The economic slowdown, falling prices and overwhelming onshore production aren’t enough to deter more liquefied natural gas (LNG) from arriving on North American shores beginning this year, an energy consultant said Thursday.
In a review of the global LNG market, UK-based Wood Mackenzie predicted imports to the United States and Canada will be up through at least 2014 because of infrastructure improvements. The bulk of U.S. gas traditionally has come from the Lower 48 states, Canada and Mexico, but U.S. LNG imports from the Middle East and elsewhere are expected to continue to move higher.
“In light of recent history, and the longer term outlook for growth in domestic U.S. shale gas, many industry analysts and commentators have been suggesting that the outlook for LNG imports into North America is bleak,” said Wood Mackenzie analyst Murray Douglas. “While it is fair to say that regas capacity has undoubtedly been overbuilt, the medium-term outlook for LNG in North America is not as dire as other commentators are suggesting, despite the success in developing shale gas.”
The medium-term outlook for LNG imports into North America will see a year-on-year increase to 4 Bcf/d in 2014 from 1.7 Bcf/d in 2009, according to Wood Mackenzie research. And the growth will come even though domestic shale gas resources may reduce the long-term outlook for LNG imports into North America.
The Energy Information Administration in its latest Short Term Energy Outlook said U.S. LNG imports are expected to rise to about 420 Bcf this year (see Daily GPI, Jan. 14). Limits to gas storage outside the United States “could unexpectedly boost U.S. imports of LNG during the summer months if global demand for natural gas does not increase as expected,” EIA stated. U.S. LNG imports in 2010 are projected to rise to around 500 Bcf.
Other researchers also appear to concur with some of Wood Mackenzie’s data. Analysts at Waterborne Energy forecast a 30% rise in total LNG production worldwide by the end of 2009, some of which would make its way to domestic markets.
Softening global gas demand also could cause the U.S. LNG market to be oversupplied in the near term, Wood Mackenzie and other analysts have noted. “This is therefore expected to lead to increased flows of LNG to the U.S. as it plays its role as the global sink for LNG,” said Douglas.
In addition to baseload supply, equivalent to total LNG imports in 2008, additional volumes to the United States are expected to arrive as a consequence of the new liquefaction capacity coming onstream over the next three years, Wood Mackenzie noted. “The original target and most likely home for a significant proportion of this LNG are the liquid Atlantic basin markets, the largest and most liquid of which is the U.S.”
However, the growth in LNG will negatively impact the U.S. gas market, Douglas said.
“The U.S. can easily accept large volumes of unallocated LNG as required due to its size, liquidity and significant regas and storage capacity,” the Wood Mackenzie analyst noted. “Some of this relatively low cost new liquefaction capacity will compete with domestic shale gas resources in the U.S. market. This will suppress price and in turn delay some higher cost domestic developments.”
Wood Mackenzie is predicting a “further upside to the North American forecast if there is a sustained period of low oil price,” said Douglas. Under this scenario, the “attractiveness of the North American gas market to LNG suppliers” would become evident “as the oil-linked gas prices in European markets soften and Asian buyers switch from gas to oil resulting in more LNG on the market.”
One issue that could improve the outlook for global LNG is the latest dispute between Russian and Ukraine, which led to a natural gas crisis in Europe, said Lloyd’s List in a note. Lloyd’s List covers the maritime and transport industry.
“The upside to the crisis could be the LNG industry,” Lloyd’s List stated. “In the short term, demand for LNG will be increased as utilities scramble to buy cargoes to cover shortfalls in deliveries from Russian gas giant Gazprom. A more fundamental issue is the extent to which the gas crisis will increase the strategic importance of the LNG industry in the longer term. Europe is well placed to secure both pipeline and LNG supplies, but security of supply and concern over a lack of diversification are playing to the strengths of the latter.”
For more information on the Wood Mackenzie study, visit www.woodmac.com.
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