In light of the huge capital expenditures and long lead times for liquefied natural gas (LNG) projects, as well as LNG supply constraints, energy industry experts and analysts told a joint House-Senate panel last Thursday that U.S. gas prices will remain at lofty levels throughout most of the current decade.
“We do not see sufficient LNG to impact the overall U.S. gas market before 2010,” said Paul Sankey, senior energy analyst with Deutsche Bank, during a hearing of the Joint Economic Committee looking into the run-up in gas prices and tight supply.
The Cambridge Energy Research Associates (CERA) estimates that the soonest LNG could provide “significant price relief” to domestic markets is in the 2008-2009 time period, said CERA Chairman Daniel Yergin. He sees Canadian Arctic gas arriving in the U.S. by 2010, and Alaska gas making its debut “well into the next decade.”
Until then, CERA anticipates that a “tightening of the balance between supply and demand could lead to even higher and more volatile prices” in the U.S. and Canada, Yergin told lawmakers. “An event as simple as an abnormally hot summer or cold winter could push prices well above recent levels, to the $6.50 to $8 per MMBtu range in the summer, and above $10 during a particularly cold winter.”
Yergin cited Hurricane Ivan as an example, noting that it “[has] incapacitated a substantial part” of Gulf of Mexico production and boosted gas prices.
Despite the huge run-up in gas prices worldwide, “there is no major new project starting up this year to supply the global market with…LNG. Literally trillions of feet of gas reserves are available at these [high] prices. There is currently considerable spare LNG shipping capacity, but few new developments,” Sankey said.
The Federal Energy Regulatory Commission “is strongly encouraging the development of [LNG] regasification terminals, but we see the regasification element of the chain as the tail on the dog,” he noted.
“The real challenge…is in developing international gas, which at this time is currently under jungle and beneath sea in distant, politically complex and risky countries,” Sankey said.
U.S. LNG regasification capacity currently is under-utilized because of a lack of LNG supply — at any price, he said. He estimated spare capacity at about 25%. “The most widely held misconception is that there is a problem [constraint] with U.S. regasification capacity. There is not. The four existing terminals [in the U.S.] have yet to sell out,” Sankey told House and Senate members of the committee.
“Terminals such as Sempra’s Louisiana project [Hackberry] have been approved for over a year, but have not progressed because no suppliers are available to provide LNG.” He said he expects the LNG supply shortfall to last through 2006-2007.
Trunkline LNG’s terminal in Lake Charles, LA, is currently taking delivery of LNG from places as far away as Australia and Malaysia — “enormous distances for ships to travel past huge gas resources such as the Middle East, North Africa, West Africa and Trinidad/Venezuela,” Sankey said.
“Exxon Mobil is leading the wider oil industry in the development of large scale imported natural gas into the U.S. market through LNG, with the first major deliveries scheduled for 2009. But nothing sooner,” Sankey said, dispelling the “myth of an abundant supply boom.”
The vast majority of LNG coming into the U.S. “will be imported, like oil, through the Gulf Coast and as such [will] not face any issues of local opposition,” he noted.
Citing the pipeline constraints in the Northeast that sent gas prices soaring last winter, CERA’s Yergin said he believes it would “make sense” to also have one new LNG terminal on the East Coast, as well as one on the West Coast.
Taking into account the current excess regasification capacity, Sankey said he still thinks that at least four more terminals will need to be constructed in the United States.
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