With natural gas demand continuing to build around the world and a number of countries looking for the chance to supply it, the global liquefied natural gas (LNG) industry could emerge as the second global energy business, according to Michael Stoppard, Cambridge Energy Research Associates (CERA) director of Global LNG.

Speaking at CERAWeek 2004 in Houston, Stoppard said that despite indicators, LNG isn’t ready to don the crown yet as factors such as the sheer size of the endeavor should not be underestimated. Other hurdles include the complexity of the challenges involved and the possibility of unexpected events.

“The imperative to achieve ’40 in 8′ — the need to construct as much capacity in the next eight years as the global industry has built in the past 40 — is a startlingly large target,” Stoppard said. “A further 140 million tons of LNG production capacity is needed by 2012 if the industry is to meet expectations. Nevertheless, the wheels are turning to make this goal, with 60 million tons of capacity already committed and under construction in Asia, the Middle East and the Atlantic region, and with more than 50 LNG tankers currently on the orderbook to deliver LNG to market.”

Stoppard noted that in addition to the demand pull coming from the United States and other gas needy countries, there is just as strong of a supply push coming from countries such as Qatar, Nigeria, Trinidad, Egypt and Australia, which have abundant gas reserves. The director noted that countries such as Iran, Angola and Venezuela can’t be far behind.

Stoppard said that resource owners are “increasingly keen” to release the value of their gas assets. Energy companies see gas monetization through LNG as a critical route to achieve organic growth.

As for demand, CERA believes imports will continue to grow in LNG’s main market of Asia and will rise strongly in Europe. Stoppard added that the U.S. markets are being looked at for future demand growth. Increased gas-fired electricity generation and declining domestic gas production (see related story) combine to form a long-term North American supply shortfall of 10 Bcf/d and a price environment favorable for LNG imports, according to CERA.

As a result, the U.S. has gone LNG terminal-happy with more than 30 new North American LNG projects announced with sustainable deliverability of more than 30 Bcf/d by 2010, an amount far beyond the capability of LNG producers to supply and vastly more than the expected North American natural gas supply shortfall.

“On paper, the market should rationalize new construction plans through project drop-outs so that ultimately five large (1.5 Bcf per day) regasification terminals will be built and capacity expanded at existing facilities to fill the North American supply shortfall,” Stoppard said. “Although an overbuild is possible, it is unlikely to reach the massive proportions of the recent North American overbuild of gas-fired generation because a number of factors will serve to limit development. Indeed, it is also possible these same factors could push facility completion schedules past the 2008 tipping point at which significant new LNG flows are needed in North America to balance the rapidly widening natural gas shortfall.”

Even as the U.S. relationship with LNG appears rosy, Stoppard warned that success will require orchestration of a wide-ranging set of independently driven factors, including:

Standing in the way of the global LNG market are both financing and public confidence, Stoppard said. He noted that funding of these mammoth facilities have not been tested in the U.S. or U.K. money markets, adding that the projects represent “a step into the unknown.” For this reason, the CERA director said players with enormous balance sheets, a high tolerance for risk, and a long time horizon may have significant advantage.

As for the public’s confidence, Stoppard said it is important that questions about security and safety are answered satisfactorily for public opinion. Without putting the public at ease, the siting and building of LNG import terminals could get bogged down with objections.

“The industry has concluded that LNG does indeed represent the ‘Next Prize,’ the next truly global energy business opportunity,” Stoppard said. “It is evolving business models, marshaling resources, and preparing the marketplace for an unprecedented level of activity, all with the understanding that profitability, not growth, is the real prize.”

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