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01/21/2009 |


January 16, 2009, 2:31 pm
Big Gas: U.S. Natural-Gas Imports to Rise, Prices to Fall?
Posted by Jeffrey Ball

The Journals Russell Gold reports:

Energy demand is down. The global economy is sputtering. Meanwhile, U.S. natural gas production is up. Add it together and the prospects for importing gas in liquefied form should be dismal.

But some analysts predict that imports into the U.S. of liquefied natural gas, known as LNG, could rise in coming years. The result could be a lot more of the fuel, and lower prices. Relatively abundant and relatively clean energy: Thats good news for Steven Chu and the new crew on Independence Avenue at the Department of Energy. Its effect on the environment could be mixed, though, since cheap natural gas would almost certainly continue to crowd out the development of renewable energy sources.

Wood Mackenzie, the Scotland-based energy consultant, predicts in a new report that LNG imports into North America should more than double to 4.2 billion cubic feet a day from an estimated 1.7 bcf daily in 2009.

If WoodMac is right, the implications arent good for domestic gas or coal producers. Extra natural gas into North America would push down prices and hurt domestic producers already reeling from overextending themselves while credit was easy. If gas is cheap and plentiful, it could become a bigger direct competition with coal for base-load electricity generation.

Not everyone agrees. The Energy Information Administration doesnt foresee a surge in imports. Its view is that domestic production will grow, keeping imports away.

WoodMac says North American markets will function as a global sink for LNG. What they mean is that North America will become the region were excess LNG is poured. Asia can only take so much extra LNG and producers do not want to overload European markets. Due to its size, liquidity and significant regas and storage capacity the US can easily accept large volumes of unallocated LNG as and when required, the report states.

All else being equal, the gas would go to Europe, which typically pays higher prices than North America. Traditionally, LNG prices in Europe have been indexed to oil prices (unlike in North America.) LNG producers worry that if they send too much gas into Europe, not only would it depress prices, it could hasten the end of this longstanding and quite profitable way of pricing LNG. Unwilling to risk this, WoodMac thinks they will prefer sending extra shipments of LNG across the Atlantic to North America.
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