What's already a common provision in globally based liquefied natural gas (LNG) contracts -- flexible destination rights that allow shippers to reroute their cargoes to higher paying ports -- within 10 years will be included in all LNG deals. Most of the contracts for the gas slated to go through Sempra Energy's new North Baja California terminal that opens early next year in Mexico already have these so-called "economic dispatch" provisions. This development was part of what a panel told participants last Tuesday at the LDC Forum Rockies & West conference in Los Angeles.

LNG macro risks are lessening as more nations begin supplying LNG, according to James Osten, the chief natural gas analyst at Global Insight, and Henry Morse, TransCanada's project development director for the North Baja Pipeline tied to the Sempra Costa Azul LNG site.

Joseph D'Oris, a vice president with the proposed Jordan Cove LNG project along the southern Oregon coast, used the more mature Atlantic Basin LNG trade to extrapolate lessons for what will happen with the West and Gulf imports. "Probably the biggest revolution," D'Oris said, is the shift to contracts with so-called "destination flexibility."

"All the new sales and purchase agreements are allowing for 'economic dispatch.' That's destination flexibility. A lot of people out there take credit for it, but in reality it was the European Union that created this approach, and it has been a boon for everybody."

For the Atlantic Basin, LNG and the contract provisions for more flexible destination have allowed LNG to push gas into the realm of a global commodity, D'Oris said. "Will that be the same in the Pacific Basin?" he asked rhetorically, noting that there are a large amount of receiving terminals being built throughout the Pacific Basin, particularly in the Far East.

The first terminal in the North American West, Sempra's Costa Azul 60 miles south of the U.S.-Mexico border, has the majority of its contracts with flexible destination provisions, and some operating scenarios in the West have assumed that the terminal will be operating at 50% or less capacity on average in some years because of this.

Under current contracts, Royal Dutch Shell's Coral unit, which hold half the capacity at Costa Azul, has flexible destinations in all of its contracts, and half of the gas Sempra is bringing in under its 50% capacity ownership will have flexible destination provisions, according to Morse, who is aware of Sempra contracts due to his pipeline's interconnection with the plant.

Underscoring this globalization of gas markets, Osten, an economist, reported that his analyses over the years of the growing LNG sector indicate that "risks," which he defines as embodying political, economic, legal, tax, operating and security aspects, are clearly "diminishing" because of the growing portfolio diversification. The world's leading LNG supplier, Qatar, is growing more dependent on the U.S. market, so country risks are diminishing, too, Osten said.

"Ultimately, LNG will reduce riskiness in fuel procurement throughout the West," he said.

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