LNG MARKET AND PRICES

Almost every current human endeavor from transportation, to manufacturing, to plastics, and especially food production is inextricably intertwined with oil and natural gas supplies. Petroleum is a raw ingredient in some 70,000 manufactured products, including medicines, synthetic fabrics, fertilizers, paints and varnishes, acrylics, plastics, and cosmetics.

Oil is up by almost 50 per cent this year alone. That's not the fault of greedy energy companies, or that other current favorite, unscrupulous speculators. It is a simple fact of economic life in a world economy that is, in effect, experiencing a new industrial revolution among half its population.

The great sea-changing event of our era is the spread of industrialization to billions of people. The high prices of energy and other resources are the market's response to this transforming event. There is no point blaming the emerging countries for their growing demand. Citizens of rich countries must adjust to the higher prices of resources that the rise of the emerging countries entails. Saudi Arabia and Iran and the Persian Gulf states are consuming their own oil and gas and so that means less for the US. China is trying to buy up all the loose oil and gas in the world.

We are seeing the front wave of peak oil affects in the US economy today: inflation, falling US dollar, financial stress in almost every sector, and extreme consumer discomfort.

Many expect the US dollar to continue to weaken due to two primary causes:

1) huge fiscal deficits due to the irresponsible tax and spend policies of the last 8 years.
2) as Ross Perot would say, the large sucking sound of $700 billion a year in cold hard cash (at current oil prices) leaving the US economy to find a new home in the Middle East and Russia to pay for oil due to the apparent lack of an US energy policy. Don't expect the Democrats plans to fix it. They will shut off even larger US area from exploration and increase taxes to oil companies reducing even further the available exploration pools. Along with adding a carbon tax to everything. A vote for the democrats this year will probably result in at least a 50% increase in the price of gas to US consumers over and above the existing market led increases.

New supply from outside OPEC nations will meet only about 20 percent of growth in world demand during the next four years, data from the International Energy Agency show. The lack of supply has traders betting oil will remain at about $120 a barrel for at least eight years, according to futures on the New York Mercantile Exchange. Drillers could access only 7 percent of known world reserves in 2005, down from 85 percent in 1970 after Middle Eastern nations took control of their fields. The international companies are increasingly denied access to areas of abundant oil within OPEC fields. While in the West governments charge ever higher royalties and other onerous imposts on oil explorers, forcing up the consumer price.

The cost to find and develop a barrel of crude between 2000 and 2007 more than quadrupled to $18 from $4.

In addition to the threats posed by an even more unfriendly Middle East, and head-in-the-sand local obstructions to developing its own energy reserves, the US has to address the challenge of a rapidly enriching Russia, a country that is rolling back democratic progress and using its energy wealth to create trouble for America and Western Europe wherever it can. Ingenious American leadership will be needed not to make pointless gestures towards the newly powerful energy producers but to ensure we don't turn our dependence on a scarce resource into political capitulation.

Financial Times JUNE 4TH, 2008

Price of US natural gas rising faster than crude

"...Canada's natural gas output has proved disappointing so Canadian exports to the US are running below normal. And the global market for liquified natural gas is experiencing a squeeze due to coal shortages and soaring demand for electricity in emerging markets, such as China and India.

Japan is importing record amounts of LNG for electricity production due to problems in its nuclear industry.

Spain is expected to require more LNG supplies this summer as hydro-electricity production will be affected by low water reservoir levels...."

Thanks to the Warner-Lieberman bill's ambitious greenhouse gas reduction targets and the lack of low-carbon energy sources in the short term, the U.S. can anticipate a massive switch from coal to natural gas by the power industry. Senate debate on the bill started Monday, and calls for 2005-level carbon emissions starting in 2012.

Switching from coal to natural gas will drive up both the demand and the price of natural gas (the only low-carbon alternative) to unprecedented levels, which will in turn further erode the number of U.S. manufacturing jobs.

Limited natural gas supply capacity will pit power-sector purchases in direct competition with demand from the residential, commercial, farm and manufacturing sectors. There is nothing in the bill that will stop a potential national crisis, one that is already underway in anticipation of these carbon constraints.

Note: Investors should short coal mining companies as coal miners will be the hardest hit as climate policy reduces our use of coal. Their employees and stockholders will also be unlikely to vote Democrat in the future.

Natural gas is expected to account for about one third of global energy use in 2020.

Natural gas is a clean burning substitute for coal and oil. Natural gas is essential to ethanol and Canadian tar sands production. The fuel heats half of U.S. homes, generates 20% of the country’s electricity and is used to make everything from fertilizer to plastic bags. Even as U.S. gas production increased in 2007, prices still rose 19%.

1 barrel of crude oil (42 gallons) = 5,800,000 BTU
1 cubic foot natural gas = 1,025 BTU

Comparing apples to apples on a BTU energy basis, the energy ratio would be 5,800,000/1,024,000 = 5.6 oil/gas [BTU]. The conclusion here is that, based purely on energy equivalency, natural gas is a bargain at today's prices. One could therefore make a strong argument that natural gas prices need to rise to keep up with oil on a purely energy equivalent basis.

The era of cheap natural gas, like that of cheap oil, is ending. We have barely begun to assess the drastic, worldwide changes that will ensue.

Demand for LNG has soared in recent years, especially from gas-starved Asian customers who are paying unprecedented prices for cargoes. Frank Chapman, the chief executive of BG, said he expects the market for LNG to nearly quadruple by 2020. Demand for LNG is set to increase by 10 percent a year through 2015, more than five times estimated gains in crude oil, as power producers switch to cleaner fuels, according to Citigroup.

Natural Gas Advantages. One of the cleanest, safest and most useful of all energy sources. Gas is generally viewed as the cleanest of fossil fuels, with less sulphur, nitrogen oxide and carbon dioxide emissions than both coal and oil per unit of energy produced. Stricter environmental regulations will militate in favour of gas as an industrial fuel in general.

Most importantly, we have it here in the United States. It provides for lower emissions. It is less expensive than diesel, gas and hydrogen. Contrary to popular belief, natural gas is safer as it has a higher temperature to ignite lowering the chances of explosions.

Once an insulated, regionally marketed commodity, natural gas now is sold on the world stage. Gas is becoming a global commodity. LNG Prices in the US have risen 93 per cent since late August as power-hungry nations, such as South Korea and Japan, compete in a global natural gas market that scarcely existed half a decade ago. Still, US prices are as low as half the level of some overseas markets, suggesting they have much further to rise.

Gas is becoming much like oil. LNG technology is changing quickly. New tankers are twice as big as they were in the past, so per unit transportation costs are coming down. Also, soon tankers will have their own liquefaction facilities. Instead of receiving liquefied gas from an onshore plant, these tankers essentially will just need a natural gas connection. Once connected to a pipe, they will be able to liquefy the gas as they pump it into their holds.

Consumption of the world's natural gas will continue to accelerate, and in the rush, gas could prove even more volatile than oil, politically and economically as well as chemically.

Countries trying to meet the greenhouse emissions limits set by the Kyoto Protocol are rapidly building natural gas-fired power plants, which emit much less carbon dioxide than do coal plants. Even in the United States, the world's number-one Kyoto deadbeat, most newly built power plants are gas-fueled, even as our domestic gas reserves dwindle.

In response to criticism of its heavy coal burning, China intends to triple or quadruple its use of natural gas for power generation in the coming decade. More than anything else they're all going to want to buy an air conditioner and that means more electricity demand.

The process of extracting oil from sands in the Canadian province of Alberta -- often looked to as a key new resource in a "safe" part of the world -- requires natural gas, and a lot of it. Darley predicts that if the oil sands are to satisfy even one-eighth of North America's demand, they will have to absorb a quarter to a half of Canada's natural gas production!

About 97% of nitrogen fertilizers are derived from synthetically produced ammonia. Natural Gas based Nitrogen fertilizer made it possible for us to overpopulate the Earth, and now we're hooked. 40 percent (soon to be 60 percent) of the Earth's inhabitants owe their survival to natural gas, a non-renewable fossil fuel.

A world of 6.4 billion people, on the way to 9 billion or more, needs more protein than the planet's croplands can generate from biologically provided nitrogen. Our species has become as physically dependent on industrially produced nitrogen fertilizer as it is on soil, sunshine and water. And that means we're hooked on natural gas. But 60% of China's nitrogen fertilizer production is currently based on coal.

At present natural gas is the most economic feedstock for the production of ammonia, as the West European figures below show.

Approximately 4% of total annual natural gas consumption in the USA and West Europe is used to produce raw materials, especially ammonia. In some countries, however, the use of gas for ammonia production accounts for a large proportion of national gas consumption. In India, for example, this proportion is roughly 40%.

“In 2000, US farmer's cost for NH3 was $242/ton. This year’s cost (2008) has nearly doubled to $580/ton.

Fertilizers are serious business in China, where nearly 50 million tonnes of fertilizer are annually consumed. Of By 2011, fertilizer production could top 63.5 million metric tons, according to China’s National Agricultural and Rural Economic Development [NARED]. Of this, China hopes to produce 42 million metric tons of nitrogen fertilizers.

According to the International Plant Nutrition Institute, more fertilizers will be required to overcome the poor soil nutrients in China and India. Significant percentages increases in nitrogen-based fertilizers are anticipated.

In the space of a decade the UK has gone from being a net exporter of gas to importing 40 per cent of its requirements.

Spain's Repsol is looking to rebuild depleted reserves and secure supply contracts with more reliable partners after a recent Algerian decision to illegally expropriate the Gassi Touil project and increase taxation on foreign companies.

Last July an earthquake in Japan forced the closing of the Kashiwazaki-Kariwa nuclear power plant, which in turn has forced Japanese utilities to import huge amounts of L.N.G.

World L.N.G. supplies grew even more scarce because of a persistent drought in Spain that has crimped that country’s hydroelectric capacity, forcing the Spanish to increase L.N.G. imports.

According to Societe Generale's data, daily Asian demand will grow to about 22 billion cubic feet in 2020, up from about 13 billion in 2005.

World demand for natural gas has grown about 2.6 percent a year over the last decade, but in Asia, the Middle East, Latin America and Africa it has averaged 7 percent over the same period, according to a recent UBS report. Growth in the developing world is expected to be supported in the years ahead by a construction boom in refineries and power and petrochemical plants.

Supplies of L.N.G. are going to grow in the next few years, but experts say they will not be enough to satisfy the growing demand. Liquefaction plant projects that prepare the gas for shipping in producing nations like Nigeria and Russia are being delayed and even shelved because of political turbulence, cost overruns and increasing domestic demand for gas in their own countries. Production in one major terminal in Indonesia is sliding because of a declining field, and production in Shnovit in Norway is facing mechanical difficulties.

Asia continues to dominate LNG imports, GIIGNL has reported that the Asian market grew 9% last year to 112.4 million tonnes, or almost two-thirds of world LNG trading, with Japan attracting 39% of the world's export cargoes and South Korea taking in 15%, Taiwan and India 5% each and China 2%.

Asian demand, accounting for two-thirds of global LNG consumption, is projected to rise 20 percent to 126 mtpa by 2010 and to just above 200 mtpa in 2020, as users turn to gas to secure long-term energy for their booming economies as oil becomes scarce.

There will be a great sucking sound for energy from China. To fuel its surging demand for electricity, in recent years China has become the world's largest consumer of coal, and air pollution has become a major problem in Chinese cities. Switching to LNG powered generators would reduce the problem.

China is seeing difficulties importing gas. China has been stymied in meeting its annual LNG import target of 20 million tons by 2015. The country has been attempting to reduce its dependence on imported oil by increasing use of natural gas.

China’s NDRC has targeted natural gas to comprise 8 percent of the country’s energy mix to help ease the pollution burden the coal industry places on China. The country is the world’s largest copper consumer and the largest steel manufacturer.

Nuclear plant shutdowns in Japan boosted LNG imports by 7.6 percent to a record last year for the world's biggest user of the fuel. Delays at the Gorgon project, which will tap gas off the coast of Western Australia, falling LNG output in Indonesia and rising demand in China and India have reduced supplies in Asia. The Japanese have been spooked by China and India grabbing large volumes. Japanese utilities are forced to pay record prices for LNG because of increased demand from China and India.

Gorgon's planned LNG output, at 15 million tons a year, is almost 22 percent of Japan's purchases last year. The development, which has no scheduled start date, has been dogged by regulatory obstacles, spiraling costs, and delays by partners Royal Dutch Shell Plc and Exxon Mobil Corp. Japan purchased 67 million tons of LNG last year for $30 billion, according to the Ministry of Finance.

The project was estimated to cost A$11 billion ($10.6 billion) when planned in 2005 with a capacity of 10 million tons a year. The amount may double to $20 billion because of rising construction costs.

Earlier this year Japanese buyers agreed to pay around $16 per million British thermal unit -- at oil price parity of $100 a barrel -- for up to 10 years of Indonesian LNG, setting a new benchmark for Asian term contracts.

Global LNG consumption is set to increase 10 percent a year through 2015, more than five times estimated gains in crude oil demand, Citigroup Inc. analysts led by James Neale said in an April 15 report.

Japan paid an average 87,833 yen ($839) a ton, or $16.8 per million British thermal units, for spot LNG cargoes in February, more than double prices in 2006 and three times rates in 2003, according to the Ministry of Finance.

China agreed in April to pay about $16 per million BTU for LNG from Shell's Qatar project. That compares with the $6 they agreed to pay for the fuel from Indonesia under a 2006 contract.

"...Natural gas demand in India is growing at a brisk pace of 9-10 per cent a year, driven by environmental concern and high oil prices. The bulk of additional demand is coming from industry sectors like transportation, glass, ceramics and steel.

Indian industry remains hamstrung by domestic gas shortages. India is heavily dependent on coal to fire its power plants to meet the energy requirements of its industry. With consensus building on fighting global warming, India is facing growing international pressure to cut greenhouse emissions. By one estimate, the power sector accounts for about 35 per cent of India's carbon emissions. India Fertiliser plants running on naphtha will find any price around $10 per mmbtu attractive for switching over to natural gas.

The Indian domestic gas production of 87 million metric standard cubic metre per day (mmscmd) is not sufficient to meet the demand. This gap is projected to widen further in the years ahead as domestic production is unable to keep up with the energy demand of a surging economy. By the government's own projections, gas shortfall could go up to 80-100 mmscmd by 2014.

Tying up long-term LNG supplies is getting increasingly difficult as producers are insisting on linking pricing formula more closely to crude oil benchmark prices. That means rising cost of procuring long-term LNG supplies through contracts. For example, according to industry experts, re-gasified LNG at Petronet LNG's Dahej terminal in Gujarat currently costs around $4.5 per mmbtu. But when Petronet's contractual price for LNG supply from RasGas of Qatar gets linked to the crude oil price post 2009, the cost could go up significantly. In that period, even a crude oil price of $120 per barrel would mean a $18 per mmbtu R-LNG price.

Delivered cost of piped gas from Turkmenistan and Iran is currently expected to be cheap at $ 6-7 per mmbtu.

India has 21 million metric tones (mmt) of urea manufacturing capacity. Of this, 78 per cent uses natural gas, 11 per cent naphtha and the rest fuel oil as feedstock. The current production cost for units using natural gas as feedstock works out to $226 per tone while for naphtha and fuel oil-based units, the same is $538 per tone and $358 per tone, respectively. Urea is currently sold below the cost of production due to heavy subsidization, to help urea manufacturers to switch over from liquid fuels to natural gas.

The current natural gas consumption in the power sector is 38 mmscmd. But the government's scheme to supply power to all by 2012 and the plan to raise the share of gas-fired generation capacity to 20 per cent from the existing 10 per cent level can lead to a dramatic increase in gas requirement in the sector.

The government will be required to add another 78,000MW of generation capacity by 2012 if it is to meet the target of providing power for all. And if the share of gas-fired generation capacity is to be raised to 20 per cent in the energy mix, that will require increasing gas supply from 38 mmscmd to 153-208 mmscmd. However, the power sector is still heavily regulated and electricity tariffs are decided by regulatory commissions rather than by demand and supply.

Presently, R-LNG transactions attract cumbersome fiscal burdens including sales tax and service tax on transportation. Besides, LNG imports face customs duty. All these add to the final R-LNG price. The government could exempt R-LNG from these taxes to make it competitive vis-à-vis piped gas...."

BCA Research, a Montreal-based institutional investment advisory is bullish on US natural gas. Their reasons include:

- gas prices have lagged crude oil prices
- rig count still low in Canada due to cost inflation and strong C$
- U.S. production faces high depletion rates and less accessible gas fields
- Asia and Europe bidding up prices of liquefied natural gas (LNG)
- North American LNG facilities unlikely to come on stream before 2011
- natural gas substitutes (e.g. coal) hitting new price highs.

Thomson Financial News
World gas production up 2.5 pct in 2007, LNG sector growing
05.07.08, 2:46 PM ET

PARIS (Thomson Financial) - World production of natural gas in 2007 grew by 2.5 percent to 2.951 billion cubic metres, and is being transported increasingly by ship in the form of liquefied natural gas (LNG), said the International Centre for Gas Information (Cedigaz) Wednesday. http://www.cedigaz.org/

During a year marked by record high crude oil prices, which averaged $72.5 per barrel in 2007 compared to $65.1 in 2006, and the growth of emerging economies, gas activity showed great disparities globally, Cedigaz said.

Production grew sharply in Africa, up 5.4 percent to 196.6 billion cubic metres; in the Middle East, up 5 percent to 355.4 billion cubic metres; and in Asia/Oceania, up 4.7 percent to 385.2 billion, to meet global and domestic demand in those regions.

But production in central Europe fell by 4.9 percent to 13.7 billion cubic metres, and in Europe fell by 3.7 percent to 279.8 billion cubic metres, due to a milder winter. In the UK, production plunged by 9.4 percent.

In the former Soviet Union (CIS) production was significant, up 1.3 percent to 784.3 billion cubic metres, and in north America, up 3.4 percent at 794.1 billion cubic metres, but was weaker in central Europe and Latin America.

LNG trade worldwide rose to 226.4 billion cubic meters in 2007, according to figures compiled by Paris-based Cedigaz, a group of 195 oil and gas companies in 40 nations. Imports of the super-cooled fuel climbed 36 percent in North America to 25.1 billion cubic meters.

Asian LNG demand, led by Japan, China and India, increased 9.5 percent to 148 billion cubic meters, Cedigaz said in a report published today.

European natural-gas consumption dropped for a second consecutive year due to ``very mild weather,'' the report said. The U.K. was the only European country where imports grew last year. European imports of the fuel fell 7.1 percent to 53 billion cubic meters last year.

LNG's share of global gas trading rose to 25 percent in 2007 from 23.7 percent the previous year, Cedigaz said. Overall, international gas trade including pipeline supplies increased 2 percent to 905 billion cubic meters last year, making up 31 percent of the world's marketed production.

While $US100 billion ($107.5billion) worth of LNG projects are scheduled for the next decade, most are "mired in delays" (such as Chevron's Gorgon) or are years from completion (Oil Search's LNG adventure in PNG).

Some of the increased demand will be used as a substitute fuel for coal. Coal prices have reached all-time highs due to strong inelastic demand from China and India and supply disruptions due to South African power shortages. Indonesian heavy rains, and Australian heavy rains and infrastructure bottlenecks.

The cost of building a traditional coal plant in the US has risen to $3,000 to $4,000 per kilowatt, up from $2,500 a year ago. Gas plants cost less than $1,000 per kilowatt.

"LNG continues go to where the economics make sense," said Wilkins. "The U.S. is an LNG-importing country that is based more on profits than necessity," he said, while Asian markets will pay higher prices to ensure stable supply. "With a Japanese spot cargo rate at $19 per million Btu, only 1% of the world's LNG fleet went to the U.S. in January 2008."

As the odds increase that the U.S. will pass climate-change regulations that raise financial penalties for burning coal, cleaner-burning natural gas is gaining favor as the fuel to power electric plants.

Total natural gas burn within duel-fired US power plants rose by 13 per cent last year compared to 2006. This meant an additional 0.5 billion cubic feet per day was burned by such power stations. As natural gas had been cheaper than fuel oil for most of 2007, it had become a fuel alternative amid rising petroleum prices. Use of natural gas in U.S. electric power production has increased almost 40 percent in the last decade, while domestic natural gas production declined by four percent. And while the U.S. ranks sixth in the world in natural gas reserves, it supplies only 3.3 percent of the world’s natural gas supply, even as the nation consumes more than 25 percent of all natural gas produced.

Unlike oil, which is easily shipped globally and has been a globally traded commodity for some time, natural gas has developed more regional markets separated by delivery constraints, each with different gas prices. LNG changes the game, and increased global LNG capacity is now making natural gas a global commodity with a global price. That’s bad news for the United States, where natural gas prices are about half what Japan is willing to pay for a shipment of LNG, for example.

The increased global trade in natural gas has been driven partly by huge investments since 2003 in production facilities to liquefy gas for export — chilling it to negative-260 degrees Fahrenheit — as big Western oil companies saw a business opportunity and ramped up spending on LNG infrastructure. This has created economies of scale and further drove down the price of producing and shipping LNG long distances to global markets.

Buyers are increasingly prepared to pay prices for LNG which are close to oil price equivalent. This is partly because of the rapid growth of the Asian and Indian economies. According to a WSJ article (April 18th): “Today, a tanker of liquefied natural gas, or LNG, pulling into port in Japan can command close to $20 per million BTUs, roughly double the price of the U.S. benchmark.”

As with any globally traded commodity, the marginal price sets the price for everyone. If Japan is willing to pay $20 per million BTUs (mmBTU) for LNG, prices globally will float up towards this price. The majority of LNG cargoes on the water are still part of long term contracts indexed to OIL.

Significant cost increases for projects and moves by governments to give priority to domestic supplies over exports are driving up LNG prices in spot and long-term contracts. Demand for natural gas is being buoyed by increasing use of cleaner-burning fuels for power generation amid efforts to reduce greenhouse gases blamed for global warming.

LNG will meet about one-third of Asia’s natural gas requirements by 2030. According to a McKinsey report. In the next 12 years, global consumption of natural gas may grow at a compounded annual growth rate of 2.7% from 2,600 BCM in 2005 to 3,900 BCM in 2020. Rapid economic growth will make Asia the fastest-growing region in the world as consumption accelerates by 5.8% year-on-year from 2005 to 2020.

Spot market trading of LNG will reach 40 million metric tonnes this year, 20 per cent of total volumes traded in the global LNG market.

As natural gas seems to be reaching its current supply limits globally, the outlook appears encouraging for further gains in stock price for buy-recommended natural gas producers including the world’s largest, Gazprom (OGZPY.PK). China apparently outbid Europe and the U.S. for the last uncommitted volumes from Qatar, the world’s leading producer of liquefied natural gas [LNG].

Osaka Gas joins Japanese utilities including Tokyo Electric Power Co. in trying to secure LNG to meet demand and offset an anticipated decline in supplies from Southeast Asia. Indonesia, the world's third-biggest LNG exporter, has said it will cut supplies to Japan by 75 percent from 2011.

The Japanese gas utility bought about 7.31 million tons of LNG, or natural gas chilled to liquid form, in the year ended March 2008. Indonesia accounted for 2.63 million tons and Australia 1.16 million.

May 9 2008. (Bloomberg) -- South Africa may buy liquefied natural gas from Qatar, the world's biggest LNG producer, for a planned terminal, Engineering News said, citing South African President Thabo Mbeki.

South Africa aims to set up an integrated energy project at the Coega Industrial Development Zone, east of Port Elizabeth, and use gas to produce electricity, the South Africa-based trade daily said. The state-owned Central Energy Fund is leading the venture.

The U.S. Energy Information Administration expects imports of LNG to the United States this year to total about 580 bcf, but some industry experts expect the pace to be lower, noting ongoing nuclear problems in Japan, strong European demand next winter and delays at several liquefaction projects were likely to keep global supplies relatively tight.

"We now suspect that global supplies (of LNG) this winter will be in high demand with little to go around, thereby potentially setting the stage for record high prices in the Far East and Europe and a very thin U.S. import scenario," Waterborne said in a recent report.

Both Europe and Asia are more dependent on LNG to meet heating and cooling demand and usually pay up for added supplies. The United States, one of the world's largest natural gas producers, can fall back on domestic supplies, which are expected to be up nearly 5 percent this year.

Europe is now reliant on Gazprom for more than 60 per cent of its gas supply, Europe gas companies are scrambling to find new sources.

The growing markets of East Asia and the nervous markets of Europe do not have a great deal of domestic gas supply. "China´s pattern of energy usage is following the pattern of all other already industrialized countries. First you dam up all your rivers, then you move on to coal, then you start using oil as a booster rocket for the economy," he says. "Once you´ve done that, increasing your use of those fuels becomes unsustainable and you have to make a rapid shift to alternative energies-and the alternatives for China and other industrializing countries are natural gas and nuclear energy."

Much like world oil supply, the official forecast is that natural gas supply will be abundant for nearly a century. This view suffered a serious setback in 2001 when the US production peaked and again in 2003 when Canadian production peaked. The ASPO has put forward a more conservative forecast.

The cost of building liquefaction plants has risen to as much as $600 million for each million metric tons of annual production from about $200 million in 2000, according to Bechtel. A 3 million tons p.a Floating LNG plant is expected to cost $2 billion.

Russia generates 43 percent of its electricity from natural gas. Russian gas giant Gazprom, the world's third-largest company by market value hopes to supply an unlikely 25% of the planet's liquefied natural gas (LNG) by the year 2030, mostly from its high-cost, yet-to-be-built arctic Shtokman project. Gazprom is currently the world's largest natural gas producer, producing approximately 20% of the world's natural gas by volume. Gazprom’s West European Customers have been worrying that there will not be sufficient gas supplies, and while Gazprom’s production has been falling, the company has been spending it’s funds on investments that do not increase gas production. Russia has suggested the creation of a gas cartel to help create policies and exchange technology.

They have Europe by the short hairs with respect to natural gas. They have pushed out western oil companies, for the most part, to make sure Russian oil reserves stay off western oil companies books.

The idea of creating a group similar to the Organisation of Petroleum Exporting Countries (Opec) has been put formally forward at the recently held Gas Exporting Countries Forum (GECF). There is strong opposition to the establishment of such an organization.

Over the next two years, Gazprom plans to triple its capital outlays in its core business of exploring, extracting and transporting gas - just to maintain its current production levels. Investments will rise to 969 billion rubles, or $45 billion, in 2010 from 330 billion rubles, or $14 billion, last year. Gazprom will have to spend at least $75 billion to bring its two largest fields in the Arctic into production within the next decade, according to Cambridge Energy Research Associates.
Yet exploring and extracting gas in a region where temperatures dip to 50 degrees below zero is technologically challenging, as well as expensive. Gazprom must build pipelines, gas processing plants, liquefied natural gas factories and a full panoply of supporting infrastructure like roads, railroads and ports. And to accomplish those feats, it moves thousands of tons of steel and heavy equipment to the middle of a vast, frozen swamp.

In a news conference last year, Mr. Putin denied that Russia uses its economic might to achieve foreign policy goals. But others disagree. "Energy should not be used for a policy tool, but it is," said Vladimir Milov, president of the Institute of Energy Policy, an independent research organization in Moscow, and a former deputy minister of energy. Gazprom, he said, has at times been a "tool of punishment for neighboring countries."

None of Russia's recent growth is thanks either to the Kremlin's leadership or a surge of entrepreneurial energy. It is all due to the high oil price. When Putin came to power, the world price of crude oil was $16 dollars a barrel; it has now soared to more than $120 dollars. Russia has profited handsomely from higher world energy prices, but has also experienced inflation as a result of the flood of petrodollars.

So where has all the oil wealth gone? According to an Independent Experts Report, written by two former high-level Kremlin insiders who have had the courage to speak out, "a criminal system of government [has] taken shape under Putin" in which the Kremlin has been selling state assets cheaply to Putin's cronies and buying others assets back from them at an exorbitant price.

According to Transparency International - a global society which campaigns against corruption - Russia has become a world leader in the corruption stakes. Foreign analysts estimate that no less than $30 billion a year is spent to grease official palms to oil the wheels of trade and commerce.

Despite the fact that Putin's Russia is increasingly autocratic and irredeemably corrupt, Putin is overwhelmingly regarded as the answer to the nation's prayers.

There is no public debate in Russia where the media has been muzzled by the Kremlin, their freedom of expression stifled by the government. Almost every national radio and television station is now controlled directly or indirectly by the state, and the same applies to every newspaper of any influence. Some 20 Russian journalists have been killed in suspicious circumstances since Putin came to office. No one has yet been convicted for any of these crimes.

Meanwhile the population dwindles; the U.N. Development Program report entitled "Demographic Policy in Russia." "The Russian phenomenon of hypermortality comes to be observed primarily in working-age populations," it says. "Compared to the majority of countries that have similar levels of economic development, mortality in Russia is 3-5 times higher for men and twice as high for women." What this means, the report says, is that the size of the working-age population and energy consumers "will fall by up to 1 million people annually already by 2020-25."

Despite its diminished status following the Soviet breakup in 1991, Russia alone possesses weapons that can destroy the United States, a military-industrial complex nearly America's equal in exporting arms, vast quantities of questionably secured nuclear materials sought by terrorists and the planet's largest oil and natural gas reserves. It also remains the world's largest territorial country, pivotally situated in the West and the East, at the crossroads of colliding civilizations, with strategic capabilities from Europe, Iran and other Middle East nations to North Korea, China, India, Afghanistan and even Latin America.

Like a cripple’s crutch, Nuclear power is entirely dependent on a near monopoly level of financing from the federal government. The only reason ANY Nuclear power plants exist in the US is due to gigantic bankruptcies which were picked up by the US Taxpayer. And even with every conceivable benefit playing it’s way, it’s still one of the most expensive technologies on the market. Nuclear power plants cost $10 billion/1,000MW, Gas power plants cost less than $1 billion/1,000MW. Where is the extra $9 billion going to come from? It would take around 20 years to ramp nuclear up to a large figure, and a lot of existing reactors are approaching the end of their lives. Coal and nuclear plants are also less attractive since they use far more water than do gas generators.

With the oil price heading upwards and President George W. Bush heading for Saudi Arabia, as part of a Middle Eastern tour, it is time to accept the truth. The pursuit of oil is fundamental to US foreign policy.

The importance of oil to American foreign policy is both obvious and curiously difficult to acknowledge in public. In the run-up to the Iraq war it was left to the left to make the argument that this was a "war for oil". Establishment people - those in the know - rolled their eyes at this "conspiracy theory".

Yet in recent months, both Alan Greenspan, former chairman of the Federal Reserve, and Senator John McCain have come close to saying that Iraq was indeed about oil. In his memoirs Mr Greenspan said he regretted that it was "politically inconvenient" to acknowledge that "the Iraq war is largely about oil". Americans may have to adjust their lifestyles to a world of permanently higher fuel prices, while Middle East nations despots spend their new-found wealth on Western made planes and other consumer toys.

The search for energy security is central to American foreign policy, as it is for both the European Union and the main Asian powers, but in the long run there is no real foreign policy fix for the problem. A future dominated by conflict over scarce oil resources - or truckling to oil-rich dictators - is, as always, here and now. The US dollar -- is becoming like some desk-drawer currency, to be dumped at the end of an overseas trip.

The world's main oil producers no longer suffer a shortage of potential customers. More than 50 per cent of Saudi oil is now exported to Asia.

At present there are about 10 cars in China for every 1,000 people; there are 480 cars per 1,000 people in the US. But by 2015, China could be the world's largest market for new cars. China LNG imports reached 2.9 million tons in 2007. Imports are hindered by the lack of LNG offloading facilities.

Jeroen van der Veer, the chief executive of Royal Dutch Shell, estimates that "after 2015 supplies of easy-to-access oil and gas will no longer keep up with demand."

Every energy commodity today is under stress and tension, and countries are jockeying to figure out what energy mix they are going to use. The competition for available energy is intense, and this is driving up prices worldwide.

The planet´s greatest gas reserves are in the Middle East and the former Soviet Union-both of them diplomatically touchy regions. And most of the world´s other stranded supplies are in remote countries with access to the sea. These factors are helping drive a surprisingly rapid transformation of the global gas business. The globalization of the gas business is happening much faster than everyone thought.

Another reason global gas markets have become so much more efficient is that LNG contracts have shifted from the old "port-to-port" model. A buyer can now redirect a shipment anywhere, and anywhere usually means to the customer willing to pay the highest price.

Many might be aware that Haliburton and KBR built an immense new base on the Macedonian border named Camp Bondsteel which will be virtually astride the soon to be completed Trans Balkan Pipeline which will deliver oil to the big new terminal in Albania on the Adriatic. Thus Caspian oil doesn’t have to flow through countries where the US doesn’t have troops and bases yet, like Russia, for example. The US may have as many as 1000 bases worldwide, with most of the new bases astride or near oil and critical resource corridors.

US sanctions and coming presidential elections in America make it difficult to take a final investment decisions on gas projects in Iran, Yves Cerf-Mayer, vice-president of LNG Marketing North East Asia at Total SA, said at the Bangkok conference. Total has delayed a decision to invest in the South Pars LNG project in Iran.

Politics and violence can also hold back LNG developments. In the seas between Australia and East Timor, development of the $3.7 billion Sunrise LNG project has been stalled for more than two years as the two nations try to resolve how to split royalties.

Shell, the world's largest non-government producer of LNG, is struggling with projects in Nigeria because of rebel attacks and in Iran, where threats of sanctions over the Iranian nuclear research program has restrained investment. Iran has the world's second- largest gas reserves.

There is new supply of energy, but it is not going to be coming on stream quickly enough to meet rising demand. Natural gas has become more of a global commodity, liquefied natural gas or LNG can move into the North American market. There has been a strong demand for LNG around the world and LNG prices are higher than North American natural gas prices. This factor, together with an improved demand/supply equation for natural gas in North America, has resulted in higher North American natural gas prices. There has been a lack of drilling for natural gas in Canada.

CONSUMERS of liquefied natural gas are today more willing to pay as much as they would for oil to use the cleaner energy source. There will be continued growth in longer-term demand for natural gas for electric power generation. A recent study on the urbanization underway in China underscores this. According to this study, there will be one billion urbanites in China by 2025. This is an increase of 350 million people living in cities there. This increase alone is the size of the U. S. population and will include 175 million new urban workers. Add to this, the fact that the per capita income of the current and increasing population in cities is rising and you get a multiplier effect. There is a direct relationship between rising per capita income and the pounds of, say, gas, nickel, copper or zinc consumed. This is just China. The other emerging economies are experiencing similar economic growth. There is therefore a huge demand for commodities. China represented 75% of the increase in the world's demand for copper from 2001 to the end of April. The country now represents 25% of the world's demand for copper. There is a passing of the torch from the developed to the emerging economies.

The price of natural gas is skyrocketing in reaction to the astronomical crude oil prices we have seen over the last few Iraq War years. When crude oil goes above $ 100 per barrel, natural gas prices follow suit. Economics 101, supply and demand is driving prices up and up.

Texas used about 23,000 wells to produce 7 Tcf in 1985 and now needs 83,000 wells to produce 5 Tcf.

It gets worse. 2004 Analysis showed USA NG production peak in Q1 2003. we got back to the same peak in 2007, through a huge ramp up in wells drilled from late 2004. However, drilling capacity is max'd out, so we can't repeat such a ramp up, and declines in existing production are accelerating.

The big boosts in output were from Barnett shales and coal bed methane. Both require frac'ing and Barnett shale wells reach as much as 60% depletion in one year. LNG into the USA was lower in 2007 than 2006, and was back to 2004 levels in Q4 2007, due to demand in other countries, mainly Japan with their biggest nuke off line. LNG can't be ramoed up significantly because of limited tanker capacity. In the USA we have 2 NG seasons, roughly from end March to end Oct is the "injection season", Nov through March is the "withdrawal season". These reflect injection to and withdrawal from storage.

We use about 23 to 24 Tcf annually, and storage capacity is about 3.6 Tcf, probably going to near 3.65 Tcf in 2008. In 2007 we finished the injection season with storage just about at capacity, starting from near 1.55 Tcf in storage at end March. It looks like we can't produce enough to get injection much above 2.1 (maybe 2.2) Tcf per season. NG will be an energy crisis in North America a little before peak oil.

The worldwide demand for clean energy such as natural gas is increasing geometrically in the short run. US domestic gas supply is static at best, despite 90% of US onshore drilling rigs being employed looking for gas.

Many of the newer USA electric power plants now use natural gas for fuel and more are being built, while domestic and Canadian gas supplies are static or falling.

Its likely that the high cost of NG will drive some electricity producers out of business leading to frequent blackouts. This largly depends on how fast the price of NG rises. A sharp run up will lead to bankruptcies as NG fired operators can not raise prices to energy consumers fast enough (ie customers with locked in rates, and state price regulation). Many of the NG power companies are already loaded up with debt, and are near bankruptcy.

LNG is selling on the international market for approximately twice the average US price resulting in the diversion of LNG spot cargoes to Asian markets. Countries like India, Japan or Korea are paying up to $16/Mcf for LNG.

"China is the driver of global commodity flows, as well as prices. But the Central Kingdom has been slow to understand that it is the horse which pulls the cart; the whip hand belongs to the coachman."

China is building out a massive Natural Gas infrastructure for use in motor vehicles. China does not have enough domestic gas to supply its consumption requirements, and has no choice but to import. According to calculations in a Gazprom report, the share of natural gas in China's energy supply "is on a continuous rise, currently makes up 3 per cent and is expected to increase to 7 per cent by 2010. In 2004 domestic natural gas production reached 47.5 bcm in China and consumption was at roughly the identical level. At the same time, gas consumption rapidly grows and substantially outpaces extraction rates. According to the most conservative estimates, the PRC's gas needs will amount to 97 bcm and 103-120 bcm by as early as 2008 and 2010, respectively. It is clear that gas import is vital for China.

When China came to the LNG market to buy, everyone started pushing up the price. So the initial Chinese plan to buy everything on the LNG market raised price, instead of holding it stable. The main suppliers for China now are Indonesia, Malaysia and Australia. But extraction in some of these countries will be falling. In others, pricing is tied to crude oil. A recent contract with Qatar sets a gas price equivalent to $130 per barrel of crude oil. Freight costs come on top. Deliveries contracted from Australia in the Gorgon project will not start until 2014, but they too are tied to oil.

two-thirds of the Sakhalin-2 project volumes currently planned have already been contracted for by Japanese buyers; the remainder has been signed for by South Korea, with a balance to go to the US. It is thought that Sakhalin-1 will be linked by pipeline with Sakhalin-2; the liquefaction capacity of the plant will be expanded; and all of this gas will be contracted for the US market.

"....Creeping diesel shortages, in spite of pressure on oil companies to increase supply, are leading to a situation similar to last autumn when Beijing was forced to raise prices by 10 per cent amid fears that fuel rationing was threatening social stability. Some Beijing petrol stations have had lines of up to 50 trucks waiting for diesel. "Our diesel supply gets sold out in four or five hours every day and there is still a queue as far as the eye can see," said the manager of a station in Tongzhou district...."

With the likelihood of new heavy carbon emissions taxes being placed on coal fired power plants, the need for clean, lower-carbon natural gas is going to become greater than ever.

Many firms have the ability to switch between oil and natural gas depending on price and availability. Longer term, consumers or firms making a fixed commitment to oil or natural gas will of course look at the relative prices. Furthermore, it's possible to produce a synthetic liquid from natural gas that makes an excellent gasoline, jet or diesel fuel.

A barrel of oil has about six times the energy content of a thousand cubic feet of natural gas. The graph at the right compares the price of natural gas with that of crude oil using a price comparison factor of 6:1. Between December 2003 and July 2005, oil prices shot up about 50% (logarithmically) whereas natural gas was only up 25%, leaving gas undervalued relative to oil. Between July and October, natural gas was up 50% logarithmically with oil little changed, leaving gas relatively overvalued.

Figure 2 Official "Consensus" Resources and Reserves Forecast [NRC 2006, pg 22] (Click to enlarge)

the decline rates are huge. Shale plays decline 60% plus in first year. I know in Cotton Valley, which is 'tight sands', the 1st year decline rate is around 40% and 60% by 3rd year. So this means a whole lot more drilling just to stay in place. Same old story. A natural gas treadmill.

The natural gas industry has clearly been mounting a heroic effort to keep natural gas production on plateau in North America. This effort has raised costs dramatically. The EROI of Canadian production shows a rapid decline. Drilling statistics suggest a similar EROI decline is happening in the US. The falling EROI makes it impossible for natural gas production to maintain both low costs and current levels of production. It is clear that most of the reserves in the official forecast will never be developed. Jean Laherrere’s predictions are more likely to be correct. And if EROI continues to fall at the current rapid rate, he will be remembered as an optimist.

Recent Press

Indonesia to get record price for LNG

Woodside LNG price rise may prompt others to follow

"As the oil price has continued to increase over time, the price received for the Japanese basket of crudes has moved above the oil price range specified in North West Shelf venture LNG price formulae," Woodside, Australia's second-largest oil and gas producer, said on Thursday in a quarterly production report.

"Consequently the North West Shelf venture is negotiating 'price out of the range' LNG prices with regard to these contracts."

A Woodside spokesman declined comment on Friday on the oil price range set in the original and new sales contracts.

LNG prices charged by the North West Shelf venture averaged about $7.60 per million British thermal units in the December quarter, up 30 percent compared to the previous quarter, Merrill Lynch's Sydney-based oil and gas analyst Cosimo Damiano said in a report on Friday.

A review of LNG contract terms with Japanese customers could boost Woodside's LNG revenues from Japan by hundreds of millions of dollars, analysts said.

The quarterly report showed that preliminary contract adjustments led to a A$56.5 million ($49.96 million) boost in the company's LNG revenue between the third and fourth quarters last year -- a gain of more than 33 percent.

http://www.reuters.com/article/companyNews/idUSN1723450820080118?pageNumber=2&virtualBrandChannel=0

Natural Gas Prices May Have Further to Go for Good Reason

Asian Demand Pushes Up U.S. Natural Gas Prices

Natural Gas Woes: If You Don’t Build It, They Won’t Come

So New York Gov. David Patterson struck down the idea of a new natural-gas terminal in Long Island sound, trusting in conservation and energy efficiency to make up the energy shortfall for the region. Almost 7,000 miles away, China and Qatar inked what could be at least a $60 billion deal for liquefied natural gas exports over the next quarter-century.

What’s the connection? The U.S. better take a number if it wants sufficient supplies of natural gas in the future.

A terminal condition. (Associated Press)

The U.S. is moving inexorably toward using more natural gas to fire its power plants—thanks to an increasingly tough financing climate for coal, imminent climate legislation that will put a pricetag on dirtier fuel sources, trouble jump-starting the nuclear industry, and difficulties making renewable energy more than a marginal contributor to the electricity mix. Natural gas is cleaner than coal, easing some environmental concerns, and reliable, making it suitable for baseload power.

But that’s what everybody else is concluding, as well. China’s appetite—and willingness to sign pricey, long-term deals—just underscores how the scramble for natural gas is only going to intensify. And while gas exploration is red-hot, and Qatar hopes to jump from the world’s number-three producer to world leader in five years, there’s still only so much of the stuff. As the FT notes:

The deals indicate that Beijing recognises it must pay global market prices to secure supplies of LNG. It has already intensified the demand pressures in the tight global LNG market and is expected to force other countries to pay higher prices. “Three to four years ago, the Qatari projects were going to send this gas to the Atlantic Basin, particularly the US,” said Frank Harris, of Wood Mackenzie, the Edinburgh-based consulting firm. “What it means is that we are going to see a lot less LNG go to the US than we thought.”

But it’s not just China. The U.K. just signed another deal with Qatar to get its own gas. Oh, and Poland, too, another economy eager to shake its reliance on Russia and find a semblance of energy independence. In Asia, the FT notes, Japan and South Korea have been scrambling to land their own gas; the top Japanese utility has doubled LNG imports in the last year.

If the U.S. power sector has to rely increasingly on natural gas, there are only two options: either more domestic supplies, or more imports. While Texans and Oklahomans are scouring Pennsylvania in the hopes of finding more local gas, importing the stuff from major global producers is easier in the short run.

Provided there’s still some to be had—and the infrastructure to import it.

May 7, 2008, 10:05 am

Pain at the Plug: Fuel Costs Push Up Electricity Rates, Too

Posted by Keith Johnson

American consumers just coming to grips with higher gasoline prices can now count on another worry: higher electricity prices. Something has to give—but will it be electricity demand, or power-company profits?

Lights out? (Wikipedia)

Rising costs for coal and natural gas, which account for 70% of the fuel used to generate electricity in the U.S., are starting to trickle-down into households, reports Rebecca Smith in the WSJ (sub reqd.). Coal prices have doubled since early 2007; natural gas is up about 45% in the same period. The upshot? Somebody’s got to pick up the tab—and utilities aren’t reaching for it, but might get stuck with it anyway.

Regulated utilities across the country are asking for permission to raise their rates from 9% to 29%, the paper reports, and rising fuel prices are the main culprit. Deregulated utilities have a straighter path—higher prices are passed onto households by the market. Either way, households that were insulated from recent price spikes in coal and natural gas thanks to utilities’ long-term supply contracts are increasingly going to feel the pain.

That raises some interesting questions. How easy a sell will climate-change bills like Lieberman-Warner be for Congress, when the bills will add between 11% and 64% to the cost of electricity which is already going vertical?

What will higher electricity prices do to demand for juice? When gasoline prices spiked in recent months, demand slumped for once. Normally, demand for gasoline is pretty inelastic in the short-term. Only sustained high gasoline prices lead to big changes, like more fuel-efficient cars, carpooling, and the like.

Demand for electricity is even less responsive to price than demand for gasoline is. Spot market rates for electricity aren’t posted across town, and you don’t pay the power bill every week.

Indeed, the U.S. Energy Information Administration, in its analysis of the Lieberman-Warner bill last week, said higher energy prices probably wouldn’t change consumer behavior.

But no one really knows how elastic the demand for electricity really is. Recent studies show prices didn’t influence demand. But the studies were done after years of flat power prices. The Rand Institute suggests higher prices could indeed dent demand.

Utilities are concerned. Energy executives like Ralph Izzo of PSEG, the New Jersey power company, expect regulators will crack the whip, the WSJ notes: “Regulators will be hard-pressed to allow the same returns on equity [for utilities] as in the past,” Mr. Izzo said.

If nothing else, U.S. consumers can take solace—they aren’t alone. Russia just raised its communist-era electricity rates by 25% to 40% to try to deal with higher market prices for natural gas.

Firm U.S. natgas prices seen boosting LNG imports

NEW YORK, May 8 (Reuters) - A 25-percent run-up in U.S. natural gas prices since mid-March has made the United States a more attractive destination for liquefied natural gas imports, according to a Houston-based consulting firm.

"For the first time in many months, the U.S. East Coast has emerged as a superior netback from Trinidad over most European markets. U.S. imports should experience a slow, steady increase through summer," Waterborne Energy said in its latest report.

Waterborne Energy, a consulting firm that monitors the global flow of liquefied gases, estimates that U.S. imports of LNG should climb to about 43 billion cubic feet in June from about 36 bcf in both April and May. But that would still be about half of last June's total when the United States took in about 88 bcf.

U.S. East Coast gas prices have climbed nearly 25 percent since mid-March to about $12 per mmBtu.

While gas prices in Britain and Spain are close to that level, it takes twice as long to deliver LNG from Trinidad, a major spot supplier, to Europe and costs about 30 cents more, making the trip to the United States more profitable.

Waterborne expects European imports of LNG to show signs of slowing later this month, while Far East demand should also taper off as heating needs slow in spring.

The company expects most of the increase in U.S. LNG imports to discharge at the Cove Point terminal in Maryland.

BP continues to be the main supplier of spot LNG from the Atlantic basin, offering between two and five cargoes per month.

So far in May, Waterborne said BP is believed to have sold 3 spot cargoes from Trinidad, one for Suez LNG for Freeport in Texas, one for delivery to Japan and one for Spain.

LNG is natural gas cooled to liquid form so it can be loaded on special tankers. The liquid is then delivered to receiving terminals where it is regasified and pumped into onshore pipelines.

U.S. LNG imports hit a record high 770 billion cubic feet last year, or about 2.1 bcf per day, but strong competition from Asia and Europe this winter saw volumes drop off sharply late last year and early in 2008.

So far this year, U.S. LNG imports have averaged less than 1 bcf per day, down sharply from a 2.36 bcf per day average for the same four months in 2007.

LONDON, June 11 -- Potential regulation to tighten carbon dioxide emissions in the US could increase demand for natural gas and pit the US against Europe in a bid to secure future supplies, according to a newly released report.

Global management firm Booz & Co. warned in its report that investments in European LNG import infrastructure may not pay off if LNG from the Middle East and North Africa is redirected towards the US. "Replacing these volumes in Europe might require additional pipeline gas from Russia and cause further dependency on Russia."

The report, "A Journey from a Regional Gas Market to a Global Market," analyzed how regional markets of Europe, the Americas, the Middle East, and Asia are becoming interconnected via LNG.

By 2015, gas demand will increase by up to 84 billion cu m, according to Booz, and most of this will be met by LNG imports. Booz said the US may turn to using gas for power in the mid-term because it has been unable to develop on time other sources of energy such as nuclear or clean coal to meet the looming power gap across several states. Because US domestic gas production will likely not be able to meet a rise in demand, its market will have to compete more strongly for international gas supplies.

Europe has invested in as many as 30 European regasification expansion and newbuild projects that will have a total capacity of about 130 billion cu m by 2015. However companies may divert LNG destined for Europe from the Caribbean, North Africa, and the Middle East to the US instead.

"Carbon dioxide regulation is becoming more global, and therefore, creating a more global gas market with implications on volume flows and price levels," said Jake Leslie Melville, Booz vice-president. Melville urged companies to have alternative plans to source energy, including increasing imports through existing pipelines or developing new supply routes such as the proposed Nabucco pipeline.

But gas prices in the Atlantic Basin are likely to soar and become more volatile because of increased gas demand and larger connectivity between the Americas and the European gas markets.

"European gas importers and governments should more explicitly consider the globalizing nature and interdependency of their regional gas markets," the Booz report said.

Some References

[Hall 1979] C. Hall, M. Lavine, "Efficiency of Energy Delivery Systems:1. An Economic and Energy Analysis", Environmental Management, vol 3, no 6, pp 493-504, 1979 (First part of a 3 part article).

[Hall 1992] “Energy & Resource Quality: The ecology of the economic process”, C. Hall, C Cleveland, R. Kaufmann, 1992, University Press of Colorado, pg 184-188.

West Europe	Natural Gas	Heavy Oil	Coal
Energy consumption	1.0	1.3	1.7
Investment cost	1.0	1.4	2.4
Production cost	1.9	1.2	1.7
Source: EFMA

Financial Times JUNE 4TH, 2008

Price of US natural gas rising faster than crude

West Europe

Recent Press

Indonesia to get record price for LNG

Woodside LNG price rise may prompt others to follow

http://www.reuters.com/article/companyNews/idUSN1723450820080118?pageNumber=2&virtualBrandChannel=0

Natural Gas Prices May Have Further to Go for Good Reason

Asian Demand Pushes Up U.S. Natural Gas Prices

Transformation time for the LNG industry

Natural Gas Woes: If You Don’t Build It, They Won’t Come

Pain at the Plug: Fuel Costs Push Up Electricity Rates, Too

Firm U.S. natgas prices seen boosting LNG imports

Fed report: Natural gas prices will rise

South Florida Business Journal

Wood Mackenzie forecasts re-linkage between gas, oil prices

Some References