Reading between the lines from the experts gathered at GasMart 2007 in Chicago last week, domestic and Canadian natural gas production are at their limits and demand is increasing. Pipelines from the far north are years, possibly multiple decades or lifetimes away. Conventional wisdom is that liquefied natural gas (LNG) from overseas will fill in the gap; but will it? And what happens if it doesn't?

Ken Snodgrass, senior vice president for Shell Trading Gas and Power/Coral Energy, believes LNG is the "key element" to fill the interim gap with about 11.4 Bcf/d being brought in by 2015. Questioned about demand from China, he said there will be more LNG available, and the Chinese may not be willing to pay the price.

BP Canada's Lee Lunde projected a need for about 10 Bcf/d of LNG imports in the intermediate term to smooth out the North American market, noting that the additional regasification capacity is being built. With existing capacity, plus the six terminals under construction, expansions of those terminals and a sprinkling of other import terminals that make it through not-in-my-backyard (NIMBY) resistance, the capacity or "potential" will be there. "But, the potential may not be the most important issue," said Lunde, who is senior vice president for BP Canada's Continental Hub.

While the U.S. currently has about 3 Bcf/d of regasification terminal import capacity, up until a few months ago only 30-50% of capacity was in use as suppliers of the scarce commodity disdained North American markets, sending their cargoes to the high-priced markets in Europe and Asia. In the last few months, however, U.S. imports have shot up to 70% of capacity as LNG tankers are being rerouted away from Europe to North America. Behind this trend is a warm winter on the Continent, which has left European storage full and prices way down.

This illustrates Lunde's point that North America "is the market of last resort." As the Continent returns to more normal winters, however, the premium European markets will pay $12-$16/MMBtu, and the North American market will again be out in the cold.

The prognosticators are counting on more gasification terminals being completed in producing countries in the next several years and more LNG becoming available. At that point the price will come down, making it attractive in the U.S. market.

But, there's one more unknown in this equation. It's the question that was surfacing in the hallways at GasMart, and that is "what about China," the 800-pound and growing gorilla, and what will the Chinese be willing to pay? So far there are opinions, but no statistics.

Stuart Nance, vice president of marketing for Ultra Petroleum, said there are 10 LNG receiving terminals under construction in China and, at this point, none of them have any dedicated supply. Where will the supply for those terminals come from? Going forward, the development of demand from China may be an important element in figuring North American supply.

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