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FBR Analysts: LNG Summer to Be 2 Bcf/d

Predicting flows of liquefied natural gas (LNG) to the United States this summer and beyond might make for a fun industry parlor game if so much wasn't riding on what actually happens. Analysts at FBR Capital Markets on last Monday said there will be a further squeeze on domestic producers from LNG imports.

"[W]e continue to believe that LNG imports (1.4 Bcf/d April to date and 1.8 Bcf/d peak flow) will reach above 2.0 Bcf/d on a sustained basis this summer," FBR analysts Rehan Rashid and Michael Jones wrote in a research note. "[W]e believe flows to the U.S. are further augmented by a slackening global demand environment. The equity implication is a nail in the coffin for marginal production as basis blowouts near import facilities at the Houston [Ship] Channel and Perryville [Hub] provide another bear market signal of excess supply."

However, others would disagree and note more robust global demand for LNG. Last week Barclays Capital analysts pointed to China, Europe and India as providing support to global LNG demand (see NGI, April 27a). However, the Barclays report was later dismissed by one gas broker as hype. "They claim the Asian markets have seen an increase in demand and that Europe might choose to keep their LNG at home because they are worried of what [Russian Prime Minister Vladimir] Putin might do going into the winter," the broker said. "I think the Barclays piece reads more like a contrarian report, where the guy just wants to get his name in the paper. I think the foreign gas is on the way" (see NGI, April 27b).

The Barclays analysts noted that predictions of LNG imports this year are varying widely, much more than usual. One Rockies player recently suggested to NGI that the U.S. market could be getting 6 Bcf/d of LNG this summer (see NGI, April 20).

For their part, the FBR analysts wrote that they were modeling Japanese demand for LNG at minus 2% this year and up 2% in 2010 and 4% in 2011-2012. They said demand in South Korea would be down 1% this year and then would rebound.

"As for China, we continue to watch import projects but, at this juncture, allot it full capacity, growing from 0.4 Bcf/d to 1.8 Bcf/d by the end of 2012," the FBR analysts wrote. "In India, lower refined products will likely allow industrial users to return to naphtha usage versus higher-priced LNG, but we still project 4% CAGR [compound annual growth rate] growth in India from 2009 to 2012 with Petronet's new Kochi terminal."

Petronet LNG is the largest importer of LNG in India, where it accounted for about one-quarter of the country's gas supplies in fiscal year 2009, according to industry reports. For the quarter ended March 31 Petronet profit was up 70%.

Meanwhile Japan's largest gas utility, Tokyo Gas Co., said recently it would build the world's largest LNG tank near Tokyo to meet growing demand.

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