The liquefied natural gas (LNG) industry has grown steadily for at least 30 years, but the latest trends point to a major expansion in trade, especially in the Atlantic Basin, according to a report issued Friday by a Standard & Poor’s (S&P) analyst.

Peter Rigby noted that the Atlantic Basin “appears to be the next major growth market for LNG,” basing his assumptions on new liquefaction projects announced in Africa, Latin America and the Middle East, along with terminals in North America and Western Europe. “In Western Europe and North America, growing economies, environmental concerns for clean fuels, and declining domestic sources of natural gas also seem to suggest a long-term sustainable growth in LNG,” said Rigby.

However, LNG capital costs are “enormous,” and new facilities may cost billions of dollars and take years to develop. “And in a climate where credit for new energy investment has become tight, financing new LNG projects may be difficult.” Still, Rigby found that project finance may provide, as in the past, viable and attractive terms for LNG developers. He said, “LNG projects, both upstream, transport and downstream, are good candidates for investment project financings, as evidenced by a number of its investment-grade ratings, both public and private.”

The characteristics that make LNG project finance applications “ideal,” said Rigby, including the following:

The technology, noted Rigby, is commercially proven, with few projects experiencing “any remarkable operational problems” since the inception of the industry. “In this respect, the record of LNG projects has been almost flawless.”

Rigby found that “by every measure, the global and regional demand for LNG continues to increase as it has been since the LNG trade began in the late 1960s. In particular, the Atlantic Basin LNG market has shown remarkable growth just in the past seven years, as new importers join the list of LNG consumers.”

Unlike Asian LNG importers, North America and Western Europe view LNG demand differently. “Competition among conventional gas, LNG, oil coal and nuclear energy plays a more prominent role in LNG demand, especially in power generation,” said Rigby. “Competition is particularly intense in the U.S., where natural gas, due to its volatile pricing, constantly battles with coal and oil for market share in power generation. In such a market, however, long-term LNG supply contracts may be difficult to secure as long as competing fuels potentially can reduce LNG demand at any time.”

Despite the competition in the western markets, LNG consumption as a percentage of total natural gas consumption increased 5.9% in 2001, up from 3.8% in 1991. And, “four continuing trends” in Western Europe and North America point to growth in gas consumption, particularly for power generation:

Rigby noted that in the United States, where an extensive interstate transmission and distribution system exists, construction of new LNG facilities will be difficult due to local opposition. “Expansions, therefore, of existing facilities or recommissioning of mothballed facilities will have to support the growth of LNG imports in the near term,” citing the Everett facility in New England, Maryland’s Cove Point terminal, the Elba Island facility in Georgia and the expansion of CMS Energy’s terminal business in Lake Charles.

For greenfield LNG facilities, Rigby said it was a positive sign to see ChevronTexaco proceed with its proposed Port Pelican terminal in the U.S. Gulf Coast, and he expected other projects to progress in the coming year.

To learn more about S&P’s outlook on LNG, visit the web site at www.standardandpoors.com under its Ratings Direct section.

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