LNG Demand Remains Tempered

By Published On: May 14, 2010

Robust domestic natural gas supply and the economic recession continue to dampen liquefied natural gas imports nationally. The resulting low price for domestic gas is prompting LNG suppliers to skip shipments to the U.S. and send them instead to nations that pay more, according to an Energy Information Agency May 11 analysis. However, West Coast-based Sempra LNG made money during the first quarter of this year, posting $32 million in earnings. That’s compared to a $7 million loss in the first quarter of 2009. Some $11 million in first quarter revenue this year stemmed from shippers paying penalties to Sempra for diverted cargos. Sempra LNG president Darcel Hulse told financial analysts earlier this spring that Tangguh LNG is diverting cargos from the company’s Costa Azul terminal in Baja California due to the low U.S. price for gas. It averaged $4.03/MMBtu in April, according to the Energy Information Administration (EIA). Tangguh must compensate Sempra for diverted cargos. However, Hulse said Costa Azul was poised to see more activity soon. He noted that gas pipelines from the Rocky Mountains into California have little spare capacity. He also said U.S. gas production could decline in the future because prices have been too low to stimulate drilling. This presents what he called an “upside” for Costa Azul. Shipments to Costa Azul already seem to be picking up. Since March, Tangguh has sent a ship to the terminal every 12 days, said Kathleen Teora, Sempra LNG marketing strategies director. Each one carries 3 bcf (or 3 million MMBtu) of liquefied natural gas and Sempra is selling the gas in Mexico, California, and the southwest. EIA’s Short Term Energy Outlook corroborates a more upbeat assessment for Costa Azul. EIA projects a slight decline in domestic gas production in 2011, plus a reduction in imports from Canada as production there falls. As a result, EIA forecasts the gas price will rise at Henry Hub from an average of $4.48/MMBtu this year to $5.34/MMBtu next year. Consequently, EIA predicts liquefied natural gas imports will begin rising this year. EIA also notes that liquefied natural gas supply facilities slated to soon begin operating in Peru, Qatar, and Yemen should boost supply, making more available for the West Coast. Hulse notes that California pays a bit of a premium for gas, which could make the West Coast more attractive to liquefied natural gas shippers. Sempra’s Costa Azul has daily send out capacity of 1.5 bcf. Right now, it is sending out about 250,000 mcf/day of gas, according to Teora, or one-sixth of its capacity. Sempra has LNG contracts with Shell/Gazprom and Tangguh. The terminal can supply power plants and other users in Mexico and send gas by pipeline to California or east to Arizona. Sempra also operates an LNG terminal in Louisiana. Liquefied natural gas supplies about 2 percent of the nation’s gas, according to EIA. Most of it enters on the East Coast.

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