US will compete for LNG despite short-term import lull, study finds

The United States will find that it is able to compete in global liquefied natural gas markets as worldwide supplies grow and markets stabilize, a study commissioned by the American Gas Foundation concluded.

But in the short term, US LNG imports will not increase until worldwide supplies grow more and US natural gas demand climbs, the analysis by Benjamin Schlesinger Associates said. US gas reserves have risen steadily in the last 10 years which has helped make US LNG imports fall 50% year-to-year from late 2007 through mid-2008, Schlesinger told reporters on Oct. 28.

"It's clear we're going to need a fair amount of LNG in the future," he continued. "The power generation sector is looking increasingly to natural gas for growth. Its capital costs are low. It's relatively clean. And it can run steadily compared to renewable sources such as wind and solar."

The foundation, which is associated with the American Gas Association but operates independently, commissioned the study to determine whether world LNG capacity was sufficient to contribute to future US gas demand and whether the United States will be able to compete for LNG with other countries. "We're trying to understand the LNG market's potential as a supply component going forward," said Chris McGill, AGA's managing director for policy analysis.

Other countries often are willing to pay more, Schlesinger conceded. But the size and depth of the US market, its considerable underground gas storage system and the commodity gas trade's innate flexibility make the United States a desirable and dependable destination, he said.

Near-term uncertainty

Near-term prospects are less certain not only for LNG but also for other natural gas sectors as some producers reduce their exploration and production budgets in response to a weakening general economy, McGill said. Canadians also are exporting less gas to US customers and Congress could pass carbon legislation which would increase demand, he indicated. "A carbon remediation strategy could require all supply sources to meet its requirements," he said.

Schlesinger stopped short of saying that the United States won't need more LNG import capacity in the next 2-3 years. "But it could be delayed. This could happen if a terminal is only 20% completed. If it's 90% built, that would be another matter. I'd be surprised to see too many terminals begin construction in North America. They tend to come in waves," he said.

Reduced capital availability could have a bigger impact on overseas LNG export projects, he continued. "They're incredibly expensive. An import terminal represents only about 15% of the total LNG system costs. Tankers and liquefaction plants account for the rest. Qatar alone is spending $21 billion for its project," Schlesinger said.

The current approximately 25 billion cubic feet per day of worldwide LNG capacity could grow by 50% by 2015, he predicted. "Additional projects are behind this, although the world credit crisis could lead to some delays," he said.

Reliable deliveries at the lowest prices are the long-term bottom line, according to Bill Cooper, president of the Center for Liquefied Natural Gas. "LNG fits into the mix. Once an exporter starts a liquefaction train, it has to keep running. The LNG needs to find a home and the US is a huge gas market," he said following the briefing.

Contact Nick Snow at nicks@pennwell.com

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