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LNG Predicted to be 'Wildcard' on Prices, Storage Capacity

Liquefied natural gas (LNG) imports likely will be the most important determinant of market conditions over the next 10 years, affecting prices and storage, an energy consultant said Friday.

Kevin Petak, director of energy modeling and forecasting for Energy and Environmental Analysis (EEA), joined executives from Columbia Gas Transmission and ENSTOR Operating Co. LLC on the final day of the 19th Annual GasMart convention in New Orleans.

With a "fairly tight supply balance" in North America and continuing high price levels for the near term. EEA is forecasting "robust demand growth over the next 10 years, with growth at about 8 Tcf a year by 2015." Included in that growth is about 1-1.5 Tcf a year from Canada.

"Demand leads the supply market for the foreseeable future," said Petak, with the biggest growth continuing to be in the power sector. "By and large, existing gas-based capacity will meet most of the incremental growth in electric demand during the next 10 years," Petak said.

While there is an "abundant" gas supply in North America, with growth continuing in the Rockies and the deepwater Gulf of Mexico, Petak warned that in the next few years, the United States will need LNG imports and new Alaskan gas. By 2015, EEA is forecasting 25% of North American gas supply to come from Alaskan gas.

Petak said to expect continuing gas price volatility going forward. "Substantial price volatility suggests a need for additional gas storage," he said. "Over the next year, we are forecasting substantial price volatility just based on the weather." Continued price pressure is expected to "persist until there are new LNG terminals, between 2008, 2009 and 2010, then there will be a substantial price drop." In the long term, gas prices will be in parity with oil prices.

Petak told attendees that gas price volatility will continue at "fairly high price levels" for the next few years because of robust demand growth. However, depending on the number of LNG terminals completed between 2008 and 2010, prices may EEA forecast three scenarios for gas prices going forward, but he said the price will mostly depend on the amount of LNG brought into the market.

"Different levels of LNG will yield different scenarios" for prices, said Petak. Although 50-plus LNG terminals are planned in North America, EEA does not expect all of them to be built. However, if there is "little" growth in LNG, it would constrain the market by 2015, keeping demand near today's level. There also would likely be more demand destruction.

"The bottom line is that LNG will have a very big impact on the marketplace," said Petak. "We expect to see $5-plus gas prices, unless a "large LNG import scenario evolves."

Carl Levander, vice president of Marketing & Regulatory Strategy for Columbia Gas Transmission, said changes in the physical market supports new gas storage, and he agreed that LNG will be an important storage factor as the supply increases.

"Will storage be adequate?" Levander asked. "The true answer is, we don't know," said Levander. "In the near term, there will be little LNG expansion, and right now the wildcard is weather and domestic production reliability." However, he said that "post 2008," Columbia expects new storage development will be underway, and infrastructure will be redesigned.

After 2008, Columbia Gas expects there to be "sufficient LNG" coming into the market, with storage development underway.

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