Those who were expecting a flood of LNG imports into the United States last year were sorely disappointed, but the Energy Information Administration (EIA) is optimistic that there will be a “substantial” LNG rebound this year and sustained growth thereafter. Not everyone shares EIA’s views, however. Some experts say the market will have to wait until late in 2008 before a notable influx of LNG occurs.

“EIA expects a revitalization of U.S. LNG imports during 2007 and 2008 with significant increases in year-over-year change,” the agency said last Thursday in a supplement to its Short Term Energy Outlook for January. “EIA’s LNG import forecast is based in part on supply expansion in the global market over the coming years, including exports from up to three new source countries (Equatorial Guinea, Norway and Yemen).”

EIA says LNG imports could jump 35% this year to 2.11 Bcf/d (770 Bcf/year) from about 1.59 Bcf/d (580 Bcf/year) in 2006 and could rise by another 38% in 2008 to 2.96 Bcf/d (1,080 Bcf).

Energy consultant Stephen Thumb of Energy Ventures Analysis Inc. (EVA) doesn’t share that optimism, however. “I think the LNG boom is out there,” he said in an interview with NGI. “It’s just that it’s not until the second half of 2008. When you start to get into 2008, then that’s when it really starts to get exciting. The number of liquefaction projects just goes up significantly.”

Wood Mackenzie’s Jen L. Snyder, who heads Wood Mackenzie’s North American Gas Research unit, said she also has had to scale back her forecasts on LNG imports. “There’s been a reversal in our outlook for North American LNG, which we weren’t expecting. We now have negative revisions on LNG expectations until around 2013.

“We’re still optimistic long-term, but in the short-term, with the higher domestic expectations on gas supply, we’ve ratcheted down our LNG expectations,” said Snyder. “By 2010, we had expected LNG would be around 10 Bcf/d; now are expectations are that it will be closer to 8 Bcf/d. In the long-term, we see it growing a tremendous amount. But the early development pace is not what everyone expected.”

One of the obvious problems currently for LNG imports is high domestic gas storage levels and downward pressure on prices. According to Thumb, that situation is not likely to improve for some time. Domestic production also is growing. He believes prices may bottom out near $4.75 this spring when a record level of gas is left in storage.

“Europe is warm, we are warm and we are likely to get the standard amount of LNG in the first quarter, nothing special. Asia apparently wants to gobble up a few extra cargoes so they will float that way. But even if you have three cargoes going that way, it’s not a lot of gas because the LNG spot market is so small.

“For 2006 the storage overhang was ‘the story,'” said Thumb, and for 2007 and into 2008 the storage overhang will continue to be the story. We think even though we will eat into some of the storage overhang because this January probably won’t be as warm as last January, if you look at the forecasts by [the National Oceanic and Atmospheric Administration] it’s supposed to be warmer than normal in February and warmer than normal in March… We think we will have a record at the end of March in terms of the amount of gas left in storage.”

Looking at all the injection scenarios, Thumb also believes there will be another record level of gas in storage on Nov. 1, 2007. That should lead to lower prices relative to other world markets, putting the U.S. at a disadvantage in the competition over LNG spot cargoes.

Because the U.S. currently relies on the global LNG spot market for much of its LNG, it has had to compete with higher priced markets in Europe and Asia. That led to the 8% decline in imports in 2006 to 580 Bcf from 631 Bcf in 2005, according to EIA. LNG imports in the U.S. last year were 11% below the peak set in 2004 of 652 Bcf. Meanwhile, European LNG imports were up about 12.6% last year through October compared to levels in 2005. For the year, Europe is expected to exceed 2 Tcf, the agency said. And in Asia LNG imports rose about 10% last year to nearly 4,900 Bcf, according to EIA estimates.

Part of the reason U.S. LNG trade volumes last year were below most projections was that the global market turned out to be tighter and more competitive than many expected, EIA said. Although nameplate liquefaction capacity increased in many exporting countries, capacity utilization lagged due to delays, maintenance issues and feedstock difficulties. Difficulties in acquiring feedstock supplies occurred in Trinidad and Tobago and Nigeria. Meanwhile, U.S. imports also were affected by a lack of long-term contracts relative to other markets.

“With the exception of deliveries from Nigeria and Trinidad and Tobago, U.S. importers have not yet begun to bring in the large volumes of LNG under similar long-term arrangements,” the agency noted. That will begin to change this year and next.

About 57% of the 2007 incremental liquefaction is earmarked for North American markets, according to EVA. “This includes 240 MMcf/d to Cove Point from the Hammerfest facility (Norway), 540 MMcf/d to Tampico (Altamira)…and British Gas earmarking of Equatorial Guinea supply (450 MMcf/d) to Lake Charles,” the consulting firm said in a recent report on LNG. BG’s supply is subject to variation in light of the company’s strategy to divert supplies to the best market among its several options.

In 2007, new liquefaction projects will come online in Qatar (627 MMcf/d), Nigeria (547 MMcf/d), Norway (547 MMcf/d) and Equatorial Guinea (454 MMcf/d). In 2008 a larger wave of projects are expected online in Trinidad (294 MMcf/d), Qatar (2,082 MMcf/d), Australia (600 MMcf/d), Russia (1,280 MMcf/d), Indonesia (1,481 MMcf/d) and Malaysia (267 MMcf/d), EVA said.

“With respect to the eight projects coming online in 2008, about 25% of this supply is earmarked for North American markets, while about 19% is earmarked for Europe and another 42% is earmarked for Asia,” according to EVA. The remaining 12% is likely to enter the spot market.

The global spot market for LNG is currently about 2.5 Bcf/d, but by 2010 it’s expected to be about 8-10 Bcf/d and more of it will be in the hands of marketers, said Thumb. “Maybe it will sneak up to 3 Bcf/d in 2007, but that’s small when you consider everyone’s needs across the world. The U.S. gets 70% of its LNG supply off the spot market today. That number could change radically by 2008.”

In an interview with NGI last week, Darcel Hulse, the CEO of San Diego-based Sempra LNG, said he expects the global LNG market to slowly transition toward being more like the global oil marketplace. “The transition of getting from [long-term] bilateral contracts to the U.S./UK commodity-style markets is going to be interesting,” he said. “There will be some opportunities and some glitches in it, but ultimately it will transition, although how smoothly and quickly it goes is the $64,000 question.

“When you’re talking about global LNG as a growing commodity that will look like oil, then any liquefaction added has ripple effects,” Hulse said. “Any new liquefaction is a positive development for the world LNG marketplace right now.”

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