Lehman Brothers is forecasting that only three new liquefied natural gas (LNG) import terminals, out of a total of about 40 proposed terminals, will be built in North America by 2010 for a total of seven operating terminals, which will represent about 10% of U.S. gas supply compared to about 2.5% in 2003.

But that prediction may turn out to be too conservative because FERC already has approved a new LNG terminal in Louisiana, pipelines to two terminals in the Bahamas and granted preliminary approval to a terminal on the Texas Gulf Coast. Two offshore Louisiana terminals also have been approved by the Coast Guard, one of which is expected to enter service by the end of this year. Meanwhile three of the four existing LNG terminals have expansion plans that are supposed to add 2.3 Bcf/d of additional LNG sendout capacity over the next four years.

Nevertheless, over the past few months four proposed terminals have been rejected by local communities or governments in Harpswell and Cumberland, ME, in Eureka, CA, and in Baja California Norte, Mexico.

“Even though numerous terminals have been proposed, we believe those proposed in populated areas such as the East and West Coasts are unlikely to be built,” said Lehman Brothers analyst Thomas Driscoll. “The high netbacks available in consuming regions (e.g., the Northeast and California) may not be sufficient to overcome local political concerns.”

Since an explosion in January killed 25 workers at an Algerian LNG export terminal, concerns have grown substantially regarding the safety of LNG terminals, particularly near populated areas. There also have been concerns that terrorists could be transported to the United States aboard LNG tankers.

Driscoll also noted that there have been rumors of potential regulatory delays at the Federal Energy Regulatory Commission (FERC) because of the results of a recently sponsored report on LNG safety published by ABS Consulting. The report titled “Consequence Assessment Methods for Incidents Involving Releases from Liquefied Natural Gas Carriers” recommended techniques for modeling LNG spills. Rumors circulated that FERC might delay LNG certificates on as many as 13 pending LNG projects at least until the end of the year.

At a regular Commission meeting on Wednesday, FERC spokesman Bryan Lee wanted to make clear that the rumors simply were not true. He said comments on the safety report would not “unduly delay” the regulatory review on any of the projects.

Lehman Brothers sees the Gulf Coast, Baja California and eastern Canada as the most likely locations for new terminals to go forward for three reasons: Close proximity to pipelines and customers; close industrial markets and less potential for public opposition; and more locations that are remote from residential areas.

“The public, in many parts of the country, is uncomfortable living in close proximity to large industrial facilities, and safety fears — even if overblown — can find a perceptive audience,” Driscoll noted.

Driscoll said he expects only two new terminals to be on line in 2008. He sees a consensus developing that no more than six to 10 new terminals out of the 40 proposed will be built over the next 10-15 years. By 2015, Lehman Brothers expects a total of 10-14 import terminals to be operating.

Driscoll also has cut his short-term LNG forecast by 200-600 MMcf/d (2004-2007) because of “expected” expansion delays at Elba Island and the other terminals. No delays, however, have been announced. A total of 2,310 MMcf/d of incremental deliverability is proposed at three of the four existing LNG import terminals.

Dominion is planning to add 800 MMcf/d of deliverability by 2008 bringing its total sendout to 1.8 Bcf/d. But Lehman Brothers is assuming all of that new capacity won’t hit the market until 2010.

El Paso’s Elba Island terminal will add an incremental 540 MMcf/d in 2006 bringing its total to 1.2 Bcf/d. But Driscoll also has forecast a construction delay at Elba Island, saying the new capacity won’t enter the market until 2007. Southern Union’s Lake Charles terminal soon will begin a two-phase expansion that will add 970 MMcf/d of sendout by mid 2006, but Driscoll also has pushed back the expected completion of the second phase of the project to 2008.

As a result of the new terminals and the new deliverability being added to the existing Elba Island and Lake Charles LNG terminals, Lehman Brothers has raised its LNG supply forecast for 2008 by 8-10% to 3.9 Bcf/d.

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