In 1978, a liquefied natural gas (LNG) terminal was built south of Baltimore. Two years later, it was shut down due to low natural gas prices and high operating costs. It took almost 25 years, record-high natural gas prices, and $160 million in refurbishing costs to current owner Dominion Resources
Is the demand for natural gas so great that it can support the new LNG projects being announced?
Yesterday, energy giant ExxonMobil
On Monday, ChevronTexaco
And then Sempra
Each of these projects has a processing capacity of at least one billion cubic feet (bcf) of natural gas per day, and all the projects start operation in 2007. That's a huge increase in import capacity in just one year. Consider, too, that there are literally dozens of other LNG projects planned for the U.S.
The Department of Energy forecasts that natural gas consumption will increase 10% between 2005 and 2010. Based on the Department of Energy's 2003 average demand estimate of 51.4 bcf, a six to seven bcf increase in natural gas is needed over those seven years -- and most of that will come from LNG. As a result, the recently announced projects are clearly needed.
Investors should watch to see how many other announced projects actually get approved. Since the costs are so high, and the specialized ships unsuitable for other uses, it's likely that many of these projects will never get built. It's also likely that the Alaska Pipeline Project -- expected to take 10 years to build and to deliver 4.5 bcf of gas a day -- will cause a pause after the current rush to build LNG terminals subsides.
W.D. Crotty can be e-mailed at email@example.com. He owns stock in ExxonMobil and ChevronTexaco.