High U.S. Prices Prompt Increased LNG Trade
The price is right for LNG in the U.S. currently, and term
import deals should be locked in before these opportunities vanish,
according to Tamela Pallas, president and COO of CMS Energy's
Marketing Services and Trading division.
"Price is key for increased imports of LNG," said Pallas,
speaking to international delegates meeting at the GasTech 2000
conference in Houston Thursday. She noted that prices in the future
likely will not be as high as they are today. The current 10-year
strip is above $3.
At current pricing levels, long-term LNG deals easily could be
made in the United States, she said. "Timing is essential in
capturing these premium prices and long-term LNG negotiations need
to be accelerated. Potential LNG projects that were uneconomic at a
$2 gas price are now viable at current price levels. Attractive
long-term pricing can be locked in well in advance of actual
For LNG producers, there are opportunities "provided they are
willing to structure contracts to meet the dynamics of the market,"
she said. "Trading of both natural gas and power futures has
increased, and with this growth we have seen increased price
volatility. The futures market offers the buyer and seller a
multitude of ways to hedge prices' risk and capture value."
Because of these factors liquefied natural gas is due for a
major comeback in the United States. Around the world, it's been a
solid standard, and more popular today than 20 years ago. LNG lost
its luster in U.S. markets about 20 years ago, and storage
facilities 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
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 LNG
importing or storage in the energy hungry United States. LNG
imports were up sharply in 1999, nearly double from the year
Salomon Smith Barney reported in its Natural Gas Price Outlook
on Oct. 12 that LNG imports from the two currently operating
terminals in Massachusetts and Louisiana are expected to increase
to 0.65 Bcf/d this year and 0.78 Bcf/d in 2001, up from 0.44 Bcf/d
in 1999. When all four U.S. plants are operational by 2002, Salomon
Smith Barney estimates that the combined capacity will be 2.7
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 of
LNG. But with natural gas prices up and demand skyrocketing, LNG
has become a lot more attractive to U.S. interests. Pallas said the
worldwide spot LNG trade has grown to 166 Bcf in 1999, up from 38.8
Bcf in 1992 --- and the United States receives 35% of the
"In 1999, the U.S. market was the second leading spot LNG
importer in the world, trailing Spain by a very small margin."
Pallas said that the CMS Lake Charles terminal accounted for 60% of
the spot deliveries in the U.S. in 1999, too. From its Lake Charles
terminal, CMS has access to 15 major natural gas pipelines.
In July, CMS said it had committed cargoes totaling
approximately 110 Bcf of LNG that would be delivered this year to
its Lake Charles terminal (see Daily GPI, July 19). The amount of
cargoes 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 Abu
Dhabi, Qatar and Oman as being "ideally located" to ship LNG to the
Far East, Europe or the United States. "Spot LNG trade has been
enhanced by the growth in Middle East LNG producers," she said.
Just a few years ago, "significant short-term trade in the
United States" could not have been envisioned, and no one would
have thought that new import projects would center on the U.S.
market. But she said that as deregulation takes hold and
supplemental supplies become more abundant, it's a natural step.
Still, there are hurdles. "The greatest issue facing future spot
LNG trade is shipping capacity," she said. "Most spot LNG cargoes
have been transported with spare LNG tanker capacity. Spare
shipping capacity is shrinking, and as we enter 2001, only a
handful of spare ships will be available for spot service." Pallas
said that as LNG trading increases, the benefits generated by
increased efficiency would give way to change.
"The U.S. market may not always be the highest netback market
for LNG producers, but world gas and power markets are changing and
U.S. gas prices are converging with those of world markets," said
Pallas. "This optimism for LNG into the U.S. market is justified,
but needs to be tempered with reality. No energy commodity, gas
included, will escalate upward on a straight line forever. The
challenge is to structure LNG deals that can flourish in this type
of market environment. This will involve flexible trading routes,
shipping efficiently employed and flexible terminal arrangements."
Carolyn Davis, Houston