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'Interesting Times' for LNG

With imports of liquefied natural gas (LNG) to the United States having slowed substantially, the economic meltdown resetting global gas demand to lower levels -- at least for the time being -- and development costs still high, one might wish to have their days of LNG investment behind them. Not so, said Chevron's Patrick Blough, vice president of gas commercialization.

"Our big investment in LNG is ahead of us," Blough told attendees at Cambridge Energy Research Associates' CERAWeek in Houston last Wednesday. "It's always an interesting time for LNG investment."

Indeed, the famous curse "may you live in interesting times" has come true for global LNG developers in a big way. Chevron has six LNG projects "on the boards" right now, and Blough enumerated some of the issues it and other LNG players face:

The consensus outlook for gas demand fundamentals is still positive, at least for the longer term, Blough said, and gas will continue to capture a growing share of the power generation market. With global demand growth of about 2 Tcf/year and prevailing decline rates of producing basins, new gas development equal to today's capacity will be required to meet growth and make up for decline rates to 2030, Blough said.

Of the challenges, noted by Blough, high development costs seemed to have the most resonance with other speakers on the CERA panel. John Harris, a CERA director, went so far as to cite downward pressure on costs as a silver lining in the economic meltdown. "One could argue the impact of the financial crisis [on LNG development] is a positive by virtue of the fact that we'll see a reduction in costs," he said.

The further and faster costs of development come down the better, particularly from a project finance perspective. Robin Baker, a Societe Generale managing director, said not all good projects will be able to get debt financing, and that wasn't always the case. "The present environment really doesn't look too good," he said, after having quipped, "Why would anyone listen to a banker at this point in time?"

Still, for those willing to do their homework and legwork and provide some guarantees, financing can be cobbled together for projects of merit. Hopefuls should not rely exclusively on commercial banks, though. "Banks are not the only game in town," Baker said.

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