As Europe's natural gas markets unbundle and gas supplies from the North Sea decline, gas company executives from the European Union and its suppliers projected a larger role for liquefied natural gas (LNG) and debated the development of a global gas market at the 22nd annual European Autumn Gas Conference in Dusseldorf earlier this month.

"Due to a significant decline in indigenous production and market growth, import dependency will grow," and "LNG is projected to significantly increase its share in supplies until 2020," E.on Ruhrgas Chairman Burckhard Bergmann told the group.

There is considerable uncertainty, however, as to how much LNG Europe will require, depending on the competitiveness of gas prices compared to other fuels, the status of the European and world economy, the security and potential of supply from Russia and North Africa, energy efficiency measures, the impact of nuclear energy and renewables -- and the obligation to use them -- and international climate protection measures. Also, there is the increasing demand and competition for LNG in the world market from India, China and other Asian countries.

Bergmann showed a slide depicting six different scenarios for European gas demand in 2025, from slightly less than its use in 2005 of nearly 500 billion cubic meters (bcm) to more than 600 bcm (compared to estimated growth from about 620 bcm to 800 bcm for the United States). A base case shows LNG imports going from 10% to an 18% share in the overall supplies of the 27 member countries of the European Union by 2020.

Other gas industry executives stressed the European supply uncertainty includes the massive investment needed for new infrastructure to tap the new supply sources."There is a hunger for huge investments in gas infrastructure," said Camillo Michele Gloria, senior vice president of the Italian Eni Gas & Power. Projecting a mid-case supply/demand gap of 200 bcm by 2020 for the European Union, Gloria said it would take billions of dollars to develop new supply and infrastructure. He suggested a partnership with gas producers.

But, "there is no crisis of supply in the future," Vitaly Vasiliev, CEO of the Russian Gazprom Marketing and Trading (GM&T), said. Gazprom sees increased upstream supply development, new infrastructure and expanded markets. Besides expanding to new markets in Europe, Gazprom is developing its LNG capabilities to deliver to North American markets on both the Atlantic and Pacific coasts, and to China, South Korea and Japan. In the Asian markets there also is a potential for large pipeline gas deliveries, Vasiliev said.

All it needs is investment. There are ample opportunities for partnerships, including infrastructure projects, Vasiliev emphasized. "GM&T has entered the U.K. market as an innovative and dynamic supplier of natural gas at competitive prices," and has an equal interest in long-term European supply stability.

As for pricing, Germany's Rhurgas sees the European market continuing to rely on oil price indexing, particularly for long-term contracts as "a sustainable pricing model even in open and increasingly liquid markets." Using the oil price "prevents producers from unilaterally determining gas prices and prevents sharp price increases and high short-term volatility, Bergmann said.

Other speakers expect to see a growing spot market with LNG going to the highest bidder around the world. Excelerate's new president, Rob Bryngelson, talked of the increasing "optionality" of the LNG market with new ships capable of ship-to-ship transfer and changing direction in mid-ocean to go to the highest return. The U.S. company put into service in 2005 the first offshore LNG terminal, the Gulf Gateway Deepwater Port, a buoy connected to an underwater pipeline that accepts gas that has been regasified on the ship. It expects to have its Northeast Gateway Deepwater Port east of Boston in service this December.

Today Excelerate has three regasification vessels in service and five more under construction. Besides providing the product as vaporous natural gas, the ships can deliver LNG in its standard form. Bryngelson cited one ship that loaded in Trinidad then delivered 5% of its cargo vaporized to commission the company's new Teesside GasPort in Great Britain, then did a ship-to-ship transfer, sending 90% of its cargo to be delivered at U.S. points as a liquid at Cove Point, MD, and the last 5% regasified and put into the offshore buoy at Gulf Gateway, off the Louisiana coast.

LNG cargoes to Asia have increased this year, Simon Cattle, head of Gas Trading -- Europe & LNG, for BP Gas Power & Renewables, pointed out. With an Asian LNG price running to $9.00/MMBtu, the European price, the National Balancing Point (NBP) in the United Kingdom, which averaged about $4.30/MMBtu January to July was not as attractive. The U.S. also claimed a number of cargoes in that time period as the Henry Hub price averaged $7.20/MMBtu.

A large volume of new LNG supplies is expected to be coming on-line in the next few years, but the LNG cost trend has reversed, Cattle said. Liquefaction construction cost per metric ton had declined to a low of about $225 in the 1990s, but it is now on the rise with a $300/metric ton cost in 2005 and possibly $900/metric ton cost in 2008, Cattle said.

Right now it's hard to predict whether in the future it will be a buyer's or a seller's market, Jean-Pierre Cave, general manager commercial for Nigeria LNG Ltd., said. "Today we're sold out." For the future he offered three possible scenarios:

The conference program is available at www.theeagc.com.

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