LNG in the 21st Century
The First Decade

There are recent and striking changes in the elements which configure the international trade of natural gas. These new features require detailed examination for an appreciation of LNG's modern profile.

Gradually firming oil prices over the past year together with the softening of natural gas prices, are resulting in a more competitive posture for LNG. Conservation measures that had been recorded over the past decade, are slowing in Japan and the U.S. as economic recovery takes hold in both countries.

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

LNG imports are being resumed, with baseload shipments arriving from Algeria and Trinidad, and 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 an astonishing 8.2% 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, 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 high-growth scenarios. The U.S. will have to turn to more pipeline imports from Canada and LNG from a variety of Atlantic Basin or Pacific Rim producers to meet the projected rise in natural gas demand. To satisfy the shortfall, the U.S. may have to import as much as 30 MMT/Y of LNG under high-growth conditions.

World LNG demand for the coming 10 years and beyond is consistently being revised upward by energy analysts. Gas is expected to enjoy a greater share of a 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 an expanding list of suppliers. It is likely that more than 65-70 MMT/Y of LNG will be imported into Japan by 2010, up from 53.5 MMT in 2000 and 55.3 MMT in 2001.

Many new opportunities are opening in Asia that were not considered even speculative just one decade ago. China and India hold the promise of generating huge markets over the coming decade and are already negotiating with anxious suppliers to these centers. Natural gas as an energy source in Asia in 2000 was 10% of total primary energy use, which was 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 explored by France, Norway, Portugal, Italy, Spain, Greece, Turkey and the UK, among others. LNG trade agreements with Iran are being explored after more than a decade-long hiatus.

Recent technical innovations 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 beginning to sign long-term agreements rather than depend solely 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 forthcoming publication of:

LNG in the 21st Century
The First Decade

This study is a comprehensive examination of the worldwide trade in LNG. The analysis is set in an business context with a careful treatment of the geopolitical and financial factors that determine volume, prices and contractual arrangements. The contentious elements, such as take-or-pay, pricing and financing of projects are highlighted and analyzed. Projections are made for 2005, 2010 and 2015, assuming alternative economic growth rates.