LNG imports are expected to increasingly contribute to total worldwide supplies, but it’s less certain that overseas export projects will keep pace with demand, a leading market observer suggested.
“Between now and 2030, we might run into geopolitical problems relative to LNG similar to what we’ve experienced with crude oil,” observed Adam Sieminski, chief energy economist in Deutsche Bank AG’s global markets and commodities research department, during the US Energy Information Administration’s 2007 Annual Energy Outlook Conference on Mar. 28.
“There isn’t enough LNG export capacity going into place during the next 15 years to keep pace with demand,” he warned.
Other speakers during the conference’s natural gas market outlook session agreed that pressure to build more LNG liquefaction trains and export terminals is growing.
Kevin R. Petak, vice-president for gas market modeling at ICF International’s Energy and Environmental Analysis Inc. (EEAI) subsidiary, said US LNG imports could grow to 13.2 bcfd by 2017 and 18.6 bcfd by 2025 from 1.7 bcfd in 2005.
“I think the constraints on LNG will be on the liquefaction and not the regasification side,” Petak said.
Growing costs
But while the 5% return on equity such projects provide at $5/MMbtu remains attractive, building and other costs have climbed dramatically in the past year, according to Petak. Other supply development obstacles include attracting investors, uncertainty created by volatile gas prices and future demand, siting and contracting issues, and political uncertainties, he said.
Stephen L. Thumb, who directs the oil and gas practice at Energy Ventures Analysis Inc. (EVAI), predicted that producing countries overseas and major oil and gas companies will build more LNG export capacity this decade than in the previous 40 years.
Worldwide liquefaction capacity could grow to 43 bcfd by 2010 and possibly 65 bcfd by 2015 from 14 bcfd prior to 2000, he suggested. “They’re not doing this out of the goodness of their hearts. They’re getting phenomenal returns, even after factoring inflation in,” Thumb said. He also expects US regasification capacity to be overbuilt, possibly exceeding 20 bcfd. “Despite recent entrepreneurial exuberance, we expect only 17 of the 100 proposed US regasification terminals to be built,” he said. Europe also appears likely to overbuild LNG import facilities, although the situation varies from country to country, but EVAI expects Asia’s total regasification capacity to match its supply requirements, Thumb said.
EIA also expects worldwide competition for LNG to grow, said Joseph G. Benneche, a natural gas analyst in the US Department of Energy agency’s integrated analysis and forecasting office. “LNG is one of the big unknowns,” he said.
Carbon limits
The agency’s latest annual energy outlook assumes that no major climate change legislation limiting carbon dioxide emissions will be passed and that many proposed coal-fired power plants will be built. Other forecasts suggest pressure will increase to build more gas-fired power plants to meet future electricity demand.
“TXU’s knocking eight coal-fired plants from its planned construction could put more pressure on gas,” Sieminski said. The cancelled coal supply will require another 47 bcf/month of incremental gas, effectively adding 1.5 bcfd to analysts’ forecasts starting in 2009, he said.
Thumb said that EVAI expects a CO2 tax to be enacted domestically by 2015, which would affect coal-fired plants’ economics. And EEAI’s Petak said, “We don’t see as much coal penetration in the out-years as EIA does.”
Falling production per well will continue to undermine domestic gas supplies, Sieminski said. “I’m worried about the rig count. It has taken a 13% average compound annual growth in it simply to keep total production flat the past few years,” he said. Assuming this trend continues, the US will need 1,500-1,600 gas rigs operating in 2007, up from its current 1,440-rig level, he maintained.
“We think the hyperinflation of drilling costs will dampen growth. We think this is more permanent than temporary,” said Thumb.
Petak said as production from traditional areas declines, newer areas such as the Rocky Mountains, Alaska, and Canada’s Maritime Provinces and Mackenzie River Delta in the Far North will increasingly contribute to total US gas supplies.
Sieminski also suggested that domestic resource availability could be a growing issue. “We’re not so much running out of natural gas as running out of areas from which we can produce it,” he said.