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Analyst: LNG Imports Expected to Grow Sharply This Winter

If gas production shut-ins from damaged facilities due to Hurricane Katrina continue into the coming winter, significant stress could be placed on the market and prices almost certainly would be pressured even higher. However, the market might finally get some help from a source that has been in surprisingly short supply so far this summer: liquefied natural gas (LNG).

So far in 2005, LNG imports have been disappointing, as AGL Resources CEO Paula Rosput Reynolds noted in a presentation to the Georgia legislature on Wednesday (see related story). She said LNG imports at Elba Island, GA, haven't been helping much with the significant lost production from Katrina -- currently about 4 Bcf/d -- despite an expansion at Elba in June that pushed its import volumes up by nearly 70% to more than 13 Bcf/month.

"Most of the LNG is going to Spain," Reynolds noted. Europe has had a dry summer and strong energy demand, and utilities there have been willing to pay a premium for LNG. However, that may be changing.

No one expected Europe to out-compete the U.S. for spot LNG cargoes this summer, said Steve Johnson, who tracks the LNG business for Commercial Services Co.'s U.S. Waterborne LNG Report. "That finally has started to dissipate a little bit. The high prices in the U.S., lower demand in Europe and rising gas stocks in Europe [in August] have allowed a lot of cargoes to start flowing this way again, so I think September is going to be a surprisingly high import month and I think October, November and December will be relatively strong import months as well.

"The potential for our highest LNG import months is definitely ahead of us this year," he said.

In addition to the strong LNG demand in Europe that was drawing LNG away from the U.S. market this summer, Trinidad, the largest supplier of LNG to the U.S. market, performed unexpected maintenance in August, shutting down its entire operation for seven straight days. There also was a fire on a pipeline that cut deliveries to liquefaction plants in Nigeria, which was scheduled to send gas to the U.S.

Excelerate's Energy Bridge in the Gulf of Mexico lost one cargo previously scheduled to arrive in September because of the fire in Nigeria.

These little nagging setbacks in LNG delivery chain are expected to finally go away this fall and winter, and the U.S. market may finally see the substantial import gains it had been expecting at the beginning of the year.

"The lynchpin is going to be European demand to a certain extent," said Johnson. "I've currently got on the books about 70 Bcf for November and about the same for December. That's what's on the schedules. But Lake Charles will be the winter workhorse. And they could go either way; that's the problem. If there is any surge in demand or supply interruptions, BG [Group] will be the first to feel it at Lake Charles because they compete directly with Europe and Asia. They compete for the same cargoes.

"The reason my numbers are so strong in November and December is because we should have Idku 2, a new train running in Egypt, which will be adding volumes [to the U.S.] and we also will have Train 4 in Trinidad up and running. We are supposed to get the first cargo from Idku 2 at the end of September." Johnson said he's expecting two 3 Bcf cargoes a month from Idku 2 from October through January and five per month starting in February.

About 690 MMcf/d of gas will be delivered to the U.S. market by Train 4 in Trinidad starting in October. In addition, about 270 MMcf/d on average could come from Nigeria in October with another 270 MMcf/d from Train 5 in Nigeria starting in December.

The Waterborne LNG Report forecasts that total U.S. LNG imports, which were about 56.4 Bcf in June, 53.7 Bcf in July and only 41.8 Bcf in August, will rise to 65.2 Bcf in September, 65.6 Bcf in October and 70 Bcf in both November and December, for the highest LNG imports ever recorded in the United States.

For more on Waterbourne LNG go to www.waterbornelng.com.

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