The power and gas markets look very different today from what we were anticipating three to four years ago. Gas has gone from seeming shortage to seeming abundance with recent spot prices falling...
Getting the Gas
The search for supply goes global, for better or worse.
shipments next year remains an uncertainty.
Offsetting this global competition for LNG is, in part, the amount of undedicated liquefaction and shipping capacity (currently approximately 10 percent of total capacity), limitations on redestination flexibility (none to 10 percent of annual contract quantity for base-load supply), and restrictions on compositional interchangeability.
One thing is certain right now: Developers have big plans to build even more LNG re-gas capacity. Plans for at least another 20 Bcf/d are in the works, but this is unrealistic because upstream constraints in liquefaction capacity building, LNG tanker construction, global spot cargo competition, and resistance in many communities will limit or slow the pace of growth.
Worldwide LNG liquefaction capacity (including current, under construction, and proposed) is shown in Figure 2. Between 2005 and 2011, capacity could double if all projects are built, but this is well below current proposed re-gas terminal projects worldwide.
Worldwide liquefaction growth specifically dedicated to the U.S. market is the key limiting element in LNG supply to the United States. Traditionally, global LNG trade was based on long-term contracts with dedicated supply sources and regasification terminals. This arrangement was critical for the development of the industry, especially in Japan and South Korea. Uncertainty surrounds the viability of signing similar long-term or even short-term fixed-price contracts in light of North America’s deregulated gas-market environment.
Local gas distribution companies (LDCs) might be unwilling (or unable) to accept the risk of regulatory disallowance if market prices move below negotiated contract rates. Global Energy is aware of several instances where LNG prices at then favorable terms were rejected simply for NYMEX plus or minus basis. Recent imports of LNG have been for meeting seasonal swing supply, based on NYMEX prices. So questions may remain as to how North America’s deregulated gas market fits into this global marketplace for long-term base-load supply, and its potential linkage to short-term domestic spot-market prices.
Frontier Gas Supply
In addition to LNG supply, two competing pipeline proposals also are advancing to bring frontier gas resources from Alaska and Canada’s Mackenzie Delta. The timetable for either project is still uncertain. In mid-September, the Mackenzie pipeline consortium began spelling out shipper requirements to obtain capacity on the 840-mile line. The project’s initial capacity is expected to be 1.2 Bcf/d and could be on line as early as 2010.
A broad consortium of industry and most aboriginal people who have a stake in the project recently provided funding and participation agreements to regulators. The consortium now has filed for regulatory approval. A decision to proceed will be based on market conditions and any conditions set out by the regulators. However, in the fall of 2005, Imperial Oil threatened to walk away from the project if a finalized agreement could not be reached with all aboriginal groups.
The delay facing the project centers on the intransigence of the Deh Cho First Nation, representing 13 communities and 4,500 residents, whose lands cover approximately 44 percent of the proposed Mackenzie Valley pipeline route. The other three aboriginal communities have ratified general land access and benefits agreements with the project,