U.S. LNG imports take bite out of Canada's natural gas sales

Shawn McCarthy
Global Energy Reporter
Globe and Mail
October 16, 2007

Canadian natural gas producers are suddenly finding themselves in competition for lucrative U.S. markets with counterparts in places like Nigeria and Egypt, as imports of liquefied natural gas displaced Canadian exports earlier this year.

In the first eight months of the year, LNG imports rose 56 per cent by dollar value, by $1.8-billion to $5-billion (U.S.). In that same period, Canadian exports declined 9.6 per cent, or $1.8-billion to $17.4-billion, according to figures from the U.S. International Trade Commission.

Greg Stringham, vice-president with the Canadian Association of Petroleum Producers, said the surge in LNG imports was a temporary phenomenon, resulting from price disparity between North American markets and European ones that encouraged producers to ship to the U.S.
But he said the increase in natural gas imports from overseas contributed to a glut of natural gas in storage in the United States, which led to lower prices and fewer exports for traditional Canadian suppliers.

"This is the first inkling we've seen of international competition in natural gas coming in and filling up storage and backing Canadian gas into storage here, and causing the depressed prices to be in place," he said.

Until recently, natural gas was strictly a regional commodity - there was virtually no competition for North American producers except within the continental market itself. But growing volumes of LNG are transforming the clean-burning energy source into a global commodity, though the tanker volumes are relatively modest over all.

The three largest suppliers to the U.S. are Trinidad and Tobago, Egypt and Nigeria, with the gas-rich Caribbean island providing more than the two largest African suppliers combined, the U.S. International Trade Commission figures show.

The U.S. has seen the expansion of three of five existing terminals that take liquefied natural gas off tankers and re-gasify it to be shipped to markets by pipeline. And construction is under way for four other terminals, with more planned, including several in Canada.

Robert Ineson, an analyst with Cambridge Energy Research Associates, said the decline in exports had more to do with falling production north of the border than the availability of LNG imports.

"Production will continue to fall because of the slowdown in drilling activity" that has been seen in Western Canada in the past two years, he said. "We also expect more gas produced in the region to stay home to be consumed in some of the oil sands projects."

Mr. Ineson said North American consumers will increasingly have to turn to LNG suppliers to compensate for falling production. "In North America as a whole, there's a growing need for additional supply beyond what we can produce in the U.S. and Canada," he said.

Ed Kelly, vice-president for gas and power for Scottish-based consulting firm Wood Mackenzie, said it is still early days for the development of LNG in North America. But he said volumes could double to 4.7 billion cubic feet a day over the next two years, and then double again by 2015.