As LNG becomes a greater part of U.S. natural gas supply over the next 10 to 20 years, domestic gas producers may lose more market share than previously believed, says Wakefield, Massachusetts-based Energy Security Analysis Inc. (ESAI). Their gas assets may become less valuable. "Over time, domestic E&P companies will be threatened by LNG," says analyst Scott DePasquale, author of a study, "LNG on the Margin: Modeling the Impact of LNG Imports on U.S. Regional Gas Prices." The ESAI analyst argues that at key points such as the Henry Hub in Louisiana, domestic producers stand to lose up to 30% of their market share as early as in 2010, "diluting the value of indigenous production assets." "The ultimate deliverability and interruptibility associated with LNG imports will also give way to significant changes in gas cash and futures markets," DePasquale says. ESAI's study assumes aggressive investments in four new-build Gulf of Mexico receiving terminals will give LNG importers substantial flexibility and pricing power over the most influential gas trading region in North America. The U.S. has four terminals operating today; only one is in the Gulf Coast region, at Lake Charles, Louisiana. The amount of market disruption will depend on how many new terminals are built in the region and how many new LNG contracts are short-term or spot. "With increased terminal capacity in the Gulf, we expect the U.S. to become the 'sink' for any unwanted or spillover global LNG supply," he says. LNG imports will become more of a base-load alternative. The variability of shipments will alter the daily flows of gas in the heart of the U.S. distribution system, which could lead to more price volatility in both cash and financial markets, DePasquale says. With LNG landed at a cost of $2.75 per million Btu, and factoring in ESAI's long-term price floor forecast of $3 per million, imports could place strong pressure on gas prices from traditional U.S. basins. (For more on LNG sources and projects, see Oil and Gas Investor, October 2003.) There are contrarian views, however. North American gas producers need not fear that LNG imports will cause U.S. gas prices to crash, according to Ed Kelly, head of North American gas and power consulting for U.K.-based research firm Wood Mackenzie. "There's not going to be enough to flood the market...It's not going to set the U.S. gas price...It's just going to be another source of supply," Kelly told IPAA members at their annual conference in New Orleans recently. He added that it may end up in peaking supply if it comes on at the wrong time "but no one is developing [an LNG business] for peaking supply. I guarantee." Joe Kienle, director, new business development, Dominion Transmission Inc., whose Dominion Resources Inc. parent owns the Cove Point, Maryland, LNG terminal that was recently restarted, said LNG won't be a major factor in North American gas supply but it will help meet future demand. Kelly said, "LNG is a challenge that is not going to threaten you. It's something we need." Mark Sexton, president and chief executive officer of Denver-based gas producer Evergreen Resources Inc., said, "The reality is that, without imports,...there's probably not enough natural gas."