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Gold/Mining/Energy : LNG -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (29)	1/20/2004 2:30:10 PM
From: Dennis Roth	Read Replies (1) \| Respond to of 919

Too much LNG a possibility petroleumnews.com Report’s researchers warn of oversupply for West Coast, Pacific Rim Larry Persily Petroleum News Government Affairs Editor Some industry watchers are worried that too many liquefied natural gas producers and proposed receiving terminals are chasing after too small a market on the U.S. West Coast. That same oversupply concern extends throughout the Pacific Rim, said a recent Japanese research report. “While there are differences in progress being made within each project, we can cite specific examples such as Sakhalin in Russia, Tangguh in Indonesia, Tiga in Malaysia and Gargon in Australia, and others, where the current trend in Pacific LNG markets seems to be in a state of oversupply,” said a December 2003 research paper commissioned by Japan’s Ministry of Energy, Trade and Industry. The report also pointed to a list of 10 new LNG receiving terminals proposed for the U.S. West Coast as an illustration of too many projects chasing after the same market. West Coast LNG surplus expected International consulting firm Cambridge Energy Research Associates has similar concerns. “Several LNG projects target the California market with supply from the Pacific Basin, an area where CERA expects a surplus of LNG to emerge,” said the company’s winter 2004 North America natural gas report. There also is concern that too much of a good thing could do more harm than good, Cambridge Energy said in a separate report. “The North American market is moving rapidly from deep skepticism to a perhaps excessive enthusiasm reminiscent of the early stages of the recent overinvestment in gas-fired electrical generations,” CERA said in a January report, The Incoming Tide: LNG Surges into North America. “It is … premature to call the surge in proposals an overbuild of regasification facilities, but it is not too early to recognize that it could become one.” Overbuilding could hurt prices And if the United States builds too many LNG receiving terminals to serve the East, West and Gulf of Mexico coasts, said Cambridge Energy, the very industry pushing the projects could be hitting itself where it hurts most — in gas prices. “In CERA’s view the biggest risk of a sustainable sharp decline in North America natural gas prices that jeopardizes the viability of North American LNG lies in the potential for an overbuild of the North American LNG industry itself.” The West Coast market and distribution system can’t absorb more than 1 billion cubic feet per day of LNG before the end of the decade, said Stephen Baum, president and chief executive office of San Diego-based Sempra Energy. All of that demand, if accurate, would be met by the joint Sempra-Shell LNG receiving terminal set to open in 2007 on Mexico’s Baja Peninsula, just 35 miles south of the California border. Baum offered his market assessment at last fall’s Merrill Lynch Power & Gas Leaders conference in New York City. CERA, as Baum, believes there is a limit as to how much LNG the West Coast can absorb. “CERA believes Pacific LNG is economically viable on the West Coast up to about 2 bcf per day in this decade. However, the fact that the West will be relatively well supplied will mean that western markets will generally price below the Henry Hub.” North America market the prize “There is a sweepstakes,” said Robin West, chairman of the Washington, D.C.-based consulting firm PFC Energy. “This is about access to the North American natural gas market, which is the great prize,” he was quoted recently in the Financial Times of London. Cambridge Energy’s Incoming Tide report also offered the same conclusion as the Japanese research paper on anticipated oversupply around the Pacific Rim. “CERA believes there is a surplus of gas in the Pacific Basin. It will be difficult for all currently planned LNG projects on the Pacific Coast to find market outlets before 2010. Growth in demand in the Pacific Basin, even with a return to strong economic growth, is unlikely to keep pace with this potential supply build.” Predictions of too much LNG chasing after too little market demand could be a serious problem for supporters of a project to export Alaska LNG to the West Coast or Asia. In addition to Sempra’s announced deal to bring Indonesian LNG to its proposed Baja terminal, Shell has its own interests in Russian LNG and ChevronTexaco last year announced its plan to import LNG from Australia’s Gorgon field to its own proposed Baja receiving terminal. Alaska project more costly Cost estimates in the Cambridge Energy report also don’t offer much encouragement for an Alaska LNG project. “The cost of a complete LNG value chain, including liquefaction, shipping and regasification, is typically $3 billion to $5 billion for a 1 bcf per day project,” the Incoming Tide report said. The LNG project being promoted by the state-funded Alaska Natural Gas Development Authority, at 2 bcf per day, is estimated to cost at least $12 billion, or $6 billion per bcf. The Cambridge Energy report does acknowledge, however, that projects “can and do exceed the high end of this band.” The report also restates the consultant firm’s assumption that although Alaska LNG is not part of the expected supply chain to the West Coast, North Slope gas eventually will get to U.S. consumers via a pipeline to mid-America. “Beyond 2010, prices are expected to firm as investment in LNG facilities pauses in anticipation of the construction of the Alaska pipeline in the middle of the next decade.”

To: Dennis Roth who wrote (29)	1/21/2004 7:13:39 PM
From: Dennis Roth	Read Replies (3) \| Respond to of 919

US LNG Prospects Unlikely To Be Dimmed By Algeria Blast biz.yahoo.com Wednesday January 21, 5:30 pm ET By Spencer Jakab, Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--The worst accident at a liquefied natural gas facility in 30 years Tuesday in Algeria seems to have done almost nothing to dim expectations of a surge in use of the fuel in the U.S. in coming decades. U.S. LNG imports to the country's four existing facilities, all built decades ago, roughly doubled during 2003, and use of the fuel is expected to quintuple in a little more than a decade, according to forecasts by the industry. With dozens of facilities in the planning or approval stage, foes of the plants may face an uphill battle pointing to the accident in Algeria in their arguments against placing receiving terminals near populated areas. "All the advocates for safety and regulation will put that in their back pocket as a card they can use, but as far as the markets in general, they didn't take it as having any impact," said Ben Smith, who follows LNG at natural gas analysis firm Enercast.com. Indeed, one of the most aggressive players in the field, Cheniere Energy , has seen its shares rise by over 10% in the two days since the accident. Gavin Law, head of LNG at oil and gas consulting firm Wood Mackenzie, said it's still unclear whether the explosion that caused 23 deaths and 74 injuries and destroyed a large part of Algeria's second largest LNG facility was the result of human error or other technical problems. "It's hard to say whether it's a legitimate problem with LNG or a failure to follow the proper safety precautions," he said. Like Smith, he thinks safety advocates will be able to use the issue. "I'm sure it will be picked up - it's LNG related, it's an explosion," he said. But Law points out that the safety record of the LNG industry has been excellent. "The overall track record is pretty phenomenal." Nonetheless, LNG experts in the U.S. feel the explosion adds to safety concerns that will impact the development of the U.S. market. "It does have an effect, let's face it," said Jerold Levey, vice president for commodities at Societe Generale in New York. But he feels that facilities may simply be shifted to less populated areas and that the industry's expansion prospects are unchanged. "People are very conscious of this, and therefore these things are going to get built where nobody lives," he said. Beyond safety issues, Law sees some impact on the development of the U.S. LNG market as a result of the accident. He points out that, until recently, developers had imagined the U.S. could supply itself with a high proportion of spot shipments rather than long-term supply deals more typical of the industry. "Things like the Algeria fire highlight the fact that you're exposed if you don't have a long-term agreement," he said. In terms of immediate consequences for the U.S. market, he said there may be some small, residual impact at the Lake Charles facility which imports some Algerian spot cargoes, although not from the facility in question. The accident may also tighten the European market, though Law pointed out the 2.8 million tons per annum of capacity knocked out at the facility roughly equaled its surplus capacity in 2003. A great deal of new capacity is coming onstream in 2005 and 2006, and there are no fundamental supply problems as far as LNG capacity is concerned in the long run, Law said. "Long-term there's more than enough," he said. -By Spencer Jakab, Dow Jones Newswires; 201-938-4377; spencer.jakab@dowjones.com