By the OGJ Online Staff
HOUSTON, June 1--Tractebel North America Inc. is betting the US liquefied natural gas (LNG) market will continue to increase as natural gas prices settle into a new higher range.
Tractebel, the energy arm of French company Suez Group (formerly Suez Lyonnaise des Eaux), announced Friday a long-term charter agreement for a new LNG tanker scheduled for delivery in 2003, its second vessel ordered in the past year. The latest carrier order comes on the heels of the first placed in November 2000.
In an interview with the French daily Les Echos, Suez Group CEO Gérard Mestrallet said he is confident the company, which is 58% involved in energy through Tractebel and its affiliate Cabot, is "well-placed" in the US to improve its already strong energy base in line with President George W. Bush's energy plan.
Mestrallet said he believes the Bush plan will boost natural gas consumption in the US. He said the group's US storage and regasification capacity will be doubled over the next few months to 1.15 MMBtu and tanker capacity increased.
A Tractebel unit owns and operates a LNG import terminal at Everett, Mass. Currently, there is only one other terminal operating in the US at Lake Charles, La. owned by CMS Energy Corp. Two other terminals are in the process of being reactivated. One is located at Elba Island, Ga. and the other Cove Point, Md. Earlier this year, El Paso Corp. said it is close to announcing plans to build a new terminal on the West Coast.
While capacity is being expanded to receive LNG in the US, transportation capacity for LNG is constrained.
Tractebel will charter the new tanker for 20 years and will have options to extend the charter for an additional 9 years. The company will use the tanker to load LNG from Trinidad and other supply sources for delivery into the Everett terminal. The LNG tanker will have a capacity of 138,000 cu m.
"Given that available shipping capacity has become increasingly constrained in LNG markets, these agreements will improve our position in the LNG value chain," said William Utt, CEO of Tractebel North America.
Many energy observers are confidant gas prices in the US will remain at or above $3/MMbtu over the long term. The optimistic picture for gas prices is fueled by higher demand for natural gas from scores of new gas-fired power plants and increased electricity demand in general.
The market for LNG in the US had deteriorated for the past 15 years because of high costs to import the product compared to local prices of natural gas. According to McKinsey & Co. the liquefaction, transportation, and regasification costs averaged about $2.53/MMbtu in the 1970s, not including the commodity costs. Meanwhile, natural gas prices hovered in the $2-$2.50/MMbtu range, smothering the LNG import market.
But the cost of LNG facilities, including tankers, has fallen, while the price of gas has increased. El Paso executives claimed at an analysts conference in March the cost to import LNG has fallen to $1.80/MMbtu. El Paso executives also noted the cost of new LNG tankers has fallen to about $160 million, compared to $250 million a decade ago.
With the price of natural gas in some producing regions overseas a fraction of what it is in the US, LNG can compete with US gas prices that average $3/MMbtu.