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Consultant Predicts Global LNG Spending Boom

Capital spending worldwide on liquefied natural gas (LNG) is poised to reach new peaks between now and 2012 with $106 billion expected to be spent on export terminals, tankers and import terminals over the next five years, according to research by consultancy Douglas-Westwood Ltd. of the United Kingdom.

However, the spending will be lumpy, as is often the case with LNG cargo deliveries, at least as seen in the United States of late. "[P]roject delays will create an expenditure profile that has significant year-on-year peaks and troughs..." said Steve Robertson, the firm's oil and gas manager. "However, the overall conclusion is that LNG remains a growth market and expenditure levels continue to follow an upward trend."

This winter, though, LNG supply is expected to be tight. "There's not going to be much supply available," independent consultant and LNG industry veteran Andy Flower told Bloomberg news service recently.

Lucy Miller, who wrote Douglas-Westwood's "World LNG Market Report 2008-2012," said Asia will see the largest portion of the global LNG spending, accounting for 43% of the firm's spending forecast. The Middle East is projected to be the second biggest spender. Combined, the two regions will account for 58% of the projected spending, Miller said.

"Meanwhile, the limits of domestic gas production in North America and Western Europe are becoming clear, and gas import demands are rising," Miller said. "Increasingly, LNG is a method of choice in satisfying growing gas demand in these regions."

That assertion would seem to overlook the phenomenon of booming production growth in numerous gas shale plays in North America. Some of these are maturing while others are just emerging. According to Raymond James & Associates Inc., shale plays have triggered a massive upward shift in U.S. natural gas production and are driving unprecedented growth, with output from publicly traded exploration and production companies in 2Q2008 up 6.7% year-over-year (see NGI, Aug. 18a).

"On the strength of booming unconventional supply, U.S. natural gas supply is up 7-9% year-over-year," wrote Lehman Brothers analysts in a recent report (see related story). "This supply increase has more than made up for the decrease in imported gas that drove fears of market tightness earlier in the summer. Although imports are down significantly from last year, the story of U.S. gas imports is a principal reason why we expect the market to continue to loosen relative to last year."

Aubrey McClendon, CEO of Chesapeake Energy Corp., is so bullish on unconventional gas production in the United States that he's floated the idea of exporting some of it in the form of LNG (see NGI, Aug. 4). And Alaska's governor recently reaffirmed a commitment to adding another LNG liquefaction and export terminal to her state's energy arsenal in anticipation of one day producing and piping gas from the Alaska's North Slope (see related story).

And at least for now, one U.S. LNG import terminal would like to take some of its stockpiles out of the country. Saying worldwide demand and relatively low prices in the United States have slowed deliveries of LNG to its Texas terminal, Freeport LNG Development LP is looking to reverse the flow by seeking permission to export previously imported LNG to Europe and Asia (see NGI, Aug. 18b).

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