U.S. LNG Proliferation Slowed by Global Competition, Market Dynamics
Despite five-year-old promises of significantly increased liquefied natural gas (LNG) imports in the United States, the reality is that not much has been done to transform LNG from a niche business to a mainstream operation, according to James W. Duncan, director of Structured Products for ConocoPhillips Gas & Power.
Speaking at Interchange Energy Group's LDC Forum in Chicago earlier this week, Duncan said global competition for LNG supplies is increasing and that will remain the major roadblock standing in the way of a growing U.S. LNG market.
"LNG is a growing and dynamic market, but there are going to be new players in the marketplace, which is going to prohibit and inhibit the amount of LNG that is available to come here," he said. "What will drive that market will be price.
"Molecules flow to dollars," Duncan said. "It's not a mystery. I think it has been mentioned that Spain paid the equivalent of $14/MMBtu last summer...and the molecule [not] surprisingly went there and did not come here. Those price dynamics are coming to fruition."
Meanwhile, other major global LNG markets are growing rapidly, he noted, pointing to the recent economic growth of China, Russia and India. "Between now and 2009, the S-curve supply contracts that are enjoyed by South Korea, Japan and the rest of the Far East are rolling up, so added to Europe and the United States will be the Far East for competitors for LNG, and we haven't even started talking about regas facilities. It is supply that is moving up the chain of demand. As demand increases, the people who are producing this material are asking for optionality built into a supply contract.
"Why hasn't LNG moved as fast as we thought five years ago?" Duncan asked. "Think of yourselves as trying to design a contract with optionality, servicing a debt for a terminal for a supply that might not show up. That slows down the process and all of the while the clock is ticking. Demand is ever-increasing. It does not go down."
In addition to global competition for LNG, the U.S. energy industry is also fighting not-in-my-back-yard sentiment on terminal siting, noted Kyle M. Sawyer, a consultant with El Paso Eastern Pipelines. "Dominantly, if you look along the East and West Coasts, that is where you are seeing the project cancellations" because of opposition from communities state senators, mayors and other parties, he noted. "There have been a few canceled in the Gulf of Mexico and that is really just because companies have found better options within the Gulf of Mexico."
Despite numerous planned regasification projects over the last five or so years, there are still only five terminals in the U.S. "We have not built -- other than Energy Bridge -- one new one," noted Duncan.
While the need for LNG came about as a result of surging gas prices, that factor now seems to be fading. "We went from an average of $2/MMBtu to $10/MMBtu in the span of less than a year and then everything changed... It became very well entrenched that we needed new supplies...it became a crisis.
"All of these studies came out saying that LNG demand was going to increase...natural gas was going to increase, yet nothing moved forward in terms of concrete new sources and new supplies. The fact is nothing has changed except domestic production has gone up and we have been bailed out by Mother Nature."
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