S&P Finds U.S. LNG Demand Could Rival Japan, South Korea

Liquefied natural gas (LNG) imports may find a potentially power market in the United States because break-even cash costs for new projects have fallen to about $3/Mcf and it costs even less for expansion, according to a new report by Standard & Poor's Ratings Services (S&P). The report was issued Wednesday, the same day FERC moved three U.S. LNG projects forward and signaled its support for more (see related story).

As S&P noted in its report, the United States has been importing LNG for more than 30 years, mostly to supply peak gas demand in constrained New England. However, other import terminals built during the 1970s had "spent much of the past two decades mothballed." S&P noted that those under-utilized terminals now are receiving spot LNG sales from overseas exporters "anxious to cash in on natural gas markets" as prices have risen.

"The growing gap between U.S. gas production and demand suggests that the U.S. natural gas industry could be on the threshold of entering the ranks of major long-term LNG importers, such as South Korea and Japan," said credit analyst Peter Rigby. "Indeed, since 1995, LNG imports have swelled from 5 Bcf/year to almost 155 Bcf in 2002."

However, S&P posed a question in its study: before multi-billion-dollar capital commitments are made, can new LNG projects that are purpose-built for U.S. exports be financially viable if they must rely solely on the volatile U.S. spot and short-term markets?

The full report, "Are Changing Natural Gas Fundamentals Inviting Big LNG Imports?" is available on RatingsDirect, S&P's web-based credit analysis system, at www.ratingsdirect.com.

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