LNG Moves In On Western Markets

 

What are the potential market impacts of LNG importation in the Western United States?

Significant interest in the development of on-shore liquefied natural gas (LNG) import facilities in the Western United States has emerged in the past several years. This interest has been spurred by the dramatic increases forecast for new merchant generation in the Southwest, and particularly California.

An additional accelerant to this environment has been forecast trends of gas prices above the $3.50 to$4.00/mmBtu range which, if true, increase the economic viability of such facilities versus sustained prices in the $2 to $3 range. For environmental and permitting-based factors, Mexico is emerging as the site of choice for such facilities. Currently, five projects are vying for the rights to build an LNG terminal and vaporization facility in Northern Baja Mexico.

Ready or Not

The drivers for each of these projects are somewhat unique, but all share several common characteristics. Most important of these characteristics is the fact that the gas reserves for these projects are separated from ready markets. These "stranded" fields would require as much or more investment to build the infrastructure to transport to more local markets. Even if the local market can be reached with an equivalent capital investment, the quality of that market is not as desirable as the West Coast of the United States. Despite the uncertainties and risks discussed below, many developers believe the U.S. gas markets are a much more stable environment for investment.