Market elusive for US West Coast LNG imports

By Edward McAllister
Reuters UK
Wed Feb 4, 2009

NEW YORK (Reuters) - Woodside Petroleum's decision to scrap a liquefied natural gas import terminal in California last month bodes ill for developers on the U.S. West Coast already struggling to bring projects to fruition.

Australian-based Woodside said poor market conditions prompted it to shelve its Oceanway project offshore Los Angeles, clouding the fortunes of the remaining West Coast proposals.

Problems in attracting supply, as well as a questionable need for more imports in the near term, have made the West Coast less friendly territory than the East and Gulf coasts for building import terminals.

In 2007, California authorities vetoed BHP Billiton's $800 million (553.27 million pounds) Cabrillo Port facility over environmental concerns.

Analysts say scant demand and low U.S. natural gas prices threaten the other four plans to import super-cooled gas to the region in the short term.

"Our view is that it is unlikely in the short and medium term that an LNG terminal on the West Coast (of the) U.S. will be built," given the healthy supply scenario there, said Murray Douglas, a global LNG analyst at Wood Mackenzie.

Northern Star Natural Gas' Bradwood Landing project in Oregon has won regulatory approval and three other terminals are proposed. Together they have a potential import capacity of nearly 5 billion cubic feet of natural gas per day.

But convincing federal and state authorities of the need for LNG is a major hurdle.

Developers say that the Pacific Northwest and California face a gas supply shortage, but analysts disagree.

"At the moment with peak demand in the winter, storage levels are pretty high, prices are down and it appears by all accounts that demands for natural gas are being met," said Randy Roesser, California Energy Commission energy analyst.

California is a beneficiary of the recent jump in gas output from unconventional onshore sources like shale plays.

Total U.S. marketed gas production is estimated to have increased by 5.9 percent in 2008, thanks to shale gas development, according to U.S. government figures.

Two pipelines are being considered to bring gas to the West Coast from the Rocky Mountain region -- the Ruby pipeline to California and the Sunstone pipeline to Oregon.

The existing Kern River line is currently being expanded.

"Given approvals for new pipelines out of the Rockies and the increase in Rocky supply makes you wonder whether people will even bother with imported LNG," said Martin King, vice president of institutional research at FirstEnergy Capital.

ATTRACTING LNG SHIPMENTS

Developers also face the problem of attracting supply from producers such as Australia and Indonesia, which traditionally supply LNG to the high-paying markets of Japan and South Korea across the Pacific.

Low U.S. gas prices compared to Asia make it difficult to attract supply without firm commitments from suppliers.

Earlier this year, the developers of the Kitimat LNG project in Western Canada swapped plans to import gas in favour of developing an export plant to supply Asian importers.

"The sponsors of projects like Bradwood will only raise finance if they have a credit-worthy company committing to the capacity. I don't see many of those around," one analyst said.

Financing is also made more difficult by the current global credit crunch, which affects all large energy projects.

Spot gas prices in southern California have been under $4 per million British thermal units. Even prices of $7 per mmBtu and higher for the East Coast terminals saw cargoes diverted to markets in Europe and Asia.

However, Northern Star, which is also developing the Clearwater Port project offshore of Southern California, remains positive.

Bradwood Landing could break ground as early as late this year as the company has received "significant interest" from both suppliers and customers, said Senior Vice President for External Affairs Joe Desmond.

"We feel confident that there is support for the project in light of the need for additional gas supplies," he said. "There are many suppliers looking for long-term contracts into the U.S. West Coast market."

(Editing by Jeffrey Jones and Christian Wiessner)

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