The outlook for global liquefied natural gas (LNG) markets and supply is "very uncertain" due to a number of factors, a natural gas economics expert told attendees at a Houston conference Wednesday.

Demand for LNG has increased sharply in North America, the United Kingdom and Spain, and because of long lead times needed for LNG infrastructure development, market signals to the supply side simply were not acted upon, creating a supply lag, explained James Jensen, founder of consulting business Jensen Associates and a frequent speaker and author. "That lag caused great uncertainties," he told attendees at World Trade Group's LNG North America Summit 2007.

Compounding the problem, surging demand for construction services and raw materials overwhelmed the industry, raising project costs and causing delays. "If you try to call some of the sophisticated design contractors on the telephone, they don't bother to answer the telephone any more; they're simply overloaded," Jensen said.

Also affecting LNG development is a sharp increase in energy prices, and it's not quite clear how demand will respond to the higher prices, Jensen said. And since prices haven't risen equally across fuels, the landscape of interfuel competition also has shifted, he said.

Then throw in the political reaction to global warming and the effect it will have on competition between natural gas and coal for the power generation market. Jensen noted that the U.S. Energy Information Administration (EIA) is projecting increased use of coal for power generation in the coming years, but the EIA's projections don't take into account the very likely possibility of carbon constraints in the U.S. and elsewhere.

Countries that supply LNG, particularly those in the Middle East and the former Soviet Union face geopolitical issues that make their roles as LNG suppliers to the world uncertain. And finally, Jensen said, since LNG is a small part of the natural gas supply mix, small changes in supply and demand can have a magnified impact on the LNG sector.

With all that uncertainty one wouldn't be surprised if Jensen demurred when asked to make a market forecast. Nevertheless, the analyst did offer some projections.

Calling his forecast "somewhat conservative," Jensen said "there is a surge of new plant construction coming on-line, and my assumption basically is that the demand is there and it will be absorbed. But after that, beyond 2012, I see a slowing in the growth rate."

He pointed out that 84% of the world's uncommitted gas reserves and most of the undiscovered resource base lies in the Middle East or former Soviet Union. The longer-term LNG outlook depends upon how these regions respond to world demand. Most forecasters predict that most of the world's LNG will come from the Middle East between now and 2020, Jensen said.

In the Middle East, 61% of the region's uncommitted gas is in a single field, which contains 1,300 Tcf of gas that is rich in condensate: the giant North Field in Qatar and its northern extension, the South Pars field in Iran. "Those two countries account for 90% of the Middle East's uncommitted gas," Jensen said. He added that the U.S. Geological Survey is "very optimistic" about Saudi Arabia's gas reserves, although the kingdom is not very interested in developing the gas reserves while its focus remains on oil production.

Qatar "is going like gangbusters on LNG" and is expected to produce a third of the world's LNG capacity additions between now and 2012, Jensen said. Further out, though, the country has adopted a wait-and-see attitude. Jensen noted that the Qatari oil minister last year said his country is "'not an oil company,' so you don't necessarily expect it to behave as ExxonMobil might."

In the case of Iran, the country currently is preoccupied with growing production to serve domestic markets and has yet to establish a firm policy on exports.

"Qatar's caution plus Iran's geopolitical constraints make it difficult to project quantities and timing of additional LNG supply from the Middle East beyond 2012," Jensen said.

The former Soviet Union holds the largest block of uncommitted gas reserves, Jensen noted. While it has traditionally been a pipeline exporter, exporting via LNG is a growing possibility as Russia looks to serve Asian markets in the Pacific Basin. At the same time, European markets have shown a desire to be less dependent upon Russian supply, which means more importation of LNG to Europe, Jensen said. And it remains to be seen how serious Russia is about participating in Atlantic Basin LNG markets, he noted.

Between 1998 -- when interest in LNG began to take off -- and 2012 -- when current infrastructure projects are to be completed -- five countries are expected to account for about 75% of LNG capacity additions, Jensen said. They are Qatar, Trinidad, Nigeria, Egypt and Australia. "My projection is that their contribution will drop to 50% for the period between 2012 and 2020," he said. Only Nigeria and Australia are expected to grow their contributions to global LNG capacity during that period, he said.

In the out years, other major suppliers to watch are Iran, Venezuela and Atlantic Russia, "all of which raise questions about geopolitics," Jensen noted.

Keeping development of global LNG going will require about $350 billion in capital spending between 2006 and 2020, Jensen said. Liquefaction projects will take about $210 billion of that; regasification will require $75 billion, and then tankers will take $65 billion. The largest liquefaction investments are in the Middle East and West Africa with the greatest regasification spending in North America and northeast Asia, Jensen said.

Despite unprecedented uncertainties, the global gas market has arrived, Jensen proclaimed. Competition between pipeline gas and LNG will increase, and LNG will provide interregional price signals. Geopolitics will shape how the world market develops, and increasing costs and interfuel competition will make things interesting.

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