CERA: LNG imports to be important source of future US gas supplies, executives say

Feb. 17, 2003
Imports of liquefied natural gas (LNG) will play an increasingly important role in meeting US demand for natural gas, said several speakers at the weeklong energy forum sponsored in Houston by CERA.

Sam Fletcher
Senior Writer

HOUSTON, Feb. 17 -- Imports of liquefied natural gas (LNG) will play an increasingly important role in meeting US demand for natural gas, said several speakers at the weeklong energy forum sponsored in Houston by Cambridge Energy Research Associates.

"Two years ago, LNG was again a new idea. By last year, it was an 'attractive alternative.' Today it is a fait accompli," said Philippe van Marcke, former president and now advisor to the president of Tractebel Electricity & Gas International, a unit of Tractebel SA, at the Feb. 12 natural gas plenary session.

Van Marcke said, "Two years ago we set up a London office to develop our LNG business because we saw a world market evolving. Today, we see a combination of regional markets in the US, Europe, and Asia. Tomorrow, it will be a global market made up of strong regional markets linked by LNG."

According to Van Marcke, there are now essentially two groups of regional markets. One encircles the Atlantic Ocean and includes the eastern portions of North and South America, along with all of Europe and Africa. The other encircles the Pacific Ocean, including the western portions of North and South America, Australia, the South Pacific, and Asia.

The two overlap in the Middle East, where the development and marketing of huge natural gas reserves will be an important influence on world gas markets in the future, said Van Marcke.

Tractebel's primary focus is on North America and the European market. Imports are expected to account for 70% of Europe's gas demand of 20 tcf by 2015, up from 45% of its 15 tcf market in 2001. Those imports currently are supplied either through pipelines from Russia or in the form of LNG from Africa.

"LNG is not a commodity, but just a means of transportation," Van Marcke said. To prosper, it must be able to compete with pipeline transportation of natural gas. "LNG is competing without subsidies against pipeline gas in major European markets," he said.

With its growing appetite for natural gas, North America will have to increase LNG imports "starting now or by 2005-06, depending on how long before Mexico ramps up its demand for gas," Van Marcke said.

The question of whether pipelines will some day carry Russian gas to North America or if Alaskan gas might be exported as LNG to China "will depend on government support for such projects," said Van Marcke.

However, there also is a need for a national energy policy that would assist in determining the placement of LNG import terminals, said William M. Warren Jr., chairman, president, and CEO of Energen Corp. and past chairman of the American Gas Association, at that same session. He said long-term, fixed-price gas contracts also are necessary to help underwrite expensive up-front investments in LNG terminals, tankers, and other infrastructure

The industry's real challenge is not to find gas, which is plentiful, usually in more remote locations, but to "develop it and bring it to market," said Reinier Zwitserloot, president of BASF Group's oil and gas division and chairman of Wintershall AG, at that same session.

The biggest problem in the European gas market, Zwitserloot said, is that the European Council has "become more and more of a micromanager without regard to international differences" that still exist.

Meanwhile, 9 tcf of future US gas supplies will have to come from Alaskan gas production and LNG imports, said Warren.

He noted that the US gas market is expected to grow 50% in the next 20 years. But if US demand for gas does hit 30 tcf by 2020 as some have projected, Warren asked, "How do we secure a sufficient supply at a reasonable price?"

He said an average price of $3.50-4/Mcf should attract LNG imports and fund deepwater gas exploration, while remaining "sufficiently low" to "satisfy customers" and discourage fuel switching.

However, Warren said month-to-month price volatility has a "profound" adverse impact on industry business decisions at all levels.

Hal Kvisle, president and CEO of TransCanada PipeLines Ltd., agreed. "A market where the price can fluctuate from $1.50-10/Mcf in a single season represents too big a risk," he said.

North America's northern frontier has "come of age" with prospective oil and gas exploration and development projects in northern Canada and Alaska that "are doable," Kvisle said.

Among those "doable" projects is the proposed 1,200 km Mackenzie Delta pipeline that would be "built in the dark in temperatures of minus-30 degrees" during a Canadian winter, Kvisle said. That pipeline project "will be done," he said, likely before the "more challenging" proposed pipeline from Alaska's North Slope along the route of the Alaskan highway.

Kvisle doesn't see Mackenzie gas competing with production from Alaska, Western Canada, or the Gulf of Mexico. All sources will be needed to supply future demand in 2010-20, he said.

However, he said, "Alberta doesn't need 4 bcfd of Alaskan gas landed in Alberta." What is needed, said Kvisle, is construction of more pipeline infrastructure to move Alaskan and Canadian gas to US markets in California and Chicago.

Gas production from Canada's northern provinces is expected to jump to 7 bcfd by 2015 from "zero" in 2001. That new production will be needed since in Canada's other gas producing sectors, he said, "the question is not 'How long we can grow North American production?' but 'How long can we maintain flat production?'"

Gas production from the US Gulf of Mexico and land operations along the Gulf Coast is projected to increase to 32 bcfd by 2015 from 27-28 bcfd in 2001. "But more realisticly, that gas production might stay level," said Kvisle.

Production from the Western Canada Sedimentary Basin (WCSB) is projected to increase to 19.3 bcfd in 2011 from 16.9 bcfd in 2001 before falling back to 17.4 bcfd in 2015, he said. Meanwhile, Kvisle said, Western Canada's demand for gas is expected to increase to 6.7 bcfd in 2010 from 4.5 bcfd in 2000, primarily as a result of increased mining and production of its heavy oil sands.

Kvisle sees LNG's contribution to the North American gas market, through both the US and Canada, increasing to 5.9 bcfd by 2015 from 800 MMcfd in 2001. Gas production from Sable Island is likely to contribute only 1.4 bcfd to the North American market by 2015, he said.

US gas prices have averaged in the range of $2-4/Mcf in recent years, Kvisle said. But continued declining production in existing major basins since 1995 could drive those prices higher through 2009, he said.

Nonetheless, Kvisle said, "Gas will remain desirable as a clean fuel or the source of hydrogen" in a new hydrogen fuel economy.

Contact Sam Fletcher at [email protected]