LNG Activity Is Up, But Shipping is Tight
News from major liquefied natural gas (LNG) players Distrigas
and Sonat combined with a recent Department of Energy (DOE) report
of a major LNG import increase in the first quarter of this year
made the headlines last week, but Gordon Shearer, Cabot LNG CEO,
told NGI this is about as active as the LNG market is going to get.
"I think your seeing the peak of LNG spot import activity right
now," said Shearer. "Next year will be the peak of long-term
contracts fulfilling themselves. After that, however, there could
be some serious fall-off."
The main reason for Shearer's pessimism is the LNG
transportation situation. "There aren't enough ships now, and many
are scheduled to be decommissioned by the end of next year," he
said. The average cost to build an LNG transportation vessel is
$170 million, and many companies shy away from doing so without a
guaranteed long-term contract for the ship's usage, he added.
Presently 90 LNG vessels exist worldwide, and only four are without
Reports of a burgeoning LNG import market, such as the recent
DOE report, should be taken with a grain of salt, according to
Shearer. The DOE said LNG imports were up 56% to 39 Bcf in the
first quarter of 1999 compared to the same period in the previous
"What people have to realize is that LNG imports were starting
from a very small base. Compared to last year, this year's imports
will look very dramatic. Next year, I think it will increase as
well, but that's only because it started from such a small base.
LNG is still only a small sliver of the overall amount of gas used
in the US."
Shearer was nonetheless excited about last Wednesday's
announcement of a deal between Distrigas, a Cabot subsidiary, and
El Paso Energy, which agreed to buy 45 MMcf/d from the Distrigas
LNG import terminal in Everett, MA, for New England power
The gas will be used to fire a Berkshire Power Co.-owned 272-MW
power plant in Agawam, MA. Berkshire Power is a joint venture owned
by El Paso and Boston-based Power Development Corp. The gas will be
delivered to the plant by Tennessee Gas Pipeline. Financial terms
were not released.
"The Berkshire contract is significant because it is one of the
first major commitments of LNG to be dedicated to a merchant power
producer in the New England market," said Richard L. Grant, COO of
Cabot LNG Corp.
The contract was signed just days after Distrigas received its
first cargo from Atlantic LNG Co.'s Trinidad and Tobago processing
facility. Cabot is a 10% shareholder in Atlantic and holds a
20-year purchase contract for 220 MMcf/d to be delivered to the
In total, Distrigas can deliver up to 450 MMcf/d through
pipelines and another 100 MMcf/d by truck. Imports come chiefly
from Trinidad and Tobago and Algeria. Shearer said most of the gas
is consumed by New England, with other main markets in New York and
If Sonat has its way, the Elba Island, GA, LNG facility also
will receive imports from the Atlantic terminal in the near future.
The Alabama-based company filed last week for reinstatement of the
mothballed Elba Island marine receiving terminal, which has been
dormant since 1982. If approved, the facility would begin operating
As a result of an open season, Sonat Energy Services, Sonat's
marketing affiliate, was awarded a 22-year contract for all of Elba
Island's capacity, which amounts to 80 Bcf per year. The facility,
which is located near Savannah, GA, has a peak send-out rate of 540
MMcf/d and a baseload send-out rate of 330 MMcf/d.
"Sonat Energy services was one among many bidders. People were
bidding on a regulated price, so they could either bid the full
price or below it. Sonat Energy Services bid the full price for the
longest period, so it got the capacity," said Sonat spokesman Bruce
Shearer doesn't think the reactivation of Elba Island will
impact Distrigas. "They are focusing on power generation in the
Southeast, and we very rarely send gas down that way anyway. On the
supply side, the fact that we both will get gas from Trinidad will
have no effect, because there is just a ton of gas over that way."
Elba Island's reactivation is subject to US and Trinidadian
governmental approvals, final agreement executions and the
finalization of shipping plans.