LNG's Potential Luster

November 06, 2009

Ken Silverstein, EnergyBiz Insider
Editor-in-Chief

Liquefied natural gas has lost some luster. But its shine may soon return. While deflated natural gas prices are now making expensive investments in the super-cooled fuel less appealing, the demand for energy will eventually resume and therefore put pressure on national governments to find alternatives to coal.

The major oil companies along with some utilities remain bullish in the long-term on LNG. It's especially true in this country where national energy regulators have been friendly to development and where federal lawmakers are trying to enact legislation to curb the level of greenhouse gas emissions.

"Renewable energy on a broad scale is in our future, but we also need reliable and clean resources today," says Bill Cooper, president of the Center for Liquefied Natural Gas. "Renewable energy alone cannot guarantee reliability. LNG will play a critical role in the mix of the energy choices necessary to help our nation meet its pressing need for secure, clean energy when and where it is needed."

A national recession and reduced demand have led to high natural gas reserve levels. As a result, U.S. gas futures have traded recently around $2.50 per million BTUs compared to last year's price of nearly $14 per million BTUs. But the current dynamics are only temporary, says the U.S. Department of Energy, which is reporting that imports to this country could rise by 40 percent in 2010.

Right now, LNG provides about 2.8 percent of this nation's natural gas. The Energy Department is predicting that figure to rise to 16 percent by 2030. That's because billions have been invested in LNG facilities all around the world as well as the fact that this country is trying to reduce its heat-trapping emissions and diversify its fuel sources.

According to the Center for LNG, coal-fired power plants produce two-and-a-half times more emissions on a lifecycle basis than LNG production, processing and transportation. And even the cleanest coal technologies, it adds, still create 70 percent more lifecycle emissions. In other words, the center is saying that some of the national treasury that is being used to subsidize the coal industry might be better allocated toward building out an aging gas infrastructure.

The country currently produces 83 percent of the natural gas it consumes with most of the rest coming from Canada. But that number will fall, meaning that the United States will have to get its fuel from elsewhere. Enter LNG, which may get supplied by a dozen countries over the next decade.

Russia's Gazprom, for instance, has said that its facility located in the Arctic will start producing 1 billion cubic feet per day with the intent of selling that gas here by 2014 -- a number that will increase to 6 billion cubic feet per day by 2020, it says, or about 10 percent of this country's natural gas market share. The conglomerate, furthermore, says that it would like to supply 25 percent of the world's LNG during this time.

Economic Viability

LNG is currently delivered to nine different receiving facilities here in the United States. The most recent to open up is Sempra Energy's $900 million Cameron's LNG in Southwest Louisiana. The hub, which has the ability to process 1.5 billion cubic feet per day, will use a 36-mile pipeline that interconnects with the interstate system to fuel power plants in the region as well as the central and eastern United States.

"It took the coordination of many people, including the governor and local and state officials," says Donald Felsinger, chief executive of the utility. "It also required leaders with a vision, who understand what free markets can do to create jobs and to improve the economy."

Sempra is committed to building more facilities, it says, noting though that it does not move forward unless it has locked up in advance the long-term contracts that are necessary. Its Texas project, Port Arthur LNG, is permitted but no construction start date has been set. Altogether, about 40 new re-gasification plants have been approved by U.S. regulators, although no more than a dozen are expected to get built.

Opposition, however, in some areas of the country is vigorous. Consider Oregon, where three LNG facilities are proposed: Critics are coming out in force against those potential sites, which are the Jordan Cove Energy Project, Palomar and Bradwood Landing LNG Terminal. The opposition is painting all of them as risky propositions that would result in environmental degradation.

Those arguing in favor of the three projects, by contrast, reason that the added gas would alleviate tight supplies and potentially ease prices. At the same time, the facilities would give Northwest Natural Gas new transportation and storage opportunities.

Political opposition is one issue. Economic viability is another. Importers, generally, have found U.S. markets weaker than those in Asia and in Europe. Because LNG prices overseas are pegged to oil indices -- not to traditional supply and demand levels -- they typically run higher. So, developers tend to seek out the more lucrative world markets.

Meantime, potential and vast new shale-gas resources are becoming increasingly feasible and which some say may minimize the need to import LNG from foreign suppliers. Beyond the non-traditional gas alternatives, LNG producers will also be competing with renewable and nuclear power -- all of which has led the International Energy Administration to say that LNG will remain a "marginal and supplemental" fuel.

The big money, though, says otherwise. And investors in energy infrastructure do not like unnecessary delays or unproductive assets. It's a cause to which many lawmakers and regulators are sympathetic, given that LNG producers say that they can help meet a growing energy appetite while also releasing relatively few emissions.

More information is available from Energy Central:

• Global Big Boys in Natural Gas - Developing LNG Resources, EnergyBiz, Jan/Feb 2008

• King of LNG: Sempra Aggressively Pursues Opportunities, EnergyBiz, March/April 2007

• The New Appeal of LNG - A Closer Look, EnergyBiz, July/Aug 2006