LNG boosters were ultimately disheartened at the end of 2005 when the United States couldn’t seem to pull in all of the liquefied natural gas (LNG) it wanted. In fact, last year saw a decline in LNG imports from 2004. However, U.S. markets can look forward to more supply security in the coming years, according to Edinburgh, UK-based Wood Mackenzie.
The U.S. market has less certainty of LNG supply compared to others because of the commercial arrangements dictating LNG delivery. While LNG serving the Japanese market is almost completely locked up under long-term contracts, LNG destined for the States comes here under much more flexible arrangements, including short-term contracts, semi-firm and flexible portfolio arrangements, as well as in the form of spot cargoes. That means that when Asian and European markets are willing to pay above-market prices for additional LNG, that’s where the cargoes, previously destined for the United States, will go. In other words, “Flexible LNG supplies will follow the money,” said Wood Mackenzie.
But looking out a few years, the energy consulting firm sees the United States becoming a much more competitive market for LNG. Between 2006 and 2012, the U.S. LNG market is expected to grow from about 2.2 Bcf/d to almost 11 Bcf/d. The vast majority of this supply will come to U.S. shores under “semi-firm” portfolio arrangements managed by the major integrated and national oil companies, said Wood Mackenzie. During this same period, the amount of LNG delivered under firm long-term contracts will grow from less than 0.5 Bcf/d to about 1.5 Bcf/d. In 2012 the spot market will still have to make up for about 1.5 Bcf/d of U.S. supply or roughly 13% of the market. By contrast, spot cargoes accounted for roughly 37% of LNG deliveries in 2005, according to Wood Mackenzie.
Also over the coming years, Wood Mackenzie projects that the share of globally contracted LNG held by integrated suppliers, such as Shell, BP, etc., will grow substantially to more than a third of the market in 2010. Between now and 2012, Wood Mackenzie sees global LNG demand growing to about 42 Bcf/d, with U.S. growth accounting for the lion’s share of the increase. Even if other world markets were to attract discretionary supply targeting the United States to satisfy their uncontracted demand, the impact on the United States over the next four to five years would be limited. “It is thus likely that a significant portion of the target supply for the U.S. will be delivered,” said Wood Mackenzie.
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