Peak Oil News: For U.S., rising dependence on LNG carries similar risks to oil trade

Sunday, February 19, 2006

For U.S., rising dependence on LNG carries similar risks to oil trade

MyWestTexas.com

By Brad Foss

The United States is increasingly going overseas to meet its natural gas needs, setting in motion a significant shift with a familiar, if unpleasant, side effect for the world's largest energy consumer.

As America becomes a bigger player in the global natural-gas trade, its vulnerability to faraway production snags and price gyrations will rise, as will its dependence on energy from the Middle East and other volatile regions.

Unlike oil, natural gas has for decades had the advantage of being a local energy source. It either came from within the United States or by pipeline from Canada. But as North American supplies dwindle and demand grows, the energy industry is investing billions of dollars to ship the fuel across oceans as liquefied natural gas, or LNG.

LNG is still a relatively small source of supply for the U.S. But imports are expected to rise fivefold over the next decade, intensifying the competition with Europe and Asia for natural gas coming primarily from the Middle East, West Africa and countries formerly part of the Soviet Union.

"There's a geopolitical overlay that's going to look similar to oil," said Michael Zenker, managing director of the global natural gas team at Cambridge Energy Research Associates.

Which means the price that American homeowners, manufacturers and power plants pay for natural gas will increasingly be linked to the weather in Europe and the pace of economic growth in Asia -- not to mention the political stability of countries such as Russia, Iran and Qatar, which combined hold more than half of the world's natural gas reserves.

The reverse is also true. "A surge in U.S. demand could effectively raise the price for spot LNG cargoes, affecting the price in Japan and other countries," said George Beranek, a manager in the global gas group at PFC Energy in Washington.

Fuel-hungry America is already the third largest LNG importer behind South Korea and Japan, according to Energy Department statistics. Spain and France are other major importers today, while China and India are expected to be significant players down the road.

Until recently, the North American natural-gas market was an island unto itself with an abundant resource, and prices were relatively cheap. A supply disruption in the Gulf of Mexico might temporarily drive up prices, but a problem with natural gas output in the Persian Gulf would have virtually no impact.

The fact that natural gas is cleaner-burning than heating oil and coal only burnished its public image, and demand grew rapidly during the 1990s as it became the fuel of choice for heating new homes and running new power plants.

Gradually, though, U.S. -- and then Canadian -- output began to taper off. Producers drilled many more wells, but still could not offset the depletion of existing wells while satisfying rising demand.

To bridge the gap, LNG imports tripled in the '90s, rising to 226 billion cubic feet per year by 2000. And they nearly tripled again by 2004, climbing to 652 billion cubic feet, or 3 percent of the country's total natural gas consumption.

But there is still not much of a supply cushion in the U.S. natural-gas market, which is a major reason why prices climbed steadily in recent years -- and then skyrocketed after Hurricane Katrina disrupted output in the Gulf of Mexico. Natural gas futures averaged $9.01 per 1,000 cubic feet in 2005, more than five times the price in 1995.

Meeting the country's anticipated demand by 2015 could require the U.S. to import more than 10 billion cubic feet per day of LNG, according to government and industry statistics. That's greater than the amount of gas it will get from Canada via pipeline.

The competition for LNG will be most pronounced in the spot market, a small piece of the global trade in which tankers are usually directed on short notice to wherever the price is highest. But analysts said it could also affect long-term supply contracts because those deals are benchmarked to futures prices, which rise and fall based on short-term events. The U.S. buys LNG primarily on the spot market.

The industry prefers to sell at least a portion of its LNG through long-term agreements to help pay for the large capital investments needed to build critical infrastructure, including plants to liquefy the natural gas, refrigerated double-hulled ships to transport it and terminals on the receiving end to regasify the fuel. It also gives producers a measure of confidence that there will be a market for their supply.

Indeed, companies such as Exxon Mobil Corp., Royal Dutch Shell Plc and BG Group -- the largest importer of LNG into the U.S. -- are making multibillion-dollar investments up and down the LNG supply chain, creating what one BG executive referred to last fall as a "global virtual pipeline." The U.S. has five LNG import terminals today, with four more under construction and dozens more proposed.

Some analysts say the U.S. is already feeling the impact of global events that a decade ago would not have registered the slightest ripple in its natural gas market.

For example, UBS natural gas analyst Ronald Barone noted in a recent report how U.S. supplies tightened in January because LNG originally scheduled for delivery at a terminal in Cove Point, Md., was redirected to Europe. European demand for natural gas rose over the past year, analysts said, because of a new import terminal in Britain and a drought that sapped strength from Spain's hydropower sector.

In fact, much of the LNG shipped to the U.S. from Trinidad -- the biggest supplier to the U.S. -- is actually contracted for delivery to Spain, which resells the fuel it does not need into the U.S. market. But as Spanish utilities required more LNG to help fuel power plants, fewer shipments were available to the U.S.

"When things go bad, the U.S. is currently the one that suffers worst because it's mostly a spot market. It's the market of last resort," said Gavin Law, head of the global LNG practice at consultant Wood Mackenzie in Houston.

But Cambridge Energy's Zenker said there's another way to look at the situation, one that underscores how the booming LNG business is rapidly connecting natural gas consumers around the globe like never before.

In order to lure back LNG cargoes from the U.S., Spanish utilities paid a premium to the already soaring market price at the Henry Hub, a key Gulf Coast delivery point.

"One could say the Spaniards are paying a price for U.S. hurricanes," Zenker said.


9 Comments:

At 8:20 AM, February 20, 2006, Anonymous roberta kelly said...

American Jingoism

According to a February 15, 2006 speech by United States Representative Ron Paul,14th congressional district of Texas ~ The End of Dollar Hegemony . . Since printing paper money is nothing short of counterfeiting, the issuer of the international currency must always be the country with the military might to guarantee control over the system. www.house.gov/paul/

Ron Paul’s speech however, is not our number one news priority and why not? Those who rule know that Al Qaeda is the depreciation and potential collapse of our USD and our failing US economy is the WOT. But who shall tell the people?

Tragically, for about 100 years a select few with money and power basically gambled America’s money and power away through globalization. George H.W. Bush’s Supreme Court, with its coup d’etat of 2000, scrambled in desperation to save it all, but they’ve only managed to put it into the intensive care unit on a life support system. Terri Schiavo is America’s spiritual mirror. But who shall tell the people?

A nation-state collective of American citizens and the Constitution of the United States of America created by our forefathers has been decided by this select few as passe and no longer in the best interest of our country, and these few US select plus certain others in European and Middle East Nations ~ smarter, richer, stronger and more deserving than the lesser people ~ have determined the future of America and Earth. These clandestine rulers have many acronymic names for their governing bodies and it’s not about fair, honest or balanced by any stretch of the imagination. America home of the free and land of the brave is no more. But who shall tell the people?

The notion of aristocracy has been recycled throughout the history of civilizations, however it has been the gene of altruism which in the long run has served humanity, but survival of the fittest has not. Our intelligence isn’t comprehending this truth and there are still a select few who can’t be deterred from believing they are the power to distinguish between the fittest and the weakest. Nuclear war to those who believe they decide the fate of humanity is justified by the Empire, the fittest.

Human beings who are clearly oblivious to the balance of nature and humanity betray our species’ basic survival so their insatiable ego pathology can be fed incessantly. Ultimately, their own demise is inevitable, but because of the holocaust of avarice the many suffer the consequences which should justly be visited on the few.

And it looks like those who own the media are in control of choosing the fate of our planet and species in this Twenty-First Century. In a word, jingoism: An extreme nationalism, characterized especially by a belligerent foreign policy; chauvinistic patriotism. (thank you Congressman Ron Paul!)

Dr. Helen Caldicott is the Founding President of Physicians for Social Responsibility (PSR). PSR was the co-winner of the 1985 Nobel Peace Prize, and Dr. Linus Pauling individually nominated Dr. Caldicott for the Prize. Dr. Helen Caldicott's Presentation to the Perdana Peace Forum, Kuala Lumpur, December 2005, addresses the symptoms of psychic numbing and displacement activity.

Denial about the fakery of the spreading of democracy, liberation, free market trade, and the heavily sedated people who are true believers in these fairy tales, defines some of the multiple symptoms of the sickness. We have been brainwashed into identifying a predatory empire as a healthy society and the diagnoses made by Dr. Caldicott is indeed America’s reality at this time. But who shall tell the people?

How long before the realization that the selling of false information, toxic shame, fear and terror, racism, bigotry, prejudices and gluttonous consumerism, as a legitimate viable civilized modern model, is nothing more than anti-human ~ cultural, financial-economic and global suicide?

How long before fooling all the people all the time dooms us, each and every one, to the collapse of civilization and the annihilation of the planet Earth? What is the global American product that we sell as the super power ~ “full spectrum dominance” and the highest paid sales people are those who own the media, but not for long and who shall tell them the products they are selling ~ a nuclear winter, global devastation and the end of life as we know it, is NOT "democracy and freedom on the march."

Who, then, shall tell the people the truth, whole truth and nothing but the truth?

We are clearly demonstrating to the entire world that psychic numbing and displacement activity is America’s state of being, and we do not intend to take responsibility for being a bright and intelligent nation of people and leaders, able to solve the incredible problem of being dis-eased ~ mentally, emotionally, physically, economically and spiritually.

The proof is as plain as the nose on one’s face, and The End of Dollar Hegemony is vital, legitimate news.

Nuclear holocaust is not the answer and America's dead, wrong, policy problem, is ~ who shall tell the people?

I honor: Larry Olstad (brilliant writer, who got me involved in politics and edits my work); William Greider; Dr. Helen Caldicott; F. William Engdahl; Michel Chossudovsky; et al, with this letter to America.

Roberta Kelly www.godsmadmen.com and www.atelier3151.com/roberta

I am faxing, emailing and snail mailing this letter to every Sentator, Congressman, and news media outlet.

 
At 6:15 PM, February 20, 2006, Anonymous Anonymous said...

What a load of babble. I wouldn't be sending this letter anywhere but the shredder. Frankly, its embarassing.

 
At 4:10 PM, February 21, 2006, Anonymous Roberta Kelly said...

Well, anonymous, check it out at www.financialsense.com because they published it and so your ignorance is all your very own bliss.

Should you take the time to visit Congressman Ron Paul's website, you'll see that he is also guilty of "a load of babble." But, I don't expect you to actually educate yourself because you are obviously too embarrassed about who you are. Toxic shame is a tough one to overcome.

 
At 3:10 PM, February 22, 2006, Anonymous Anonymous said...

No I didn't find Mr Paul's articles to be a load of babble. Yours on the other hand...Ithink you should be sending HIS articles out instead.
I think you should stick to sculpture and leave the political proselytising to those more capable. As far as financial NONsense goes...

 
At 4:11 PM, February 23, 2006, Anonymous roberta kelly said...

anonymous, you can't even be creative about a name so why bother trying to pretend you have any original thought in your head. Why, I do mean to damn you with faint praise and therefore I say ~ do what you do best ~ F yourself and stay as far away from communication as possible because you just simply can't.

 
At 4:28 PM, February 23, 2006, Anonymous roberta kelly said...

anonymous, one more investment of my time and energy ~ I recall a memory of another like you who had the same problem ~ deep inside you is a thing and it claws you and reaches out to hurt other people and so you become more and more anonymous.

Sad. I honestly pity you and your obvious serious dissatisfaction with who you are. A name means everything you know. And I say this from a genuine place of deep understanding.

 
At 11:14 AM, February 25, 2006, Anonymous Anonymous said...

Wanted to point you over to "Iran Continues Path to Enrichment; Energy Contracts Flood Tehran with Billions" over at Vital Perspective.

 
At 2:06 PM, February 26, 2006, Anonymous Anonymous said...

rkelly- Have you ever considered why so often in your life you lash out at others? Do you really think it is because a lot of malcontents with deeprooted psychological problems target you out? I think you should put your own house in order before you send the decorators over to mine.
Will an invasion of Iran lead to nuclear holocaust? Plainly, no.
Even IF the states uses nuclear weapons there is no chance that anyone will retaliate. The Russians are not so desperate to ally with Iran and neither is China. Now there's an original non-paranoid thought for you

 
At 9:33 PM, February 26, 2006, Anonymous Anonymous said...

rkelly- do you ever consider that otheres would like to discuss a topic in a way that you might not?
This "prepare for thy doom, the holocaust approacheth" rant is thrown at anyone and everyone. If one doesn't seem to share your enthusiasm for it then you quickly proceed to spray them with your own particular brand of holier than thou judgemental inventive. Really... "before you accuse me take a look at yourself"

 

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