U.S. liquefied natural gas (LNG) imports were up 41% in April compared with a year ago and remain on track to grow 60% or more in 2007, a sign that the global LNG market “may be coming of age,” Lehman Brothers analyst Thomas Driscoll said. He noted that the effect on gas prices, however, is decidedly bearish.
In a report, Driscoll noted that U.S. LNG imports are soaring, driven by new global production, which is up an estimated 10-15% this year, and weak European demand. After this year, 2008 and 2009 will be the “breakout years” for new LNG supply, he said.
“2007 may only be the beginning,” Driscoll wrote. He is forecasting worldwide capacity growth of an estimated 3 Bcf/d, which is five times the 0.6 Bcf/d growth experienced in 2005 and 2006. In 2008 and 2009, the United States is likely to see 13 Bcf/d of new supply capacity — “a run rate of 6-plus Bcf/d, twice the 2007 growth rate and 10 times the 2005-2006 growth rates.”
Driscoll is forecasting LNG imports to quadruple by 2010 and to comprise 10-15% of U.S. supply.
“Our estimate assumes that U.S. regas utilization remains near 50% as capacity rises from 3.5 to 16 Bcf/d,” Driscoll wrote. “We estimate that the U.S. share of the LNG trade will rise from 8% to 20% of the worldwide trade and from 20% to 40% of the rapidly rising Atlantic trade.”
What would this mean for prices?
Driscoll said rising LNG imports, active drilling and deepwater Gulf of Mexico production “will likely keep a near-term lid” on prices, even with lower Canadian imports.
“We believe bearish trends in the natural gas markets will overshadow bullish ones, keeping a lid on natural gas prices in the short- to medium-term,” Driscoll wrote. In the short-term, gas prices “will likely approximate residual fuel oil,” which is now just below $4. “Longer-term drilling economics may argue for prices well over $9; however, the desire to grow volumes and fast growing LNG imports may prevent price increases.”
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