KLNG says project timetable still intact

By Cameron Orr, Kitimat Northern Sentinel, October 15, 2008

The Kitimat LNG liquefaction terminal - a recent turnaround from the originally proposed regasification facility - is still on track for a late 2009 or early 2010 groundbreaking.

So says Ilene Schmaltz, vice president of supply marketing with KLNG, who gave an update on the project to city council.

“Prices in Asia are quite a bit higher [for natural gas] than North America and we expect that to be a long term situation,” she said, noting Asia’s heavy reliance on imported fossil fuels because of their own lack of domestic supply.

Schmaltz said the largest buyers of liquefied natural gas (LNG) in the world are the Asian markets, including South Korea and Japan.

European countries, which rely on the gas heavily in the winter months, are also significant buyers of LNG,

The “icing on the cake” as far as the decision to change the LNG direction was talk of world scale natural gas reserves - in the form of shale or unconventional gas plates - in Northeastern BC and Alberta which will be coming onstream over the next few years.

That spike in supply is a good thing for natural gas exports, especially as KLNG may now be competing for supply against another operation, LNG Partners LLC.

The LNG Partners venture would use excess capacity in western BC’s pipeline system to take natural gas to a liquefaction vessel which would be owned and operated by Maverick LNG Holdings.

Councillor Mario Feldhoff asked if this operation would affect the KLNG plans.

“No, we don’t believe that really affects us at all,” said Schmaltz. “We believe there will be lots of gas for our project.”

Feldhoff also noted oil sands projects themselves had a high demand for natural gas.

But Schmaltz responded that her company has talked with oil sands producers which had been interested in KLNG’s import facility, and “with the changes in development of natural gas reserves not only in Canada but in the US, they are much more comfortable that there is going to be lots of natural gas for everybody.”

Schmaltz said the liquefaction facility, to be located at Beese Cove, will occupy the same footprint as the regasification plant but will actually have lower air emissions and ocean disposal.

The number of vessels using the port will be the same, or potentially slightly fewer.

They will be exporting approximately 3.5 to 5 million tonnes annually, and the Pacific Trails Pipeline, a partnership between KLNG parent company Galveston LNG, and PNG, will still be built.

That will be a 470 kilometre, 36-inch diameter pipe.

Provincial approval for the pipe was given in June - the pipe was permitted as bi-directional - and federal approval is expected at the end of the year, although Schmaltz said a slight delay may be expected due to the current election.

Mayor Rick Wozney wished KLNG the best after Schmaltz’s presentation.

“Construction will certainly be a welcome aspect in our community,” he said. “One-hundred jobs will certainly go a long ways to trying to recoup our economy in our community.”

Another LNG player emerges

By Malcolm Baxter, Kitimat Northern Sentinel

KLNG is not the only company looking at exporting liquefied natural gas through Kitimat.

KLNG announced last month (Sentinel, September 24) it was reversing direction on its planned Kitimat plant, looking at exporting rather than importing.

Now an outfit called LNG Partners LLC is looking to do the same thing.

And as part of that it is seeking an arrangement with Pacific Northern Gas to use its existing pipeline to transport the gas here.

Greg Weeres, PNG vice-president of operations and engineering, told the Sentinel his company had made application to the BC Utilities Commission to approve that arrangement.

What it involves is LNG Partners paying PNG a non-refundable fee of $1.5 million in exchange for an exclusive six-month option to book the currently unused capacity in the PNG line to Kitimat.

That excess capacity exists because of the 2005 closure of the Methanex methanol plant - it had been PNG's biggest customer.

"The purpose of the option period is to allow them to evaluate whether they can make their proposed project work," said Weeres.

But if they cannot nail down all the numbers within that six months, LNG Partners has the option of purchasing a further six month option, again for $1.5 million.

And if they conclude they can make a go of it, LNG Partners would then negotiate a deal with PNG that would see the former's exclusive rights to use the spare capacity continue for between three and five years.

The arrangement is potential good news for PNG's existing customers even if the LNG Partners never get into production - at least in the short term.

That's because PNG proposes two-thirds of the option fee be used to reduce delivery rates - the amount the utility charges to deliver the gas to your door.

That rate has been hiked substantially over the past three years, in the main to make up for the loss of the Methanex revenue, but also to cover lost revenue resulting from a rate decrease for Eurocan and reduced usage by commercial and residential customers.

At the moment the delivery charge is almost one half of the cost per gigajoule of natural gas PNG charges.

But the company cannot yet say how much of a break customers might get. Weeres explained because this is very early in the process, PNG hasn't yet crunched the numbers.

However, he added, "Clearly there will be a benefit, you bet."

That benefit would rise dramatically should the LNG Partners project go-ahead - PNG calculates having its pipeline run at 100 per cent capacity would generate close to $15 million in extra annual revenue, $3 million more than it was getting from Methanex.

As for what an LNG Partners deal would mean for the proposed KLNG-PNG Pacific Trail pipeline project, Weeres emphasized it would have no impact on the Kitimat-Summit Lake line.

"It is certainly our intention to continue development of the KSL project regardless of what happens with LNG Partners," he said.

That position is echoed by KLNG - see story: KLNG says project timetable still intact

Lineup for LNG project adds a competitor

by Ted Sickinger, The Oregonian


Steven Nehl/The Oregonian
Peter Hansen, chief executive of Oregon LNG, has spent nearly
five years pushing a proposal to build a liquefied natural gas
terminal on the Skipanon peninsula, just west of Astoria
(in background). His company filed a formal application
Friday with federal energy regulators.

Most controversy over liquefied natural gas in Oregon has focused on proposals to build an import terminal 20 miles east of Astoria on the Columbia River and on a competing project in Coos Bay.

With little fanfare Friday, however, backers of a third LNG project delivered 21 binders to federal energy regulators containing their application to build a terminal on a spit of sand and blackberry brambles that juts into the Columbia River from Warrenton.

Oregon LNG, as the company is called, isn't exactly new. The project was launched in 2004 by Calpine Corp., which went into bankruptcy a year later. Managers of the project kept pushing local land-use approvals for the terminal, and later bought out Calpine with backing from a New York-based holding company, Leucadia National Corp., that specializes in distressed investments. Their plan is to erect three mammoth gas-storage tanks on the Skipanon peninsula, each 17 stories tall, almost as wide as a football field and highly visible from Astoria, which is directly across Young's Bay from the project site.

The gas-receiving terminal would be coupled to a pier sticking 2,100 feet into the Columbia, where a new generation of LNG supertankers would dock in a dredged basin to unload their cargoes.


Click map to enlarge

The $1 billion terminal would be capable of importing a billion cubic feet of natural gas a day - almost twice Oregon's daily consumption. The gas would be shipped to markets throughout the Northwest and California via "the Oregon pipeline." The 36-inch, high-pressure line is slated to arc through 121 miles of farm- and forestland in Clatsop, Tillamook, Washington, Yamhill, Marion and Clackamas counties to a gas hub in Molalla.

Oregon LNG's application comes as the U.S. market for gas appears to have temporarily collapsed. Domestically produced gas is cheap and abundant. Asian countries are willing to pay such eye-popping premiums for LNG cargoes that many industry experts doubt it makes sense to import LNG to the United States.

Industry giants are sending the same message. British Petroleum recently backed out of a proposed terminal on the Delaware River, citing lousy industry conditions, while several terminals are applying for permission to export U.S. and Canadian gas to take advantage of the Asian bonanza.

Moreover, just as the Houston-based backers of the Bradwood Landing LNG proposal have met vehement opposition, local landowners, environmentalists and tribal groups could put up a stiff fight against Oregon LNG.

"We're opposed," said Brent Foster, executive director of Columbia Riverkeeper. "It would have a massive impact on the Columbia estuary. It comes with a significant pipeline that would impact farms, forestlands and rivers. And it's right in the middle of the flight path to the Astoria airport.

"There's no way you can call this a good site."

Oregon LNG executives obviously disagree. They figure their chances of commercial success are good enough to justify investing tens of millions of dollars in a labyrinthine permitting process.

Oregon LNG Chief Executive Peter Hansen said his aim is to build collaborative relationships and open dialogues - even with his opponents. The approach has built credibility and some good will among state regulators, tribal groups and environmental opponents.

Julie Carter, a lawyer with the Columbia River Intertribal Fish Commission, said the jury is still out on how the tribes will react to the project, which they still consider a huge industrial development on the river. But she said the company's approach has been refreshing.

"We've been pleased with the way they've been treating our interests and concerns, and how they've carried on this process," Carter said.

Hansen said Oregon LNG has spent $20 million and will continue spending $1.5 million a month to resolve myriad environmental, engineering and safety questions. This summer, for example, the company had biologists in the Tillamook forest hooting like spotted owls to determine whether its pipeline would harm owl habitat. It has done similar surveys for marbled murrelets and rare native plants.

"You can give agencies what they want today or fight them for two years, then give them what they want," Hansen said. "In the end, the issues are what they are, and you're the only one in any kind of a hurry."

As far as gas supply goes, Hansen says producers will more than double the supply of LNG on world markets by 2015, freeing up cargoes to come to the United States at competitive prices.

"There's a lot of interest in having a bridgehead to the U.S. market on the West Coast," he said. "From a producer's perspective, this is a pretty cheap option."

Hansen, a Dane who has traipsed around the globe as an energy industry engineer, has spent the past five years on the Oregon LNG project, first as an executive with Calpine Corp. When that company went bankrupt, he continued pursuing the project and later led a management buyout from Calpine.

Lately, his quest has become something of a knife fight with the backers of the Bradwood Landing LNG project, upriver from Astoria. Backers of the projects always have been competitive, but that competition has become more hostile recently, with each trying to scuttle or at least slow the other's regulatory approvals.

Hansen contends his Warrenton site is far superior to Bradwood. From an environmental standpoint, there's simply far less fish habitat to harm off the Skipanon peninsula, he contends. And he pulls no punches in discussing what he perceives as Bradwood's major flaw.

"Why would you bring an LNG tanker under the Astoria bridge?" Hansen said. "A pool fire is like a nuclear meltdown. The likelihood of such an accident is remote, but the consequence is enormous. ... It would burn Astoria."

If it's OK to bring LNG to Bradwood, Hansen asked, then why not put a terminal much farther upriver - say, in Kalama or Portland? The answer, he said, is plain common sense: "Let's not take that risk," he said.

Bradwood's backer, Houston-based NorthernStar Natural Gas Inc., counters that Oregon LNG sits on an unstable sand spit in the middle of earthquake and tsunami zones. The site is too close to Astoria's airport, NorthernStar executives say — one reason they rejected it in their early research.

Moreover, NorthernStar contends it has acquired an ownership interest in the Skipanon peninsula site. It has asked regulators to stop processing Oregon LNG's application and has indicated that it intends to take a spoiler role in any land-use changes that Oregon LNG seeks.

The back and forth between the companies is likely to continue. Both have invested heavily in their projects, and both say only one terminal ever will be built. Though NorthernStar already has federal approval and is seeking to win state permits sometime in early 2009, Hansen said that's wildly optimistic and that he still thinks he can beat his rival to the regulatory finish line.

Ted Sickinger; tedsickinger@news.oregonian.com

LNG opponents to intervene in Oregon LNG Project

The Hillsboro Argus

ASTORIA - The Oregon LNG project, a proposed liquefied natural gas and pipeline development that would involve a terminal in Warrenton and a 118-mile pipeline through the Willamette Valley, drew a swift reaction from its opponents after Oregon LNG filed its official application with FERC. A coalition of farmers, foresters, businesses and conservationists will intervene in the Federal Energy Regulatory Commission process to challenge the project.

Dan Serres, with Columbia Riverkeeper, challenged the alleged need for the Oregon LNG project. "Oregon LNG's project is wrong for Oregon. They are proposing to tear up the Columbia River to import LNG at a time when North American LNG and gas companies are actively seeking to export LNG, and when global LNG prices are several times higher than domestic gas supplies. We will intervene to protect the Columbia River and to block this newly proposed foreign fossil fuel addiction."

Steve Wick, chair of the Yamhill County LNG Citizens Advisory Committee and a Gaston landowner whose property could be impacted by the project's proposed high-pressure, non-odorized pipeline, anticipated strong resistance coming from landowners along the route. "The Oregon LNG pipeline represents another blatant attempt of a private company to take our private land for an ill-advised energy scheme through the use of eminent domain. Our own Oregon Department of Energy has said there is no need for this pipeline, so this project should not be forced on unwilling communities."

Oregon LNG also faces stiff opposition from local activists and businesses near Astoria, where Cheryl Johnson, a retired school librarian, expressed her disgust with the proposal. "It's outrageous that Oregonians have to waste their time fighting terrible ideas like this one, proposals that put our public safety, our river and our future in renewable energy at risk. Make no mistake, though - we will fight them every step of the way."

Don West, president of the Columbia River Business Alliance, added, "There are real risks associated with this project for the public and for our economy. Oregon LNG is trying to build an LNG facility near the Astoria Airport. Their three proposed storage tanks are 17 stories tall and almost a football field in width, and they want to put these in the flight path of our airport? If we ever want to expand the airport we cannot allow this type of obstruction and threat to our continued growth on the north coast of Oregon."

By filing to intervene, individuals and groups such as Columbia Riverkeeper will retain the right to appeal FERC's decision on the project.

Kitimat LNG plans liquefied natural gas EXPORT terminal

Irony: Just want to point out before you get too far, that for years, and up until a few minutes ago, Kitimat LNG has been planning to import LNG to North America. But as of today, it is planning to export gas from North America. Subtle difference.

How the world turns. It was only ten years ago that the PAC-RIM LNG Project was pitching an LNG export facility from Kitimat. And in the late 1970s a group including Dome Petroleum proposed Kitimat's first LNG export facility. That project collapsed along with world energy prices in the 1980s.
http://tinyurl.com/4yf8mv
http://tinyurl.com/46s28y

Investors in LNG schemes in British Columbia might be well advised to think about shell games before laying out any more cash. Just sayin'.

Investors can find the pea under the shell in the paragraph below that begins,"The decision was made in part because Kitimat LNG couldn't secure import supplies" Right so far. The rest of the paragraph is corporate spin - "... what the company believes ..."

Facts vs Faith. What are you going to invest in, folks?

Note carefully Ms. Bolton's statement that "The change will quadruple the capital cost to over $3 billion." Actually, the cost filed with the BC Environmental Assessment Office was $500 million - so, six times the cost, right?

And how convincing are these statements from Ms. Bolton: "We've certainly done our homework on this. We wouldn't go into this without a solid base of information.”?

Import. Export. Not a challenging distinction, if you've done your homework. You'd think you'd get that not-so-tiny detail resolved at the get-go.

What's the difference between a LNG tanker going west and a LNG tanker going east? Either is still an unacceptable risk. No homework required.

---

Kitimat LNG plans liquefied natural gas export terminal to meet growing demand in Asia
Expanding supplies of natural gas in Western Canada drive proposal

News Release, Kitimat LNG
CALGARY, September 19, 2008

Kitimat LNG Inc. announced today that it plans to develop an LNG export terminal near Kitimat, B.C. on its existing site at Bish Cove.

Rising natural gas demand in Asia and recent increases in supply throughout North America – including in the U.S., Canada’s traditional export market – have led to significantly higher natural gas prices in Asia than North America. These market and pricing conditions provide a compelling opportunity for companies looking to export LNG from North America to Asia.

“Kitimat continues to be a viable and advantageous location to build a West Coast LNG terminal,” said Rosemary Boulton, President of Kitimat LNG. “The growing economies of the Pacific Rim and rapidly increasing demand for LNG make Asia a natural market for B.C.’s plentiful and expanding supplies of natural gas. Kitimat is close to Asian markets and an extensive pipeline network already connects B.C. gas suppliers to the Kitimat area.”

The fundamental changes altering the global natural gas market have made Kitimat LNG’s proposal to export LNG more viable than an earlier proposal to import LNG to North America through a regasification terminal located in Bish Cove.

“Delays and cancellations of several LNG liquefaction terminals have caused major LNG shortfalls globally. Regasification terminals in North America are underutilized. At the same time, the trend away from coal is accelerating and demand for clean burning gas has never been stronger,” said Ilene Schmaltz, Vice President, Supply Marketing, Kitimat LNG. “These long-term trends create opportunities for stable sources of natural gas supply to take advantage of high demand in Pacific Rim markets."

The export plan provides a number of benefits for the Province of B.C., the Haisla First Nation, the District of Kitimat, and the local region:

* The project will create direct and indirect economic benefits for northern B.C.
* Construction jobs under this proposal will increase to 1,500 from 700 in the import proposal, and permanent jobs will increase to 100 from 50.
* The project will help diversify the regional economy and increase the use of local personnel, goods and services.
* First Nations will gain jobs, training and capacity-building for their communities.

“The Haisla First Nation offers its full support to Kitimat LNG and its new LNG export proposal,” said Haisla Chief Counsellor Steve Wilson. “Our community has much to offer to the proposed terminal, and we look forward to the employment and skills training a new LNG terminal would provide.”

Kitimat has entered into a memorandum of understanding with a leading multinational corporation that is currently conducting a feasibility study to participate in the project.

Kitimat LNG’s previous import proposal received all regulatory, environmental and government approvals, and the company will work with all levels of government on approvals, processes and permitting for the export proposal.

There are no additional environmental impacts resulting from a change in use to a liquefaction terminal from a regasification terminal. The amount of space the terminal would require remains constant, and the number of vessels moving in and out of the terminal also remains the same.

-30-

For more information or to arrange interviews, contact Ian Noble at 604-623-3007 (office) or 604-809-9650 (cell), or call Kitimat LNG at 250-279-0224 or 604-999-9058.

http://www.kitimatlng.com/code/navigate.asp?Id=32

---

LNG plant would tap Asian market

Dan Healing
Calgary Herald
Saturday, September 20, 2008

The Calgary developer of an oft-postponed liquid natural gas import terminal at Kitimat, B.C., has reversed course and now plans to build a $3-billion LNG export facility to take advantage of high demand in Asia.

The terminal would give natural gas producers in Western Canada a market outside of North America for the first time and fulfil a dream touted by politicians and developers alike for decades.

"The market really did change in two different ways," said Kitimat LNG Inc. president Rosemary Boulton, explaining the company's 180-degree change of direction in a phone interview from Vancouver on Friday.

"The LNG market, there have been delays in some liquefaction projects on a global basis . . . and also there's been quite a resurgence of natural gas within the Western Canadian Sedimentary Basin."

The change will quadruple the capital cost to over $3 billion for a 3.5-million to five-million-
tonne per year liquefaction terminal from the previous $700-million, seven-million-tonne per year regasification import terminal proposal.

The terminal would liquefy natural gas from the Western Canada market by cooling it to -160 C, reducing the volume by more than 600 times and allowing it to be transported by ship to markets all over the world.

Commodities analyst Martin King of FirstEnergy Capital Corp. said LNG is commanding a premium over the New York price of at least $10 per million British thermal units in Asia.

"On a global scale there is a view that LNG prices are going to remain very attractive," he said. "The best prices are being found in Asia. . . . on some deals the differentials have been as high as $15."

He said some delayed LNG projects internationally will come on-stream in the next year or so but growth in demand will likely still outstrip growth in supply.

Boulton said Kitimat LNG, owned by privately held Galveston LNG Inc., will spend the next year seeking commitments from producers and consumers as a condition for approving the project. If construction started in early 2010, it could open by 2013, she said.

Greg Stringham, vice-president with the Canadian Association of Petroleum Producers, said obtaining producer commitments has been a problem with previous gas export proposals.

"Export LNG facilities were looked at back in the '70s and looked at again in the '80s. The challenge has always been the capital costs are relatively high," he said.

Stringham said shale gas projects in northeastern B.C. and the United States are offsetting a steady decline in conventional North American natural gas production. He said studies suggest output will remain flat for the next decade or so.

EnCana Corp. spokesman Alan Boras said that, as Canada's largest natural gas producer, the company is always looking for new markets. But he could not say whether it would support the Kitimat LNG proposal.

The terminal would be built on the same footprint as the original proposal at Bish Cove, 15 kilometres north of the Port of Kitimat, and would include docking facilities.

The terminal is not the only stalled project involving Kitimat to recently be resurrected -- Calgary-based Enbridge Inc. has recently been seeking shipper commitments for its delayed $4.2-billion Gateway oil pipeline from Edmonton to Kitimat.

That project, too, would be aimed at Asian markets.

dhealing@theherald.canwest.com

© The Calgary Herald 2008

---

Kitimat LNG plans gas export facility
DAVID EBNER
Globe and Mail
September 19, 2008

VANCOUVER — Kitimat LNG Inc. wants to build a $3-billion facility to export natural gas to Asia, a reversal of its plans to construct a $700-million operation to import liquefied natural gas.

The decision was made in part because Kitimat LNG couldn't secure import supplies and also because the company believes Canadian gas production will increase because of large new discoveries in northeastern British Columbia.

While this is not a widely held prediction, some analysts do say Canadian producers would be interested in a second market for their product, especially because gas prices in places such as Japan are more than double than here.

“We've certainly done our homework on this,” said Rosemary Boulton, president of Kitimat LNG. “We wouldn't go into this without a solid base of information.”

The immediate outlook is negative for supply. In a report this week, brokerage FirstEnergy Capital Corp. said “the current pace of drilling is simply insufficient to prevent more production declines from occurring” in Western Canada.

The Kitimat LNG project would be located near Kitimat, B.C., and open in 2013 if all goes well.

---

Liquid Natural Gas plant proposed for Kitimat

Gordon Hamilton
Vancouver Sun
Friday, September 19, 2008

British Columbia's expanding natural gas supplies, coupled with growing demand for gas in Asia, prompted Kitimat LNG to announce Friday it plans to build a liquid natural gas export terminal at Kitimat, dropping previous plans for an import terminal.

The global natural gas market has changed fundamentally, the Calgary-based company said in announcing its reversal. The export proposal is now more viable than importing liquid natural gas.

"Kitimat continues to be a viable and advantageous location to build a West Coast LNG terminal," Rosemary Boulton, president of Kitimat LNG, said in a news release. "The growing economies of the Pacific Rim and rapidly increasing demand for LNG make Asia a natural market for B.C.'s plentiful and expanding supplies of natural gas.

"Kitimat is close to Asian markets and an extensive pipeline network already connects B.C. gas suppliers to the Kitimat area."

The import proposal has already received all regulatory, environmental and government approvals, the company said, adding there are no additional environmental impacts associated with building a liquefaction terminal rather than a regasification terminal.

The proposed plant will cool natural gas to -160 degrees Celsius so it can be transported by ship to Asian markets.

LNG terminals are controversial. A plan by another Calgary company, WestPac LNG Corp., for a liquid natural gas plant on Texada Island has run into opposition from community and environmental groups who do not want LNG being shipped through Georgia Strait.

Kitimat LNG is one of four pipeline and port expansion projects that have been announced for the north by gas and pipeline companies.

The Kitimat proposal has the support of the Prince Rupert and Kitimat mayors as well as the chief of the Haisla First Nation.

ghamilton@vancouversun.com

© Vancouver Sun 2008

Two US LNG importers seek permission to export LNG

Two filings with the Department of Energy reveal important information: two LNG import terminal companies (Cheniere Energy & Freeport) are seeking permission to EXPORT LNG, because, as the Cheniere Energy filing points out, "due to global LNG market conditions, U.S. natural gas demand and prices do not currently support the importation of LNG into the U.S."

http://edocket.access.gpo.gov/2008/pdf/E8-21059.pdf
http://edocket.access.gpo.gov/2008/pdf/E8-20991.pdf

Gotta love it. But investors in WestPac LNG may not sleep so well at night!

Natural gas surge fuels worries about glut

Consider Freeport LNG, which in June opened its $850 million terminal south of Houston. Freeport is the result of an eight-year plan to build a terminal to import liquefied natural gas .... On Aug. 1, however, Freeport LNG asked the Energy Department for permission to export LNG that it previously imported. The company said in its application that with increased shale gas production and lower prices in the United States, it was unlikely to import significant quantities in the near future, according to Platts LNG Daily, an industry news service./

By Jim Fuquay
Fort Worth Star-Telegram

If the United States continues to produce as much natural gas as it has in the year’s first five months, the country will see a 35-year high in annual production in 2008.

Is that too much of a good thing, at least from a producer’s point of view?



Thanks in large part to the drilling boom in the Barnett Shale and other new natural gas fields, U.S. natural gas production is up nearly 9 percent through May. At that rate, output this year will rise to nearly 22 trillion cubic feet, the highest since 1973’s 22.6 trillion cubic feet, the all-time record.

Meanwhile, there are more active U.S. drilling rigs than at any time since 1985, according to the Baker Hughes rig count. There were 1,967 rigs working across the country and offshore, up 88 rigs, or 5 percent, from a year earlier, the Houston-based oilfield supplier said.

And four out of five of those are looking for natural gas.

Last week, the Energy Information Administration released its latest short-term outlook for natural gas, which predicted an 8 percent gain in production for 2008. And in 2009, EIA said, "production is expected to increase by 3.7 percent," enough to roughly match the 1973 peak.

Good for consumers

From a consumer’s perspective, it could continue a recent break from the sharply higher natural gas prices seen in the first half of the year. After peaking at more than $13.50 per 1,000 cubic feet in early July, natural gas futures plunged, closing Friday at $8.10.

That coincided with crude oil’s fall from record highs during the same period. While the spike in crude oil has led Americans to cut their gasoline consumption, natural gas demand is expected to grow.

The EIA predicted a 3 percent increase in use nationally this year and 1.7 percent next year. Still, that’s less than half the supply growth, and that’s a shift from recent history.

"We hadn’t shown a growth mode for years. It’s been like a treadmill," George Hopley, natural gas analyst with Barclays Capital, said of U.S. natural gas production. There were changes in the market, he said, but "as fast as we lost industrial demand, we gained power demand" to generate electricity with natural gas.

"It worked out pretty well. Now we’re in a growth mode, and the question is: How do we balance this growth mode that seems to have some legs?"

So far, various industry players have recommended broad policy changes to increase demand. For example, Texas investor T. Boone Pickens has urged Congress to support a wholesale conversion of the country’s transportation fleet from gasoline and diesel to compressed natural gas. Others tout natural gas — a major component in electricity generation — as a replacement for electricity plants now fueled by coal, which is under fire for its heavy emissions of carbon dioxide, a greenhouse gas implicated in global warming.

Those, however, are years-long initiatives. Higher natural gas supply is here today and will be larger tomorrow.

Bad for producers

The combination has some financial analysts raising the issue with producers. For example, Chesapeake Energy Chairman Aubrey McClendon, after extolling the virtues of the company’s emerging prospects in Louisiana’s Haynesville Shale, brought up the subject during the company’s latest earnings conference call even before he was asked.

"Now before you become concerned about longer-term natural gas prices as a result of the sheer size of the Haynesville, please remember some likely natural constraints to the play’s growth," McClendon cautioned.

It’s likely to take several years to build the pipeline capacity to move gas out of the field, which itself should take decades to fully develop.

Constraints on new production and declines in older fields, "plus increasing demand from the U.S. power sector should be sufficient, in our view, to prevent a U.S. gas glut from developing."

EOG Chairman Mark Papa takes a similar view.

"We see the overall total Barnett field gas production peaking in 2009" at about 5 billion cubic feet per day, he told financial analysts on EOG’s second-quarter conference call. "Therefore, new resource plays will have to be the growth driver after 2009," he said, and he doesn’t foresee new EOG sources, such as its play in Canada’s Horn River Basin, filling that gap until 2011 or later.

"When you view supply growth in this context, the possible emergence of new domestic resource play is more digestible," Papa said.

Devon Energy, the largest producer of natural gas in the Barnett Shale, acknowledges the growing supply, but two weeks ago announced it was increasing its exploration and development budget.

"We maintain a business strategy and production plan based on a long-term view. We don’t let short-term variations in the market dictate our plans," said Chip Minty, a spokesman for the Oklahoma City-based producer.

The short term can present its own problems, however. Consider Freeport LNG, which in June opened its $850 million terminal south of Houston. Freeport is the result of an eight-year plan to build a terminal to import liquefied natural gas — natural gas that has been chilled to about 260 degrees below zero — from overseas producers.

On Aug. 1, however, Freeport LNG asked the Energy Department for permission to export LNG that it previously imported. The company said in its application that with increased shale gas production and lower prices in the United States, it was unlikely to import significant quantities in the near future, according to Platts LNG Daily, an industry news service.

LNG backers have invested an estimated $7 billion in LNG terminals around the Gulf of Mexico and the East Coast. LNG imports have fallen by over half from a year ago, and more U.S. terminals are scheduled to open this year.

Demand and prices for LNG overseas remains high, however, leading some U.S. producers to mention the possibility of exporting LNG.

Chesapeake’s McClendon briefly discussed the LNG market for U.S. gas during his Aug. 5 earnings call with analysts. Noting that natural gas was selling in Europe for roughly double its U.S. price, he said that "we’re trying to get it on a boat and get it to some overseas markets."

JIM FUQUAY, 817-390-7552