NORTH AMERICAN LNG DEVELOPMENT MOVES AHEAD

Development of North American liquefied natural gas (LNG) receiving terminals continued in 2004 at a pace that could be described as both exhilarating and frustrating, depending on the observer's perspective. New project announcements have continued at a rapid rate. More advanced projects continued to move steadily through the approval process. Construction activity is under way at five sites. Opposition to LNG has become better organized and has derailed a growing number of proposals. Activity in 2004 confirms a number of key themes highlighted in CERA's earlier research.

- A new business model is emerging. Large, international energy companies are assuming an intermediary role, committing to liquefaction, shipping, and regasification capacity and assuming North American price risk. In return for accepting this risk, these companies expect to move LNG cargoes around the globe to obtain the best prices for the commodity.
- The global LNG market is becoming increasingly flexible. LNG movements, particularly in the Atlantic Basin, are becoming increasingly price responsive.
Siting is a major issue for individual projects, but is not a significant issue in the aggregate. The large project slate allows for the development of sufficient regasification capacity even given a very strong attrition rate.
- Supply remains the critical link in the value chain and will have a strong influence on which regasification terminals are built, and when. The slow pace of terminal construction confirms that supply is and will remain the critical factor in determining which regasification projects are completed, and when.
- Additional North American regasification capacity will lag market requirements. Regasification capacity will increase in the next two years, but not enough to meet growing market requirements. LNG cannot rebalance the market at a lower price level until 2008 at the earliest.
- An overbuild of regasification capacity remains a real possibility. Long project lead times are often associated with overbuilds in cyclical businesses. CERA's LNG import capacity projection continues to include a moderate overbuild of regasification capacity in the early years of the next decade.

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