Louisiana Analyst Predicts U.S. Liquid Natural Gas Capacity Will Develop Slowly

April 2006

The Louisiana Department of Natural Resources (DNR) published an article in the March 2006 edition of its Louisiana Energy Facts Newsletter that outlines the geopolitical and economic challenges facing placement of liquid natural gas (LNG) terminals in the United States. The article is by DNR Energy Economist Bob Sprehe and is titled "Proposed LNG Terminals Mask Cloudy Near-Term Supply Outlook" (PDF 67 KB). Download Adobe Reader.

According to Sprehe, LNG imports declined in the first months of 2006 despite a host of proposals to build LNG terminals that would allow imports into the country. These proposals address the increased demand for natural gas in the U.S. and the domestic supplies that have declined every year since 2001. Meanwhile global demand for natural gas continues to surge, and the proportion of international gas trade garnered by LNG has declined.

Sprehe shows how natural gas is used in every sector of the economy and is critical to economic growth. Because of the significant investment in infrastructure, LNG terminals will require 20 years to pay off, and investors will therefore seek 20-year contracts in order to cover their financing. Unfortunately, few state regulators have allowed suppliers (in regulated markets) to use long-term contracts. Sprehe's conclusion is that markets and regulatory policies need to align to ensure the secure supply of natural gas to U.S. markets.