U.S. liquefied natural gas (LNG) terminal development may be impacted by the uncertainty of oversupply in 2007-2009, two industry insiders said last week. And for those projects now on the table, the Gulf Coast may hold the advantage because of its vast pipeline infrastructure.

Elizabeth Spomer, CEO of Lake Charles, LA-based BG LNG Services LLC (BGLS), said “new projects will be very tricky, very political,” and several things may prolong or even prevent LNG sites from being built in the United States. However, pipeline capacity and infrastructure on the Gulf Coast make those proposed sites more appealing to both investors and regulators, she said. Spomer was part of a panel discussion on LNG at the RBC Capital North American Energy and Power Conference in Houston last week.

“In our view…the Gulf Coast projects are favored,” she said. “On the East Coast, there is not enough pipeline intake and then there are the problems of ever getting past the environmental schemes” of regulators and opposition groups. There may be a couple of new LNG terminals in the next few years, but more likely, the LNG facilities already sited will be expanded. In any case, “it will be trickier than people think.”

Siting LNG terminals in Mexico is “the trend to watch…because they could become an exporter to the United States; that would be interesting.”

D.G. “Dory” Little, founder of Rodeo Resources Ltd. and an LNG consultant, said the “fly in the ointment” for U.S. terminals will be environmental permits. “They will play an increasingly important role in the U.S. energy supply,” but he noted that many of the proposals now on the table will never make it past the idea stage.

BGLS, meanwhile, expects to remain a dominant LNG player in the United States. It signed a 22-year LNG terminalling service agreement in early 2002 to use the available capacity for imports at the former Trunkline LNG terminal in Louisiana, which it obtained from CMS Energy Corp. Today, BGLS is the largest U.S. LNG importer, and it has access to BG Group’s worldwide LNG portfolio, including its stake in the Atlantic Basin, giving the company an envied domestic position.

With the Lake Charles agreement, BGLS controls about 81% of the capacity until Aug. 31, 2005. From Sept. 1, 2005, it will then control 100% of the capacity. Spomer said BGLS now is trained on signing more long-term LNG purchase agreements similar to those it has secured this year with the Nigeria LNG Plus project, Marathon Oil’s Equatorial Guinea project and the Egyptian LNG project. BGLS also plans to purchase LNG from BG’s Atlantic LNG Train 4, which is expected to begin operations in early 2006.

The supply is important, said Spomer, because of the coming shortfall in U.S. natural gas supplies. “The supply gap could be 16 Bcf/d by 2010,” she said. “LNG undoubtedly will be part of the solution.” She noted that bottom line, BGLS can make money with LNG imports at a gas price of $2.50/Mcf — lower than some might estimate, but “we’ve proven it at Lake Charles,” she said.

“Existing terminal capacity is already taken,” Spomer noted. “Gas consumption continues to grow because of power generation.” Currently, the Lake Charles facility, which is up to more than 100 cargos a year, is delivering 61 Bcf/d, and by 2010, it will deliver 77 Bcf/d. “The challenge is to figure out the business model and manage our position.” The “uncertainty” going forward “lies in the supply picture, she added. “You need to have economies of scale to have a robust economic model.”

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