By OGJ editors
HOUSTON, Oct. 21 -- A new global natural gas market is emerging, and LNG could fulfill up to 20% of US gas demand by 2020 compared with 1% in 2002, predicts Cambridge Energy Resource Associates of Cambridge, Mass.
CERA Chairman Daniel Yergin and Michael Stoppard, CERA LNG director, wrote an article entitled "The Next Prize" in the November-December issue of Foreign Affairs, a journal on global issues published by the New York-based Council on Foreign Relations.
Historically, the gas business has been limited by pipeline infrastructure and the absence of a global market. LNG enables underdeveloped and stranded gas reserves to be carried to consumers worldwide.
"Much is now expected of LNG," said Yergin and Stoppard. "But developing its full potential could cost as much as $200 billion worldwide, and energy companies will have to choose between investments in LNG and other investments."
Yergin said various risks will come from increased interdependence for gas supplies, but he said a growing diversified global gas market can manage these risks.
"And, they are dwarfed by a much greater risk: that the US and Europe could face a persistent natural gas shortfall," Yergin said.
Several potential market hurdles could capsize LNG's development, Yergin and Stoppard said. They listed these as:
--Low and volatile gas prices, even if they are only temporary, could discourage investors and stifle growth.
--A lack of confidence in the developing market could prevent companies from committing the necessary capital and human resources.
--State-controlled companies will have to resolve conflicts that are likely to arise between LNG's commercial attractiveness and other political and social imperatives.
--Imposing price controls and restricting gas consumption might stop development altogether.
--LNG exporting countries may form a gas association akin to oil's OPEC. "But there will be limits to how far they can go. They will likely be cautious about taking actions that could disrupt the critical flow of revenues back into their national treasuries."
--Banks and other lenders will need to have confidence in LNG projects' financial soundness.
--All market participants will need the ability to weather the ups and downs of a commodities market.
"The natural gas business is on the brink of profound change," said Stoppard. "It is set to become global and to adopt a more flexible market model." Timely development is key for the US, he added.
