[Sustain] NYT: Global Demand Squeezing Natural Gas Supply

[Eric Brooks]

  Global Demand Squeezing Natural Gas Supply


Michael Stravato for The New York Times

By CLIFFORD KRAUSS 
<http://topics.nytimes.com/top/reference/timestopics/people/k/clifford_krauss/index.html?inline=nyt-per>
Published: May 29, 2008

CAMERON PARISH, La. --- The cost of a gallon of gas gets all the 
headlines, but the natural gas that will heat many American homes next 
winter is going up in price as fast or faster.

<http://www.nytimes.com/2008/05/29/business/29gas.html?_r=1&oref=slogin#secondParagraph> 



          Managing Globalization Blog (IHT)
          <http://blogs.iht.com/tribtalk/business/globalization/?p=729>

The Natural Gas Plan Goes Awry

Go to Blog » <http://blogs.iht.com/tribtalk/business/globalization/?p=729>

That fact makes the scene in the languid, alligator-infested marshland 
here in coastal Louisiana all the more remarkable.

Only a month after Cheniere Energy 
<http://www.nytimes.com/mem/MWredirect.html?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=LNG> 
inaugurated its $1.4 billion liquefied natural gas terminal here, an 
empty supertanker sat in its berth with no place to go while workers 
painted empty storage tanks.

The nearly idle terminal is a monument to a stalled experiment, one that 
was supposed to import so much L.N.G. from around the world that homes 
would be heated and factories humming at bargain prices.

But now L.N.G. shipments to the United States are slowing to a trickle, 
and Cheniere and other companies have dropped plans to build more 
terminals.

A longstanding assumption of American energy policy has been that 
natural gas would be plentiful abroad, and therefore readily available 
for importation, as production falls off in North America, where many 
fields are tapped out.

But some experts are starting to question that idea, saying natural gas 
could be subject to the same explosion in overseas demand that has made 
oil so expensive.

As it is, the supertankers that were supposed to deliver cargoes of gas 
from Africa and the Middle East to the United States are taking them to 
places like Spain and Japan instead, pushing up gas prices and depleting 
the nation's stockpiles as the hurricane season approaches.

"A few years ago people looked at L.N.G. as a solution to North 
America's gas needs," said Nikos Tsafos, an analyst with PCF Energy, a 
consulting firm. "But today we see that there is less L.N.G. around than 
people expected, and there is more competition for that L.N.G. from 
markets that are willing to pay more than the United States."

Not long ago, Cheniere was a darling of Wall Street. It was widely 
praised for having the vision to plan four new liquefied gas terminals 
around the Gulf of Mexico to connect the country with supplies of 
natural gas from places like Nigeria and Egypt, gas once considered so 
worthless it was burned off.

Now the company's stock price has sunk from $40 to just over $5 since 
last fall.

"The question that people ask is if L.N.G. doesn't come to the United 
States for another year or two or three, what is going to happen to 
Cheniere," acknowledged Charif Souki, the chief executive officer of the 
company.

While natural gas prices in the United States have spiked to over $11.80 
per thousand cubic feet from $7.50 at the beginning of the year, the 
price that gas producers can draw in many other countries in the world 
is several dollars higher. All they need are terminals in producing 
countries that can chill natural gas to minus 260 degrees Fahrenheit for 
shipping across oceans and terminals in consuming countries that can 
regasify cargoes.

Just about the only place where demand for L.N.G. seems not to be 
growing is the United States, an abrupt shift from expectations as 
little as one year ago.

The Sabine Pass terminal was part of an estimated $7 billion 
construction of eight new L.N.G. receiving terminals being built around 
the Gulf of Mexico and the Atlantic Coast over the last five years to 
guarantee plentiful domestic supplies. With imports about 40 percent of 
the level of a year ago, and national receiving terminal capacity poised 
to double this year, the excess construction of import capacity has 
alarmed industry executives.

However the executives predict that it is only a matter of time before 
the white elephants begin to look like a more robust breed. They say 
American gas suppliers will eventually be willing to pay the higher 
world prices on the spot market, especially if a gas shortage ensues 
after a punishing hurricane season or frigid winter.

They also predict future American consumption of natural gas is poised 
to increase because of hardening opposition to building new coal-fired 
electricity generating plants and delays in new nuclear plants. "Over 
time, we will need to start importing more gas," said Darcel L. Hulse, 
president of Sempra LNG, a division of Sempra Energy 
<http://topics.nytimes.com/top/news/business/companies/sempra_energy/index.html?inline=nyt-org>, 
which is building receiving terminals in Mexico and Louisiana. "We will 
not have enough."

That was the thinking that spurred the L.N.G. expansion in the United 
States in the first place. At the beginning of the decade, government 
officials and energy experts predicted a decline in domestic natural gas 
production as conventional fields on-shore and in the Gulf of Mexico 
declined. Companies like Cheniere, Sempra Energy and Exxon Mobil 
<http://topics.nytimes.com/top/news/business/companies/exxon_mobil_corporation/index.html?inline=nyt-org> 
began snapping up coastal land and requesting regulatory approval for 
scores of terminals. Several other terminals were taken out of mothballs 
and expanded.

But recently domestic natural gas production has been stronger than 
expected and events abroad have drawn L.N.G. from the United States to 
countries that needed it more.

Last July an earthquake in Japan forced the closing of the 
Kashiwazaki-Kariwa nuclear power plant, which in turn has forced 
Japanese utilities to import huge amounts of L.N.G.

World L.N.G. supplies grew even more scarce because of a persistent 
drought in Spain that has crimped that country's hydroelectric capacity, 
forcing the Spanish to increase L.N.G. imports.

Prices in Asia and Europe have soared, as producers have sold more 
supply on the spot market where prices are higher than those in 
traditional long term contracts.

World demand for natural gas has grown about 2.6 percent a year over the 
last decade, but in Asia, the Middle East, Latin America and Africa it 
has averaged 7 percent over the same period, according to a recent UBS 
<http://topics.nytimes.com/top/news/business/companies/ubs_ag/index.html?inline=nyt-org> 
report. Growth in the developing world is expected to be supported in 
the years ahead by a construction boom in refineries and power and 
petrochemical plants.

Supplies of L.N.G. are going to grow in the next few years, but experts 
say they will not be enough to satisfy the growing demand. Liquefaction 
plant projects that prepare the gas for shipping in producing nations 
like Nigeria and Russia are being delayed and even shelved because of 
political turbulence, cost overruns and increasing domestic demand for 
gas in their own countries. Production in one major terminal in 
Indonesia is sliding because of a declining field, and production in 
another in Norway is facing mechanical difficulties.

Cheniere Energy's liquefied natural gas terminal near Cameron Parish in 
Louisiana is idle, because other countries, like Japan and Spain, are 
willing to pay more for the fuel.

With L.N.G. providing only about 3 percent of total American natural gas 
consumption in recent years, the fall in L.N.G. imports has made few 
headlines. But some experts say those responsible for importing gas are 
making a mistake by not buying more L.N.G. at current prices.

They warn that the failure to import more L.N.G. is leaving natural gas 
reserves precariously low should the country be hit by a harsh hurricane 
season or cold winter. They say low L.N.G. imports have helped push 
American natural prices higher, just not high enough to match the prices 
of Europe and Asia whose ability to produce and store gas is far 
inferior to the United States.

Andrew D. Grams, head of North American power and gas trading at 
Deutsche Bank 
<http://topics.nytimes.com/top/news/business/companies/deutsche_bank_ag/index.html?inline=nyt-org>, 
said the United States may eventually pay dearly for not importing more 
L.N.G. now. He calculated that given the reduced L.N.G. imports and 
expected energy use through the summer, the country will have only 3.1 
trillion cubic feet of gas in storage at the end of October --- almost 1 
trillion cubic feet below full storage.

"Under a normal scenario, that's just barely enough to get through 
winter," Mr. Grams said. "It doesn't take a rocket scientist to figure 
out that we may not get enough L.N.G. supply in the United States unless 
our pricing structure becomes more competitive with the rest of the world."

Natural gas, unlike oil, is still a regional commodity and its price is 
only loosely connected to world oil benchmark prices. But L.N.G. has 
tied regional markets closer, and the arc of natural gas prices appears 
to be following close behind oil in recent months because of tightening 
L.N.G. supplies.

The same increases in the prices of steel and other materials and 
shortages in labor that are making it more expensive to explore for oil 
are making L.N.G. development more costly too. Meanwhile, countries that 
produce oil and gas like Libya and Algeria are replacing their 
oil-powered electricity plants with natural gas-burning plants. That 
way, they are able to export more oil, which costs less to ship than L.N.G.

"The value of gas to you is what people are willing to pay for the oil 
you are exporting," said Don Hertzmark, a consultant who has advised 
several oil companies on L.N.G. projects. "At that point, the gas is 
worth a lot of money."

Nevertheless hopes for L.N.G. still survive here. The secretary of 
energy, Samuel W. Bodman, and a Cajun zydeco band came last month to 
celebrate the opening of the Sabine Pass terminal, and a tanker 
delivered L.N.G. from Nigeria for testing purposes.

Workers are testing generators and painting and building five huge 
storage tanks, each capable of providing a full day's supply of gas for 
Louisiana. Tugboat crews are practicing for any future cargo arrivals.

"I know the L.N.G. will come and we'll make a profit on this," said 
Darron Granger, a Cheniere senior vice president. "I just can't say when."



-- 
"I am not a liberator. Liberators do not exist. The people liberate themselves." -- Che Guevara

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