Dawning of a New Era: The LNG Story.

By the end of 2004, there were over sixty proposals for new LNG facilities at both the producing and importing ends of the operation. Since the mid 1990s, the costs of every step in the LNG chain have dropped substantially and today are considerably below those of domestic pipeline gas in Europe, China, and the United States. This paper examines the causes of these cost reductions and examines how the LNG industry is likely to evolve. It also explores the national security implications of the projected volume of natural gas traded in the form of LNG. The paper concludes that the financial risks inherent in the investments to liquefy, ship, and regasify LNG will force companies to continue to rely heavily on contracts, as opposed to relying on spot sales, and will advantage the larger private multinational companies. Security concerns will increase as China and the United States dramatically increase their imports of LNG, but security risks will remain less than those for oil and, as demonstrated by the Japanese experience, are manageable.