The present economic downturn means that there is currently sufficient supply to meet demand. In the longer term, however, the market balance is more uncertain. Increasing transport distances and complexity of new resources suggest an increase in prices.
In the short term, the present economic downturn means that there is sufficient supply in Europe, Asia and North America to meet demand expectations. Balance in supply and demand will probably affect gas prices.
In the longer term, however, the market balance is more uncertain, and the current economic impact on long-term demand and the development of new gas projects are difficult to assess. Increasing transport distances and the complexity of new resources would seem to suggest an upward price trend over time, ensuring sufficient prices to maintain supplies.
The short-term gas market is affected by new LNG capacity coming on stream and by reduced demand for energy. LNG in the Atlantic basin is responding to changes in prices between major markets, taking advantage of arbitrage opportunities. Our view of these events is that we have value creation potential through increased gas exports due to the proximity and flexibility of our infrastructure to favourable markets.
In the long term, we continue to have a positive view of gas as an energy source for Europe. Domestic production of gas in the EU continues to decline, while demand for gas is expected to increase in the long term, particularly due to the lower carbon footprint of natural gas compared with oil and coal. The trend for LNG as a link between regional markets is expected to continue as more LNG will come on stream, making gas a commodity that is driven by global development.
Our gas strategy remains firm. In 2009, we plan to have focus on on extracting maximum value from our long-term gas sales portfolio by maintaining daily supply regularity and contract modernisation as part of regular contract revisions. In addition, we will focus on participating in the short term gas markets in order to add value through balancing, trading and optimisation activities. Business development efforts will be concentrated on commercialising our position in the Shah Deniz field and our newly-acquired gas position in the US. This position in the Marcellus shale gas acreage, in combination with Gulf of Mexico production and our LNG regasification capacity position at Cove Point, will provide a foundation for growth in our US market position in the years to come.
