LNG grows more popular, but producers are wary -


CHEVRON and Royal Dutch Shell are holding back on construction projects from Australia to Nigeria, which could force up liquefied natural gas prices for years to come.
The primary reason is that the cost of building LNG plants has tripled in six years, according to Bechtel Group, the biggest US contractor.
The Gorgon project on Barrow Island, off northwest Australia, projected to cost as much as $19.2 billion, is among the major ventures that have been delayed.
None of the world's biggest energy companies approved developments last year to increase production of liquefied natural gas, which helps heat homes and run power plants.
Natural gas prices are three times higher than during the 1990s and consumption of the fuel will outpace the 1.6 per cent annual gain in energy demand for the next 25 years, according to the Paris-based International Energy Agency.
Gas is also becoming more popular because it emits 29 per cent less carbon dioxide than oil and 45 per cent less than coal burned in power stations.
"Costs are going up and they're going up far faster than anybody expected," said Andy Flower, a UK-based consultant to the LNG industry and a former BP executive. He forecasts that the world LNG shortage will last until at least 2011.
Natural gas in New York has soared from an average $US2 per million British thermal units in the 1990s because consumption increased, oil costs rose and domestic supplies diminished. US gas production peaked in 1973, and demand since then has held steady, increasing the need for imports.
Natural gas for February delivery rose 6.7 per cent to $US6.601 on the New York Mercantile Exchange last week.
Gas may become more important than oil in the next 50 years because crude supplies are running out faster, according to the International Energy Agency. Global oil and natural gas reserves were about the same at the end of 2005, equal to 1.2 trillion barrels of crude, according to data compiled by BP.
Oil reserves are being burned almost twice as quickly as gas.
LNG sales rose about 11 per cent last year to 157 million tonnes, according to Wood Mackenzie Consultants in Edinburgh.
It could jump about 66 per cent to 261 million tonnes in 2010 and another 87 per cent to 488 million tonnes by 2020, the group said.
Record LNG prices would not fall for "years to come", said Ari Soemarno, president of Indonesia's state energy company, Pertamina, until 2005 the world's largest LNG exporter.

Prices under multi-year contracts, excluding freight and insurance, range as high as about $US10 per million British thermal units in Asia, assuming $US60 a barrel for oil, part of LNG price formulas.
Natural gas deposited near industrialised nations is typically transported through pipelines. The challenge is getting gas from the biggest producers - Russia, Qatar and Iran - to consumers worldwide who are not linked by those networks.
Gas that cannot be transported is pumped back underground to force more crude to the surface, or burned off.
Some $US37 billion goes up in smoke each year as waste.
Transporting gas by ship requires it to be chilled to liquid at minus 162 Celsius.
The cost of building liquefaction plants has risen to as much as $US600 million ($770 million) for each million tonnes of annual production from about $US200 million in 2000, according to San Francisco-based Bechtel.
Former Federal Reserve Chairman Alan Greenspan in June testified in Congress that LNG is "very important for the US, for our national security" and has argued for increased investment. "We have not picked up as quickly as we need" to increase imports, he told the Senate Foreign Relations Committee in Washington about energy security and economic risk. He declined to comment for this story.
Two of the newest and biggest LNG projects have been over-budget and late.
Shell's Sakhalin-2 LNG in Russia has doubled in cost to more than $US20 billion. Norwegian group Statoil's Snohvit LNG plant will cost $US9.5 billion, almost 50 per cent more than first anticipated in 2002.
Building LNG plants now takes four years, rather than three, because contractors are stretched, said Mr Flower, the consultant.
"Construction and permitting of LNG plants is a lengthy process," BP spokesman David Nicholas said from London.
Chevron, America's second-biggest oil company, last year abandoned its timetable for approving the Gorgon LNG project in Australia. Developing the fields, which hold $US400 billion of natural gas, would cost $US10 billion and increase world supplies by 7 per cent. The driller and partners Shell and Exxon Mobil are studying ways to reduce construction costs.
The project is "large, complex and faces considerable cost challenges", Colin Beckett, Gorgon area manager for Chevron said in an interview last month.
Politics and violence also hold back LNG developments. In the seas between Australia and East Timor, development of the $4.7 billion Sunrise LNG project has been stalled for more than two years as the nations resolve how to split royalties.
Shell, the world's largest non-government producer of LNG, is struggling with projects in Nigeria because of rebel attacks and in Iran, where threats of sanctions over the nation's nuclear research program restrain investment. Iran has the world's second-largest gas reserves.
"Shell has a lot of LNG projects in the pipeline," spokesman Wim van de Wiel said by phone from The Hague. He declined to specify why they were being held up.
American politics also get in the way. BHP Billiton missed a target to win government approval in California for an $US800 million import terminal near Malibu last year.
Celebrities including actors Pierce Brosnan, Halle Berry, and Tom Hanks, rock musician Sting and supermodel Cindy Crawford campaigned against the plant over safety concerns.
The "not in my backyard" syndrome was among the obstacles in the US, Dr Greenspan said in June. "It's going to take a while" to increase supplies, he said.
Bloomberg