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EIA's Caruso Expects Price Effects of LNG to be Felt by 2010

The swarm of liquefied natural gas (LNG) shipments that are expected to flow into the United States over the next five years will put considerable downward pressure on currently inflated natural gas prices, the head of the Energy Information Administration (EIA) told a Senate energy panel last Thursday.

By 2010, "when a large component of new LNG comes into the United States," the average wellhead price of natural gas will sink to below $4/Mcf, a price the market has not seen for some time, said EIA Administrator Guy F. Caruso during a hearing of the Senate Energy and Natural Resources Committee to review the EIA's Annual Energy Outlook for 2005.

"The U.S., of course, will be a major player" in the worldwide LNG market over the next two decades, with the nation's net imports of LNG anticipated to climb from 0.4 Tcf in 2003 to 6.4 Tcf by 2025, he noted.

Domestic demand for gas is expected to grow 40% over the next two decades due mainly to the power generation and industrial sectors, according to Caruso. That translates into more than 8.5 Tcf of additional demand that will be created.

The bulk of the gas needed to meet the demand growth -- approximately 6.5 Tcf -- will be imported over the next 20 years. And most of the gas imports (6.4 Tcf) will be in the form of LNG, he told the Senate committee. During this period U.S. gas production will increase, but only slightly, as a result of deep-water drilling, Caruso said.

"Natural gas is moving in that same direction" as crude oil. Caruso said net oil imports last year accounted for 56% of U.S. consumption, and are likely to grow to about 68% by 2025.

The U.S. is not the only nation whose oil and gas appetite has grown, according to Jeffrey Logan, China program manager for the International Energy Agency (IEA). He noted the energy demand of the developing countries in Asia, particularly China, has surged since 2000.

China's oil demand has grown 27% over the past two years, while the country's domestic production has been stagnant. As a result, China's crude oil imports have climbed during that period, Logan said. To lessen its oil dependency, the country has taken "major steps to boost the use of natural gas," and demand has developed "fairly quickly."

This seems to mean that "the future for [China] is natural gas," said Senate Energy Chairman Pete Domenici (R-NM). Logan noted China's gas supplies came from domestic production, pipeline gas from Russia and LNG.

China has a leg up on the U.S. in that it is closer to much of the worldwide LNG supplies. Key LNG suppliers include Algeria, Trinidad and Tobago and Nigeria, as well as the Asian suppliers of Malaysia and Indonesia, according to Caruso. He noted that other up-and-coming LNG suppliers are Russia, Norway, Qatar and Australia.

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