Chevron CEO keynote Address at the 2015 World Gas Conference, Paris

Chairman and CEO John Watson’s keynote address focused on natural gas at the 2015 World Gas Conference in Paris, France.

Thank you Paul Barrett for that kind introduction.

This conference has become a key event for anyone who believes in the future of natural gas, and Chevron is certainly on that list.

In the years ahead, the world is going to need all forms of energy—natural gas, crude oil, coal, renewables and nuclear—to meet global energy demand.

The wider context is, of course, a world reaching for affordable and reliable energy to drive both economic growth and improved living standards.

Over the last 150 years, we’ve seen the greatest advancements in living standards in recorded history—light, heat, mobility, mechanized agriculture, modern communications—as well as other benefits, to billions of people around the world. All these have been brought about by affordable energy.

Today the global economy depends on affordable, reliable energy to drive economic prosperity and provide the goods and services the world needs.

As the world looks to further advance living standards and improve the quality of life for people everywhere in the years ahead, global energy demand will rise.

In fact, the U.S. Energy Information Administration [EIA] projects global energy demand will increase roughly 40 percent by 2035 as incomes rise and the middle class grows.

In the past 10 years, we’ve seen the world add three-quarters of a billion people to the middle class.

Yet there are still approximately 1.4 billion people who still have no access to electricity, and a billion more who only have access to unreliable electricity networks.

And then there are the more than 2.5 billion people who still burn solid fuels such as wood, crop residue and dung to cook their food and heat their homes.

By 2035 the demand for energy is only going to get bigger.

The global middle class is expected to double to nearly 5 billion, which means twice as many people will need commercial fuels for heating, cooling, mobility and manufacturing.

Amid this urgency for reliable and affordable energy, our industry is working to grow supplies, particularly of natural gas.

It’s an abundant, cleaner-burning fossil fuel, economic to produce, scalable, complementary to intermittent renewables, such as solar and wind, and increasingly being used in transportation.

This year, Chevron will be starting up our Gorgon LNG [liquefied natural gas] project in Northwestern Australia, one of the biggest projects we’ve ever undertaken.

Gorgon will be quickly followed by the startup in 2016 of our Wheatstone LNG project.

The $90 billion investment in these two Australian natural gas projects as well as our first sour-gas processing plant in China’s Chuandongbei underline Chevron’s commitment to this fuel source.

Natural gas is rising to about 40 percent of our portfolio from about 35 percent 10 years ago.

Yet meeting demand will take much more than these efforts.

Wood Mackenzie projects global LNG demand will nearly double by 2025 reaching approximately 440 million tons.

The Gorgon LNG facility is to supply just over 15 million tons per year.

So, the world will need more than a Gorgon-sized project each year for nearly 10 years to meet projected demand.

We, as an industry, will have to move forward on multiple, geographically diverse projects today to ensure sufficient supplies in the future.

Many nations and companies are focused on the U.S., where we’ve seen tremendous growth in natural gas supplies primarily from shale and other tight resources.

It won’t be long before we’ll see some of these supplies exported as LNG.

Industry is in the process of converting LNG import terminals, built on expectations of a shortfall, to export terminals.

These projects have many advantages over “greenfield” projects. They have access to a low-cost resource, existing pipelines, as well as tanks and jetties that are already built.

Around 50 million tons per year of LNG “brownfield” export capacity is under construction in the U.S. and essentially a done deal. On top of that, it’s likely an additional 20 million tons per year of capacity could be built in the U.S.

And we can count on about 80 million tons of LNG capacity that is under construction outside the U.S.

However, we’ll still need another 70 million tons of additional LNG capacity to meet expected demand.

We’ve got to start thinking about where that supply will come from.

The U.S. energy renaissance will not be easily duplicated.

It was more than just technological advancements that enabled the U.S. to crack the code to developing economic supplies from shale and other tightly packed rock.

The conditions were right for a U.S. shale revolution.

• The U.S.’ geology was well understood;
• The innovation and expertise to develop shale was available;
• The supporting infrastructure was very well developed;
• The regulatory system was conducive;
• Property owners personally benefited through royalties;
• And, a very liquid physical and paper market allowed producers and sellers to come together on price efficiently and transparently.

It took a few years, but in industry terms, it seemed that overnight America became the improbable energy superpower and other benefits followed.

The energy renaissance generated jobs and economic growth, taxes and government revenues. It revived manufacturing and other high-value industries.

On top of that, it lowered carbon dioxide emissions as industry replaced coal with natural gas in power generation.

Advancing the U.S. market has helped develop a global LNG market, connecting for the first time the large and liquid gas markets in North America and Europe with growing demand in Asia.

The forces for convergence in LNG markets will increase as the U.S. export facilities come online.

As we’ve seen with the development of the spot market in the U.S. in the early 1990s and in Europe about 10 years later, once a market has the right ingredients—many buyers and sellers, a deep and fluid futures market, flexible infrastructure and storage—it becomes more efficient and transparent for buyers and sellers.

The good news is there are natural gas resources on almost every continent.

Globally, the EIA reports that there are more than 15 thousand trillion cubic feet of technically recoverable conventional gas and over 7,000 trillion cubic feet of technically recoverable shale gas resources.

That’s equivalent to around 180 years of the world’s current natural gas demand.

But not every country can, or will, choose to develop its gas resources, and many will turn to imports of LNG to meet their needs.

There are above- and below-ground barriers to developing both conventional but especially unconventional shale gas outside North America.

These barriers may be overcome.

Countries like China, for example, aren’t going to give up. They understand the many benefits of domestic production—jobs, government revenues, trade, increased energy security, a boost to manufacturing, and so on.

And in Latin America, my company is working with Argentina to develop its shale supplies.

Nonetheless, the U.S.—with its abundance of natural gas—may be called on to develop not only the current wave of LNG but also the wave after that, primarily because of the cost advantages of its resource base and infrastructure.

In various parts of the world, we’ve seen a number of LNG greenfield projects slowed, or even put on hold, as the U.S. brownfield projects have set a new price bar with which everyone else must compete.

This has put at risk projects that once seemed certain to go forward in some resource-rich countries.

The implications of this are easy to overlook. Because in today’s operating environment, marked by ample supplies and lower prices, it’s tempting to defer the investments necessary to ensure affordable and reliable energy supplies into the future.

But it’s crucial that we don’t lose sight of the long term, and we work now to enable the “next wave” of LNG.

This is going to be challenging, as new fully integrated greenfield projects cannot easily compete at low Henry Hub pricing.

A first step to developing this global market is recognizing that the capital costs of U.S. brownfield projects are unlikely to apply elsewhere in the world.

If other projects are going to be competitive with these U.S. brownfield projects, we’re going to need to be creative and try new models as industry did in the U.S. We’ll need new approaches to enable the next wave of LNG.

For example, as operator of the Gorgon and Wheatstone greenfield projects, Chevron invited LNG buyers to take upstream ownership, providing transparency and insight into the cost of bringing LNG to market.

On top of that, Wheatstone recognized the changing market and was the first LNG project in Australia to have two separate upstream joint-venture groups sharing the pipeline and plant infrastructure development on an equal, “ground floor” basis.

This lowered the cost to both partner groups and enabled the development of the resource in support of the Australian government objectives and at a time when customer demand for new long-term supply was strong.

These are good examples of how innovation and creativity can help to deliver new supplies to the market in challenging times for the benefit of buyers and producers.

This could well be a model for the future because as LNG markets converge it’s going to be all that much more important to be competitive.

New LNG projects, whether from Canada, East Africa, Australia or elsewhere, won’t get past the planning stage unless they’re economically competitive for buyers and sellers while also providing benefits to host governments.

We know from experience that the support of host governments is critical.

LNG can only be sourced if host governments enable the development through fair financial, social and environmental terms and conditions.

Terms vary widely from country to country. And yet, after the rocks, they’re one of the first things companies consider when ranking investment opportunities.

Even the best resources might turn out to be uneconomic with uncompetitive terms and requirements.

Just as buyers have choices, investors have choices too.

Many countries have been blessed with natural gas resources but without the right terms—transparency and contract stability—the above-ground risks can make investments uneconomic.

In closing, there are, and will continue to be, challenges to developing and delivering sufficient supplies of natural gas in the years ahead.

But Chevron has made a commitment to do both to do our part to put the world on the pathway to prosperity.

In Thailand and Bangladesh, Chevron is the No. 1 producer, and we’re active in almost every corner of the world—North America, South America, Africa, Europe, Eurasia and, of course, Australia.

With projects under construction at Gorgon and Wheatstone, in addition to our existing equity shares at Angola LNG and in the Northwest Shelf, we expect to become one of the top 10 LNG suppliers in the world within the next five years.

But no one company and no one country can do it alone. It’s going to take all of us working together on innovative solutions to safely and reliably develop affordable energy the world needs, to maintain our living standards and grow those in developing nations.