LNG Summit: Supply, fuel competition pose major concerns in US

How US markets will accommodate the impending flood of LNG continues to puzzle industry observers.

Warren R. True
OGJ Chief Technology Editor-LNG/Gas Processing

NEW ORLEANS, Apr. 29 -- How US markets will accommodate the impending flood of LNG continues to puzzle industry observers. It was a question hanging over several speakers and discussions on Apr. 28 at CWC's LNG Summit New Orleans 2009.

In addition, speakers and panelists addressed the extent to which other fuels, especially coal, might put natural gas, and therefore LNG, at a competitive disadvantage.

Distressed prices
Much of the focus for the past year or more among LNG analysts has been on where new spot supplies from liquefaction projects coming online 2009-11 will go, given weak demand in the major European and Asian markets. It has been the sentiment that LNG will default to the US as a market of last resort, price notwithstanding.

Unlike Asia and Europe, this analysis has run, the US historically had much greater flexibility of supply. This is fostered by its extensive natural gas exploration, pipeline infrastructure, and connections with its North American neighbors.

But the US scene has been complicated in the last 2-3 years by the advent of prolific gas supplies from unconventional sources, especially shale plays in Texas and the Rocky Mountains. Discovery and development of massive shale reserves in Louisiana, Arkansas, New York, and Pennsylvania have only added to the overhang of supply potential.

John Fahy, managing director for Eras Consulting Ltd., addressed the conventional wisdom of the US as a dumping ground for spot LNG supplies seeking markets: He just doesn't accept the argument.

Fahy believes spot LNG will come to the US "only at distressed [price] levels," near what we are seeing today. "US [natural gas] storage is full," he said. Storage and firm supply contracts for Spain and Japan similarly discourage spot cargoes.

As part of his analysis, Fahy also disputed the widespread notion that US shale gas, whose activity has been rapidly contracting under depressed prices, must bring about $7/MMbtu to break even. A more likely breakeven price is nearer $4/MMbtu, "maybe $4.50," he said.

Excelerate Energy's Andree Stracke, however, offered a somewhat contrarian viewpoint. Price is not the key issue, he said. In summer 2008, when US prices were $8-13/MMbtu, no LNG cargoes arrived at US terminals. In 2009, with US prices near $3.50/MMbtu, "lots of cargoes" are arriving or en route to the US.

Competition
A panel discussion of fuel alternatives to natural gas and LNG not surprisingly found formidable problems with major renewables—wind and solar—as well as with coal and nuclear.

This discussion was conducted with repeated reference to the policies of US President Barack Obama's administration and likely climate change legislation currently being debated in the US Congress. All panelists agreed that whatever legislation made it into law would favor renewables.

Repsol Energy North America's Pres. Phil Ribbeck reminded attendees that natural gas should be viewed as complementary to renewables, not in competition, as the nation moves away from a carbon-intensive economy.

Addressing the major fuel with which natural gas completes—coal—Ribbeck said current prices in the East have already forced the equivalent of 1.7 bcfd of coal out of markets there. "The breakeven price for coal is above $4/MMbtu," he said.

Poten & Partners' Jim Briggs, who chaired the discussion, was skeptical about the reputed benefits of nuclear power, noting its huge costs not only to build but also to operate.

Contact Warren R. True at warrent@ogjonline.com.

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