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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

that. In fact, a lot of the volume going into Lake Charles has been spot. But you won't see it being a major part of the LNG trade.

Granli: NYMEX is a liquid market, and as long as you are able to deliver and sell gas according to the terms and conditions of NYMEX, you can assess the risks of that market against your alternative outlets. This is not a problem if you have the credit rating necessary to support your performance in the market. Of course, there is a big difference between prices in the United States and other markets, where LNG is sold on terms related to other energy sources in those markets.

Statoil already is marketing gas in the United States from Trinidad and Algeria, through Cove Point. We have control of the entire chain, and we are in the markets for the long run. We will bring in equity gas from Snø?vit (Statoil's 190-bcm gas field under development in the Barents Sea) beginning in 2006, and that is a comfort to long-term buyers. This is the basis for our presence in the United States, and the way we will approach supplying the U.S. market in the future.

Gaining Momentum

Clearly numerous issues complicate LNG development in America, but powerful forces are marshaling to make it happen. Politicians and regulators, spurred by the prospect of a potential energy crisis, seem increasingly interested in paving the way for LNG projects. Oil and gas majors, eager to supply the demands of a growing economy, are poised to absorb much of the market-price risk. And entrepreneurial players are getting increasingly creative about facility design and siting.

Over time, as LNG capacity increases, arbitrage markets will evolve. Gas supplies will be diverted to locations of greatest need, allowing LNG to help correct supply-and-demand dislocations in many places around the world.

At that point LNG will emerge as more than a bit player on the global energy stage; it will begin to fulfill a vital role in balancing energy markets and providing a flexible option for companies' energy supply portfolios.

Endnotes

  1. Balancing Natural Gas Policy-Fueling the Demands of a Growing Economy (2003), National Petroleum Council, http://www.npc.org/reports/ng.html
  2. The great-granddaddy of all LNG accidents occurred in 1944 in Cleveland, when an LNG spill caused a giant gas cloud that exploded, destroying numerous buildings and killing 128 people.
  3. In teragency Agreement Among the Federal Energy Regulatory Commission, the United States Coast Guard and Research and Special Programs Administration for the Safety and Security Review of Waterfront Import/Export Liquefied Natural Gas Facilities, http://www.ferc.gov/industries/gas/indus-act/LNG-Safety-Agreement.pdf.
  4. According to W. Robert Keating, commissioner with the Massachusetts Department of Telecommunications & Energy, the NARUC Gas Committee is considering whether to issue a set of LNG policy recommendations for state regulators-including how to treat long-term contracts for LNG from a ratemaking perspective.


Liquid Assets

LNG developers are living in exciting times. Investment opportunities are burgeoning, but projects face an array of challenges.

"LNG has real potential to play a more significant role in this country's future energy mix," says W. Robert Keating, a