LNG Energy Ltd. (TSX.V:LNG) is one of those rare opportunities whose fundamentals obscure the scale and scope of the upside. To appreciate the magnitude of the opportunity inherent in LNG, due diligence practitioners must exert themselves to see beyond the superficialities that might deter less visionary souls.

Unless you've been asleep under a boulder, you are probably aware that our planet's oil driven economy is quickly morphing into one driven by methane, or Natural Gas as it is more commonly known. Supply side metrics and a rapidly evolving global infrastructure to accommodate transportation make Natural Gas attractive on many levels. The premium borne by oil for political conflict embodied in Venezuela, Iraq, Iran and a host of other regions, the diminished impact on the atmosphere, and more palatable pricing is pushing demand for methane ever upward.

Liquefying natural gas is the method by which its energy density is compressed, making it cheaper to move and store, thus giving it another boost towards widespread consumption. Papua New Guinea (PNG), long known to hold vast reserves of natural gas, has been sidelined in the global race to exploit such reserves because of its remote location on the other side of New Zealand.

Last year, that all changed.

Merrill Lynch, (NYSE:MER), who trades roughly 5% of the world's natural gas each year, is partially underwriting the development of the island nation's first Liquefied Natural Gas plant in Port Moresby, the capital city of PNG and its major port.

Merrill Lynch Global Commodities is part of a project organized under Liquid Niugini Gas Ltd, along with InterOil Corporation (AMEX:IOC, TSX:IOL) and Pacific LNG Inc. The partnership has entered into formal negotiations to finalize a project agreement with the Papua New Guinea Government, which will lead to the establishment of liquefied natural gas production in Papua New Guinea by 2012.

The total investment for the project is expected to top out at US$6 billion. While InterOil has won the status of preferred feedstock supplier to the new facility, the consortium has stated, "we will look at gas from other sources and suppliers for future expansion".

And that is where LNG Energy comes in.

LNG Energy has secured the rights to 6 licenses covering a total of 3.4 million hectares in the prolific Papuan and North New Guinea Basin, where InterOil hit its ELK-1 discovery well in June 2006 that flowed at an Absolute Open Flow rate of 150 million cubic feet per day.

LNG has prospects in the productive fairway that have had significant shows of gas from wells drilled in the 50's. This year they will be shooting seismic and drilling multi-TCF targets very near the Interoil discoveries. These are big prospects and as massive infrastructure gets closer to government approval, the interest in explorers like LNG Energy in PNG will increase substantially.

The company is according director David Coehn, well capitalized.

"We're sitting on probably (CA)$28 million and have enough to do everything we want to get done there this year," he said.

The big market for LNG's gas is Japan, closely followed by China and India.

Japan is the world's largest LNG importer, and has so far been buying the gas according to a price formula called S-curve. The formula links LNG prices to crude, but the relationship becomes weaker as crude prices rise to the levels they have recently, making LNG relatively cheap compared with oil. Currently, Japan buys about 40% of the LNG traded globally

Pressed by suppliers to pay more for the liquefied natural gas they use, buyers in Japan are beginning to consider Papua New Guinea as a new source, attracted by its geographic proximity and the possibilities of acquiring equity stakes.

Last year, China overtook the United States as the world's number one emitter of Greenhouse Gases. Air quality in industrial regions of China is notoriously and visibly awful, so the government is motivated to find cleaner alternatives to its predominantly coal-powered infrastructure.

From 2000 to 2005, the annual gas consumption in the country increased by 13%, which went up to 46 billion cubic meters in 2005, up 39% year-on-year. With the rapid development of the national economy, the increase of the domestic natural gas production and the establishment of more gas pipelines, China's natural gas demand is predicted to amount to 140 billion cubic meters in 2010, accounting for 7% of the national total primary energy consumption.