Supply shortage, not import problems, called main US LNG hurdle

Washington (Platts)--26Jul2004

A shortage of global LNG supplies is far greater an obstacle to boosting US
imports than local opposition to new LNG terminals, according to analysts at
Deutsche Bank AG. "Developing supply is the problem," Deutsche Bank said in a
report released late last week. "Despite huge global gas prices riding at
$5/MMBtu-plus, there is no major new project starting up this year to supply
the global market with LNG." As a result, "growing LNG volumes will at best
replace declines in US gas production" and therefore are unlikely to reduce
domestic gas prices for at least six years, according to the report entitled
"Global LNG: Exploding the Myths." Even if development of new regasification
projects abroad were to begin today, it probably would be at least six years
until they can supply significant volumes to the United States and other key
markets, Deutsche Bank said. "This is because there are multiple partners and
developing governments to convince, and multi-year planning and construction
cycles."

One "myth" Deutsche Bank sought to dispel is that LNG suppliers will have a
hard time accessing US markets due to a lack of import capacity. "The most
widely held misconception is that there is a problem with US regasification
capacity. There is not," it said. "The four existing terminals have yet to
sell out." And despite considerable anecdotal evidence to the contrary--over
the past year proposed terminals have been thwarted by community opposition in
areas as diverse as Maine, Alabama and California--the report said resistance
to building new LNG plants in the US is not a major problem. "LNG is safe and
the public [along] the Gulf Coast supports its development," Deutsche Bank
asserted. "Neither currently, nor longer term, do we see a significant issue
with access to the US gas market."

In addition, "there is currently considerable spare LNG shipping capacity--yet
few new developments," which is exacerbating the global supply shortage, the
firm said. Anticipated growth of around 1-mil boe/d in the global LNG market
this year "is just half the growth of the oil market in absolute energy
terms," Deutsche Bank said, leading its analysts to ask: "LNG boom? What
boom?" The lack of near-term LNG supplies "is a function of the complexity and
size of putting together an LNG project," the analysts explained. "While
overwhelmingly an attractive proposition from an economic standpoint, LNG is a
major infrastructure challenge that will not be developed in sufficient
quantity before 2010 to alleviate the high US, and global, gas price."

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