Radical Noesis - Thinking outside the box

For now, we can toss our toast heels at Moscow for such behavior without fearing for our own wallets or heating supplies. But that will soon change.

Natural gas is becoming a global commodity.

Like oil, cargoes of gas are moving across oceans as prices respond to bids in Europe, Asia and the Americas.

The United States is quickly increasing natural gas imports as production at home declines. Soon enough, a political interruption of natural gas deliveries aimed at somebody else will hit home by raising the global price.

Bad for reputation

These sorts of disruptions are rare because politicians in energy-exporting countries quickly learn that a reputation for unreliability sends buyers elsewhere. Arab oil producers staged an embargo in 1973-74 and launched a boom in oil exploration everywhere else.

Russia's pricing argument got political when it curbed pipeline gas deliveries to Ukraine on Jan. 1. The same pipeline also carries Russian gas to Western Europe.

Ukraine continued taking gas from the pipeline, which meant the curtailment was felt by Germany, Austria, France and others.

Russia accused Ukraine of stealing gas, but the European Union said Russia was being irresponsible and proving itself an unreliable source of energy.

Russia and Ukraine patched up their price quarrel, and pipeline deliveries resumed Wednesday. Natural gas prices changed little in the face of this short-term disruption – except in Ukraine, which will soon pay Russia quite a bit more than the old, subsidized price for natural gas.

Gas supplies are more often disrupted by natural causes, such as the devastating hurricanes Katrina and Rita. Nearly 20 percent of natural gas production from offshore fields of the Gulf of Mexico is still shut in due to the summer hurricanes.

This has kept spot-market prices for natural gas at levels two to three times higher than they were a year ago.

LNG to the rescue

Shiploads of liquefied natural gas – chilled to 260 degrees below zero – from Trinidad and Tobago, Algeria and a few other nations are replacing that lost U.S. production.

U.S. gas companies are buying many of these cargoes at spot-market prices, however, and two shiploads already have been bid away by European buyers.

In the future, these cargoes will come in under long-term contracts. By 2025, under a forecast by the U.S. Energy Information Administration, imports of liquefied natural gas will increase sevenfold and account for more than 15 percent of natural gas consumption.

Others are forecasting even greater dependence on imported natural gas as the United States enters the global natural gas market.

"We are already part of a global marketplace in many respects," said Bill Cooper, executive director of the Washington-based Center for Liquefied Natural Gas. "We import a significant amount of gas out of Canada. And we do see LNG cargoes coming into the U.S. today, subject to a global price mechanism, and we expect that to increase over time."

Project in Peru

Next week, President Alejandro Toledo of Peru and Hunt Oil chief executive Ray L. Hunt will break ground on a $1 billion liquefied natural gas terminal on the Pacific Coast south of Lima.

Within four years, the Peru LNG project is expected to begin gas deliveries to buyers in California, Mexico and other Pacific markets.

Hunt also expects to export liquefied natural gas from faraway Yemen to the U.S. Gulf Coast, despite its quarrel with that Arab nation over Yemen's expropriation of Hunt's share of a prize oil field there.

Prices could fall

Exxon Mobil Corp. is working to export liquefied natural gas from Qatar to a Corpus Christi LNG terminal that won federal regulatory approval in December. Work began on another LNG terminal in Freeport, Texas, a year ago.

Reliance on imports creates anxiety about disruptions and price spikes beyond our control. But as natural gas becomes a global commodity, prices could come down rather than spurt up beyond their already-heady levels.

There's plenty of natural gas in West Africa, Russia and the Persian Gulf. As that gas comes onto the market, it should knock down price spikes caused by shortages and depletions elsewhere.