International Gas Trade: Sample Articles
(Appeared August, 2008)

Indian Economic Expansion on Track

The Indian economy will expand at 8% a year, virtually unaffected by the international credit crunch and high oil prices, as it changes to an industrial superpower to rival China, the government's top policy official has said. He predicted that Chinese-style 10% annual growth was very possible.

Montek Singh Ahluwalia, deputy chief of India's planning commission,
said the government would be "targeting 9% growth, getting up to 10%. It may look ambitious with the global economic slowdown. But in the medium term, it is achievable."

India's central bank expects growth in the year ending 2009 to slow to
8%, down from 9.1% in the previous 12 months. The commission has signalled a huge shift in the economy, forecasting that in the next five years 58 million new jobs will be created but none of these would be in the vast, unproductive farm sector.

In the past five years farming employment increased by 9 million while
India's rice production remained less than half the world average of
four tons per hectare. Economists have long argued that for India to mimic China's "long boom," the country would have to see industry fuel growth. In China, this led to millions of people leaving the land to work in factories. But this process has not happened in India, where growth has been driven by capital-intensive sectors such as information technology.

Although hugely successful, Indian software companies employ only 1.5 million people, an insignificant number in the labor pool of 470
million. However, the planning commission says that in the next five
years the bulk of new jobs will be created in factories, construction
sites, restaurants, retail stores and warehouses.

Many commentators say the country is at a turning point. "I think as labor costs rise in China and there's a price to pay for pollution, that we will see manufacturing coming to India," said Niranjan Rajadhyaksha, a columnist with the business daily Mint. "There's been for some time a sense that agriculture can no longer absorb any more people."

Others dispute the commission's analysis, saying that Indian business
has "voted with their wallets" by expanding abroad faster than at home.
Foreign investors on India's stock market have also been withdrawing
funds as the world economic downturn has begun to bite.

Mohan Guruswamy of the Centre for Policy Alternatives said, "India has become a net exporter of FDI (foreign direct investment). That's because it is too difficult to start up labor-intensive manufacturing of the kind you find in China. Sixty percent of Indians depend on agriculture and I don't see that changing."
The commission has also produced a plan to "engage with 10 high-growth sectors" in manufacturing. If these projections are met, they would see India's car industry employ 25 million people by 2015 and produce exports of $145 billion.
[If the foreseen switch in economic activity to manufacturing takes
place in India to any meaningful degree, the ramifications for energy
demand cannot be overstated. One need only imagine the impact a
population the size of India's would have on the energy market if it
began heavy manufacturing, instead of service and agricultural
activities. Ordinarily, agriculture involves heavy use of energy, but in
the still primitive way that farming is carried out in India, energy is not an unusually large component of input.

The rapidity, not just the size, of change in China has startled observers, and while it is unlikely to be duplicated in India for a variety of reasons, the potential for massive shifts in energy demand cannot be discounted. The future of both countries is towards industrialization and with that comes a massive emerging demand for necessary energy to fuel and power that output.

Clearly, the current global slowdown and its contracting demand for energy is being cushioned by the realization that at the first sign of international recovery, China and India will be bidding for massive inputs of energy from a world that is not easily able to provide the necessary supply.]

U.S. LNG Imports Are Under Pressure

U.S. imports of LNG were expected to expand this summer after starting the year at a lackluster pace, but a 30% decline in U.S. gas prices last month dashed any hope of importing meaningful volumes of overseas supplies.

"The summer is our window for LNG imports, but U.S. prices are not even close to competitive," said Steve Johnson, president of Waterborne Energy, a Houston-based firm that monitors the global flow of LNG. Relatively low inventories left after a cold winter helped drive U.S. gas prices up more than 85% during the first six months of the year, and by late June East Coast gas prices above $14/MMBTU were competitive with landed prices in Spain and the Far East.
But steady gains in domestic production this year have eased concerns about rebuilding storage for winter and gas prices have receded, falling approximately 30% last month to about $10 and the current $8/MMBTU, making the U.S. a less attractive market for LNG shippers.

Utilities stockpile gas in inventory from April through October to help meet peak winter heating demand, and strong LNG imports can ease that task. "Last month, prices seemed to be getting high enough where there was some potential for more LNG to come here, but that was before the break occurred. It doesn't look like we're going to pull in the imports now," said Steve Platt at Archer Financial Services in Chicago.
With the additional cost to ship LNG from Trinidad, a major spot supplier, to Spain rather than to the U.S., running at about 35 cents
and cargoes to Japan about $2 more expensive, U.S. East Coast gas prices would have to move back above $12 to attract more spot LNG.
The U.S., with vast underground storage capacity and an extensive
pipeline network, has always been the LNG market of last resort, and
summer is usually prime time for shipping LNG here as Asian and European demand recedes. But a huge nuclear plant shutdown in Japan last year and a drought in Spain this year raised overseas demand for spot supplies and sharply cut the number of spot LNG cargoes that normally would have landed in the U.S.

Rising demand this year in Latin America, particularly Argentina and
Brazil, has only served to make the global LNG market even tighter. "To make matters worse you've got new external draws on LNG supply from Latin America. I'm convinced the remainder of the year will be very thin for LNG imports," Waterborne Energy's Johnson said.
Both Asia and Europe are more dependent on LNG to meet winter heating demand and usually pay up for added supplies, while the U.S., one of the world's largest natural gas producers, can fall back on existing domestic reserves or on the huge amounts of gas held in storage. So far this year, LNG shipments to the U.S. have languished at about 1 BCF/D, less than half last year's record rate of about 2.1 BCF/D daily, and most industry observers don't expect the pace to grow appreciably from here.

With Asian buying expected to pick up in September and October and
European interest increasing in October and November, the fourth quarter is generally a slow time for U.S. receipts of LNG.
While government estimates put total U.S. LNG imports this year at about 485 BCF, Johnson sees the result closer to 420 BCF, well below last year's record of 770 BCF.

Despite the foregoing, Johnson expects 2009 to be a much-improved year for U.S. LNG imports, as new global production capacity comes on stream and sharply boosts spot supplies. "Surprisingly, few industry observers are talking about this production bubble set to dramatically shift the dynamics of the global LNG market," Johnson said in a recent release. The proposal for the U.S.?traditionally an import-only business to embark on a program of exports to more profitable overseas destinations, is a barometer of how poorly LNG is doing in the U.S. Freeport LNG recently requested approval from the U.S. Department of Energy's Office of Fossil Energy to export LNG from its terminal located near Houston.

"They're trying to get this done as quickly as they can to take advantage of the higher-priced Asian market," said Johnson, noting that storing LNG will also help keep equipment cooled.
While the U.S.' only liquefaction plant, located in Alaska, has been
exporting LNG for 40 years, LNG has not yet been shipped overseas from the continental U.S. and may heighten concerns about having enough supply to meet future demand. Johnson, noting some Asian countries like Japan and Korea were already paying more than $20/MMBTU for late summer deliveries of LNG, said he expects Far East prices to exceed $30/MMBTU this winter. By contrast, U.S. East Coast gas prices this winter, typically the highest in the nation, are currently fluctuating between $12-$15, far below competing global destinations.

With LNG in Trinidad, a major spot supplier, currently costing about $18 and expected to move up from there as winter stock building in Europe and Asia gets underway in the fall, the pace of LNG shipped to the U.S. should stay lethargic, at least for the next six months.

Diane Haggard, communications manager at Cheniere Energy, said Cheniere had also applied for an export license for its Sabine Pass terminal in Louisiana. "LNG storage capacity in the U.S. is under-utilized. This would allow our terminal the flexibility to respond to market conditions," Haggard said.

Industry experts said a simple retrofit that costs about $10,000 would
give most current regasification terminals export capabilities in a few
weeks, but getting approval takes longer. There are eight LNG
regasification terminals currently operating in the U.S., but not all
have the storage capacity to load the typical LNG cargo of about 3 BCF.

With U.S. natural gas production likely to continue to see strong gains
in coming years, primarily from new shale schemes, some observers said re-exporting LNG may be just the initial step before building a
liquefaction plant in the Lower 48 states that would convert gas to
liquid form for shipment overseas.

"The concept of liquefying domestic gas and exporting it to other
markets has come up recently, but it's a complicated process that will
take a lot of time and investment," said Bill Cooper at the Center for
LNG, a Washington, D.C. trade group.

"The U.S. is getting more concerned about security of supply and
reliance on foreign sources of energy, so are people going to want to
export gas now?" said Murray Douglas, an LNG analyst at energy
consultants Wood Mackenzie in Houston.