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Study: U.S. to Surpass European LNG Imports in Next Decade

Although the U.S.liquefied natural gas (LNG) import market is cheerless this year, a study commissioned by the American Gas Foundation says the United States will be a "desirable and dependable destination" for imports and is likely to exceed those going to Europe within the next decade. But it concedes that there will be little to smile about in the short term.

"As the world's LNG supplies grow and global energy markets stabilize, the U.S. will find that it is more than able to compete in global LNG markets. Even though others will sometimes pay higher prices, the U.S. will offer sustained prices sufficient to support LNG projects from around the world," said the study by Benjamin Schlesinger and Associates, a Bethesda, MD-based energy consultant, and Houston-based Poten & Partners and Altos Management Partners.

"Additionally, the U.S. will be a desirable and dependable destination for LNG because of the sheer size and depth of its gas markets, its world-leading underground gas storage infrastructure and the innate flexibility of its commodity gas trade," the 58-page report said.

The U.S. will need more LNG imports to supply growing gas demand for electricity generation and to help meet the emissions-reduction targets of climate change strategies. The study, which was released last Tuesday, predicts that U.S. LNG imports, which have accounted for only 2-3% of the domestic gas mix over the past three years, will likely surpass those of Europe within the next decade. But it expects the Asian market for LNG to remain the world's largest in the meantime, especially as China and India increase their LNG imports.

"The U.S. is poised to expand its involvement in LNG markets, with 11 Bcf/d of import terminal capacity under construction that will triple U.S. LNG receiving and regasification capacity by year-end 2009. Even at today's relatively low volumes, the U.S. is already a significant potential player in the global LNG market," the study said.

"In the medium and longer term, far more LNG will be available to meet U.S. buyers' needs. Nineteen gas liquefaction trains at 12 complexes on four continents are now in or nearing their construction stages. Together these will increase by more than 50% the availability of LNG in world markets in the next decade. Sellers in eight to 12 countries will be providing LNG to the U.S. market by 2016, with the largest two suppliers likely to be Trinidad and Nigeria," the report said.

"In the short term, until worldwide LNG supplies increase more substantially and U.S. demand requirements increase as projected, [there will be] relatively little LNG headed toward this county," it said, adding that the domestic price environment makes shale gas and other unconventional supplies more economic.

LNG supplies are going to Asia (Japan, Korea and Taiwan) and Europe rather than to the U.S. because those two continents' gas prices are indexed to higher crude prices, which means they can pay more for LNG compared to the United States. In the U.S., LNG prices are a direct reflection of gas prices in the vicinity of the LNG terminal where LNG is imported, with one notable exception -- Boston during the winter.

"During winter peak heating seasons...Boston-area gas prices characteristically peak to levels far above both Henry Hub and crude oil since gas pipelines to the region are operating at or near full capacity and peaking gas supplies must be withdrawn from higher-cost infrastructure components -- principally underground storage at considerable distance, LNG peaking plants (not necessarily imported) and propane-air plants. At these times of very high local gas demand and prices, the region becomes an especially attractive destination for LNG cargoes," the study said.

As for LNG contracts, "long-term sales and purchase agreements are the norm in the global LNG business to enable the industry to raise the significant amounts of construction capital it requires. Therefore, it may be necessary for buyers, including importers of LNG into the U.S., to maintain a substantial portfolio of long-term contracts to ensure predictable LNG supply levels."

The study said spot LNG imports were not reliable supplies for U.S. utilities for the "foreseeable future" because spot LNG typically consisted of cargoes that have been temporarily diverted from their primary destinations under existing long-term contracts. The spot markets now comprise one-fifth of the world's LNG trade and are evolving mostly in the Atlantic Basin.

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