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LNG Rising

Despite development challenges, LNG capacity is destined to play a bigger role in the U.S. energy mix.
Fortnightly Magazine - April 2004

you just assess that risk compared to your alternative outlets. This is not a problem for the industry as a whole, but it could be a problem for companies that can't support their obligations with the necessary credit rating.

Rob Bryngleson, vice president, Excelerate Energy LLC: Our project is all equity financed. We are backed by George Kaiser, owner of Kaiser Francis Oil Co. in Tulsa. The facilities are on the record as costing between $60 million and $65 million for the buoy, riser, platform, and subsea pipe. The cost of the tanker ships hasn't been disclosed, but it's pretty much the market price, with some additional equipment onboard.

Fortnightly: What would help to bring more flexibility to financing options?

Robert Ineson, CERA: The whole idea of merchant capacity is feasible, and it makes sense if you've got supply lined up before you begin construction. That's what you do in the merchant role. There will be a strong driving force toward a more liquid market.

The term "take-or-pay" causes an involuntary shudder. We are still facing the reality that most public utility commissions are reluctant to go along with long-term contracts. They feel they've been burned by them in the past, and they are now extremely wary. And if regulators are wary, utilities are concerned about being second-guessed. 4

Meyer, Cheniere Energy: What I would like to see is for some of the larger industry customers and utilities in this country to take their future into their own hands a little more with LNG, and to directly contract for terminal capacity. In so doing, they would have access to all the world's supply, as opposed to just the supply from the company that took the terminal capacity.

When Dow stepped in and took the terminal capacity at Freeport, we had a lot of calls from large industrials that were interested in how they could participate in some of that capacity. We expect to see more interest in long-term access to LNG supplies.

Fortnightly: Will this ultimately evolve into a more liquid market for LNG?

Dweck: Certain folks in this industry say this is a production-destination type of business, which leaves little room for a spot market. But my view is that in time there will be enough vessels built, and there will be enough capacity in the United States that you will have more spot cargoes coming in.

There are some constraints on the development of a spot market. The whole notion of a value chain suggests linking liquefaction capability and trapped gas abroad with a home regasification facility, because so much money is tied up.

But to have a spot market you don't need 50 percent of the market. You need 5 or 10 percent to impact the way the commodity is sold. I see that evolving in time.

Meyer: I see global arbitrage happening, and more shipping options are opening up. There is a spot market, but not to a great extent. You have some spot capacity at all of the U.S. terminals, and there are volumes out there for