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Gold/Mining/Energy : LNG -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (62)	2/1/2004 10:48:53 AM
From: Dennis Roth	Read Replies (1) \| Respond to of 919

Analysis: LNG's economics are a challenge news.tradingcharts.com LA JOLLA, Calif., Jan 29, 2004 (United Press International via COMTEX) -- Liquefied natural gas has been touted as the biggest breakthrough in the United States' energy picture since nuclear power, although making it fit with the nation's energy markets will still present some daunting challenges. Ever since a National Petroleum Council report last September raised warnings about the strains on the U.S. natural gas supply, increasing the use of liquefied natural gas from overseas has appeared promising to both energy companies and to national policymakers. There are, however, a number of unanswered questions and sticking points to be addressed before LNG can be considered a genuine boom -- or else be relegated to a poor-cousin supporting role in the energy mix. "The thinking on LNG is fundamentally different now than it had been until recently," said Michelle Michot Foss, executive director of the Institute for Energy, Law and Enterprise at the University of Houston. "Everyone has learned a lot about our resource base in the United States." Recent warnings of demand outstripping the supply of gas in the Lower 48 states have served as a wake-up call for the need to find more fuel, either by opening up new lands to development, or by supplementing the domestic U.S. supply with LNG shipped in from around the world by tanker. Foss, a speaker at a California conference on LNG in sponsored by the Institute of the Americas, told United Press International Thursday that the small number of LNG terminals currently operating in the United States draws cargoes of the super-chilled gas from several countries, and building new terminals would not be a difficult task -- at least in terms of engineering and construction. "They aren't really that big in the grand scheme of energy projects," Foss pointed out. "It's not really a plant or a factory; it's a facility that does receiving, storage and re-gasification." In a nutshell, what re-gasification does is simply to warm up the LNG to the point where it returns to its gaseous form. It is then injected into a pipeline and sent on its way to market. If only it were really that simple in the real world. The growth of the LNG market depends largely on the often-tricky law of supply and demand, not to mention politics and chemistry. "The LNG business is evolving like the crude oil business," Foss said, referring to the price competition that LNG would face from conventional natural gas in the commodity markets. Natural gas has been trading in a range of roughly $5-$7 per thousand cubic feet on the New York Mercantile Exchange, which uses the Henry Hub gas complex in Louisiana as its benchmark delivery point. If LNG imports increased the amount of gas available at the Hub, the result could be lower prices on NYMEX and the physical spot market that would erase the ability of LNG in overcoming its shipping costs. Foss said the economics of LNG could push it into a niche market of providing long-term supplies of gas to power generators, petrochemical plants and other large industrial customers. Some attendees at the institute's closed-door conference on the campus of UC San Diego said such long-term agreements were, in fact, a vital requirement for the financing of re-gasification projects. She pointed out that the bulk of LNG projects on the drawing board are clustered along the Gulf Coast, an area that has no shortage of natural gas but a large number of petrochemical facilities that use gas as a raw material for fertilizers and other products. Such industries also have the added advantage of being able to use LNG in the rawest of states. As with crude oil, the chemical composition of LNG can vary in the amounts of methane and propane it includes; gas used for residential heating has the propane removed before it is shipped through the pipeline. Long-term supply contracts would also be of help to the countries that have their eye on selling LNG to the United States because it would remove a lot of the uncertainty of selling into the U.S. spot market. With a contract, the purchase price of the re-gassed LNG is fixed in advance. On the spot market, the price can change several times a day, potentially saddling the seller with a price below that for which paid for the LNG. And many countries have not been discouraged about the U.S. market simply because of the potential price risk. Carlos Fugueredo, a senior planning adviser for Venezuela's national oil company, PdVSA, said his oil-rich nation was looking to put two major natural-gas projects on a fast track so that they can come online before 2010 and grab a lucrative share of the projected LNG market in the United States. "There's a window of opportunity open and we are going to take advantage of it," he told UPI. "Through our long relationship (with the United States) in crude oil, we have the understanding that the U.S. market is going to be growing rapidly and demanding more of this clean fuel." Liquid natural gas actually could become a significant factor in the price of heating fuels by removing major industrial consumers from the competition, and by actually becoming a source of gas for residential utilities. "Cargoes come in when prices peak," Foss noted. "If you have more terminals and storage capacity -- that would really help the balance between supply and demand." Foss explained that while the Gulf Coast has the petrochemical industry for gas sellers to fall back on, the East Coast and West Coast are primarily heating markets that can see rapid ups and downs in gas prices triggered by winter cold waves and long summer hot spells. To make the tidiest profit during such a window, LNG sellers would have to move their cargoes into those areas in a timely manner. But building more LNG receiving terminals, particularly away from the Gulf Coast, also runs into the potential obstacles of local permit processes and community concerns over the size and safety of facilities that are usually located in urban seaports. The explosive nature of LNG certainly gives pause to residents, mayors and fire chiefs who might object to the opening of a potential hazard in their communities to the point that projects could wind up in court. Community resistance is just one of the hurdles to be cleared before the expected LNG boom takes off. Other factors include nailing down LNG supplies abroad; finding enough LNG tankers to make regular, economical shipments possible; and then navigating the Byzantine federal, state and local permit processes. "There are a lot of challenges for LNG," Foss opined. "The people who will be successful are going to be the ones who do the best job with stakeholder management." By HIL ANDERSON, UPI Chief Energy Correspondent Copyright 2004 by United Press International.

To: Dennis Roth who wrote (62)	2/4/2004 9:15:09 AM
From: Dennis Roth	Read Replies (2) \| Respond to of 919

Political, PR battles shaping up for proposed Mexico LNG terminals ogj.pennnet.com By OGJ editors HOUSTON, Feb. 3 -- Three LNG receiving terminal proposals for Baja California, Mexico, face an intensifying political and public relations competition, said George Baker, founding principal of the Houston-based Baker & Associates, an energy consulting firm. The next boxing round regarding opportunities for LNG terminals in Mexico and the US West Coast will take place Feb. 10-12 in Long Beach, Calif., at an LNG seminar sponsored by Infocast Inc. Mexican Sec. of Energy Felipe Calderon has said that promoting LNG encourages trade and give more flexibility to state-owned public utility Comisi&oacuten Federal de Electricidad (CFE) and Petr&oacuteleos Mexicanos. His comments came during an LNG ministerial summit in Washington, DC, last year (OGJ, Jan. 19, 2004, p. 35). Each of the three Baja California LNG projects has its benefits and drawbacks observed Baker, drawing on a recent LNG study compiled by his consulting firm. "Who wins the war on the ground in term of public opinion in Baja, California, is about as politicized as in Santa Barbara, Calif. Nevertheless, that is what we are coming up against," Baker said. Opposition comes from environmental activists as well as fishing and real estate interests against any LNG project in the Tijuana-Ensenada corridor. It also comes from Baja California officials, he noted. "In a state (where) most of whose citizens had never heard of the Federal Energy Regulatory Commission (CRE), it was an unexpected sight to see marchers demonstrating with signs that criticized and ridiculed the CRE for its alleged illegal interventions in the affairs of Baja California," Baker said. One proposal comes from Marathon Oil Corp. subsidiary GNBC VENTAS S de RL de CV (GNBC) and its partners Grupo GGS SA de CV and Bermuda-based Golar LNG Ltd. Marathon's Tijuana Regional Energy Center proposal includes a set of infrastructure enhancements (OGJ Online, May 12, 2003). Proposed enhancements include water desalination, wastewater treatment, and electric power. But, the project faces NIMBY opposition by residents and local officials, Baker said. A proposal from a unit of ChevronTexaco Corp. involves an offshore site, which has the advantage of having no neighbors to oppose its location (OGJ Online, Aug. 6, 2003). But Mexico has yet to establish the standards and regulations for such a plant, he noted. "We continue trying to understand the special tender published by the Secretaria de Comunicacions y Transportes (SCT) on Dec. 29 that provides for a 3-year concession for (ChevronTexaco's) LNG facility in the federal waters near the Coronado Islands in Baja California. One hypothesis is that the Vicente Fox administration is tired of the perceived obstructionism in Baja California and intends to put the matter into federal jurisdiction," Baker said. The third proposal is from Shell International Gas Ltd. and Sempra Energy LNG Corp.—the newest subsidiary of Sempra Energy Global Enterprises. The two companies formed a 50:50 joint venture to build, own, and operate an LNG receiving terminal in Costa Azul 14 miles north of Ensenada on Mexico's west coast (OGJ Online, Dec. 23, 2003). The Sempra-Shell proposal seems to have the support of state authorities, but it faces opposition from local environmentalists and others, Baker said. The outcome of the competition cannot yet be predicted, he said, except that, at the most, only one of these three proposed projects will be built. It's possible that none of the three proposals will be built, he added. "An open question is whether—with one terminal in Baja California—could a second or third receiving terminal be successful off California," he asked.