FERC staff warned the Commission Thursday not to expect lost Gulf production to be offset somehow this winter by imports or gas from storage. Although storage levels have continued to rise in November putting the country in a better position to manage cold weather, storage alone cannot make up for 3.7 Bcf/d of shut-in production, much of it likely to remain shut in until next spring, said Stephen Harvey, deputy director of the Office of Market Oversight and Investigations.

“The remaining options include increasing imports and…emphasizing conservation efforts,” Harvey said in a presentation given during FERC’s regular meeting Thursday.

However, Jeff Wright of the office of Energy Projects, told the Commission, Canada appears unlikely to be able to suddenly send more gas across the border. “Traditionally Canadian gas has accounted for nearly all of our imported amounts of gas, as much as 16% of our total gas supply. However, through August of this year, we’re actually seeing imports from Canada running behind the same time period in 2004.” He said Canadian production has been flat while Canadian gas demand has been growing, resulting in less gas being available for the U.S.

In addition, it does not appear that there will be a significant increase in liquefied natural gas (LNG) imports this winter to cover production shortfalls, he said. LNG imports are subject to liquefaction constraints and competition with Europe and other overseas gas markets.

“In the interim we do not see any significant increase in storage inventories, pipeline imports or LNG imports that will make up for the production loss for this winter,” said Wright.

“While the future of LNG looks promising, significant supply increases may not be realized until 2008 at the earliest,” he added. “Given this, the key to this winter and possibly the next couple of winters, besides hoping for mild weather, is for increased conservation on the part of gas consumers and demand side management programs to ease gas demand in the United States.”

Harvey said that currently the aggregate capacity of existing U.S. LNG import terminals is not being fully utilized. LNG imports are even lagging behind 2004 levels. “There are indications that LNG shipments to the U.S. will increase over the next several months,” he said. “Further, there is new terminal capacity being constructed, but this will not be available until 2008 at the earliest.”

The latest statistics from the Department of Energy’s Office of Fossil Energy shows that only 51.4 Bcf/month, or about 1.7 Bcf/d, of LNG has been imported this year compared to about 4.4 Bcf/d of peak regasification capacity (3.0-3.5 Bcf/d of average sendout capacity) at the five operating LNG import terminals.

“Increased levels of LNG imports are being thwarted by non-regulatory impediments,” Harvey said. “The prime bottleneck to increased imports is the amount of available worldwide liquefaction capacity. As in 2004 there was at least twice as much regasification capability as liquefaction.” He predicted this situation won’t change through the end of the decade.

The other major impediment is supply agreements. “Merely having a regasification facility does not guarantee that you will be able to easily obtain gas supply,” he noted. Much of the LNG coming to the U.S. arrives under short-term arrangements. The rest of the world, meanwhile, imports LNG largely under long-term deals.

“These existing arrangements and commitments and the willingness of non-U.S. LNG customers to in some instances outbid U.S. entities for excess LNG cargoes demonstrates again that the capacity holders in U.S. LNG facilities need to negotiate supply contracts with longer-term commitments,” said Harvey. “Also looming is the specter of increased competition in the form of developing countries like China and India whose gas demand is expected to increase exponentially in the coming decade.”

Harvey noted that the Lake Charles, LA, LNG terminal and the terminal at Elba Island near Savannah, GA, will undergo expansions next year. “It must be pointed out that these are relatively minor additions, and while an uptick in the amount of imports is expected, it will not be a near-term panacea for lost production,” he said. “The earliest one can expect a major increase in LNG capacity is in 2008 with three new LNG terminals due to come online. By that time, it is expected that the new facilities will have supply contracts in place that will take greater advantage of their delivery capability.”

He said FERC has done its part by making speedy decisions on new LNG terminals, approving eight new terminals so far with the ability to deliver up to 12 Bcf/d of LNG. Three new terminals are under construction with 5.6 Bcf/d of deliverability. There are also 12 applications pending for another 16.7 Bcf/d of delivery capacity.

In the meantime, however, U.S. supply will remain constrained and prices will remain very volatile, FERC staff predicted, noting that in just the last 24 hours prices in the Northeast surged 25% in response to cold weather.

©Copyright 2005Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.