Construction pace crucial to LNG supply

Paula Dittrick
Senior Staff Writer

HOUSTON, Jan. 31 -- Controversy about the siting of LNG receiving terminals draws much attention in the gas-hungry US, but the infrastructure for LNG exporters cannot be overlooked.

The supply end of the LNG chain deserves attention, too, Sara Banaszak, a senior economist in the American Petroleum Institute's policy analysis group, told the Strategic Research Institute's annual LNG conference in Houston on Jan. 27-28.

"The pace of constructing new supply facilities is critical to LNG availability for long-term increases in imports," she said. "Liquefaction plants take longer to build than receiving terminals."

With export-capacity expansions under way in gas-rich Qatar, the Middle East's status as a global LNG supplier is destined to grow.

Banaszak pointed out that Middle Eastern LNG exporters have the "ability to deliver to either the Atlantic or Pacific Basin."

Until the 1990s, Asian exporters dominated LNG trade, she noted. But that's changing as supplies grow from the Middle East, North Africa, West Africa, and Latin America.

Emerging LNG importers
As importers, the US and Europe will gain on world-leading Japan, Banaszak said, adding that a flat economy is suppressing Japanese consumption.

Meanwhile, long-term contracts for about 20% of Japan's annual imports are slated to expire by 2010, and Japan is negotiating for newer, more flexible supply terms, Banaszak said.

The US is expected to rely on LNG for more and more of its natural gas supplies because gas production is declining in the US and Canada. The US can buy LNG from suppliers in either the Atlantic or Pacific Basin if enough West Coast receiving terminals are built, Banaszak noted.

"All of that LNG cannot come into the Gulf Coast. We've had a lot of success siting (receiving terminals) in the Gulf Coast. That has not been the case on the East," she said.

Gulf Coast
Keith M. Meyer, president of Cheniere LNG Inc., a wholly owned subsidiary of Cheniere Energy Inc., Houston, said he expects that one or two new receiving terminals will be built on the West Coast, one will be built in the US Northeast, and one will be built in the Bahamas or Florida.

The Gulf Coast is the most natural place for receiving terminals because of its existing pipeline infrastructure and because of the public's acceptance, he noted.
Cheniere is building one terminal and is planning three others, all on the Gulf Coast (OGJ Online, Dec. 22, 2004).

"New gas supply must come from new areas. Right now, we've got in this nation a gas price that is not sustainable," Meyer said. "LNG will stabilize and lower natural gas prices. It will do that from the supply side, not the demand side."

In response to a question, Meyer said he doesn't know how much LNG will lower US gas prices. But he believes lower gas prices are inevitable as demand falls, regardless of what happens with supply.

Fisoye Delano, a senior researcher with the Institute for Energy, Law & Enterprise at the University of Houston, said the US is undergoing "changing dynamics." The US Energy Information Administration forecasts LNG imports could reach 6.4 tcf/year by 2025, or 21% of total US consumption.

Currently, there is no world natural gas index similar to the US Henry Hub gas price, he noted. But regional competition for LNG will grow and will influence gas prices worldwide.

"LNG will go to where the price is most advantageous,' Delano said.

Contact Paula Dittrick at paulad@ogjonline.com

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