A rapidly falling U.S. natural gas supply and increased power demand will lead to higher liquefied natural gas (LNG) imports over the next 10 years, according to a detailed analysis by Thomas R. Driscoll of Lehman Brothers.

The analyst, who reviewed current U.S. facilities as well as proposed projects, is forecasting a sharp increase in LNG imports this year, estimating that 2003 imports “could average 1.5 Bcf/d — more than twice the level in 2002.” LNG base load capacity is expected to rise to 3.8 Bcf/d by 2005, up from 1.2 Bcf/d in 2001, he said.

Driscoll noted that the expansion of the Everett terminal in Massachusetts and the re-opening of Cove Point in Maryland and Elba Island in Georgia will increase LNG capacity to 2.8 Bcf/d later this year. Additional expansion at Elba Island and Lake Charles, LA will add an additional 1 Bcf/d of capacity by late 2004.

“Weak natural gas prices in early 2002 led to reduced LNG imports early in the year. But after a slow start in 1Q02 with only 10 cargoes, LNG imports ramped up to 35 cargoes in 4Q02,” Driscoll said. The Lehman analyst estimated that 38 U.S. cargoes arrived in 1Q03, with imports totaling about 1 Bcf/d (assuming 2.4 Bcf of LNG per cargo).

“A gas-short U.S. market has resulted in substantial interest in expanding U.S. LNG import capacity,” said Driscoll. If natural gas prices remain strong, LNG is likely to play more of a year-round supply role.

At least 15 to 20 new LNG facilities have been proposed, the analyst noted in his 18-page report. “If all of the proposals were to be built, total import capacity would approach 20 Bcf/d over the next five to 10 years. We would expect no more than one-quarter to one-half of these proposals to go ahead.”

Driscoll noted that the proposed LNG facilities face regulatory and economic hurdles that have to be overcome before building begins. And because of those hurdles, he does not expect the new facilities to make any supply contributions before the latter part of the decade “at the earliest.”

The first new LNG terminal may be the modification of the Hackberry LPG (liquefied petroleum gas) facility in Louisiana, said Driscoll. The onshore receiving terminal, sold by Dynegy Corp. to Sempra Energy, already has preliminary clearance from the Federal Energy Regulatory Commission.

Four different countries are now exporting “significant” LNG volumes to the United States: Trinidad, Qatar, Algeria and Nigeria, and Trinidad volumes now equal two-thirds of U.S. imports, said Driscoll. Future growth will come from Trinidad, as well as Nigeria and Qatar, he added.

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