The Profits and Promise of Global LNG

In unprecedented testimony before the U.S. Congress, former Federal Reserve Chairman Alan Greenspan twice focused on growing global energy imbalances and asserted that LNG is the most reasonable solution on the horizon to the disturbing disequilibrium.

Rapidly rising prices over the past three years and the expectation of sustained healthy energy markets are providing a more competitive environment for LNG. The impact of conservation measures that had been implemented over the past decade and had served to slow energy demand, is moderating in much of the industrialized world, especially Japan, as recovery gains a foothold in these economies.

Growing awareness of the onerous environmental impact of oil and coal consumption, as well as the sharply diminished attraction of nuclear energy, have led to the increased value of natural gas in the array of available energy options. After decade-long resistance to major import projects, including LNG, regulatory attitudes in the U.S. - the world's largest gas consumer - have dramatically shifted in favor of increased gas imports.

LNG imports are being resumed, with baseload shipments arriving from Algeria and Trinidad, as well as spot shipments from a host of producers. Algeria is now viewed as a viable LNG trading partner with the U.S., and expanded projects are under development. LNG imports are seen growing at the astonishing rate of 10% per annum over the coming decade. Many of the U.S.' pipeline companies are now proposing ringing the perimeter of the U.S. with a series of receiving terminals to process LNG from Trinidad, Algeria, Qatar, Russia, Australia, the Bahamas and Indonesia.

In the coming decade, a domestic natural gas supply deficit of as much as 6-7 TCF could develop in the U.S. under baseline scenarios. The U.S., which is facing lower pipeline supplies from Canada, will be forced to turn to more LNG from a variety of Atlantic Basin, Far Eastern and Middle Eastern producers to meet the projected rise in natural gas demand. To satisfy the shortfall, the U.S. may have to import more than 50 MMT/Y of LNG by 2020.

World LNG demand for the coming decade, and beyond, is consistently being revised upward by energy analysts. Gas is expected to enjoy a greater share of the power generation sector, growing more rapidly than had previously been projected.

In an effort to minimize security risks, Japan is stockpiling more LNG and negotiating with a growing list of suppliers. It is likely that as much as 65-70 MMT/Y of LNG will be imported into Japan by 2010, up from 56.8 MMT in 2005.

Many new trade opportunities are developing in Asia that were not considered even speculative just one decade ago. China and India, which hold the promise of generating huge markets over the coming decade, have concluded deals with Australia and Indonesia, and are negotiating projects with Iran, Qatar and Oman, among others. Natural gas as an energy source in Asia in 2005 approximated 11% of total primary energy use, substantially lower than the world average of 23%, suggesting tremendous room for growth.

In Western Europe, natural gas activity is burgeoning, with new proposals being developed by France, Norway, Portugal, Italy, Spain, Greece, Turkey and the UK. LNG trade agreements with Iran and Russia are being explored after more than a decade-long hiatus.

Recent technical innovations and cost-cutting measures have made LNG processing and shipping more affordable, resulting in increased sales in both Asian and Atlantic Basin markets.

Asian and Western markets will begin to look more alike over time. Already, Japanese customers are asking for more flexible terms in their arrangements with traditional suppliers, including both spot and term contracts, to offset unexpected disruptions in supply and to help build markets there. U.S. gas consumers and marketers are signing long-term agreements rather than depending primarily on spot and short-term arrangements. Eventually both will adopt portfolio strategies, assembling a blend of supply and transportation arrangements that fit all needs.

In consideration of all these factors, Energy Research Associates is pleased to announce the publication of:

The Profits and Promise of Global LNG

This study is a comprehensive examination of the worldwide trade in LNG. The analysis is sharply focused in a business context with a careful examination of where, and how, profits are generated in the industry.

The legal, financial, economic, and regulatory issues that define the industry are carefully analyzed. Projections are constructed for 2010, 2015 and 2020, assuming alternative economic growth rates.