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Liquefied Natural Gas Could Overflow With Prosperity. But, Real Risks Are Present.

by Patrick McGee

From: Energy Central.com

Stranded gas found in pockets around the world can be frozen, transported and then re-gasified in areas where natural gas shortfalls persist. Right now, that LNG provides about 2.8 percent of this nation’s natural gas, a figure that the U.S. Department of Energy is predicting to increase to 16 percent by 2030.

“LNG allows the United States to meet the growing demand for natural gas in an environmentally sound and safe way,” says Bill Cooper, executive director of the Center for LNG in Washington, D.C. “We currently produce 83 percent of our natural gas, domestically. We import between 12 percent and 14 percent from Canada, whose contributions will only fall. Demand will only rise and we have to fill the gap.”

At present, five LNG import facilities exist in the United States and one in Puerto Rico. Roughly 40 new re-gasification plants have been approved by U.S. regulators, although no more than a dozen will be built. Most of those will get built in the south. Moreover, the additional plants planned for the region would be strategically placed near the Gulf of Mexico as well as key pipelines.

Sempra LNG, for instance, embarked on its first LNG endeavor in late 2000 in Baja California, Mexico. Sempra LNG’s West Coast project, Energia Costa Azul will be completed in the first quarter of 2008, while Cameron LNG construction is slated for completion in Louisiana in late 2008. Sempra LNG’s Texas project, Port Arthur LNG, is permitted but no construction start date has been set.

“Sempra’s success is the result of understanding early market conditions and then correctly analyzing them,” says Darcel Hulse, CEO of San Diego-based Sempra LNG. “We have selected sites that can get permitted and that are as near to the market as we get. We also have a solid approach to risk management. We do not go forward until we have the supply agreements in place.”

The risks are plentiful and notably that expensive assets might not operate at capacity. But, the likes of Chevron, ExxonMobil and Shell have invested billions all over the world in liquefaction plants, ships and re-gasification facilities. And with the global demand for natural gas anticipated to be in the 2.6 percent range a year until 2030, those companies are expecting their LNG ventures to pay off.

LNG development, though, has run into problems. Overseas producers have been sabotaged while locally, environmentalists and communities alike have ecological and safety considerations. Meanwhile, the United States is competing with other nations for limited LNG resources while it is will also be relying on such nations as Libya and Algeria for supplies—countries that are not exactly in tune with American ideals.

“On the siting side, the NIMBY issues are so difficult,” says Catherine Little, partner in the international law firm of Hunton & Williams in Atlanta. “We have increasing tensions in this area. I see these things as getting more and more heightened. To work out these issues, it will have to be done out on a site-by-site basis.”

Risk Considerations

Domestically, the permitting process is rigorous and requires more than 40 approvals from both state and federal agencies. At the federal level, U.S. lawmakers have determined that more LNG projects are a must and as such, have directed the Federal Energy Regulatory Commission to streamline siting protocol. Delays may be in the offing. But, FERC says that any interruptions are not because of it.

Consider the Northeast Gateway off the shores of Boston, which is expected to be operational by winter. Tankers serve to deliver and re-gasify the LNG, with no part of the process actually done onshore. The gas is then transported using a buoy system that is hooked into flexible pipes. Those lines will run under the ocean floor and across the Massachusetts Bay before they connect directly to the New England Grid.

Excelerate Energy, which owns the “midstream” project, has committed to using new technologies and procedures on its vessels that will minimize air emissions and improve water quality. As such, it was able to win relatively quickly federal and state permits.

“We have a technology we can apply quickly and to other natural gas markets that other LNG providers may not be able to serve,” says Excelerate Energy CEO Rob Bryngelson. “We are offshore. Through our dockside technology, we can build a gas port in about a third of the time and at substantially less cost than a traditional facility. Each ship is a floating re-gasification terminal with the flexibility to move cargo around the world.”

Bearish analysts are, in fact, warning that international competition is heightened and that LNG ships will head to where their product can attract the most money. “The LNG industry is not a ‘field of dreams’ whereby if you build it, they will come.” says Jay Kelly, partner with Vinson & Elkins’ energy practice in Houston.

Sempra LNG responds by saying that before it would build any receiving terminal, it makes sure that it has the underlying contracts in place to fill the facility to capacity. Its Baja plant in Mexico, for example, is taken up fully by Shell and BP of Indonesia, all under long-term contracts. After those oil companies deliver the LNG to the terminal, Sempra then sells it into the market.

Sempra also acknowledges the “short-term” incongruities between prices in the United States and Asia. But, it insists that as nations become more reliant on LNG, those differences will evaporate – just as they do with every other commodity. As the transition from a regional marketplace to a global one takes place, a universal price will emerge.

Global markets for LNG are escalating, necessitating more investment in production, transportation and re-gasification. The industry is attracting billions from top tier players that weigh their investment decisions. Risks abound. But, the overwhelming demand for new natural gas supplies appears to trump other considerations.

More information is available from Energy Central:

Dec 10, 08:28 am | Patrick McGee
Click stars to rate this article. Rated 2 out of five stars.
This article has been rated 4 times.

11 comments on this article (post your own)

1 On Dec 10, 01:24 pm, JustaDog wrote:

Can you reference the many deaths and destruction caused by such facilities in the USA in recent years?

2 On Dec 10, 04:34 pm, Patrick McGee wrote:

From:Pipeline Safety Trust and assuming you, #1, will be quoting the 45 year LNG Safety Record;

What is the operational safety record
of LNG Facilities?

For a variety of significant reasons, past
operating records do not provide an
appropriate perspective for the analysis
of LNG risks. Overemphasis on past
operations to predict future failures is a
characteristic of poor risk management
techniques, particularly for such
complex systems.

The increasing number and complexity
of very unique LNG marine receiving
energy infrastructures significantly
increase the likelihood that a major
event will occur.
In the absence of an adequate model for
predicting risk and assessing the
resulting outcome of an LNG terminal
catastrophe, caution must prevail.

Siting these unique facilities in remote
locations or offshore is the only way to
protect the public.

3 On Dec 10, 08:15 pm, Jon Dana wrote:

Good article Patrick, sounds pro LNG to me.

4 On Dec 11, 07:58 am, Patrick McGee wrote:

NAIROBI, Kenya (AP)—Somali pirates who seized a Japanese tanker six weeks ago have threatened to kill the 22 crew members unless a $1 million ransom is paid, a maritime official said Monday.

The Golden Nori is carrying crew from the Philippines, South Korea and Myanmar.

“Somali pirates holding the Japanese ship are demanding $1 million,” said Andrew Mwangura, head of the Kenya-based East Africa Seafarers’ Assistance Program. “They are also saying we are going to kill the crew if our demands are not met.”

Deaths are rare during such hijackings.

The chemical tanker was anchored in Somali waters and carrying up to 40,000 tons of highly explosive benzene. The U.S. Navy in late October came to the aid of the vessel, with the guided missile destroyer USS Porter at one point opening fire to destroy pirate skiffs tied to it. The pirates, though, remained aboard the tanker.

The U.S. military has recently intervened several times to help ships hijacked by Somali pirates.

Somali pirates are trained fighters, in some cases linked to powerful Somali clans, outfitted with sophisticated arms and equipment. They have seized merchant ships, ships carrying aid, and once even a cruise ship.

Somalia has not had an effective central government since dictator Mohamed Siad Barre was overthrown in 1991. Now the weak transitional government and its Ethiopian allies are battling an Iraq-style Islamic insurgency. The chaos means that pirate ships can cruise the ragged coastline with relative impunity. E-mail to a friend

Copyright 2007 The Associated Press. All rights reserved.

5 On Dec 12, 09:19 am, Emil Nyberg wrote:

Patrick:
Thank you for a positive post for a change.

6 On Dec 12, 09:26 am, Emil Nyberg wrote:

Patrick:
Thank you for a positive artical for a change. But you do slip into being negitive again in #2 post. We have to learn from history with factual perdictions to see if any project is worth the risk.

7 On Dec 12, 10:34 am, Patrick McGee wrote:

And you obviously chose not to look any deeper into the article than necessary “Swede” but, that’s to be expected.

Interestingly the writer starts out the article referencing “Natural Gas Hydrate”(Frozen Water/Natural Gas pellets) which is a huge, pratical, much more cost and safety effective option than LNG could ever be.

8 On Dec 13, 04:36 am, Jon Dana wrote:

Natural Gas Hydrate would triple the number of ships coming into the river, as opposed to LNG, correct?

9 On Dec 13, 09:10 am, Patrick McGee wrote:

Natural Gas Hydrate would triple the number of ships coming into the river, as opposed to LNG, correct?

Maybe so but, no 7.6 million cubic foot storage tanks and periferals to artificially keep Natural Gas in liquid form cooled to -260 degrees and keep a community, its citizens and infrastructure enslaved to it 24/7/365.

10 On Dec 13, 10:53 pm, Country Boy wrote:

The more Patrick posts the more he shows how little he knows

11 On Dec 14, 08:09 am, Patrick McGee wrote:

So, what do you know “Country Boy”?

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