Gordon Shearer, president of Cabot LNG Corp., said he knew if hewaited long enough, liquefied natural gas would have its day in themarketplace. That appears about to happen, at least in New England,where Cabot finds itself positioned to meet growing market demandwith LNG imported from thousands of miles away. At the CambridgeEnergy Research Associates 17th annual executive conference inHouston this week, Shearer enumerated factors growing New Englandgas demand and explained how LNG can economically meet some of thatdemand.
New England utility generating asset divestitures and theshut-down ahead of schedule of nuclear plants are one item. Add tothis the proposed development of 13,600 MW of gas-fired generation,which if all plants were built, would represent about 2.25 Bcf/d ofdemand. As it is now, New England’s generation infrastructure isdominated by older, inefficient plants. “It’s not all going to getbuilt, but, obviously, there is clearly a race underway. Were these[gas-fired electric] plants all to be built, that equals the totalbaseload pipeline capacity into New England right now. So we’retalking, if they were all built, of doubling the pipelinecapacity.” Additionally, the market for gas outside of generationis growing in New England.
Some of New England’s demand will be met by gas moving to marketon the Portland Natural Gas Transmission (PNGTS) system and SableIsland gas moving on the Maritimes and Northeast Pipeline. PNGTSwill bring in about 180 MMcf/d, and about 450 MMcf/d of SableIsland gas will be delivered. But there’s still room for LNG.
“We are taking in LNG from the Middle East and Australia intothe U.S. market in the summertime on competitive terms. That’s12,000 miles [from] the Northwest Shelf of Australia. Abu Dhabi andthe Middle East [are] 8,000 miles.” Shearer said these are notone-time deals but involve multiple cargo deliveries over severalperiods during the last 18 months.
“With LNG projects under development in Trinidad and Nigeria andrecovering LNG production in Algeria at the same time, the outlookfor growing deliveries into the United States market is much betterthan we’ve seen in a long time. We also clearly are going to havesurplus production capacity around the world. Not only do all ofthese [LNG] export projects represent presently surplus capacitybut they all have available to them expansion at relatively lowcost. It looks likely that for the first time in years the U.S. cancompete realistically and competitively for some of this LNG. It’salso our belief because of cost reductions that are occurring inthe liquefaction technology – and they also may be occurring in theshipping side of the industry – that with a lot of rapidlyexpanding gas reserve base remote to market that more and more LNGis going to be coming onto the marketplace.” The attractiveness ofthe U.S. market for LNG in enhanced by competitive price pressureLNG will encounter in India, China and Brazil, Shearer added.”There was a time 10 years ago we couldn’t give this businessaway.”
The LNG project in Trinidad, of which Cabot LNG is a partner,represents the first LNG plant to be built in the WesternHemisphere in 25 years, Shearer said. Despite the fact Cabot isoffering market flexible LNG pricing, the company had no problemobtaining bank financing for the Trinidad project, Shearer said.”All we had to do was convince the banks that we were sopessimistic about the price of gas in North America that it canonly go up, and they said, ‘We agree with you.’ We used a very,very low price projection for gas and so the banks are taking theprice risk with us on this project. Also, it helps about 40% of theproduction is going to Spain, and that’s a more conventionalEuropean price structure that’s sort of a basic price with an oilproducts index on it.” Shearer said project financing is based on aHenry Hub constant price of less than $1.90/Mcf for 20 years goingforward.
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