|
U.S. LNG imports could top 20 percent by 2020 Yergin: United States needs to move quickly to accept changing market Larry Persily Petroleum News Juneau Correspondent
Liquefied natural gas could supply more than 20 percent of U.S. gas needs by 2020, up from just 1 percent last year, but it will take tens of billions of dollars of investments and a willingness by all participants to share in commodity price risks, says international oil and gas consultant Daniel Yergin.
That doesn’t mean Yergin dismisses the probability of constructing a pipeline to move Alaska natural gas to mid-America. Instead, he sees Alaska gas and foreign LNG serving the market together.
“A new gas pipeline will eventually bring large amounts of new supply from Alaska’s North Slope,” he said. “But that project will probably take a decade or more to realize and, even then, would only make up part of the shortfall.”
The largest source of new supply for meeting U.S. demand will be LNG, he said in an article in the November/December issue of Foreign Affairs magazine. U.S. to import LNG worldwide “Thanks to this emerging global commodity market, lights, air conditioning and factories in the United States will run on electricity that is sometimes generated with natural gas from Indonesia, the Algerian desert, the seas of Trinidad or Nigeria, the island of Sakhalin in the easternmost part of Russia, the frigid northern waters of Norway, or the foothills of the Andes.
“For more than half a century, the United States has been broadly self-sufficient in natural gas, save for imports from Canada. In the next five years, it is likely to become a large gas importer; within ten years, it will overtake Japan as the world’s largest,” Yergin said in the article titled, The Next Prize.
Yergin won the Pulitzer Prize in 1992 for his book, “The Prize: The Epic Quest for Oil, Money and Power.” He is chairman of Cambridge Energy Research Associates, a Cambridge, Mass.-based international oil and gas consulting company. He also is a member of the Council on Foreign Relations, based in New York City, which publishes Foreign Affairs magazine. LNG trade started in the 1960s World gas markets have changed substantially since the first commercial LNG trade started almost 40 years ago between Algeria and the United Kingdom, Yergin said. Until then, gas didn’t move any farther than a pipeline could take it.
Even that waterborne effort was a false start, however. Less costly pipeline gas from the Netherlands, the British North Sea, then Russia and Norway crowded out the young LNG trade until the 1990s when Europe started taking more gas to meet its needs from Nigeria, Trinidad and later Qatar.
Alaska was first to send LNG to Asia, with Cook Inlet gas going to Japan starting in 1969 — and still continuing 34 years later from the same terminal on the Kenai Peninsula.
The United States was ready to join the LNG tanker parade in the 1970s when it imported gas from Algeria, but growing domestic supplies soon stopped the new business, Yergin said. “Regasification terminals were closed down, and for several years no LNG at all was imported into the United States.” The disappearance of LNG from the United States wasn’t the fault of the technology. By cooling and condensing the gas to a liquid, producers could cram 600 times as much energy into a cubic foot of LNG as the same volume of gas. One tanker can carry the equivalent of 5 percent of one day’s U.S. gas consumption. LNG finances did not fit U.S. The problem — in addition to abundant North American supplies — was the lack of long-term financial commitments in the U.S. market.
As liquefied gas markets grew in Asia and Europe, “the LNG paradigm” governed new developments, Yergin said. “The paradigm aims to ensure that a logistic, financial and commercial chain links suppliers to consumers through contracts that govern every step of the process, from extraction and liquefaction to shipping, delivery and regasification.
“Specific reserves are earmarked and developed for specific liquefaction facilities,” Yergin said. “All elements of the projects — which last for 20 or more years — are laboriously worked out and settled before any serious dollars are spent.”
The LNG paradigm satisfied investors’ quest for stability before investing in ships and terminals and supply contracts. Long-term contracts needed That was the problem for LNG in the United States, he said. Whereas Asian and European markets were comfortable with long-term contracts, the U.S. gas business runs on spot and futures markets and short-term contracts that are not conducive to attracting multibillion-dollar, long-term investments in LNG tankers and terminals.
The mismatch kept LNG investors away from the United States, Yergin said.
“But rising demand for gas has collided with what is now emerging as a natural gas shortage in the United States,” he said. Add in recent drops in LNG tanker and terminal construction costs of as much as 30 percent, and the country is ready to open wide and expand its appetite for imported gas.
“But if LNG is to meet its potential, the United States needs to invest reasonably swiftly in regasification terminals,” he said. “Environmental controversies over licensing and siting issues, which could disrupt investment, need to be managed sensibly.”
And, just as important, “All participants need the ability to weather the ups and downs of a commodities market.” Low prices a constant worry It’s all about money, which means return on investment and managing risk, he said. “The single largest hurdle is the sheer scale of capital required. … Low gas prices, even if they are only temporary, could discourage investors and stifle growth.”
It will be necessary, he said, to develop new financial arrangements in the U.S. marketplace “to bridge the gap between the volatile U.S. gas market and the traditionally stable, long-term LNG paradigm.”
As happens in the world of economic reality, markets respond to needs, Yergin said. “More than 30 regasification projects have already been proposed (to serve the United States). … At least a third of the proposed projects need to be built over the next decade to counter the United States’ shortfall.
“There is a growing urgency to make investments in LNG in the near term in order to avoid more serious disruptions in gas markets and economies later in the decade.”
| 