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U.S. Remains LNG Market's Stepchild

Imports of liquefied natural gas (LNG) to the United States this year will fall "well short" of the 770 Bcf seen last year, likely hitting only 420 Bcf, an amount "staggeringly below" previous projections, according to Houston-based consultancy Waterborne Energy Inc.

"We knew U.S. LNG imports would fall short of 2007 volumes when we saw delays in new production and demand rising in Europe and Asia," said Waterborne President Steve Johnson.

According to Johnson, drought conditions in Spain, a prolonged nuclear shutdown in Japan and increased demand for LNG among power generators have changed market dynamics. "When demand increases and supplies remain flat, the U.S. is the first to come up short," he said. "The U.S. serves as the 'sump' for excess supplies of LNG and is the only country whose imports are largely driven by profit and not necessity. So, product we expected here is now being sold to the highest bidders in Asia and Europe."

Industry observers were hoping for another record year of U.S. LNG imports based on 50 Bcf/month of new production that was expected to hit the market earlier this year. However, according to Tudor, Pickering, Holt & Co. Securities Inc., sendout from U.S. LNG regasification terminals is down markedly from a year ago. In the first quarter sendout was about 0.8 Bcf/d compared to about 1.9 Bcf/d a year ago.

"Delays at projects in Norway, Qatar, Nigeria, Australia, Russia and Yemen resulted in short supplies," said Johnson, who noted a recovery for U.S. LNG imports next year is possible if planned new production of 72 Bcf/month comes on-line.

Whatever LNG does come to U.S. shores in the future will likely cost more. Analysts at Sanford C. Bernstein & Co. in a report last Thursday said there is a potential for LNG to be priced at parity or even a premium to oil. Although prices may decline next year and in 2010, tight market conditions in the years thereafter due to limited new supplies could raise LNG prices beyond those of oil.

"The more LNG that comes on-line prior to next summer, the bigger the impact on U.S. import volumes. We could see volumes in excess of 2007 levels of 770 Bcf," said Johnson.

Recently, industry executives and observers have predicted a dearth of LNG cargoes available to the United States given the thirst for the liquefied fuel in Asian markets (see NGI, May 26; May 19).

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