If there¡¯s one thing that energy consumers have learned over the last few volatile years in the Middle East, it is the danger of eggs in one basket. Overreliance on any supplier in any sector is not a prudent strategy, and the US has led the way in relatively high-profile moves to diversify its geographical sources of energy, particularly crude oil.

But there are also moves to use other forms of energy and last year, US consumption of liquefied natural gas (LNG) surged by 3.9%, significantly ahead of the increase in world consumption as a whole which expanded by 2.8% during 2002. According to BP¡¯s latest Statistical Review of World Energy, world growth in primary energy demand, excluding China, was less than 1% in 2002, well down on the average 10-year rate of 1.4%. Take in the China factor, however, and BP estimates that world consumption last year grew by 2.6%. China consumed almost 20% more energy, including a staggering 28% more coal and 8% more LNG.

But it is not only geographical sources that have focused the minds of energy consumer strategists. LNG is increasingly in the spotlight for various other reasons-there is a greater geographical spread of gas reserves and they often lie in remote areas where turnkey projects can be established. LNG has the advantage of being a relatively clean form of fuel. And furthermore, because of the high costs of plant and LNG carriers, the barriers for entry into this specialized sector are very high indeed. The business operates on long-term supply contracts which provide security for extended vessel finance. The market is relatively stable and the economics therefore simpler to calculate.

No surprise then that there are now some 55 new generation LNG carriers, mostly in the 138 - 140,000m3 range, under construction in the world¡¯s shipyards. It is estimated that in total this represents an investment of between $10-12 billion, equivalent at least to one third of the cost of replacing the world¡¯s entire VLCC fleet. A quick look at some of the utilities whose names feature on the orderbook demonstrates the strategic significance of natural gas. Tokyo Electric Corp. and British Gas are both on the list, as are several major oil companies and larger shipping corporates.

Of the 55 vessels, some ten ships will be delivered in the balance of this year to owners such as BP, Stasco, Tokyo Electric, Tokyo LNG, Golar LNG, Bergesen and Spanish independent Naviera Tapias. Next year, 20 ships are due to be delivered-all in that size range-to owners including Moller, Knutsen, Malaysian International Shipping, Exmar and Nigeria Liquid Natural Gas.

Sixteen ships will be commissioned in 2005 and the furthest delivery so far, according to industry statistics, is a 138,000m3 LNG carrier which will be delivered to Naviera Tapias three years from now, in June 2006. Prices for new ships have fallen dramatically over the last couple of years. Vessels that would have had a list price of at least $230 million-and possibly $250 million at the peak-can now be had for $150-160 million. Hardly a snip, but still a substantial reduction on earlier levels.

However, the exciting aspect of LNG is the rate of discovery. Both Indonesia and West Africa hold great promise, major energy companies believe. Recently, British Gas (BG) agreed to take more than three million tons of LNG annually for 17 years from a Marathon Oil-planned project in Equatorial Guinea. The gas will be shipped to the Lake Charles import terminal in Louisiana. The British company has also signed a 20-year contract to take LNG from Nigeria to Lake Charles, starting in about 30 months.