Current estimates are that natural gas can be economically produced and delivered to the U.S. as LNG in a price range of about $2.60-$4.80 per million Btu (MMBtu) depending largely on terms established by producing countries for E&P investment and shipping distance and cost.25 The current estimate is about 30 percent higher than the full value chain cost we estimated in 2002. The increase in LNG value chain cost is a reflection of general cost escalation in the global energy sector and the LNG industry, a response to strong demand for energy and higher energy prices and a consequence of competition for key inputs like materials and skilled labor. Within this overall picture, a number of gains continue to be made.
Exploration and production costs have been declining due to improved technologies such as 3-D (three-dimensional) seismic; drilling and completion of complex well architectures; and improved subsea facilities. 3-D seismic allows detailed complex imaging of rocks below the earth's surface, enabling exploration earth scientists to predict better where accumulations of natural gas might exist and contributing to higher success rates for new drilling. Drilling and completion of complex well architectures allow petroleum engineers to target more precisely natural gas accumulations and to optimize oil and gas reservoir recovery using multi-branched well architecture and "intelligent" completion systems. Improved sub-sea facilities allow companies to produce natural gas from deep below the surface of the ocean.
Further along the LNG value chain, technical innovations in LNG liquefaction and shipping are allowing more LNG projects to achieve commercial viability. Design efficiencies and technology improvements are contributing to improved project economics.
With respect to ship design, costs for ships that typically have been used - those capable of carrying about 120,000 cubic meters of LNG - have remained relatively stable. Most new ship orders are for larger, more expensive tankers that also can deliver larger volumes of LNG, thus improving "economies of scale". New technologies are helping to reduce costs for ship operations. Propulsion systems that replace traditional steam turbine engines with smaller units that are more efficient will not only reduce fuel costs but also increase cargo carrying capacity. Enhanced tanker efficiencies - longer operating lives, improved safety technology and improved fuel efficiency - have lowered shipping costs substantially.
The introduction of new technologies and general growth in LNG trade should allow natural gas to play a larger role in meeting U.S. energy demand at a competitive price even though the fast-growing industry currently faces a stiffer cost structure. Today, natural gas from imported LNG competes vigorously with pipeline gas in the North American and European markets as well as with other fuels like oil derivatives and coal (for power generation) . LNG also competes against other forms of energy like oil derivatives in Asian markets. This inter-fuel competition creates benefits of competitive pricing and cost savings for consumers while also ensuring access to cleaner burning natural gas. These competitive forces ultimately work against periodic cost escalation in a capital intensive industry like LNG and result in new capacity and new diversity of natural gas supplies.
Figure 10 . LNG Value Chain Cost Structure