SOURCE: Zeus Development Corporation

November 13, 2006 11:00 ET

U.S. LNG Imports Falling Fast, Surprising Analysts -- 2006 Currently Trending Below 2003, Conference to Examine Why

HOUSTON, TX -- (MARKET WIRE) -- November 13, 2006 -- Just a couple of years ago energy analysts predicted U.S. liquefied natural gas (LNG) imports would rise sharply to fill a yawning gap between declining production and greater demand for gas-fired power.

Cambridge Energy Research Associates (CERA), for one, predicted North America would "require about 11 billion cubic feet per day (bcfd) of LNG supply by 2010" -- an increase of tenfold over current levels to roughly 15% of North America's gas consumption.

This prompted government leaders, like the heralded Alan Greenspan, Fed chairman, to sound an alarm. In his July 2003 testimony before the U.S. Senate's energy committee, Greenspan cautioned, "Markets need to be able to effectively adjust to unexpected shortfalls in domestic supply. Access to world natural gas supplies will require a major expansion of LNG terminal import capacity."

Yet, shortages of natural gas and higher U.S. prices have not netted more cargoes. Since July 2004, the number of cargoes imported into the United States has fallen from a high of 28 to just 12 in March 2006. Some 17 were imported in August. Meanwhile, developers have expanded import capacity to more than 5.0 bcfd -- four times the level necessary.

Adding current construction and planned expansions at existing terminals, capacity is likely to exceed 23 bcfd by the year 2011, creating possibly a glut of terminal space like what occurred in the 1980s when LNG was expected to fill a large portion U.S. demand.

"LNG demand is always difficult to predict," said Bob Nimocks, president, Zeus Development Corporation, publisher of LNG Express, an industry newsletter. "It is the swing variable between supply and demand."

The factors that have led recently to falling imports include delayed construction of export plants, strong demand in Europe and Asia, falling U.S. gas demand, resilient domestic production, mild weather, and regulations that prevent power producers from entering into take-or-pay contracts.

December 14, Zeus will host a conference in Houston to examine each of these issues and their ultimate effect on the quantity and timing of U.S. LNG imports. Analysts from Columbia University, CRA International, Fearnelys, Gelber & Associates, Levitan & Associates, McKinsey & Co., the U.S. Weather Center and Ziff Energy are among those presenting perspectives.

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