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LDCs Should Contract Longer Term to Support LNG, Says Spectra Energy Exec

Liquefied natural gas (LNG) is not going to be the "silver bullet" that people in the natural gas industry once thought it would be, and to ensure that North America gets its share, gas utilities need to commit to longer term supply contracts and the continent's storage resources need to be developed further, said Spectra Energy Transmission President Martha Wyrsch.

Wyrsch was the keynote speaker at Infocast Inc.'s Midstream Gas Assets conference Thursday in Houston. During her talk, she touted the role of gas as a "bridge fuel" to the industry's next phase of increased reliance on renewable energy. To ensure that gas plays the role that is required, Wyrsch said state and federal regulators need to create an environment that is more friendly to long-term supply contracting by local distribution companies (LDC).

She said that LDCs are still too comfortable to contract for supplies one year at a time or buy on the spot market. LDCs generally have not taken up financial hedging, either, Wyrsch said.

"If we don't see longer-term contracts entered into by LDCs, I don't think we're going to see a steady source of LNG supply beyond what we currently have," Wyrsch said.

Indeed, the United States has found itself competing in a global market for LNG, while on its home continent it is jockeying for gas supply against Canada and Mexico. Wyrsch noted that more Canadian gas production is being consumed in the Alberta oilsands and said that all of the gas produced in Alberta could one day be devoted to oil production. The United States needs to work with Canada and its producers to find alternatives that would free up more Canadian gas for export to U.S. markets, she said. Meanwhile, south of the border, Mexico will be competing for LNG against the United States.

On the other side of the midstream -- the supply side -- Wyrsch said that producers are willing to commit to contracts of 10-15 years in length to get their supplies downstream to liquid trading points. They aren't, however, wanting to contract all the way into the market, she said.

Spectra and others in the industry are fully engaged in developing new and expanding existing gas storage assets, particularly in the Gulf Coast region, in anticipation of more LNG coming ashore. The United States continues to offer strong summer-winter arbitrage, and throughout the year storage will be necessary to take the lumpiness out of LNG deliveries. "It comes in these huge slugs," said Wyrsch. "It's not like the flowing gas that we're used to."

Wyrsch said she believes there will be unintended consequences that will arise from increased importation of LNG. Right now, the industry doesn't know what the full impact of more LNG will be on gas prices, basis, transportation, etc.

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