Will Security Problems That Have Plagued Oil Trade Re-emerge as Gas Trade Expands?: Harvard Energy Expert Says No New Report Says Global LNG Market Will Become More Secure as it Expands

Contact: Doug Gavel
Phone: 617-495-1115
Date: June 03, 2005

Cambridge, MA — The Belfer Center for Science and International Affairs at Harvard’s Kennedy School of Government has released a report on the security and economic implications of future expansion of the liquefied natural gas (LNG) trade. “Dawning of a New Era: The LNG Story” discusses whether security problems that have plagued oil trade will re-emerge as gas trade expands. Authored by Henry Lee, director of the Belfer Center’s Environment and Natural Resources Program (ENRP), the report concludes that the future global LNG market will become more, not less, secure as the number of players, volume of LNG traded, and size of the spot market increase.

The combination of dramatic increases in domestic natural gas prices and decreases in LNG costs have triggered a stampede of new projects at both the production and consumption ends of the industry. Over 40 new regasification facilities to serve the United States are in the proposal stage. If only ten percent of these are licensed and built, more than twenty percent of the United States gas demand will be met by LNG in 2012.

Lee found that the LNG market will differ from the oil market in many ways: size, character of participants, nature of investments, and pattern of trade. To demonstrate that the security risks can be effectively managed, he points to Japan, which now has 23 LNG receiving stations. The report also looks at how the decrease in LNG costs are likely to affect energy markets in the United States, Europe, and the Far East. While many pundits predict a growing reliance on spot markets and merchant traders, Lee finds that evidence points in the opposite direction. He argues that the future marketplace will be dominated by a limited number of large companies — some private and some state-owned — which will continue to sell a majority of their gas through long term contracts that have more flexibility, particularly related to price. Investors will not voluntarily trust multi-billion dollar investments to the whims of the spot market. Finally, despite the rush to build LNG receiving stations, the profits in this industry will stay upstream.

###

Print print | Email email