U.S. natural gas imports dipped slightly (0.5%) to 3,996 Bcf last year due primarily to fewer volumes coming from Canada, while exports to Mexico rose and liquefied natural gas (LNG) deliveries surged, according a new report released by the Energy Information Administration (EIA) Tuesday.
The reduced import volumes (19,000 MMcf lower) were due to a sharp drop-off in pipeline gas from Canada in 2003, the Department of Energy (DOE) agency said in the report, entitled “U.S. Natural Gas Imports and Exports: Issues and Trends 2003.” U.S. gas exports climbed to 692 Bcf for the period from 516 Bcf in 2002 and LNG imports hit a record high, the EIA noted.
“A new landscape for U.S. international trade of natural gas is emerging. For the first time in 16 years, net imports fell in 2002 and data for 2003 show a further decline. The dominant factors driving this new trend are the increase in U.S. net exports to Mexico and lower net imports from Canada. Although U.S. imports are expected to grow in the future, the driving factor behind this growth [will] be increasing LNG imports rather than imports from Canada,” the agency said.
Net imports of natural gas to the U.S. (minus exports) last year declined to 3,305 Bcf, or 5.6%, due to increased volumes of U.S. gas exported to both Canada and Mexico, the EIA reported. The volume of net imports fell for the second consecutive year, after 15 years of increases in net imports dating back to 1987, according to the agency.
The volume of U.S. imports by pipeline declined in 2003 for the first time in 16 years. Gross pipeline imports from Canada dropped to 3,490 Bcf last year from 3,786 in 2002, for a year-to-year decline of 7.8%. “The decline appears to reflect the maturation of Canadian production, particularly in the Western Canadian Sedimentary Basin (WCSB),” the report said.
The Canada’s drilling activity rose in 2003 (drilling 13,900 wells), but the average productivity of the wells continued to fall. The National Energy Board projects that deliverability from the WCSB will fall to 15.8 Bcf/d by the end of 2005 from 16.3 Bcf/d in 2002, the report said. As a result, volume growth on the Maritimes and Northeast Pipeline system, which delivers Canadian gas to the U.S. Northeast, has been stalled. But it doesn’t appear to have affected Alliance Pipeline, which imported 496 Bcf to U.S. markets near Chicago last year, the agency noted.
U.S. pipeline exports to Mexico in 2003 rose 70 Bcf to a record 333 Bcf, the EIA said. “Although exports to Mexico represent only a small portion of the U.S. gas flows, trade opportunities over the border continue to attract U.S. companies. Exports to Mexico, which have grown with the construction of new pipelines in Texas and California, increased by 26.5% between 2002 and 2003.”
The rate of growth has been more pronounced over the past six years. “Since 1998, U.S. exports have grown by more than 526.4% from 53 Bcf to 333 Bcf in 2003. Last year’s volumes were the most ever exported to Mexico,” according to the report.
The EIA credited several new pipeline projects, such as the Kinder Morgan-owned Monterrey Pipeline that was completed in 2003, with the rise in exports to Mexico. Since its start-up in March 2003, the line has transported 66 Bcf of gas across its border point in Roma, TX, to power generation facilities in Mexico. In addition, exports of 51 Bcf across the border at McAllen, TX, on the Kinder Morgan Border Pipeline accounted for about 15.3% of the flows into Mexico, the agency said.
The U.S. received a record high level (507 Bcf) of LNG imports last year. But even still, LNG imports accounted for only about 2.3% of U.S. consumption and 12.9% of gross imports in 2003, the EIA said The agency nevertheless sees LNG imports becoming a critical part of the domestic gas supply mix, rising by 16% a year through 2025.
The Atlantic LNG liquefaction plant in Point Fortin, Trinidad and Tobago, is the largest source of LNG to the United States, supplying 378 Bcf, or 74.6% of the total LNG imports in 2003,” the agency reported. Other key LNG suppliers to the U.S. last year were Algeria (53 Bcf), Nigeria (50 Bcf), Qatar (13.6 Bcf), Oman (8.6 Bcf) and Malaysia (2.7 Bcf), according to the report.
Short-term sales “represented 87% of total LNG imports [in 2003], higher than the 74% received in 2002 and the 64.3% received in 2001,” the EIA noted. High domestic gas prices likely provided the impetus for purchases under short-term contractual agreements last year. But “many industry observers believe long-term contracts will…be required to attract the required volume of LNG supplies to the United States in the future.”
Last year, “seven companies imported LNG to the United States,” the agency said. “Although as recently as two years ago, several LNG importers were U.S.-based marketing companies without upstream LNG investments, all but one of the LNG importers last year were subsidiaries of major diversified oil and gas companies with upstream LNG assets. The growing involvement by diversified companies likely is a factor behind the increasing imports under short-term authority as LNG can be diverted to the United States by LNG plant owners with available short-term supplies.”
In 2003, Southern Union’s Trunkline LNG terminal in Lake Charles, LA, received the largest volume of any U.S. terminal, with receipts of 238 Bcf, all through spot cargo sales, the EIA said. Distrigas of Massachusetts’ terminal in Everett, MA, brought in 158 Bcf, and was followed by Dominion’s Cove Point LNG facility in Maryland (66 Bcf), and El Paso Corp.’s Elba Island, GA, facility (44 Bcf).
The prices for LNG imports last year were competitive with domestic gas prices, the agency said. In 2003, the average price for LNG imports was highest for Algeria at $4.88/MMBtu, while Malaysia was second highest at $4.53/MMBtu. And the price of imports from Trinidad and Tobago, under both short-term and long-term contracts, averaged $4.51, the EIA said. It noted, however, “the average price for LNG from each source country in 2003 was well below the price of imports by pipeline from Canada.”
As its dependence on foreign gas grows, the United States may face greater supply-related risks. “For example, the shutdown of LNG production in Trinidad and Tobago for a brief period in March 2004 owing to a labor strike illustrates the potential for possible conflicts in foreign countries that could affect supplies of LNG to the United States. In 2001, an Islamic secessionist insurgency on the island of Sumatra temporarily shut down LNG facilities that supply Japan, although LNG from elsewhere in Indonesia made up for the shortfall.”
While Atlantic Basin suppliers may have an advantage in bringing LNG to the U.S. owing in part to shorter shipping distances to East Coast terminals, the competition to bring LNG to the North American market is worldwide, the EIA said. It noted that Middle East countries such as Qatar, which holds 15% of the world’s gas reserves, “appear ready to expand LNG production facilities to meet growing U.S. demand.”
Pacific Rim countries also could turn out to be key contributors of LNG to the U.S., according to the EIA. A number of LNG regasification terminals on the Mexican and U.S. West Coasts are seeking supplies from currently exporting countries such as Indonesia, Australia and Malaysia, and from potential exporting countries such as Russia (see NGI’s special report on North American LNG Import Terminals).
Stiff competition has emerged in the U.S. to expand and build regasification facilities. Through planned expansions at three of the four existing terminals, the United States will increase its peak regasification capacity by 43.8% from the 2002 level (3.2 Bcf/d) to approximately 4.6 Bcf/d by 2005. Additionally, through recently announced new expansion projects at Lake Charles and Cove Point, total U.S. regasification capacity could reach 6.2 Bcf/d by 2008, the EIA noted.
As of mid-June of this year, the EIA said it has tracked at least 35 proposed new LNG import terminals in North America. “Projects in Canada would move regasified product south through existing pipelines, while LNG deliveries to terminals in Mexico would either displace current U.S. exports to the country or result in net imports to the United States.”
Two LNG terminals have received final approval from the Federal Energy Regulatory Commission — Sempra Energy’s Cameron LNG terminal in Louisiana and the Freeport LNG project in Texas. And two offshore LNG facilities — ChevronTexaco’s Port Pelican project and Excelerate’s Energy Bridge project — have gotten clearance from the Department of Transportation.
At least 14 terminals alone have been proposed for the onshore and offshore Gulf of Mexico, “where they are expected to receive less public opposition than elsewhere in the country and where an existing complex of petrochemical plants are potential customers of natural gas liquids stripped from LNG,” the EIA noted. “Owing to extensive pipeline infrastructure both through and out of the region, the Gulf also offers an opportunity for facilities that can take advantage of economies of scale.”
The proposed terminals for the Gulf region generally have the capacity to deliver 1 to 2 Bcf/d into the pipeline grid, the report said. Freeport LNG could deliver up to 1.5 Bcf/d to Texas, “giving…customers a choice of delivery to three major interstate pipelines and access to much of the eastern United States.” Sempra Energy’s Cameron LNG facility also would deliver as much as 1.5 Bcf/d into the grid and, with nearly 9 Bcf of storage and two docks, it has the flexibility to handle two LNG shipments at a time, the agency said.
In the Northeast and California markets, the terminals being proposed are generally smaller and require less investment capital. Average costs are about $400 million for a new facility with deliverability of about 500-600 MMcf/d. “Although a smaller financial investment [is required], the smaller deliverability would result in capital costs that are up to double that of a larger facility in the Gulf of Mexico. The facilities are being proposed for certain markets that currently experience a premium price relative to prices in the Gulf,” the report said.
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