i read this one a little while ago. another take on the short run situation in the USA with respect to LNG:
Have terminals, need LNGBy Clifford Krauss
Published: May 29, 2008CAMERON PARISH, Louisiana: The cost of a gallon of gasoline gets all the headlines, but the natural gas that will heat many homes in the United States next winter is going up in price as fast or faster as the nation falls behind in a global race to secure the gas.
Only a month after Cheniere Energy inaugurated its $1.4 billion liquefied natural gas terminal here - a languid, alligator-infested marshland in coastal Louisiana - an empty supertanker sat in its berth with no place to go while workers painted empty storage tanks.
The nearly idle terminal is a monument to a stalled switch to liquefied natural gas, or LNG, a switch that was supposed to import so much gas from around the world that homes would be heated and factories humming at bargain prices.
But LNG shipments to the United States are slowing to a trickle, and Cheniere and other companies have dropped plans to build more terminals.
A longstanding assumption of U.S. energy policy has been that gas would be plentiful abroad, and therefore readily available for importation, as production falls off in North America, where many fields are tapped out. But some experts are starting to question that idea, saying gas could be subject to the same explosion in overseas demand that has made oil so expensive.
As it is, the supertankers that were supposed to deliver cargoes of LNG from Africa and the Middle East to the United States are taking them to places like Spain and Japan instead, pushing up natural gas prices and depleting U.S. stockpiles.
"A few years ago people looked at LNG as a solution to North America's gas needs," said Nikos Tsafos, an analyst with PFC Energy, a consulting firm. "But today we see that there is less LNG around than people expected and there is more competition for that LNG from markets that are willing to pay more than the United States."
Not long ago, Cheniere was a darling of Wall Street. It was widely praised for having the vision to plan four LNG terminals around the Gulf of Mexico to connect the United States with supplies of gas from places like Nigeria and Egypt, gas once considered so worthless it was burned off.
Now the company's stock price has sunk to just over $5 from $40 last autumn.
"The question that people ask is, if LNG doesn't come to the United States for another year or two or three, what is going to happen to Cheniere," Charif Souki, chief executive of the company, acknowledged.
While gas prices in the United States have spiked to over $11.80 per thousand cubic feet, or $330 per thousand cubic meters, an increase of 57 percent from the beginning of the year, the price gas producers can fetch is higher in many other countries in the world. All they need are terminals in producing countries that can chill natural gas to minus 260 degrees Fahrenheit (minus 162 Celsius) for shipping across oceans and terminals in consuming countries that can re-gasify cargoes.
Just about the only place where demand for LNG seems not to be growing is the United States, an abrupt shift from expectations as little as one year ago.Cheniere's Sabine Pass terminal was part of an estimated $7 billion expansion of eight new LNG receiving terminals being built in the United States around the Gulf of Mexico and along the Atlantic Coast over the past five years to guarantee plentiful supplies. With imports about 40 percent of the level of a year ago, and national receiving terminal capacity poised to double this year, the excess construction of import capacity has alarmed industry executives.
The executives predict, however, that it is only a matter of time before the white elephants begin to look like a more robust breed. They say U.S. natural gas suppliers will eventually be willing to pay the higher world prices on the spot market, especially if a gas shortage results from a punishing hurricane season or frigid winter.
They also predict U.S. consumption of natural gas is poised to increase because of hardening opposition to building coal-fired electricity generating plants and delays in new nuclear plants.
"Over time, we will need to start importing more gas," said Darcel Hulse, president of Sempra Energy, which is building receiving terminals in Mexico and Louisiana. "We will not have enough."
That was the thinking that spurred the LNG expansion in the United States in the first place. At the beginning of the decade, government officials and energy experts predicted a decline in U.S. gas production as conventional fields onshore and in the Gulf of Mexico declined. Companies like Cheniere, Sempra Energy and Exxon Mobil began snapping up coastal land and requesting regulatory approval for scores of terminals. Several other terminals were taken out of mothballs and expanded.
But recently, U.S. gas production has been stronger than expected and events abroad have drawn LNG from the United States to countries that needed it more.
Last July, an earthquake in Japan forced the closing of the Kashiwazaki-Kariwa nuclear power plant, which in turn has forced Japanese utilities to import huge amounts of LNG. World LNG supplies grew even more scarce because of a persistent drought in Spain that has crimped hydroelectric capacity, forcing the Spanish to increase LNG imports. Prices in Asia and Europe have soared, as producers have sold more supply on the spot market where prices are higher than those in traditional long-term contracts.
World demand for natural gas has grown about 2.6 percent a year over the past decade, but in Asia, the Middle East, Latin America and Africa it has averaged 7 percent over the same period, according to a recent UBS report. Growth in the developing world is expected to be supported in the years ahead by a construction boom in refineries, power plants and petrochemical plants.Supplies of LNG are going to grow in the next few years, but experts say there will not be enough to satisfy the growing demand. Liquefaction plants that prepare the gas for shipping in producing nations like Nigeria and Russia are being delayed and even shelved because of political turbulence, cost overruns and increasing domestic demand. Production in one major terminal in Indonesia is sliding because of a declining field, and production in another in Norway is facing mechanical difficulties.
With LNG providing only about 3 percent of total U.S. natural gas consumption in recent years, the fall in imports has made few headlines. But some experts say those responsible for importing gas are making a mistake by not buying more LNG at current prices. They say low LNG imports have helped push U.S. natural gas prices higher, just not high enough to match the prices of Europe and Asia, whose ability to produce and store gas is far lower than that of the United States.
Andrew Grams, head of North American power and gas trading at Deutsche Bank, said the United States might eventually pay dearly for not importing more LNG now. He calculated that given the reduced LNG imports and expected energy use through this summer, the United States will have only 3.1 trillion cubic feet of gas in storage at the end of October - almost 1 trillion cubic feet below full storage.
"Under a normal scenario, that's just barely enough to get through winter," Grams said. "It doesn't take a rocket scientist to figure out that we may not get enough LNG supply in the United States unless our pricing structure becomes more competitive with the rest of the world."
Natural gas, unlike oil, is still a regional commodity, and its price is only loosely connected to world oil benchmark prices. But LNG has tied regional markets closer, and the arc of gas prices appears to be following close behind oil in recent months because of tightening LNG supplies.
It has become more expensive to explore for oil because of labor shortages and increases in the price of materials like steel. Those same factors are making LNG development more costly, too. Meanwhile, countries like Libya and Algeria that produce oil and gas are replacing their oil-powered electricity plants with gas-powered ones. That way, they are able to export more oil, which costs less to ship than LNG.
"The value of gas to you is what people are willing to pay for the oil you are exporting," said Don Hertzmark, a consultant who has advised several oil companies on LNG projects. "At that point, the gas is worth a lot of money."
