Liquefied Natural Gas Outlook

Ben Broadwater

Posted January 29, 2007

Baltimore, MD-Although liquefied natural gas has experienced relatively low growth over the last five years, its future is looking brighter. And as the gap between production and consumption grows, LNG is quickly becoming an attractive investment.

According to the energy information agency (EIA) outlook, liquefied natural gas is the second fastest growing primary energy source behind coal, with consumption over the next thirty years expected to grow annually by 2.5% from 95 trillion cubic feet to over 118 trillion cubic feet.

The EIA’s 2006 International Energy Outlook even projects natural gas will overtake oil in the industrial sector’s energy consumption by 2030.

And as the demand for natural gas increases, more countries will begin to rely on imports being delivered in the form of liquefied natural gas (LNG). LNG is anticipated to meet more than a third of natural gas consumption in some countries.

The Liquefied Natural Gas Promise

Essentially, LNG is natural gas that has been cooled to about -163° Celsius, which allows it to be condensed to 1/614th its normal volume.

During the conversion, certain elements may be taken out, effectively removing valuable parts like helium or impurities like water and heavy hydrocarbons that could potentially become problematic.

Also, LNG is much more accessible than standard natural gas. Since pipelines don’t provide for a global market, natural gas has essentially been localized. In the event a shortfall, new LNG shipments could come from around the world.

Take the U.S. for example, which receives 90% of its net natural gas imports from Canada. There are predictions that Canadian natural gas production will suffer in the future due to increased emphasis on oilsands. But with LNG, the U.S. would be able to meet its natural gas demand from overseas.

With the new global market that would develop, prices would be much less vulnerable to broader swings and instability.

The dangers of this technology are minimal. Because the LNG is not stored under pressure, it cannot explode like a flammable fuel. There have only been three major accidents in the history of LNG, with the most significant happening over sixty-two years ago. This includes over 35,000 tanker trips totaling in excess of sixty million miles.

Everything Has Its Price

LNG is no exception.

Because it needs to be stored in cryogenic tanks, the cost of LNG is significant. A single tanker can cost up to $180 million dollars.

And what is the cost of an LNG terminal?

Try one to three billion dollars!

There are presently just five LNG terminals in the U.S., with more than three dozen are already in the works. One of the advantages is that they can be constructed offshore, making it unnecessary to build them near populated areas.

In the case of Excelerate Energy Limited, their offshore Gulf Gateway Deepwater Port lies 116 miles south of Louisiana.

LNG: Imminent Growth

One of the major reasons to jump on this trend now, however, is the short-term forecast.

The EIA projections for LNG over the next two years are significantly higher than the volume in 2006. U.S. imports in 2007 and 2008 are expected to grow by 34.5% and 38.5%, respectively.

Imports this year may reach 770 billion cubic feet, 210 billion more than in 2006.

Just look at the projected growth:


 Liquefied Natural Gas Chart

LNG production will increase as the capacity of newer terminals grows. And as more comes into production, growing global supplies will stimulate the LNG market’s competitiveness, effectively stabilizing lower prices.

Considering that LNG makes up about 1% of U.S. energy supply, the anticipated increase of 10-15% over the next 15 years will fuel technological advances in the short term, making investment in this sector a time-sensitive matter.

Until next time,

Keith Kohl

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