Liquefied natural gas (LNG) may be new to most of the United States, but it is not for the rest of the world, where LNG has been marching forward steadily over the last few decades. In the United States, where the only thing that has been steady is the rise of energy prices, LNG has come back into vogue and created a horserace with dozens of contestants. With an integrated LNG project running anywhere from US $3 billion to $10 billion, it is a big boy's contest. The race has been created by a combination of high commodity prices, declining indigenous gas supply in the United States and the need for producers, especially the large producers, to monetize geographically remote gas reserves that had been stranded, sometimes for several decades.

In Asia, the birthplace of the LNG market, LNG was driven by markets that desired security of supply. With the cost of development being so high, sales were typically made under long-term agreements of 20 to 30 years. Facilities are fully dedicated and are thus hard-wired, like the US gas market circa 1975 where the North American gas market had little or no flexibility.

Some of the liquefaction and regas projects have been in the planning process for years, some for decades. However, good progress has been made recently in North America with six regas facilities receiving their permits and two under construction. These plants and others that follow won't come online until toward the end of the decade, so North American producers may ask themselves why they need to pay any attention to this horserace now.

But there are both opportunities and threats that should be considered when understanding this developing LNG business. In the threat category, should producers only be concerned about their reserves that are in coastal areas or offshore? The answer is no. The integrated US gas grid means that pricing and, most importantly, basis will affect the value of the commodity across the country. No region will be spared.

Depending on how many terminals get built in a specific region, the impact on price and basis would be dramatic for a period of years.

Producers owning long-term transportation should also pay close attention as analysis is showing that the value of that transport may be greatly diminished permanently. In some cases, the flow of pipelines will be altered, making the transport volume levels unnecessary. A producer should be thinking today about the expected future value of the transport and should do something with it before the rest of the market comes to the same conclusion and everyone dumps it at once. In the opportunity category transport may actually be worth more.

The growth of LNG will also lead to a greater need for storage. Producers who are depleting certain types of reservoirs, including salt domes, may find these structures in demand from an industry that needs to unload a ship by flipping a light switch which offloads a Bcf a day but a market that wants to take the gas ratably over the month.

Most of the major negotiations for the current 40+ regas plants under consideration will be done in the next 24 months, and the winners will then have been decided. The tendency may be for producers to wait until the race is closer to the finish to place their bets when they can see the regas facilities coming online and gain a clearer view of the potential winners. Unfortunately, those that do wait, thinking they are playing it safe, may find themselves unable to place a wager since the betting windows will be closed.

David Pruner, david.pruner@woodmac.com, is vice president of energy consulting with Wood Mackenzie in Houston.