WEST COAST LNG SET TO REMAKE GAS AND POWER MARKETS

Liquefied natural gas (LNG) will reshape western gas and power markets by 2010. Depending on the magnitude of regasification capacity development on the West Coast, LNG volumes could displace indigenous gas supplies, reduce western gas prices relative to the East, and reshuffle the value proposition for many major western gas pipelines. Over the long run, West Coast LNG will expose gas and power market participants-and the entire West-to the increasingly global nature of natural gas.

- In the face of increasingly tight North American gas markets, West Coast LNG will develop along with the first major wave of LNG across the continent. The magnitude of LNG's impact on gas and power prices in western markets will vary, depending on the volume of LNG and the number and location of terminals, as well as the ability to redirect displaced gas to eastern markets.
- The prospect of LNG will force parties to reexamine sourcing options and contract duration. Integration of LNG into Southern California will be a crucial component of ongoing intrastate pipeline capacity restructuring efforts.
- Merchant power plant owners will earn lower spark spreads as gas prices drop. Changing regional gas price differentials would affect power export opportunities for merchants, as well as the economics of transmission and generation projects of all technologies in all parts of the West.

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