The world would not be looking at liquefied natural gas (LNG) as an energy solution if not for the fact that cost reductions across the value chain-from liquefaction to transportation to regasification-enable LNG to move longer distances today. Yet at the same time, there are many challenges still to be resolved, speakers said at the recent Global LNG Outlook 2004 forum in New Orleans, hosted by Hart Energy Publishing. For one thing, consumers who must make the market work will have other choices and there will be gas-on-gas competition eventually. Clean coal technologies will also help normalize world gas prices. There is bound to be a lot of competition for projects. "The market should focus on the best LNG projects, but I fear the first projects or early movers will be the ones to make it, and these are not necessarily the best ones," said Mike Stice, vice president global gas and LNG for ConocoPhillips. An LNG project includes five links of a chain: development of the natural gas, liquefaction of it, marine transportation, regasifying the LNG, and pipelines. Each link can cost at least $500 million. To mitigate risk and obtain financing, each link must be lined up early and each company must manage the links as a single, coordinated chain. "If you think we'll have an efficient LNG market by 2010, I'm here to tell you, no. One day I am long regasification plants and short on ships. The next day I am short supply," Stice said. A whole new service industry needs to mature to enable LNG to become a reliable and steady form of gas that comes from multiple sources to multiple users. Price volatility will continue to make decisions tough for the companies entering this arena, because the investments require billions of dollars. Unit costs to build the infrastructure are huge and growing, as a global run on labor, steel, concrete and shipyard capacity threatens to undo the cost savings that new technologies have brought to the LNG industry, Stice said. Some projects will only break even, he warned, and only make sense because they are closer to the consuming market. A lot of the LNG that is regasified will create two problems: the Btu content of the gas tends to be higher than U.S. pipelines can handle, so the liquids will have to be stripped out in separation plants. That may adversely affect the U.S. gas-processing industry and drive down prices for gas liquids. Second, there is a lack of gas storage to handle incremental supplies from LNG. "What everybody says is the timing, I would add one or two years. That's reality," Stice said.

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