GDF Suez executive bullish about global LNG prospects

With sights set on the medium and long term, GDF Suez Chairman and Chief Executive Officer Gerard Mestrallet remained bullish about many global LNG prospects, despite the current slump in natural gas demand and an apparent glut of projects.

Aug 31st, 2009

Doris Leblond
OGJ Correspondent

PARIS, Aug. 31 -- With sights set on the medium and long term, GDF Suez Chairman and Chief Executive Officer Gerard Mestrallet remained bullish about many global LNG prospects, despite the current slump in natural gas demand and an apparent glut of projects.

At the press conference held Aug. 27 on GDF Suez’s first half earnings, Mestrallet gave many reasons for “believing in the future of LNG.” It is globalizing the gas market, he said, and it provides supply flexibility and ensures delivery over long distances.

It also contributes to the safety of gas supplies with regard to large suppliers that deliver over rigid pipelines, Mestrallet added. LNG will continue to play an key role on the world's gas market, he said.

“Today, recession is slowing down demand [and] the United States' development of its shale gas has led to suplus production, pulling down prices,” he said, adding “Falling oil prices will also pull down prices in Europe so that second-half 2009 could see a further deterioration of volumes sold with more reductions in 2010.”

He said, “Our strategy, however, is a long-term one. In the short term we will play on LNG's flexibility to continue to develop it in a manner appropriate to the current difficult environment. The best indication of our confidence in the future is the Bonaparte venture we have entered into with Santos in Australia. It shows how keen we are to develop on this market. But we will do so in an integrated way from exploration and production to liquefaction, to transport and regasification.”

He said, “This is not the first time the LNG market has encountered difficulties, but we are confident it will pick up in the medium term.”

He saw the Asian market as the most likely world region to start witnessing growth. Meanwhile, using the flexibility of LNG to avoid a surplus for GDF Suez’s markets, he said suppliers are requested to send less gas. In Europe there was no need for more underground gas storage, as deliveries could be thus controlled. This was also the case for the long-term take-or-pay contracts with Norway or Russia: The contracts’ flexibilities were used to reduce deliveries.

Mestrallet downplayed the impact of the current difficult economic environment on the company’s first-half results which, he said, “confirmed its profitable growth” due to what he described as a diversified and balanced energy portofolio adapted to its market.

The impact of the crisis so far was put at a €400 million drop of GDF Suez’s operating profits with sales of €42.2 billion, up up 2.3%. Capital expenditure of €4 billion, although lower than the €5.4 billion of first-half 2008, were well within €30 billion investments earmarked for 2008-10.

Mestrallet feared more for this year’s second half due to the expected drop in gas prices. However, volumes for the full year would be partially compensated by continuing development in other countries. Next year would most likely be a year when less volumes would be sold, he said.

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