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Ports In The Storm for Liquefied Natural Gas


From Maine to California, developers of liquefied natural gas (LNG) terminals are facing protests at every turn. With opponents of this critical piece of the nation's gas supply painting horrific scenarios of terrorist attacks and raging infernos, it's easy to understand why. The Northeast has "gone way past 'NIMBY' [not in my backyard]," says Wallace P. Parker Jr., president of energy delivery at KeySpan Corp., which serves 2.6 million customers in New York, Massachusetts, and New Hampshire. In fact, he says, it has gone "BANANA" -- Build Absolutely Nothing Anywhere Near Anything.

In the face of such opposition, some LNG projects have already been shelved. But despite the battles, the U.S. is likely to get the terminals it needs. That doesn't mean all of the nearly 50 proposed U.S. terminals will be built. But that's O.K. Energy execs figure four to six new terminals will be enough for years to come -- and six new projects have already won federal approval. In addition, three of the nation's four existing import facilities are being expanded. "It's my firm belief that terminals will be built in a timely manner," says Mark G. Papa, chief executive of Houston-based natural gas producer EOG Resources Inc. (EOG

).

There's little question that the U.S. will need to depend more heavily on imported LNG. Despite increased drilling with improved technology, U.S. gas producers will be lucky to hold supplies flat over the next five years, says Papa. And Canada won't fare much better. Yet demand is expected to grow, especially from gas-fired power plants. So while LNG fills only about 3% of the nation's gas needs now, it's expected to grow to 14% by 2010 and nearly 25% by 2020, according to consultancy Pace Global Energy Services.

Rising LNG imports could help put a lid on gas prices, which averaged more than $6 per million BTUs over the past year, vs. $2 in the 1990s. "LNG will bring about a price stabilization. You won't see the volatility that we're seeing today," predicts Sempra Energy (SRE

) CEO Stephen L. Baum. Sempra is building an LNG terminal in Mexico to serve both the Mexican and Southwestern U.S. markets.

It's not clear yet whether any terminals will be built in California or the Northeast, where opposition has been the fiercest and where future gas supplies are expected to be the tightest. Opponents point to such devastating accidents as an explosion last year at an Algerian liquefaction plant that killed more than two dozen people. The Conservation Law Foundation, an environmental group, says none of the LNG proposals for New England provides for an adequate one-mile safety zone around the tankers that will serve the terminals.

Industry executives point to the 43 LNG storage tanks already operating safely in New England and say that LNG tankers have traveled more than 80 million miles without incident. But those statistics don't take into account "the risk of intentional attack," says CLF President Philip Warburg. "Circumstances fundamentally changed with September 11."

It's no coincidence that the new LNG terminals that have been approved will all be in the Gulf of Mexico or on its coast. Residents there are far more accustomed to energy infrastructure than folks elsewhere and welcome the possibility of new jobs. Executives at Cheniere Energy Inc. (LNG

) received a standing ovation in December from a couple of hundred Corpus Christi (Tex.) residents after a presentation about their project there.

So why not serve the Northeast and California from remote terminals? It's possible. But Robert Ineson, a director of Cambridge Energy Research Associates warns that would require hundreds of miles of new pipelines, creating its own permitting battles and transportation costs.

Offshore terminals might be another part of the solution. Excelerate Energy LLC, for instance, is ready to start operating the world's first offshore LNG receiving terminal in the Gulf of Mexico. The company is proposing a similar vessel off the Massachusetts coast. Shell is planning a floating terminal to be moored in Long Island Sound. Still, as Excelerate President Kathleen Eisbrenner notes, "There are no LNG terminals that are easy to permit, even offshore." It looks like the protests won't fade away anytime soon. By Wendy Zellner in Dallas, with Brian Hindo in New York


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