of work on some of their mature fields Over the outlook period which will put a sort of cap on operational capacity levels going forward Nigeria to us looks a little bit less optimistic than it did a year ago because of geopolitical developments there and also The threat of the petroleum industry bill which is hanging over a number of investments and which we basically think will slow investment Offshore Nigeria. We've actually got a little bit of growth coming from Venezuela It's fairly marginal in overall terms But we do think some of the progress on joint venture projects in the Orinoco does hold some prospect for expansion Overall for Venezuela, but really it's largely offsetting decline elsewhere within that country going forward couple of words on biofuels, which is obviously an important part of growth about 800,000 barrels per day of the growth we expect between now and 2015 in terms of supply Most of that's coming out of the US and Brazil as we look forward. We're not simply taking Demand side targets for biofuels in our supply Equation we're trying to look at what is actually being built today and what we think can be brought to fruition by 2015 going forward. It's an industry that has relatively short lead times and there can therefore can adapt to changing economics fairly rapidly But there's around about 13% of incremental Gasoline and gas oil demand that could be met From biofuels going forward over this time horizon But there's a big question about sustainability Lots of targets in place But a lot of those targets in order to be met will probably require second generation biofuels And quite frankly at prices below a hundred dollars per barrel on a sustainable basis a lot of the second generation Biofuels technology simply don't work. So we think second generation biofuels is probably more a 2020 issue rather than a 2015 issue in anything other than fairly marginal volumes looking ahead We also take a look obviously at the downstream and the sort of crude feedstock slate that the global refining industry is going to be Confronting over coming years and you can see we expect an Initial and an initial lighter sweeter barrel partly because of some of those NGLs and condensates and lighter crude supplies They're coming to the market and then we see a sort of turning point around 2012 when global feedstock supplies become heavier And sour again over the outlook period and particularly Latin America Canadian oil sands Declining light sweet, North Sea production play into that deterioration and quality going forward I Have to I'm gonna skip for the sake of time quite quickly over the refining sector But basically despite weak margins We see about nine million barrels per day of new primary Refining capacity being built over the outlook period the bulk of that is occurring in those growth markets in China Asia the Middle East And you can see it's running well ahead of expected growth in oil demand even under our more optimistic oil demand scenario Looking forward and the bottom line is that means that OECD utilization rates Are gonna fall or continue to fall over the outlook period in the absence of further industry rationalization And we actually think That to get global refinery utilization back to around eighty five percent which may be a proxy for reasonable levels of profitability Something like seven million barrels per day of capacity overhang has to be addressed now Of course the problem with the refining industry is it frequently grapples with boom and busts and over capacity and it never actually ends up closing all of that capacity because of the difficulties and the costs Inherent in trying to shut capacity going forward another key conclusion from our study is that the global refining industry remains Suboptimally configured to generate the growth in middle distillate demands diesel and jet fuel That we think are gonna drive oil demand growth going forward. So summing up Economic uncertainty on the demand side on the supply side a slightly more optimistic position Overall, although a lot of that growth is coming from Other oil supplies rather than conventional crude oil We see a refining sector that he's prone to boom and bust as has always been the case And we generate to pull it all together a couple of global oil supply balances The higher GDP higher oil demand growth case has the market tightening again from around 2012 onwards That would tend to be associated with more jittery nervous markets Looking forward the very fact of that tightening in the spare capacity cushion is likely to be a destabilizing Influence overall in the market rather more comfortable levels of spare capacity persisting through mid-decade in the lower GDP case or If we saw continued impetus for improved efficiency gains Although obviously achieving that in the three to five year time horizon Accelerating investment in efficiency is rather more difficult and that may rather be something For the medium and longer term Overall, we think one million barrels per day is the sort of key tipping point for the market And I leave those two scenarios with you Thank you for your attention. I'm sorry to Ian for overrunning and eating into his time. Thank you Lisa's fixing that let me just add my my thanks to the guy in the team for organizing a brilliant event here again and Particularly for organizing the warm weather just to make an Australian feel a bit homesick Although the humidity is not all that Australian I guess you also discovered after David's dulcet Scottish tones you've got stuck with an Australian accent, which Might not be the hardest English language to an English dialect to understand but comes pretty close to it It gets worse because we when I speak gas Of course the gas world doesn't have a united set of language Set of units, so I'm going to speak a sort of Esperanto of gas, which means nobody will understand me at all We use BCM for volumes and dollars per million BTU for for prices, so hopefully you'll be at least be able to understand the prices Just the quick fundamentals of what we try to describe 2010 2009-10 fundamentals a really dramatic fall in demand particularly in OECD countries non OECD as David said a different story But coupled with that a double supply shock in a positive sense unconventional gas particularly in the United States a Truly astonishing story plus the the great surgeon LNG supplies Still mostly to come I might add still mostly to come and in this is amazing Delinkaging between spot prices and and the oil index prices which have dominated at least the European sector of the industry And this has got some short-term consequences Not the least being a lot of utilities have found themselves particularly in Europe stuck with these large-scale Take or pay obligations, which have really come unstuck in a pretty interesting way Everybody asked the question how much can these oil-based prices last in this environment and of course from a longer term Perspective when do people start to invest again? Especially if you gas prom just to pick one company when and where And how long would this gas supply glut last because it is a gas supply glut by any one standards How and how will it unwind in a geographical and market sense? Firstly to our OECD gas data and of course the caveat about data replies And non OECD data is poor can talk a bit more about that even our OECD data could certainly be improved We've been working on this for five years or so with their members Finally got it to the point where I'm comfortable putting up a monthly graph like this showing obviously in 2008 Early part of 2008 strong demand for gas for the OECD gas was very competitively priced was available everywhere And of course come come the autumn of 2008 all came to a shuttering quick halt and these sharp falls culminating I guess in the spring of last year and then a slow recovery and what looks like at the end of that graph Something a bit more interesting, but of course we had a very cold winter I don't think I need to tell people in DC that the last winter was cold But certainly everywhere in Europe. It was cold as well We had heating degree days of more than 20% above average in Germany France and the United Kingdom That means you have to go back to 1987 to have a cold winter like this So unfortunately when you adjust some of those numbers what you end up with something like for OECD We were down 3.3 percent But the United States was only down 1.7 which tells you the rest of OECD countries were much more heavily affected UK minus 8 Spain minus 11 even Germany minus five and a half So this is a pretty sad story and a recovery just in a very early nascent stage This is a complicated slide But let me just focus on that a little bit right up the end here and it may not look like much But when you you take it back When we did first did these calculations that look like Europe was going to go back to somewhere like 2001 gas demand as the year panned out it looks more like 2002 or 3 but that is a long way back from a mature market. That's only growing about 1% per annum It's it's a market that's going to take a long time to come back Even on some very optimistic forecasts Just sort of focusing in again on this trend data and again You can see they're the worst of the recession was was late I guess 2008 into into the spring of 2009 when we did our we have forecast last year We did them right down the bottom there of those jagged lines and there was some you know People were making some pretty dire predictions. It does look to have come back a bit, but still Still you wouldn't be you wouldn't be batting the shirt. You wouldn't be batting the the farm on that one For the first time this year We actually made a rather bold attempt to to duplicate David's effort in terms of a medium-term forecast Only OECD and only out to 2013 But again, this is a fairly sad story when you when you look at it Obviously 2009 a big big fall 50 BCM more than the gaseous of France just to just to pick a country a bit of a recovery in 2010 but again cold weather when you factor in normal weather We actually see gas demand flat next year and then slowly recovering and in Europe You don't get back to 2007 eight levels till after that forecast period 2014 2015. Now obviously that's that's pretty controversial A lot of a lot of companies in the European theater. Don't don't believe that it will be that pessimistic Already had some pretty pretty robust feedback on that graph Not the least being from our Russian colleagues. I was in Moscow last week where it's just just as hot They turn on the hot weather as well Of course one thing you have to remember when we talk about Europe is that this is demand European production is also falling Falling sharply, you know the kingdom last year down 15% 15 I kid you not okay prices were low, but that was a very big fall and of course that means in terms of imports You have to look at that picture as well Just to reinforce this point. It's not a global market There's sort of fairly obviously, but it is globalizing and it's acting interacting all kinds of interesting ways Through that little icon of the LNG market. I'll come to that in a minute The way LNG is particularly operating across the Atlantic very interesting We'll say have this collection of countries over here on the right Which in fact as a group make up more than half of global gas markets that happened back in 2007 and of course they're the countries that are growing rapidly I'll get to the end of the presentation and talk a little bit more about those but certainly the way this market works is It continues to be a humbling experience for the forecaster. I think it's probably the politest way to say US a really astonishing story I mean I look back at our we have forecasted in 2005 when I joined the IA and we were forecasting At that point we're looking at 2004 data Which was I think a little over 500 and we were forecasting a nice gen till decline over five or 60 years down to about 450 BCM or thereabouts and I don't think that was a particularly off-the-scale forecast pretty much a consensus forecast and indeed a lot of people bet real money in terms of meeting That falling output because of course demand was going to grow Some people bet real money in places like Qatar and elsewhere on filling that demand, but of course as you know 2009 the actual 600 BCM 150 BCM out in a 60 period now That's forecasting era writ large. I think but let's be honest That is a fantastic performance even as prices will continue to fall. We've seen rises there 2009 continued growth of three and a half percent even into the first quarter 2010 continued growth I mean at some point that growth will have to stop because Demanders are occurring that quickly the story just can't can't cope But it is still an astonishing story and I mean even as even as a year ago people still saying well You know some of these guys have got to stop producing at six or five or four and the answer seems to be more like three So this is this is it does have global consequences because Because of the next slide which is which is LNG now This is an industry that took best part of 40 years to get to the 240 BCM of output that we saw in 2008 as you can see here in the next three to four years. We anticipate up a 50% increase 120 BCM Non-trivial a lot of this output. I mean the capacity has formally ended service But we've got a whole collection of mainly technical issues Certainly for some of the mega trains This is still to come on the markets later later this year next year a lot more to come There's also some feed gashes at feed gas issues. I might add places like Oman and Egypt and Algeria which I can come to The good news is after a bit of a drought the last five years. We have seen some new investments Come on last year. We saw both Gorgon and the Papua New Guinea LNG project get the go-ahead both big Expensive projects and we may well over the course of this year see a Colbert methane project go-ahead Which would be very interesting project indeed So the people who are underwriting those projects certainly believed that the gas industry has a future post 2015 and of course those projects are going here with with China as the foundation customer Gorgon Interesting thing about Gorgon is it is the first project that has gone ahead with China as the foundation customer My Japanese colleagues always always get a bit Irritated when I say that because they're very quick to point out that Japanese interests have signed up for Gorgon as well But I think it's fair to say that China was the key factor in accelerating what's been a difficult project to bring to FID another important point here is of course a lot of a lot of company interests behind this the This LNG is much more flexible in its marketing the old the old model of say with Japan We have North Northwest shelf of Australia have the tank is going seven days there seven days back very fixed model a lot more This is a lot more liquid and it will move around and it does move around which is both good economic news It's also good security news when you have a problem Like we had in 2000 on with Ukraine some of that spot LNG from Oman for example found its way to Turkey Which was which was pretty handy and also to Greece And as David noted, of course, this has had very important repercussions in the liquids markets as well Okay, I'm turning to prices and if you needed any convincing that this isn't quite a globalized market this chart certainly provides it because apart from being information rich and confusing Extremely confusing actually I used to have the oil price in there just to add complete confusion to it all But let's just start with the lines one by one If you look at these I guess it's a reddish line on top. That's the the Japanese LNG price And that follows oil pretty closely with about a three month lag So, you know, you don't get rich planting on Japanese LNG price. That's pretty pretty straightforward The blue line below it is the German border price Now this is a market that lacks transparency sadly, so we have to kind of work out the The the oil index price in Europe and we get to we do that by looking at the German numbers But every now and again a few interesting things happen and you can see there It didn't follow the Japanese price back in 2008 and at the moment when it ought to be going up It isn't it's staying flat So this the good news here is that we are starting to see some spot gas entering that German market and backing out expensive oil gas or oil indexed gas Bottom two lines a bit more familiar Henry hub the the cheapest and it looks as though Henry hub is going to become the floor for certainly for OECD international OECD prices and Interesting enough the line above it the MVP the British price the last 12 months seen a very close correlation Essentially on the back of a virtual LNG trade not much physical trade But certainly the arbitrage opportunities exist Of course until we get to until we get to the last three or four months and suddenly the MVP's taking an uptick And the reason there is we are seeing More spot trade in the continental market, which of course will bring the British and the continental markets closer together British Still struggling to come to grips with how it's going to work The way it's working is is this mechanism says very important consequences certainly for OECD We are seeing spot trading grow and grow quickly. This is actually the transactions They're underlying volumes obviously smaller than this, but still very important driven driven by two things obviously the wide disparity between contract prices, which have been eight to ten dollars spot prices more like four or five Anyone who can wants to get their hands on cheap gas and you know, sorry about the long-term contract But my business is going broke more or less So what that means is and we believe that underlying volumes in 2009 or somewhere between 80 and 100 BCM Approaching a quarter of European prior to European volumes That's a very interesting development with a very important security and and market implications as well and some benefits as well Needless to say our colleagues in Moscow again, don't quite believe this or at least they refuse to believe it It's another story power markets interesting story We spent a lot of time in the current review talking about electricity markets and the reasons for that hopefully reasonably clear Gas is a very important new market a new was found a new market in the power sector and Conversely gas is making a very important contribution everywhere in OECD countries Last decade about 80% of new incremental electricity demand has been met by gas Very astonishing convergence lots of good reasons for that very strong business case low capital cost Low greenhouse footprint all of those things are very accurate very relevant and the recession has made them even more relevant We're seeing very small scale expansions of new nuclear new coal In fact only only really significant new coal building in two OECD countries in the United States and Germany So gas is still going to be there The interesting thing how but how to gas and coal play out Certainly in the recession in the next decade The interesting thing is that the interface between gas and coal is going to become the most interesting part of the power sector In the next in the next decade that much is clear And it's going to be much more interesting than we thought maybe a year ago The US is the best example of that power demand down 4% last year Still struggling to get back certainly in the industrial sector although I suspect the residential sector or commercial might be pretty good today As you can see they're a nice little peak and that's gas-fired power So gas-fired power actually grew last year in the United States and that's I guess that's a reflection of the ferocious competitiveness of the gas supplies But also the fact that coal in a number of regions rose last year Coal prices have risen quite sharply over the last 12 months driven by China So suddenly what happens in OECD power markets the balance between gas and coal is affected by Chinese coal imports It gets complicated So that's the story for the US, a completely different story in Spain where we have very large concentrations of new renewable power Spain about a 45 gigawatt peak demand economy At least before the recession more like 40 these days Got about 20 gigawatts of wind So when the wind blows you don't need to burn anything else and in fact you get zero price events Which is interesting if you're a utility In Germany we actually see negative price events What that means is of course gas as certainly oil price gas The most expensive source gets backed out of the mix And we can see something like 20% decline in gas-fired power in Spain So if you're a Spanish utility and you're trying to manage gas shipments and take or pay contracts This is a real problem I'm just going to talk a little bit about non-OECD demand because it is quite important and is in common with oil This is a very big growth sector People said, well China is a coal-based economy Absolutely correct, a very big coal-based economy This year we're looking at 4,000 terawatt hours of power in China Which will make it the world's biggest power producer If it certainly doesn't happen this year it will happen next year Gas very much a niche fuel But a niche in China is a very big niche This was a 70 BCM economy when we did the forecasts last year for WIO And we had it going to 140 And we had a pretty vigorous internal discussion about 140 As people said, doubling, gee that's pretty aggressive 140 is looking very conservative now Already last year through the recession We believe China is a 90 BCM economy this year We'll definitely do more than 100 Building and building and building Turkmenistan China pipeline opened just before Christmas It's taken three years to build Roughly the same size as the Rockers Express pipeline If you're familiar with that in the US Same length, roughly the same size But they built a completely green fields environment Out in Turkmenistan, 30 BCM First 10 or so BCM flowing as we speak It'll be 20, it'll be 30 by 2012 Or thereabouts Myanmar pipeline also under construction And Chinese companies, as I said before Signing up LNG contracts like there's no tomorrow This is a country that only started importing LNG in 2006 Very small scale from Australia They're doing an extremely good deal Which I prefer not to rake over $3 a million BTs seem like a good idea at the time But that's another story China National Petroleum Corporation by 2015 Easily importing 80 BCM 80 Which will make it the biggest gas importing company I think in the world From practically nothing a few years ago We used to say that China was a policy constrained environment That is to say price controls Internal governance procedures were constraining It's use of gas and that's absolutely correct But it is very clear that over time That will change Major policy decision to raise the wholesale price of gas By 25% Starts to look a little bit like Henry Hub now Starts to become quite attractive We easily anticipate by 2015 There'll be 150, 160, 170 BCM of gas in that market Which would make it bigger But it's already bigger than any IEA gas user except United States And it'll make it one of the biggest in the world Talk about Don't forget India India grew 23% last year Again, a country that was policy constrained And of course policy constraints meant supply constraints But you start to get rid of those We had a very big fine Krishna Gauravari has come online now That's led to a big increase And of course it's also put pressure on these Internal pricing mechanism to reform them And we are seeing some change It won't happen overnight I said changing fast That's perhaps a bit of an exaggeration But it is clear that India in particular Will produce more gas And will import more gas China and India between them We anticipate 65 BCM of imports by 2012 Which is only the year after next That will be more than Europe imports by LNG As we speak So these are very important emerging markets A very important sign of growth policy Making a big difference to them I might add of course they will still remain Coal based economies These are only niches But pretty significant niches So just to sum up Uncertain in gas demand Obviously the economic recovery Europe in particular looking very slow Compared to North America and the Pacific Pricing systems all over the place Very showing strong divergences And that looks to continue Particularly the oil index pricing system Under very significant pressure Unconventional gas is changing The global gas game Not just from North America But also potentially in China As I said if we get a coal bed Methane project up in Australia And it's more likely to be one, two Or even three projects Then inevitably that will have a big difference LNG still to hit markets Next year and the year after Even more pressure on those oil index prices China in the Middle East Major growth markets Haven't even talked about the Middle East Again some policy issues there Low prices mean over consumption And under production We saw for example Q8 Actually importing LNG from of all places Suck all in When you see something like that happening You know markets probably aren't working Exactly the way they ought to be We can talk about that a bit more So with those I'm happy to take questions from there on Thank you Dick, David and Ian For a very clear exposition Of the medium term outlook I won't take any time Other than to just follow up on one point Dick made a plea To improve data And I think Obviously very close to My background And the IEA is clearly In the lead And best practices In collecting the energy data I know the IEF ministers Agreed in April of this year to Include natural gas In their data collection Dick, you see that Actually having some real teeth Going forward Have you or has the IEA been asked Already to Participate in them Either you or Ian maybe Talk to that point Are we going to see kind of a Jody for natural gas Any time soon Well that's a very good question Guy, I think that Ian can correct me If he has better information But I mean We can only produce data For Jody if we receive the data And we still have gaps In data from our own countries And I think it's a safe bet That if our own countries are having The data That non-OECD countries Will be even less So I don't think that we're going to Have this data immediately But we are certainly Working as best we can With the resources we have To do it But Ian you might have some more Comments on how the data is Improved of late When we started this effort Five years ago to produce this To be blunt, pretty disappointing From our own member countries Let alone non-members So we had to work around it And we spent the last five years Gradually working with our member Countries to overcome All kinds of boring statistical issues Is it that to say boring That the bread and butter Of statisticians to get Comparable calorific values To measure these things in comparable Ways To make this move to work more Closely with the IEF And other international Organisations to try and do the same For places like the Middle East For China, for India, we've certainly Been working with a lot of non-member Countries to improve their data quality In oil and gas and coal and electricity So there's plenty work to do It will take time, there's no doubt About it, it won't happen overnight But certainly we're willing And the IEF's willing To make these decisions And please let us know your name And affiliation, I think you were The first, sorry There'll be a microphone coming Are we talking about just Countries in the Middle East Or the type of Benefits that all companies Even in this country Particularly like in the deep water Get with free royalty Or some other benefits that they get Would that be considered subsidy Since prices, as you mentioned Are going to go up How realistic is the expectation To For, you know, different Countries to actually move away With subsidies? The second question is On, you correctly Pointed out that We're getting more liquids From gas And, but On the slide that you showed You actually just Looked at the crude And That was kind of interesting Because What they are Constraint with Is the total liquid production Including the condensate Was this just a An honest mistake Or there was Some attempt To show certain countries The inability to Match others I'm talking specifically Of Iran that you showed The reality is that last year Saudi Arabia's Decline in production was Like three times More than that of Iran And since Iran's focus Recently has been On the natural gas And there's been considerable amount of Condensate production On the slide I really didn't see any Relevancy of that Just Looking at the crude Not the total production Thank you Taking your second Point first, actually You should all Receive a slide pack On I think the CIS It'll be on the website tomorrow And it's actually a much more More complex than I ran through today And there are slides in there That focus on Liquid growth as well as crude growth Coming out of OPEC And you're absolutely right One of the four key Incremental sources of NGLs is Iran The others are Qatar And Saudi Arabia and I think the Emirates So the key sources of liquid growth Coming out of OPEC I missed that slide out because of time I ran over time ridiculously But it's a fair point I think Iran however Does face issues in terms Of developing gas Quickly enough with the current Investment regime that is in place Let alone the difficulties That the country faces Attracting investment for other reasons In terms of the upstream Overall and they also have Issues about the domestic Use of gas and the requirement Of extra gas Which ultimately is not going to be Earning the country revenues but they Need to use for reinjection In mature oil fields So we're not trying to ignore An important source of liquid Growth in Iran You'll see it in your slide pack It was left out for the sake Of brevity in this Snapshot picture The number I quoted In terms of subsidies If I'm correct I think is end user Price subsidies It's a global number But it's related to end user Price subsidies so it wouldn't Be including Volumes of oil Because of tax breaks Or whatever Yes I was In the middle there yes sir Mike is coming What's your name and Michael Wyman from EDF I wanted to See if you had a I don't know if you track This but if you had a General range for marginal Cost of production For crude oil Worldwide And if you could just give Some kind of range That would be helpful I mean it's A moving target I think Is part of the answer We've seen that costs To some extent have come down Since their highs Of 2007 Early 2008 We've done Some work in terms of Our energy Technology policy group Looking at production costs And resource size With and without Carbon capture and storage And so on There's obviously a spectrum there We are generally speaking Moving towards higher Cost sources of oil We've heard a lot About the costs for Oil sands development Lying somewhere within a sort of 60 to 80 dollar per barrel range Ultra deep water Arctic supplies Probably not Far out of that range either So we've done Quite a bit of work Not so much for The short and medium term forecasting exercise But it's obviously something that Our energy technology policy People are looking at And quite a lot of Quite a lot of detail Obviously talking about Non-conventional supplies We alluded to the biofuels Part of the equation And as I mentioned we don't see Second generation biofuels Something that could Allow those fuels one way or the other To generate more In terms of incremental supply We don't see those being Particularly economic At prices below about 110 or 120 dollars per barrel But clearly there's a Spectrum out there There's an awful lot of cheap oil out there Let's not forget that can be produced By some of the key resource holders Which certainly doesn't cost 80 dollars per barrel To bring to market So that's something we need to remember There is another marginal barrel of supply That is in a sense constrained From reaching the market For reasons other than pure Economics Thank you and it's another example Of a lack of data That the question you ask We really don't have Very good cost data And a lot of as David pointed out Al Heggberg As usual Al's asked a very Interesting and complicated question I mean from a straight Policy viewpoint what needs to be Done is already happening For example in Europe where Governments are working very actively To break down the barriers To transactions that exist In a case like just to pick Germany For example there's only a few years To go that Germany had 17 balancing zones In one country And I think anyone who's been Involved in the gas industry Or know that in that circumstance It's very hard to crack into that market In any significant way That's been reduced now to three And within a few years we'll be down to Effectively down to one We've seen the cost of Balancing different calorific content In Europe there's a high gas And a low gas That's been minimised by the system operator So breaking those transaction costs Down has certainly been A very major part of producing The increased gas on gas competition That we've seen in Europe Obviously you need to some extent The hardware you need to be able to move This gas around as well And of course one of the things we learned In 2009 in the Ukrainian crisis Was that Europe's not very good at that But certainly it is getting better People are getting very creative In swapping gas around And avoiding some of the hardware constraints But Europe does need to spend more money On pipeline connections And I might add storage Which is a very important part of this market Europe is certainly not investing enough in storage Certainly the fact That countries like China and India Are starting to make some key policy decisions To free up their markets as well Will produce much more gas On gas competition The guys who are selling oil indexes Of course say well you know this is just a transient Phenomenon that will last a couple of years And then it will become a distant memory Spot prices and oil indexes will converge Maybe they're right I'd like to let the market decide that myself Certainly it is bending At the moment somewhere between 2015 And 20% of oil index volumes Going into places like Turkey Or Italy or Germany Definitely on a spot prices And you can see that in the German context Well I've got the floor Just a couple of contents on that subsidy issue The gentleman in the front row raised That subsidy calculation covers gas And coal as well And then other subsidies are non-trivial As well and they're all over the planet A lot of people have Price controlled electricity Which does lead to over consumption I mean one of the countries we got Groundly criticised I might add In Fatty's analysis with South Africa Is said well we don't have any subsidies do we Except for the fact that their utility Can't cover its costs So by any means we consider that a subsidy And indeed the utilities broke And they had blackouts So we attempted to impute a cost To South African electricity And looked at the difference And we assigned that as a subsidy So methodologically you know you have to be pretty A little bit of bricolagry called this in French You have to be pretty innovative in your methodology But it does include all fossil Sources not just oil Gas production That's even tougher than oil I hope that answers Al's question It was a good one Jenny yes sir My question is regarding biofuel A lot of investment in biofuel Sometimes coal Biofuel uses up a lot of That's a Cross It sometimes causes How to say it I want to just I think The increase of So I'm kind of wondering What you are going to do with Sorry You said it causes Increase the hunger for creation So I just want to know About the fuel Yeah You hit upon A key constraint On expanding Biofuel or the desirability Of expanding the uptake Of biofuels going forward based on First generation Crops that's why the development of Second generation technologies is so Important But clearly We have markets in the US and Brazil In which these technologies In a sense get some form of support The second generation On its own with current levels Of crude prices doesn't really fly But it does solve Precisely that sort of Issue that biofuels Confront overall But there is an Economic cost to that And in a sense Unsubsidized it doesn't work The second generation Bob McDowley Wrap it down Yeah interesting enough again when I go to Moscow I occasionally cop a lecture About how terrible the environmental Impact of this shale gas Is interesting enough Obviously we've been following Developments with some interest There isn't as yet A huge body of evidence That problems are being caused Lots of people are talking about it The fracking liquids Are an important part of the Intellectual capital of The companies doing this and They are rather reluctant to Reveal precisely what's In the fluids And that is going to cause Has the potential to cause some Difficulties but at the moment We don't see anything happening Obviously the events in the Gulf of Mexico underline that companies Involved in energy extraction In general have a very Significant responsibility obviously If a problem did arise then The implications again could be serious But we haven't seen any evidence Of that happening Certainly when you take The whole set of techniques That have made shale happen And try to put them to work in Europe You do run into some immediate problems One of those is simply ownership Of subsoil resources which in the United States is vested with a land Owner and in Europe was almost Certainly vested with somebody else So obviously the locals don't have Anywhere near the interest in having Great bloody trucks drilling 24 hours And so on and Europe's a crowded place Compared to most parts of the US So there are some Significant technical issues There isn't the culture of Hydrocarbon production That there is in the United States So it's going to be hard to transfer Those techniques and slow I suspect As well even places like Hungary Where there is a culture of Hydrocarbon extraction and they came To do this with MOL with ExxonMobil They air freighted a rig in from Houston Just indicates they didn't have the technology The gear there So even with the best will in the world It's going to take some time to get to Europe Certainly the Chinese Who have a fair bit more ability To make things happen in a hurry Are pretty interested And Colby and Methane as well One of the reasons they're being Very keen to buy into Australian Developments is to take the technology With them back to China They got a bit of coal and they think That's one of the reasons which is the same Why Australia got into it but they're Pretty interested in producing it as well So unconventional gas at large Certainly very good prospects Yes sir Yes my name is Kevin Easland with The U.S. Department of Energy Policy and International Affairs and I Guess I want to ask about the other Regulatory uncertainty that was Referencing the executive summary and That being the future of commodity Futures regulation And I think that there's a good Recess here that the House passed The House Senate Conference Financial Regulatory Reform Bill We know there's a CFTC Proposal out to alter the status Of commodity futures regulation Just wonder what the panel thinks About these U.S. regulatory Developments and their potential Impact on oil and gas markets Not only domestically but globally Particularly investment into new Infrastructure and what not The consistent line which is that The regulatory Effort needs to recognize The investment needs of the Industry and the ability Of physical players within the Industry to be able to hedge For the future That being said You know the impetus Behind Greater Regulatory oversight And greater visibility Of what is going on in financial markets Is very clear And I think greater visibility On what is happening In commodity futures markets And derivatives markets Is something that is Helpful in terms of Bringing a greater degree of stability To the market We have deliberately not Taken a position as regards Level Whether a certain level of position Limits or capital Requirements Is appropriate Or not. That is something that Regulators themselves both Nationally and internationally must decide Upon. We simply made The appeal That regulators need To have Or be mindful of the requirements Of a very capital intensive Industry to be able to hedge Investments. Any further Yes, sir. I just might point out as an Australian We're a supply country too. So I do have some insight Into supply countries approaches On these things. Just a point to make of course Is that gas in general Notwithstanding the current Gas glut and the ferocious Efficiency gains we've seen in the United States Gas in general like oil is going to Come from further away from More remote places from deeper Water from places like Stockman Where ice sort of floats along North-Earth Shelf, Gorgon Very remote areas where costs are high So if that gas Is going to be developed then Has to be market equilibrium that Supports that high cost and long lead Time development in Gorgon's Minimum five years and a lot Of preliminary work is done. So there is a tremendous tension And in users You know you have to look at The power sector as well and look at What are the alternatives particularly Relatively cheap coal where prices Are rising in a lot of markets and the Carbon cost is being attached. So it's a very complex question you've Asked certainly when we see Conditions like this With oversupply in our strong Preferences to see competitive markets Sorted out in a realistic way And not lead to this Increasing price dichotomy From a gas problem viewpoint They prefer oil index prices And they want to stick with that. They see that as part of their anatomy Now during to a lesser degree How will it pan out? I mean obviously over time we will see The gas oversupply Worked out but not in a way We anticipate. I think we'll certainly see higher prices In the Pacific Basin compared to the Atlantic Basin and continuing geographical Conditions between those markets And you'll see some markets have Their own index formulas. I mean the power sector I can see quite Happily having its own set of formulas Based on its own particular needs Other sectors will have different Pricing formulas. So I mean and that's what happens In a proper liberalised market You've only got to look at the United Kingdom There are still oil index contracts Being bought and sold not very many But certainly in the power sector Between coal prices And gas prices. So you know we'd like to see a much more A much more differentiated approach A much more fundamental approach That reflects market realities But at the same time you have to understand That gas won't be cheap forever Gas will increasingly come from More expensive sources. I mean everyone's been astonished How US gas producers have been able To continue producing and expanding At four dollar prices I think that party can go on forever To be blunt. Well I'm afraid that's all We have time for This afternoon so Please join me in once again thanking Dick, David and Ian for Outstanding.