INSIGHT: US soon dependent on foreign LNG

09 May 2008 16:33  [Source: ICIS news]

By Joe Kamalick

 

WASHINGTON (ICIS news)--In a trend that all too soon may mimic US dependence on foreign oil, the nation is becoming increasingly dependent on foreign sources for liquefied natural gas (LNG), according to US and international sources.

 

In addition, because of sharp gains in global competition for LNG cargoes, flat or even declining North American gas production and increasing domestic demand, the US and its chemicals industry very soon could be facing even bigger problems in gas availability and pricing.

 

Heavily dependent on natural gas as a feedstock and energy source, the US petrochemicals industry is already in a bind.  US natgas is now trading at around $11/m Btu, up more than four fold from its $2 price in 1999.

 

That bind could get a lot tighter real fast.

 

According to the latest natural gas statistics from Paris-based Cedigaz, LNG imports to North America shot up in 2007, climbing 36% from a year earlier to approximately 886bn cubic feet (bcf).

 

That marked increase in LNG imports followed two years of falling LNG import trade and made North America the fastest-growing LNG market worldwide last year, Cedigaz said in its new review of the global gas market in 2007.

 

North America’s increased LNG imports played a major role, along with Asia, in boosting global consumption of liquefied natural gas to 7.7% of total gas supply last year, up from 7.3% in 2006.

 

Although that increase appears incremental, Cedigaz noted that “LNG trade accounted for the bulk of the growing global trade” in natural gas.  LNG trade accounted for slightly more than 8,000 bcf out of total world consumption of 104,181 bcf of natgas last year.

 

According to the Energy Department’s forecasts, US imports of LNG will continue to grow, expanding from 500 bcf in 2006 to about 2,800 bcf by 2030. 

 

The department said that US LNG imports would grow even faster, except that steady increases in natural gas prices will generate some demand destruction - and because the US will be unable to get all the LNG supplies it might need due to “expected greater competition for supplies in the global LNG market”.

 

The department’s energy data and analysis arm, the Energy Information Administration (EIA), said in its latest 2008 global energy outlook that “The future direction of the global LNG market is one of the key uncertainties” in trying to gauge future supply for US natgas demand.

 

“With  many new international players entering LNG markets,” the EIA said, “the competition for available supplies is strong, and the amounts available to the US market may vary considerably from year to year.”

 

However, US demand for LNG imports may be much higher in the next 15 years than the administration anticipates, because the EIA makes a crucial and wholly uncertain assumption in its long range outlook for US gas supplies.

 

The administration said that it anticipates that the Alaska natural gas pipeline will be completed by 2020, and that Alaska’s contribution to US gas supplies will jump from 400 bcf in 2006 to 2,000 bcf in 2021.

 

But the Alaska pipeline project looks more and more like a pipe dream.  In what would be the largest civil construction task ever undertaken, the $20bn (€13bn) project would involve laying 1,800 miles of pipe from Alaska to bring 4.5 bcf/day of gas to the lower 48 states.

 

ExxonMobil chief executive Rex Tillerson, however, said last year that the Alaska pipeline project would likely cost $40bn or more and probably will never be built without massive government subsidies that would be politically untenable.

 

If Alaska’s natgas supply is off the table, and US, Canadian and Mexican gas production remains flat at best or declines - as the EIA predicts - then the US is going to be in desperate need of significantly more LNG imports.

 

That’s bad news for US industry and consumers in general and especially bad for the country’s chemical manufacturers.  Generally, LNG imports cannot serve petrochemical production because, depending on the foreign source, LNG would not include the natural gas liquids that feed basic industrial chemical manufacturing.

 

LNG would of course serve as an electric power fuel and in theory might take some of the demand pressure off of domestic natgas. But as environmental concerns and perhaps inevitable mandatory federal limits on greenhouse gas emissions come into play, power demands for domestic gas as well as LNG will be huge.

 

That increased domestic demand combined with probably fierce global competition for LNG cargoes cannot help but drive gas prices ever higher - and make the US ever more beholding to foreign suppliers.

 

At some point along this path to still further dependence on unstable foreign energy sources, perhaps Congress will look anew on the vast domestic US reserves of oil and gas offshore that now remain closed to development.

 

($1 = €.65)

 

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By: Joe Kamalick
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