Only a little more than a quarter through 2007, importers of liquefied natural gas (LNG) are poised to break the industry's two-year slump of declining volumes arriving at U.S. terminals as LNG imports and regasified LNG sendout volumes are spiking.
Analysts are attributing the increase to reduced weather-related demand for LNG in Asia and Europe combined with modest increases in LNG liquefaction capacity. However, "don't count on U.S. LNG imports moving drastically higher this year, as the regasification terminals are operating at far above-average utilization levels, and we are not expecting any noticeable increase in capacity in 2007," said Raymond James & Associates Inc.
Sendout of regasified LNG from the country's five terminals hit a daily record last Thursday, according to Bentek Energy LLC, and imports of LNG in March averaged 2.8 Bcf/d -- more than twice the figure for the year-ago period of 1.1 Bcf/d, according to Raymond James.
Last Thursday's sendout from the onshore Everett, Lake Charles, Elba Island and Cove Point terminals and the offshore Gulf Gateway terminal was 3.73 Bcf, Bentek said. The Lake Charles terminal set a daily sendout record Thursday of 1.87 Bcf/d, up from a 2007 year-to-date average of only 680 MMcf/d. So far overall for April, average daily sendout is 3.32 Bcf, up from 1.85 Bcf during the year-ago period, an increase of about 79%, Bentek said.
Raymond James predicts LNG will continue to grow, with imports up by about 800 MMcf/d this summer over last. "Now, before you gas bulls go slit your wrists, remember that declining Canadian imports will likely more than offset the increased LNG coming into the U.S.," Raymond James analysts wrote in a Monday note. "[W]e believe that Canadian imports to the U.S. will be down over 1 Bcf/d in 2007," they said.
Indeed, Bentek statistics show that daily average Canadian imports declined to 7.9 Bcf month-to-date for April from 9.1 Bcf for the year-ago period, a decrease of more than 13%. For the year so far, daily average Canadian imports are down 1.2% while LNG sendout is up 61.5% over the year-ago period, according to Bentek.
"In 2006, the utilization level for U.S. regasification terminals averaged around 45% of nameplate capacity," wrote the Raymond James analysts. "Over the past month, however, the increase in LNG imports has increased this utilization level to approximately 70%."
The analysts said that considering logistics constraints, particularly those relating to shipping traffic, they believe a 70% utilization rate "is probably the maximum sustainable level of LNG regas plant utilization." Further, they said they don't expect significant capacity additions during 2007.
"Since the five U.S. regasification terminals have a baseload capacity of about 3.7 Bcf/d, that means sustained imports from current facilities is probably in the 2.75 to 3 Bcf/d range," the analysts wrote. And the Cove Point terminal is scheduled to be shut down for all of June for planned maintenance, temporarily eliminating capacity of 750 MMcf/d. During the period Cove Point-bound cargoes are expected to be delivered to Lake Charles, the analysts said.
Raymond James noted that Asia -- the largest importer of LNG with 2006 average volumes of 13.5 Bcf/d -- begins to load up its storage for winter in August, and this will lead to a decline in U.S. imports beginning in July. Europe begins storing supplies later, in October, since it has less capacity to fill. "We expect the impact of Europe to be felt on U.S. LNG imports starting in September," Raymond James said. "We conservatively estimate that by October, when both Asia and Europe's demand returns, LNG imports should fall approximately 1 Bcf/d from peak import levels of about 3 Bcf/d."
The analysts said they believe that U.S. LNG imports will average 2.56 Bcf/d for summer (March 31-Oct. 31), up from 1.75 Bcf/d during the year-ago period. That's a change in the right direction for terminal operators.
In 2006, LNG imports declined for the second year in a row (see Daily GPI, April 5). "In 2006, the United States imported the equivalent of 584 Bcf, which is about 8% lower than the 631 Bcf received in 2005 and 10% lower than peak receipts of 652 Bcf in 2004," the Energy Information Administration said in a recent report. Imports came from Trinidad and Tobago, Egypt, Nigeria and Algeria, but not from countries in the Middle East and the Pacific Basin as they have in the past. "LNG traders with options to deliver to multiple destinations found higher prices, and more attractive markets, in Europe and Asia compared to the United States," EIA said.
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