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More LNG in the U.S. 'Inevitable,' But How Much, When?

The future of added liquefied natural gas (LNG) imports in the United States, including the West Coast, is not a question of "if, but when," according to a panel of industry executives speaking Tuesday at the "LDC Forum -- Rockies & West" conference in Los Angeles. What this means to price volatility and supply reliability is still unclear, however.

"LNG is not 'the' solution; it is part of a broader solution," said Jim Duncan, director of structured gas and power products at ConocoPhillips. He noted that with the continued increases in wholesale gas prices, the supply side of the equation is responding with new projects, new drilling and new pipelines. "The question is which part are you going to participate in because LNG will go somewhere at these prices," said Duncan.

Natural gas is in the midst of moving from a traditionally regional to a "globalized commodity," Duncan said. "There are such nuances going on in the world today that are causing prices to go where they are on a global scale, and we're just not used to it -- at least not in the natural gas world."

Sempra LNG's Dale Kelly-Cochrane, vice president of budgeting and planning, said the San Diego-based utility holding company, which has three LNG projects under development including one under construction along North Baja's Pacific Coast in Mexico, determined more than four years ago that LNG was "maybe a good business to get into" when it forecast a long, steep decline of domestic gas reserves in North America.

"What is very reassuring to us, particularly since we made such a big bet on LNG, is that various forecasters seem to be coming closer to our view," Kelly-Cochrane said. "So, we're sort of on a roll in terms of having an advantage of where the market is likely to be in terms of supply-demand in the U.S. longer term."

He equated California and the broader West in the United States to Japan's energy situation of being almost totally dependent on imports. "In the West, there is about 9 Bcf/d of demand, and almost all of that gas is imported," Kelly-Cochrane said. "It may not be imported from overseas, but it is imported from the San Juan or Permian Basins, the Rockies, or Canada. Only about 500 MMcf/d is produced in California. And our view is that all of these basins are going to be declining or flat over time, so we see a very real need for LNG in the western market."

Demand for natural gas in the West is very strong and is projected to stay that way, according to Mark Mitchell, a vice president in Constellation Energy's commodity group. With California representing two-thirds of the region's demand, the West consumes about 15% of the nation's natural gas, Mitchell said. California is the second largest gas consuming state behind only Texas. Projected demand growth in the state over the next 10 years is estimated at 14% over that time period, said Mitchell.

Roughly, there is about a 1 Bcf/d shortfall in supplies to satisfy all of the West's future projected demand, he said, noting that there is a "fair amount of headroom" in the still-unused capacity in the overall pipeline volumes available for importing supplies from various Western sources.

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