Wednesday August 30, 2006

Betting billions on liquefied natural gas

peakoil.com -> money.cnn.com :

An estimated $30 billion a year is pouring into developing liquefied natural gas. Despite concerns over the safety and the cost of importing it, analysts say the fuel will make up a larger and larger share of America's energy mix and may help prevent seasonal natural gas price spikes. The reasons for the boom are primarily twofold. The first is that the United States is using more and more natural gas because it's both cleaner burning than oil and economical. Previously much of U.S. natural gas demand was met by Canada, easily shipped via pipeline. But Canada's natural gas production, like America's, is expected to be flat or slightly declining. Canada may export less natural gas as it is increasingly being used to extract crude oil from its massive tar sands reserve in Alberta.

This growing demand and limited domestic supply, coupled with the fact that under-ocean pipeline construction is not feasible, means there's money to be made by liquefying it (which reduces its volume by 600 times), putting it on a boat and shipping it around the world. Because pipelines are not global, natural gas is a regional market, subject to wide price swings whenever a localized event threatens supply. But as more and more gas is liquefied, a shortfall in the United States could easily be covered by sending over supplies from, say, Europe.

- Recall what I said, that there is nothing cheap about LNG. The infrastructure - terminals and tankers - will cost billions of dollars. LNG spot prices are about $12 while natural gas prices are around $6, making LNG easily twice the price of natural gas per unit (mbtu/mcf). That kind of makes sense, since around 30% of net energy is lost during the conversion of the gas to liquid and back, plus factoring in a few dollars per unit to cover the cost of transportation and markup along the supply chain.

See also :

1. Mexico welcomes its first LNG cargo
2. Singapore commits to LNG for meeting future energy needs
3. Indonesia's LNG supremacy wanes as Chevron's fields run short

(2006-08-30 13:28:28 SGT) [Energy] Permalink

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