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<h1>Global Demand Squeezing Natural Gas Supply</h1>
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<div class="credit">Michael Stravato for The New York Times<br>
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<div class="byline">By <a
href="http://topics.nytimes.com/top/reference/timestopics/people/k/clifford_krauss/index.html?inline=nyt-per"
title="More Articles by Clifford Krauss">CLIFFORD KRAUSS</a></div>
<div class="timestamp">Published: May 29, 2008</div>
<!--NYT_INLINE_IMAGE_POSITION1 -->
<nyt_text> </nyt_text>
<p>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.
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<h5><a
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<p class="summary">The Natural Gas Plan Goes Awry</p>
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<p>That fact makes the scene in the languid, alligator-infested
marshland here in coastal Louisiana all the more remarkable. </p>
<p>Only a month after <a
href="http://www.nytimes.com/mem/MWredirect.html?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=LNG"
title="Cheniere Energy">Cheniere Energy</a>
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.</p>
<p>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. </p>
<p>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. </p>
<p> 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. </p>
<p>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.</p>
<p>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. </p>
<p>“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.”</p>
<p>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.</p>
<p>Now the company’s stock price has sunk from $40 to just over $5
since last fall.</p>
<p>“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. </p>
<p> 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. </p>
<p>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. </p>
<p> 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. </p>
<p> 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.</p>
<p>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 <a
href="http://topics.nytimes.com/top/news/business/companies/sempra_energy/index.html?inline=nyt-org"
title="More information about Sempra Energy.">Sempra Energy</a>, which
is building receiving terminals in Mexico and Louisiana. “We will not
have enough.” </p>
<p>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 <a
href="http://topics.nytimes.com/top/news/business/companies/exxon_mobil_corporation/index.html?inline=nyt-org"
title="More information about Exxon Mobil Corporation">Exxon Mobil</a>
began snapping up coastal land and requesting regulatory approval for
scores of terminals. Several other terminals were taken out of
mothballs and expanded.</p>
<p> 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. </p>
<p>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. </p>
<p>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. </p>
<p>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. </p>
<p> 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 <a
href="http://topics.nytimes.com/top/news/business/companies/ubs_ag/index.html?inline=nyt-org"
title="More information about UBS AG.">UBS</a>
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.<br>
</p>
<p> 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.</p>
<div id="articleInline" class="inlineLeft">
<div id="inlineBox">
<div class="image">
<p class="caption">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. </p>
</div>
</div>
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<p> 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.</p>
<p> 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. </p>
<p> Andrew D. Grams, head of North American power and gas trading at <a
href="http://topics.nytimes.com/top/news/business/companies/deutsche_bank_ag/index.html?inline=nyt-org"
title="More information about Deutsche Bank A.G.">Deutsche Bank</a>,
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.</p>
<p> “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.”</p>
<p>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.</p>
<p>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.</p>
<p> “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.” </p>
<p>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. </p>
<p> 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. </p>
<p>“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.”</p>
<p> </p>
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<pre class="moz-signature" cols="72">--
"I am not a liberator. Liberators do not exist. The people liberate themselves." – Che Guevara</pre>
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