CERA-Cost slows LNG, but rebound coming - execs

HOUSTON, Feb 11 (Reuters) - Expect resumption of growth in the liquefied natural gas industry as construction costs drop amid the global economic slowdown, executives and analysts said Wednesday.

“If we see costs start to drop rapidly, we could find a significant number of final investment decisions have been taken,” John Harris, a Cambridge Energy Research Associates analyst, told a CERAWeek energy conference session.

“We are cautious, but the potential is enormous” he said.

The world consumes more than 100 trillion cubic feet of gas every year. Despite regional economic ups and downs, world demand keeps growing about 2 Tcf per year, and much of that will have to be met with LNG, panelists said.

Much of the world’s gas is in areas distant from markets, and pipelines do not cross oceans. LNG is an answer, but wells to produce gas and plants to liquefy it, ships to carry it and terminals to regasify it costs billions of dollars.

The sharp increase in construction costs amid the recent worldwide economic boom slowed or indefinitely postponed many LNG projects, panelists agreed.

The recent world financial collapse has been less of a setback for LNG than other industries because well planned LNG projects are still good investments, said Robin Baker, head of project and reserve-based finance for Societe Generale.

“In getting back to basics, LNG is very high on the list of financeable projects,” Baker said, although he said projects may need more non-bank sources of financing. “The banks are very short of capital, but they do not want to shut up shop.”

The economic slowdown also should reduce costs, participants said.

Gas demand will keep growing, partly because world concern about global warming is growing and gas gives off less greenhouse gas than other fuels, said Ahmed al-Khulaifi, chief operating officer of Qatar Liquefied Gas Co Ltd.

Al-Khulaifi declined to say when Qatar might lift its moratorium on new gas projects, imposed to allow time to fully assess its huge North Field. But he said Qatar is planning to be the world’s leading exporter of LNG.

Pat Blough, vice president of gas commercialization for Chevron Global Gas, expressed similar confidence in LNG long term. Chevron CVX.N is a partner in several LNG production projects off northwest Australia and in Africa.

Bough said the emergence of unconventional gas production from shale deposits has created a temporary oversupply in North America, but he said the long-term outlook is strong.

“We feel pretty good that LNG can compete in this marketplace,” he said. “We’re comfortable with the long-term investment potential.” (Editing by Christian Wiessner)