LNG in the United States: The Gathering Storm
Oil & Gas Investor: America's Independent, July/August 2004 issue
By John McCaughey
America desperately needs Liquefied Natural Gas. But nobody wants it...
That the increasingly natural gas-dependent United States economy needs ever more natural gas and that the domestic industry for various reasons (most notably lack of access to drilling in promising sites) cannot supply the gas is indisputable.
Natural gas wisely is used to power factories, as a raw material in chemical and fertilizer plants, food processing plants and other industries, to heat homes and businesses and, increasingly, to generate electricity Yet while demand potential is broad, supply is not keeping up.
An elegant and cost-effective solution (or, at least, a palliative) presents itself: substantially increased imports of liquefied natural gas (LNG). Some 30 new LNG terminals have been proposed in recent years to join four existing operating terminals. But, as tends to be the way with elegant solutions, these tend to look not quite so elegant when examined in the cold light of next morning. Importing more LNG will present obstacles that all but a minority of industry optimists fear may be difficult to surmount. Chief among the problems are safety, NIMBYism and terrorism.
Long gone are the days when many millions of dollars worth of natural gas were flared off across North America - a phenomenon that once gave a field southwest of Calgary, Alberta, the picturesque nickname of "Hell's Half Acre." Canadian natural gas production continues to fall and demand in that country continues to increase, leaving less and less gas available for export to the U.S.
Ken Maize, the doyen of Washington energy journalists, put it interestingly in a recent commentary piece. He sees the idea of expanded LNG imports as a repeat of the U.S. experience with nuclear power: an energy technology that for one reason or another stalled and never fulfilled its proponents' hopes that it would end U.S. dependence on imported oil.
Maize quotes Williams Capital analyst Chris Ellinghaus on why LNG is no magic bullet. "There's just way too much gasfired electricity capacity out there. You would have to build lots more LNG capacity than anyone is talking about in order to forestall major problems by 2006 or 2007 and you can't gel them [new LNG terminals] done in that time frame.
We are dose to being in the soup right now and it looks really bad down the line." LNG presently supplies only about 2 percent of LfS. gas supply although government estimates anticipate that figure rising to 11 percent by 2015.
But there's still safety, NIMBYism and terrorism blocking a U.S. expansion of LNG.
Safety has always been a leading public perception problem: a problem exacerbated by an explosion in January this year at Skikda, a major Algerian LNG terminal. The blast killed 27 people and injured 70. Industry officials have said that the accident involved a steam boiler not directly linked to the LNG itself and of a kind not used in American LNG terminals. But they admit that the explosion could influence U.S. politicians' and the public's attitude to LNG. Post-mortems on the Algerian explosion continue. Experts say that boiler explosions don't do that much damage by themselves but that in this case the boiler blast was the match that ignited the LNG.
Rarely mentioned nowadays too is a 1944 LNG explosion in Cleveland that killed 140 people. One analyst who has studied that accident suggests that "there may have been at least a partial cover-up" of the incident.
Like nuclear, the LNG industry has overall racked up a close-to-excellent safety record over nearly half a century Ships carrying LNG have made some 33,000 voyages over the years without a significant spill. But a safety record is not the same thing as public perception. And environmentalists have not been slow to weigh in with querulous concerns about environmental safeguards.
Safety estimates too are constrained by the fact that even the most pointy-headed scientists disagree about what would happen in an LNG spill. The extant scientific models are wobbly and contradictory at best. Particular scientific controversy revolves around whether a terrorist attack could destroy an entire 1,000-foot-long LNG tanker, setting off a fireball perhaps a mile wide (one rather excitable environmentalist described this as "55 Hiroshimas").
But there is no question that LNG terminals have safety issues: nearly all peer-reviewed studies suggest that a spill and a fire could cause widespread damage. The question is whether the risks are manageable.
NIMBY-ism is just as powerful a drag on LNG expansion. Voters don't want LNG regasification plants anywhere near them. In March, voters in Harpswell, Maine, rejected plans to build a new $350 million LNG terminal on a 70-acre former Navy fuel depot site. The project has been cancelled. A proposed $250 million LNG terminal in Falls River, Massachusetts, has also run into lively opposition. City officials would prefer a hotel and conference center to be built on the 68-acre former Shell oil waterfront site.
Protestors in Mobile, Alabama, against a proposed LNG terminal in Mobile Bay are said to have a comfortable majority over supporters of the plan.
A long way south, Mexico's two major opposition parties are challenging a $650 million ChevronTexaco proposal to build a receiving terminal for Australian LNG at the Coronado Islands, off the coast from Tijuana. The gas would be sold both in Mexico and in southern California. Opponents argue that the terminal would violate Mexico's sovereignty and compromise its national security. California, New England and NW Mexico have led the NIMBY charge, but there is plenty of NIMBY-ism elsewhere. As former Energy secretary Jim Schlesinger once memorably remarked: "There's a lot of under-utilized protest capacity in this country"
Overall, about 40 new LNG terminals (all close to communities) have been proposed around the nation.
Meanwhile, terrorism casts its increasingly malignant shadow. Immediately after the September 11, 2001 terrorist attacks, the federal government stopped shipments to the LNG terminal in Everett, Mass., in Boston Harbor. Shipments were soon resumed. But population density around the plant is high and it is located just upriver from downtown Boston, so there are vulnerabilities both from the terminal's location and from the tanker traffic. Critics and fire officials fret that a major tanker fire set off by a terrorist suicide attack with rocket-propelled grenades could destroy the city and have incalculable repercussions for the local and regional (indeed the national) economy
Are government agencies taking the threat seriously enough? A January report by the Congressional Research Service, an advisory body to Congress, reportedly says that experts have "questioned the validity of LNG hazard studies used by federal regulatory agencies, which [studies] suggest that LNG terminal risks, while significant are not as serious as is popularly believed." Federal Energy Regulatory Commission chairman Pat Wood has sparked skepticism by describing LNG spills and fires as "low-probability events." And Rep. Edward Markey (D-MA), whose distnct includes the Boston LNG facility, has accused the Energy Department and the FERC of minimizing the potential danger of a fire and explosion involving an LNG tanker. At the end of May, one FERC commissioner found it necessary publicly to deny reports that the agency intends to drag its feet for a year on reviewing new LNG terminal proposals.
Intelligence sources say too that men with ties to Al Qaeda may have entered Boston by stowing away on LNG tankers from Algeria. Meanwhile, the United Nations maritime agency chief admitted recently that fewer than 6 percent of international seaports and ships adhere to UN rules aimed at preventing terrorist attacks - not that those rules have ever meant much in the unregulated Wild West atmosphere of the High Seas.
So what happens now and where does the U.S. go from here? A number of companies are working on studies that aim for an Olympian approach that will distill and tie together the strands of NIMBY-ism, conflicting and confusing safety studies and conjectures about what terrorists might or could do all designed to provide a road map in this area for energy policymakers.
In interviews, Bob Hirsch, a veteran Washington-based energy technologist and energy management analyst, outlines some of the conclusions that seem to be emerging from these studies:
* That the U.S. has to have more LNG simply to keep the economy on some kind of even keel and to prevent huge natural gas (and, by extension, electricity) price increases. Doing nothing will cause industries dependent on natural gas as a feedstock to flee abroad. In terms of home heating and commercial usage, retooling equipment to electricity 10 or 20 years before the natural gas equipment reaches the end of its natural working life would be wasteful and ruinously expensive. It would require the timely building of more power plants and transmission lines. The abrupt changeover would also make a large number of voters quite unhappy.
* That there is no other way but LNG to get large quantities of natural gas to North American markets. Even if the government were to open now restricted areas to drilling by independent producers, it would take years to get large quantities of gas to market. And those qualities anyway are limited when compared to projected future demand. This raises the obvious rejoinder that it will take as many years to build LNG terminals, which is not by itself a cheery thought. In any case, natural gas reservoirs tend to deplete faster than oil reservoirs.
* That the safest way to import LNG is to locate regasification terminals over-the-horizon offshore, safe from NIMBY-ism and within federal rather than meddling state regulation. The technology has already been developed for offshore oil and gas production and the associated costs would not be that large. The associated risk reductions would be huge: far from populated areas and affording opportunities for much enhanced security cordons sanitaires against terrorists. Some critics question Hirsch's optimism on costs and technology and also argue that high seas will often prevent off-loading from tankers - high seas that are most likely to occur during winter periods of peak demand.
Will such views galvanize U.S. energy policymakers? Maybe, maybe not: the history of U.S. energy policymaking is a graveyard of failed national energy strategies put forward by overlysanguine Administrations or the Department of Energy and mangled to death by the Congress or so over-laden with pork on Capitol Hill as to cause the proposed law to collapse from its own obesity
LNG terminal siting is also already mired in intractable jurisdictional turf battles between the FERC, other government agencies and the states. And the U.S. is by no means the only market for ENG suppliers: China and India want LNG too. The dots remain unconnected.
If nothing is done, before the end of this decade the NIMBY-ists may find themselves holding meetings in the dark and the environmentalists may confront a spectacular, emergency increase in coalfired or nuclear power plants, which are the only conceivable antidotes to the U.S. natural gas gathering storm. |
