The price is right for LNG in the U.S. currently, and termimport deals should be locked in before these opportunities vanish,according to Tamela Pallas, president and COO of CMS Energy’sMarketing Services and Trading division.

“Price is key for increased imports of LNG,” said Pallas,speaking to international delegates meeting at the GasTech 2000conference in Houston Thursday. She noted that prices in the futurelikely will not be as high as they are today. The current 10-yearstrip is above $3.

At current pricing levels, long-term LNG deals easily could bemade in the United States, she said. “Timing is essential incapturing these premium prices and long-term LNG negotiations needto be accelerated. Potential LNG projects that were uneconomic at a$2 gas price are now viable at current price levels. Attractivelong-term pricing can be locked in well in advance of actualdelivery.”

For LNG producers, there are opportunities “provided they arewilling to structure contracts to meet the dynamics of the market,”she said. “Trading of both natural gas and power futures hasincreased, and with this growth we have seen increased pricevolatility. The futures market offers the buyer and seller amultitude of ways to hedge prices’ risk and capture value.”

Because of these factors liquefied natural gas is due for amajor comeback in the United States. Around the world, it’s been asolid standard, and more popular today than 20 years ago. LNG lostits luster in U.S. markets about 20 years ago, and storagefacilities were never finished, and some were decommissioned.Today, with U.S. demand growing, marketers are taking a new look,and finding they like what they see.

Consider these recent news stories: Southern Natural Gas, acquired recently by El Paso Energy, is spending $26 million to reactivate its LNG terminal on Elba Island near Savannah, GA for shipments beginning in 2002 (see NGI, March 20). After spending $400 million to buy it, Williams plans to spend $150 million more to recommission the Cove Point LNG facility it purchased from Columbia Energy in May (see NGI, May 8).

In a deal that closed in September, Belgium’s Tractebel purchased Cabot LNG, the largest U.S. liquefied natural gas importer and distributor in the Northeast, and its LNG terminal in Everett, MA for $680 million (see NGI, July 17). Also in September, AES Corp. said it had begun construction on a $340 million electric power plant and LNG importing facility in the Dominican Republic (see Daily GPI, Oct. 2).

And then there’s CMS Energy’s Trunkline LNG terminal, located near Lake Charles, LA, the largest active terminal in the United States for importing LNG from around the world. CMS acquired the facility as part of its purchase of Panhandle Eastern Pipe Line Co. and Trunkline Gas Co. from Duke Energy in 1998 (see NGI, Nov. 9, 1998).

But the stories won’t end there, as more companies move into LNGimporting or storage in the energy hungry United States. LNGimports were up sharply in 1999, nearly double from the yearbefore.

Salomon Smith Barney reported in its Natural Gas Price Outlookon Oct. 12 that LNG imports from the two currently operatingterminals in Massachusetts and Louisiana are expected to increaseto 0.65 Bcf/d this year and 0.78 Bcf/d in 2001, up from 0.44 Bcf/din 1999. When all four U.S. plants are operational by 2002, SalomonSmith Barney estimates that the combined capacity will be 2.7Bcf/d.

LNG has “been one of the world’s most rapidly growing fuels,growing by approximately 8% a year since 1980,” said Pallas.

Japan and European countries are the most visible importers ofLNG. But with natural gas prices up and demand skyrocketing, LNGhas become a lot more attractive to U.S. interests. Pallas said theworldwide spot LNG trade has grown to 166 Bcf in 1999, up from 38.8Bcf in 1992 — and the United States receives 35% of thedeliveries.

“In 1999, the U.S. market was the second leading spot LNGimporter in the world, trailing Spain by a very small margin.”Pallas said that the CMS Lake Charles terminal accounted for 60% ofthe spot deliveries in the U.S. in 1999, too. From its Lake Charlesterminal, CMS has access to 15 major natural gas pipelines.

In July, CMS said it had committed cargoes totalingapproximately 110 Bcf of LNG that would be delivered this year toits Lake Charles terminal (see Daily GPI, July 19). The amount ofcargoes is more than in any year of the terminal’s 17-year history.In 1999, the terminal had 27 cargoes, up from 17 in 1998.

As to where the imports will come from, Pallas pointed to AbuDhabi, Qatar and Oman as being “ideally located” to ship LNG to theFar East, Europe or the United States. “Spot LNG trade has beenenhanced by the growth in Middle East LNG producers,” she said.

Just a few years ago, “significant short-term trade in theUnited States” could not have been envisioned, and no one wouldhave thought that new import projects would center on the U.S.market. But she said that as deregulation takes hold andsupplemental supplies become more abundant, it’s a natural step.

Still, there are hurdles. “The greatest issue facing future spotLNG trade is shipping capacity,” she said. “Most spot LNG cargoeshave been transported with spare LNG tanker capacity. Spareshipping capacity is shrinking, and as we enter 2001, only ahandful of spare ships will be available for spot service.” Pallassaid that as LNG trading increases, the benefits generated byincreased efficiency would give way to change.

“The U.S. market may not always be the highest netback marketfor LNG producers, but world gas and power markets are changing andU.S. gas prices are converging with those of world markets,” saidPallas. “This optimism for LNG into the U.S. market is justified,but needs to be tempered with reality. No energy commodity, gasincluded, will escalate upward on a straight line forever. Thechallenge is to structure LNG deals that can flourish in this typeof market environment. This will involve flexible trading routes,shipping efficiently employed and flexible terminal arrangements.”

Carolyn Davis, Houston

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