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CEO Papa: LNG Trends Fueling Bullish Attitude

With liquefied natural gas (LNG) projects popping up across the globe -- some in unlikely places -- EOG Resources Inc. CEO Mark Papa said the outlook for domestic LNG remains something of a mystery, but his company remains bullish about U.S. gas prices.

"What's most intriguing about the price outlook are the LNG import levels," Papa said during a conference call Friday. "Non-U.S. LNG demand was significantly stronger than most had predicted a year ago. Is this a harbinger of things to come for 2009 and later periods? We now know that LNG import terminals are being considered in Argentina, Dubai, Brazil...places no one predicted a few years ago would want LNG or have LNG.

"This critical LNG demand growth is something we need to watch closely. If this global demand growth continues to surprise on the upside, it will be bullish for North American gas prices."

Papa's comments came in the same week that Questar Corp. CEO Keith Rattie said he expects to "see more freed-up LNG floating supply this summer, and some of that could end up in the United States" (see Daily GPI, April 30) and NRG Energy Inc. CEO David Crane said his company had a "fundamentally bullish" attitude toward natural gas prices, based in part on "the fact currently that it seems highly unlikely that [LNG] spot cargoes will keep the lid on prices this summer" -- because of higher LNG spot prices in both Europe and Asia (see Power Market Today, May 2).

According to a monthly outlook by Natchez, MS-based energy analyst Stephen Smith, LNG imports averaged 0.77 Bcf/d in the first 25 days of April, about 2.5 Bcf/d below the same period a year earlier. Smith said he expects to see a seasonal increase beginning this month, "but this year's May/June LNG imports are likely to be considerably lower than the 3.0 Bcf/d average recorded for last year's second quarter."

In April two new LNG terminals along the Gulf Coast -- the Freeport LNG terminal on Quintana Island near Freeport, TX, about 70 miles south of Houston, and Cheniere Energy Inc.'s Sabine Pass LNG terminal in Cameron Parish, LA -- received their initial commissioning cargoes, setting the stage for the facilities to enter operation within a few months (see Daily GPI, April 15a).

But some domestic LNG projects have not fared as well. At about the same time Freeport and Sabine Pass received their shipments, the initial tanker shipment of LNG due to be delivered to Excelerate Energy's Northeast Gateway offshore system in Massachusetts Bay was delayed until some time this month (see Daily GPI, April 17). More recently, the Federal Energy Regulatory Commission (FERC) said it was dropping consideration of the proposed Quoddy Bay LNG Import Project in Washington County, ME, due to the sponsor's failure to answer questions and the fact that the project could be modified (see Daily GPI, April 28). And Broadwater Energy's efforts build an LNG terminal and associated pipeline in the middle of Long Island Sound have run into some powerful opposition, including the New York State Department of State and New York Gov. David Paterson (see Daily GPI, April 11).

FERC estimates that a total of 40 LNG projects are before the agency or being discussed by the LNG industry, but it expects only a dozen will ever be built. Major domestic LNG projects under way include:

Last month energy analysts at Lehman Brothers said LNG imports averaged 0.86 Bcf/d in 4Q2007 and 1Q2008, less than previously predicted because of the tightening global market (see Daily GPI, April 22). That report followed a forecast from the Energy Information Administration in March that said U.S. LNG regasification capacity will nearly quadruple by 2009 to 5.7 Tcf, but considerably less LNG supply will be available due to global supply constraints (see Daily GPI, March 5). In January Ziff Energy said North American natural gas demand will increase to 81 Bcf/d in 2015 as an abundance of lower-cost LNG floods the market and drives down prices (see Daily GPI, Jan. 8).

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