Once or twice a week, a tanker unloads
millions of gallons of frosty liquid at a terminal on the
Chesapeake Bay, bringing to the United States a fuel that many
economists believe will help temper energy prices in the coming
decades.
For years, liquefied natural gas (LNG) was too expensive. It
really was not needed. Even today, there are safety and terrorism
worries, exaggerated or not, about shipments of the fuel.
But as growing demand for natural gas outstrips North America's
conventional supplies, many experts view imports of LNG as the only
way to head off decades of soaring prices for businesses and the
tens of millions of households that rely on the fuel for heat and
electricity.
While politicians talk of the need for greater U.S. energy
independence, American consumers are expected to be relying
increasingly on LNG imports from Algeria, Qatar, Russia and
elsewhere.
If current trends continue, the United States "by far will be
the largest consumer of LNG in the next decade," says Guy Caruso,
head of the government's Energy Information Administration.
"If we don't have the capacity to bring in the amount of gas we
need and domestic supply goes the way we think it will, the clear
implication is higher prices," Caruso says.
Nowhere is the emerging global LNG market more evident than on
the shores of Chesapeake Bay 70 miles south of Baltimore.
It was only two years ago that Dominion Resources Inc.'s LNG
import terminal, in the shadow of the Cove Point lighthouse, was in
mothballs. Its offshore docking platform, able to handle two LNG
tankers at a time, sat idle - a monument to a business gone awry.
Now, the platform built in 1974 and shut down in 1981 unloads a
tanker full of imported LNG on average every four days. The cold
liquid is piped through a 1.2-mile underwater tunnel to four huge
storage tanks. Delivered at minus-260 degrees Fahrenheit, the fuel
is warmed and turned back into gas, then shipped over pipelines to
mid-Atlantic customers.
A larger tank is near completion and two more tanks are planned.
By 2008, the terminal will be able to handle 1.8 billion cubic feet
of imported gas daily, more than double today's volume and enough
fuel to serve 6.1 million homes, Dominion spokesman Daniel Donovan
says.
LNG import terminals in Louisiana, Georgia and the Boston area
also are expanding. Despite community opposition, more than 40 new
LNG projects are proposed around the nation. About a dozen probably
will be built, according to experts.
LNG imports still account for less than 3 percent of the 61
billion cubic feet of natural gas used every day in the United
States. But LNG's share could grow tenfold in the next 20 years,
some analysts predict.
Still, there are concerns about how the fuel is shipped and
stored.
LNG cannot explode and is not flammable as a liquid.
But a government study by the Sandia National Laboratory
concludes terrorists could blast a large hole into a double-hulled
LNG vessel. That would release millions of gallons of fuel that
would quickly turn to gas and ignite.
The fire would be so intense that it could cause major injury
and burn buildings one-third of a mile away. Within seconds, the
fire could give second-degree burns to people who are a mile away.
"The risks of a catastrophic accident ... is a real one. Far
too little is known about the vulnerability of LNG terminals and
ships to terrorist attacks," says Philip Warburg, president of the
Conservation Law Foundation. The group has lobbied against putting
LNG terminals in populated areas in the Northeast.
Industry officials say there has never been a leak of LNG from a
double-hull tanker and that protection of LNG shipments has
improved since the attacks of Sept. 11, 2001.
Storage tanks, such as those at Cove Point, are designed so
burning fuel would be confined within site boundaries, says
Donovan, the Dominion spokesman.
---
There is little disagreement about the need to import more LNG.
Traditionally, U.S. demand for natural gas has been met almost
entirely from pipeline-accessible fields in the United States and
Canada. Experts, however, say wells in the Gulf of Mexico are in
decline, Canada's production will fall off after 2015 and gas
fields in the Rocky Mountain states and Alaska will not meet future
demand.
By 2025, the United States is expected to need 31 trillion cubic
feet of gas a year, a 38 percent increase, but North American
supplies by then will be only 24 trillion cubic feet, 11 percent
higher, the government says.
The government projects LNG will account for 20 percent of the
gas used by 2025. Some private consulting firms and oil industry
estimates put the LNG share as high as 30 percent by then.
"We have not been able to increase gas production for a
decade," says energy consultant Daniel Yergin, chairman of
Cambridge Energy Research Associates. "U.S. gas productive
capacity, like oil, is now in permanent decline."
At the same time, he says, the world "is awash with gas," most
of it far from eager markets, and awaiting LNG's emergence as "a
second global energy business," rivaling oil.
Federal Reserve Chairman Alan Greenspan views LNG as a needed
"safety valve" for a U.S. gas market that otherwise faces decades
of tight supplies and volatile prices.
Departing Energy Secretary Spencer Abraham foresees trouble for
gas users without more LNG. "If we don't have more LNG terminals
... you're talking about huge increases in (gas) prices," Abraham
says.
According to the American Gas Association, 61 percent of U.S.
households, or about 63 million, use natural gas, mostly for
heating; the number is growing. In many parts of the country, 90
percent of new homes are fueled by gas, according to the
association, which represents gas utilities.
Donald Norman, an economist for the Manufacturers Alliance/MAPI,
a private research group, says natural gas prices that have been in
the range of $5 to $6 a thousand cubic feet in recent years are
already pushing companies to relocate overseas.
If LNG supplies do not materialize as expected, these prices
could become permanent or increase, forcing more U.S. businesses to
flee abroad for cheaper fuel, Norman says.
---
Ironically, higher gas prices - two or three times what they
were a few years ago - are why LNG is so popular. Even if gas
prices retreat, they probably will be higher than the roughly $3.50
per thousand cubic feet needed to make LNG imports profitable,
experts say.
No wonder that some of the energy industry's heaviest hitters
have embraced LNG's development.
ExxonMobil Corp., which has invested heavily in gas projects in
Qatar, has plans for 28 LNG vessels, including supertankers that
can carry two-thirds more volume that today's fleet.
Shell is involved in several LNG import facility projects.
ConocoPhillips is part owner of a large new LNG terminal proposed
near Freeport, Texas, and is looking to build several more.
Energy companies are expected to pump more than $250 billion
into the global LNG business, according to the International Energy
Agency. A single LNG "train" - gas production, liquefaction and
export facility, tankers and re-gasification plant - can require $4
billion to $6 billion, according to energy executives.
"It's billions of dollars of investment and the lead time is
five to six years," says Darcel Hulse, president of Sempra LNG.
The Sempra Energy subsidiary is spending $1.8 billion on two LNG
import terminals and related pipelines in Baja California and in
Louisiana.
Until recently, gas producers concerned about wide swings in
prices have been reluctant to make such a commitment. Hulse said
that is changing. Global suppliers "now are convinced ... we're
running out of natural gas and that there are good opportunities to
market stranded gas" in the United States, he said.
How many LNG terminals will be built is anyone's guess.
"What will ultimately determine the number ... will be the
market and the demand for gas," says Mark Robinson, the Federal
Energy Regulatory Commission's director of energy projects.
The commission approves onshore LNG facility permits. The Coast
Guard approves offshore facilities, several of which have been
proposed.
The commission has promised timely consideration of the dozen
LNG permit requests now before it.
Last month the commission approved what will be the largest LNG
import terminal in the country, at Sabine Pass in Cameron County,
La. It is capable of handing 2.6 billion cubic feet of gas a day.
Regulators also has approved expansions at the four existing LNG
facilities and permits for two other projects - near Freeport,
Texas, and Lake Charles, La.
The Mexican government also has approved a new LNG project in
Baja California that will serve the U.S. market and Canada has
given a permit for one that could serve New England.
None is expected to be completed before 2008.
---
On the Net:
An accompanying video presentation is available at
http://wid.ap.org/video/lng.rm
Federal Energy Regulatory Commission: http://www.ferc.gov
Center for LNG: http://www.lngfacts.org
American Gas Association: www.aga.org
Energy Department: www.fe.doe.gov/programs/oilgas/