Those who were expecting a flood of LNG imports into the United States last year were sorely disappointed, but the Energy Information Administration (EIA) is optimistic there will be a "substantial" LNG rebound this year and sustained growth thereafter. Not everyone shares EIA's views, however. Some experts say the market will have to wait until late in 2008 before a noticeable influx of LNG occurs.
"EIA expects a revitalization of U.S. LNG imports during 2007 and 2008 with significant increases in year-over-year change," the agency said Thursday in a supplement to its Short Term Energy Outlook for January. "EIA's LNG import forecast is based in part on supply expansion in the global market over the coming years, including exports from up to three new source countries (Equatorial Guinea, Norway and Yemen)."
EIA says LNG imports could jump 35% this year to 2.11 Bcf/d (770 Bcf/year) from about 1.59 Bcf/d (580 Bcf/year) in 2006 and could rise by another 38% in 2008 to 2.96 Bcf/d (1,080 Bcf).
Energy consultant Stephen Thumb of Energy Ventures Analysis Inc. doesn't share that optimism, however. "I think the LNG boom is out there," he said in an interview with NGI. "It's just that it's not until the second half of 2008. When you start to get into 2008, then that's when it really starts to get exciting. The number of liquefaction projects just goes up significantly."
One of the obvious problems currently for LNG imports is high domestic gas storage levels and downward pressure on prices. According to Thumb, that situation is not likely to improve for some time. He believes prices may bottom out near $4.75 this spring when a record level of gas is left in storage. "Europe is warm, we are warm and we are likely to get the standard amount of LNG in the first quarter, nothing special. Asia apparently wants to gobble up a few extra cargoes so they will float that way. But even if you have three cargoes going that way, it's not a lot of gas because the LNG spot market is so small.
"For 2006 the storage overhang was 'the story,'" said Thumb, and for 2007 and into 2008 the storage overhang will continue to be the story. "We think even though we will eat into some of the storage overhang because this January probably won't be as warm as last January, if you look at the forecasts by [the National Oceanic and Atmospheric Administration] it's supposed to be warmer than normal in February and warmer than normal in March... We think we will have a record at the end of March in terms of the amount of gas left in storage."
Looking at all the injection scenarios, Thumb also believes there will be another record level of gas in storage on Nov. 1, 2007.
Because the U.S. currently relies on the global spot market for much of its LNG, it has had to compete with higher priced markets in Europe and Asia. That led to the 8% decline in imports in 2006 to 580 Bcf from 631 Bcf in 2005, according to EIA. LNG imports in the U.S. last year were 11% below the peak set in 2004 of 652 Bcf. Meanwhile, European LNG imports were up about 12.6% last year through October compared to levels in 2005. For the year, Europe is expected to exceed 2 Tcf, the agency said. LNG imports in Asia, the largest importer, rose about 10% last year to nearly 4,900 Bcf, according to EIA estimates.
Part of the reason U.S. LNG trade volumes last year were below most projections was that the global market turned out to be tighter and more competitive than many expected, EIA said. Although nameplate liquefaction capacity increased in many exporting countries, capacity utilization lagged due to delays, maintenance issues and feedstock difficulties. Difficulties in acquiring feedstock supplies occurred in Trinidad and Tobago and Nigeria. Meanwhile, U.S. imports also were affected by a lack of long-term contracts relative to other markets.
"With the exception of deliveries from Nigeria and Trinidad and Tobago, U.S. importers have not yet begun to bring in the large volumes of LNG under similar long-term arrangements," the agency noted.
However, EIA said current futures markets indicate that higher LNG netbacks could favor the U.S. market as 2007 progresses. Furthermore, a number of liquefaction projects are earmarked for the U.S.
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