Energy ministers call on LNG to meet US energy demand
Date: 19-Dec-03
Country: USA
Author: Spencer Swartz
Some of OPEC's biggest members shifted their attention from crude oil to liquefied natural gas (LNG) at a Bush administration meeting Wednesday to focus attention on LNG, condensed gas shipped on tankers to distant markets.
"This conference serves as an appropriate call to action for all of us to move forward - to take steps to get new terminals up and running," U.S. Energy Secretary Spencer Abraham told energy ministers from 24 countries.
The United States, with just about 3 percent of the world's proven gas reserves, is scrambling to build new facilities to import LNG from all over the globe. However, none of the costly terminals proposed will provide gas to U.S. markets until 2005-07.
Federal Reserve Chairman Alan Greenspan helped put LNG on the U.S. policy radar screen last summer when he said the super-cooled and potentially flammable fuel could help keep a lid on runaway U.S. gas prices caused by a growing mismatch between supply and demand.
LNG now makes up about 2 percent of overall U.S. gas use and some analysts believe it could rise to 20 percent by 2020. The United States gets about 25 percent of its energy needs from natural gas, a cleaner-burning fossil fuel relative to coal and crude oil.
OPEC MEMBERS CALL FOR MORE TRADE
Ministers from Saudi Arabia, Indonesia, Venezuela, Algeria and Qatar - key members of the Organization of Petroleum Exporting Countries - amplified calls to boost LNG trade to meet rapid energy demand in the United States, Europe, and many developing countries, such as China.
While OPEC largely controls global crude supplies and prices, the Bush administration hopes to see competition grow among non-OPEC producers like Russia, Norway, and Australia.
There are four LNG terminals in the United States. Another 30 have been proposed the past two years.
Malcolm Brinded, chief executive officer of Shell Gas and Power (SHEL.L: Quote, Profile, Research) told the conference the global LNG market will need investments of $100 billion in the next decade for infrastructure such as import terminals that regasify the fuel and can cost several hundred million dollars to build.
Shell, ExxonMobil Corp. (XOM.N: Quote, Profile, Research) , BP Plc (BP.L: Quote, Profile, Research) , and Sempra Energy (SRE.N: Quote, Profile, Research) are among the many companies racing to build new LNG terminals in California, Texas, Alabama, Florida, Mexico, Nova Scotia and other locations.
WHAT IF PRICES FALL?
But officials also noted challenges ahead for LNG. The U.S. market made an initial foray into LNG in the 1970s only to see demand crumble in the early 1980s after new supplies of domestic gas were found, making LNG uneconomical.
"If (gas) prices drop off, investments in these projects will not be made," said Saudi Arabian Energy Minister Ali al-Naimi. The road for developing LNG into a global market will be difficult, he said.
U.S. gas prices trade are near nine-month highs of $7 per million British thermal units (mmBtu) after a recent cold snap and signs of increased and more widespread economic growth.
Current U.S. gas prices are far above the $3.00-$3.50 per mmBtu level typically required to make a good return on LNG projects.
But analysts warn volatile U.S. gas prices risk permanently undermining demand in the electricity and manufacturing sector, which account for more than half of all U.S. gas use. And that could ultimately undercut LNG investments, they say.
ExxonMobil Chairman Lee Raymond also said nations looking to attract LNG investment needed to eliminate unnecessary tariffs and regulations and establish predictable tax structures and a stable legal system that enforces contracts.
Environmental groups have expressed concern about LNG terminals and tankers being an easy target for an attack. Those worries derailed a planned LNG facility near San Francisco earlier this year.
