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Analysts Look to Europe for LNG Hints

Whether the long-predicted tide of liquefied natural gas (LNG) imports comes to U.S. shores as a torrent or a trickle remains to be seen. The predictions of two industry watchers vary greatly, but they're both looking to Europe for clues.

Waterborne Energy Inc. President Steve Johnson suggests that a "huge bubble of LNG production" will add 5.4 Bcf/d to global supply, increasing worldwide LNG exports by at least 25% by the end of 2010. As the recession is cutting gas demand around the globe, there is a "large overhang of uncommitted LNG," Johnson said, noting that the United States has the world's largest gas storage capacity and is the most under-utilized importer of LNG.

The LNG surge will happen this winter and will peak around the middle of next year, Johnson told participants last week in Oil & Gas Investor magazine's webinar "The LNG Challenge: The Outlook for Imports, Prices and Emerging Challenges and Opportunities." While some have predicted large takes by European players, Johnson said this is unlikely as the continent's storage capacity is not readily accessible to LNG. Further, Russian gas is likely to fill Europe's storage thanks to take-or-pay contracts, he said.

Johnson's co-panelist, Zach Allen, president of Pan EurAsian Enterprises Inc., takes a different view of LNG supply and of Europe's role in the LNG marketplace.

LNG imports into the United States are 28.8% greater this year than last, Allen said, but last year was a low year and, in fact, this year's imports are half of what they were in 2007, the year of the last LNG surge. Indeed, he noted that the regasification activity taking place in the United States now could have been served by the capacity that was available in 2002.

"The surge hasn't happened and I'm increasingly believing it's not going to happen," Allen said. He suggested that the "whole philosophy" behind the LNG surge is that the LNG will have to come to the United States. "It isn't coming because it doesn't need to come to the market of last resort," he said.

That's because European storage caverns -- although they offer much less capacity than U.S. storage -- are relatively barren. Storage is way down, particularly in France, and Europeans are looking to ween themselves from pipeline gas from Russia given Ukraine's problems with Russian supplies. Allen conceded that the pipeline grid in Europe is nothing like that in the United States and that storage caverns are not as well connected to LNG; however, he said regasified LNG can help fill European caverns by displacement.

"I'm not going to say to you that there won't be some increase in the imports of gas to the U.S., but I doubt you're going to see anything like 2.5 to 3 Bcf/d into the [regasification] terminals..." he said.

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