New LNG Imports Could Further Slam US Natural-Gas Prices

HOUSTON (Dow Jones Newswires), Mar. 5, 2009

Natural-gas prices, which have plunged since last summer, could be pressured further as expected new cargoes of liquefied natural gas start reaching U.S. shores this year.

Analysts project that shiploads of the supercooled, compressed gas could start berthing at terminals in the U.S. Gulf Coast in a matter of weeks. While the bulk of new shipments aren't likely until the second half of the year, any fresh LNG supplies could aggravate a market already contending with a slump in industrial demand and soaring domestic production.

Gas for April delivery settled Wednesday at $4.34 per million British thermal units, down nearly 70% from last summer's peak.

"We are going to be awash in natural gas and could have $2 gas," says Steve Johnson, president of Waterborne Energy Inc., a Houston-based firm that tracks LNG shipments.

Johnson predicts the U.S. will see 1.1 trillion cubic feet of gas delivered to the U.S. in 2009 as repairs to some LNG export facilities overseas are completed, new projects come online and seasonal shifts in global demand increase the amount of LNG in the market. That projection is roughly three times greater than the amount of LNG imported into the U.S. last year and exceeds the record import level of 770 billion cubic feet (bcf) set in 2007.

Forecasts for U.S. imports of LNG vary widely, and the timing of new exports from projects in Russia, Qatar and Indonesia remains unclear. The Department of Energy last month said it expects LNG imports to average about 369 bcf this year, slightly above last year.

Nevertheless, with the economic downturn crimping demand in Europe and Asia, the U.S. could prove an attractive destination for excess LNG cargoes as its extensive infrastructure can accommodate storage and transportation of natural gas.

More Pressure For US Producers

Some analysts predict LNG shipments could begin entering the U.S. as early as April - the end of the peak demand period for gas and the beginning of the season when utilities and marketers replenish storage.

Such fresh LNG cargoes could further weigh on domestic producers -- like Devon Energy Corp. and Chesapeake Energy Corp. -- that have been forced to idle rigs and ratchet back output in the face of falling commodity prices and bulging storage levels.

The amount of natural gas in U.S. inventories stands at 1.793 trillion cubic feet, 17.7% higher than last year and 13.8% above the five-year average, according to a report released Thursday by the U.S. Energy Information Administration.

David Pursell, an energy analyst with Houston-based Tudor Pickering Holt & Co. Securities, says that U.S. gas supplies are outpacing demand by about 4 bcf a day and a surge in LNG could exacerbate an already oversupplied gas market.

LNG shipments, which averaged about 1 bcf per day in 2008, could jump to 3 bcf per day, Pursell says. The U.S. consumes about 60 bcf a day. By comparison, the most prolific of the shale-rock formations behind the surge in U.S. gas output, the Barnett in northern Texas, produces about 4.5 bcf a day.

Scale Of LNG Imports A Great Unknown

Analysts say that slumping worldwide demand for energy will leave the biggest consumers of LNG in Asia and Europe unable to absorb the large influx of new supplies expected to come into the market this year.

In a report to clients last week, Barclays Capital analysts wrote that the global LNG market will add 5.6 bcf production capacity a day to the 23 bcf a day currently online. But delays in new liquefaction facilities and glitches in existing facilities are adding to uncertainty about when the U.S. will see an import boost.

"If global demand declines and liquefaction projects come online as scheduled, neither the U.S. nor Europe will be in a position to take all the excess LNG volumes in the second half of 2009," the analysts wrote.

Tim Evans, an analyst with Citi Futures Perspective in New York, says the arrival of more LNG into the U.S. has become a talking point in a market overwhelmed with bearish sentiment.

"We should wait and see how much of that actually shows up," Evans says.  

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