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North American LNG Outlook: Liquefied natural gas (LNG) capacity expected to surge by 2010, but LNG will not be a panacea for North American natural gas shortfall

[Article 102 by jaydr, 2006-09-15 | Review this article]

Executive Summary

Recent hurricanes and energy price volatility have focused the nation’s attention on natural gas markets. However, North American natural gas production faced challenges, even prior to the hurricanes. In order to meet projected North American natural gas demand, energy companies are increasingly looking to import liquefied natural gas (LNG) as an alternative to domestic and Canadian natural gas. There are currently five terminals where LNG can be offloaded from tankers and shipped to North American customers via pipelines and trucks, with a total existing capacity of over 4 billion cubic feet per day (bcfd). Energy companies have proposed 41 LNG projects (both new construction and expansions), totaling over 47 bcfd of capacity. If the new projects are built according to schedule, they will bring the ultimate total North American LNG capacity to just over 51 bcfd by 2010, which is equivalent to 83% of the U.S. average daily natural gas demand for the period 2001 – 2004.

Such LNG capacity, if fully utilized, has the potential to flood the North American market with natural gas and drive prices down substantially. However, the global LNG supply averaged less than 18 bcfd in 2004, which is considerably less than the proposed 51 bcfd mentioned above. There are also questions about the viability of some projects due to legal, environmental, and engineering issues. In addition, the ultimate capacity will not be fully utilized 100% of the time, since the number of available tankers and the quantity of available supply will likely be limiting factors. Finally, the U.S. will be increasingly dependent on a highly competitive global marketplace for LNG, with established consumers such as Japan competing for available supplies, which may tend to keep U.S. natural gas prices elevated.



Motivation for LNG Imports

Natural gas is a key component of the U.S. economy: it heats our homes and businesses, supplies key industries with heat and power, and powers an increasing share of our electrical capacity. Unfortunately, supply shortfalls have contributed to large price increases in recent years. Domestic natural gas production has been flat or declining since the early 1970s, Canadian production has flatlined since about 2001, and hurricanes have recently taken a bite out of Gulf of Mexico production capacity. Conversely, some overseas suppliers produce more natural gas than can be used locally. In order to export this natural gas, the gas is liquefied at temperatures around -260ºF, which greatly reduces its volume, and is then loaded on cryogenic tankers and shipped overseas. At the destination, the LNG can be trans-shipped via rail or truck, or can be regasified and fed into existing pipeline networks.



Background on North American LNG Imports

To offset increasing demand and decreasing North American supplies, energy companies are proposing a wave of LNG terminal projects [1]. Although the U.S. already imports LNG at 5 existing locations, 41 proposed North American projects and expansions will permit an increase in imports of LNG from overseas suppliers. Much of this imported LNG will be sourced from existing suppliers, such as Algeria, Trinidad and Tobago, Indonesia, Qatar and other Persian Gulf nations. In addition, increasing supplies are being shipped (or soon will be) from Nigeria, Russia, and the Caspian region in central Asia.



LNG Capacity Projections

We obtained information on 41 new projects and expansions from the Federal Energy Regulatory Commission (FERC) website [2] and a variety of commercial and government websites. For a map showing locations of these projects, see Appendix A. For a detailed list of all existing and proposed LNG projects, project information, and references, see Appendix B.

We obtained estimated startup dates on most projects from both corporate and government sources. Estimated startup dates could not be found for a few projects, so we extrapolated startup date estimates based on the status of their FERC/EPA proposals (see Appendix B for more information).

Projections of year-by-year capacity additions are shown below in Figure 1. As shown in the chart, 2008 appears to be a significant year for LNG capacity, with about 20 bcfd of capacity scheduled to come on-line in that year alone.

Cumulative LNG capacity is shown below in Figure 2. The chart indicates that by 2008, the total North American LNG capacity is projected to be about 33 bcfd, or about 54% of U.S. average daily natural gas demand over the period 2001-2004. By 2010, the total LNG capacity is projected to be over 51 bcfd, which is equal to about 83% of current U.S. average daily demand. Therefore, the proposed capacity represents a significant expansion of natural gas supply for the North American market, which could eventually create downward pressure on natural gas prices.


Challenges for LNG Expansion

The projections listed in Figures 1 and 2 above show a dramatic increase in LNG capacity, especially between 2008 and 2010. However, the proposed LNG projects will face a variety of legal, economic, and engineering challenges prior to and during construction. These challenges could potentially delay the startup date for some projects, and may lead to cancellation of others.



Legal and Jurisdiction Issues

Some LNG projects are being challenged despite FERC approval. For example, the proposed Weaver’s Cove LNG project in Fall River, Massachusetts was approved by the FERC in June 2005, over vigorous objection by many State and Local officials and by citizens’ groups. Opponents claimed that the densely-populated Fall River area is not safe for an LNG terminal, and that the project could disrupt tourism and sea life. Opponents have plans to petition the FERC for a re-evaluation of the project, and may eventually file lawsuits with the U.S. Court of Appeals to challenge FERC’s authority in this matter. [3, 4]

In addition, the California Public Utilities Commission (CPUC) is challenging FERC’s jurisdiction over approving on-shore LNG projects. CPUC’s case regarding Sound Energy Solutions Long Beach project is currently pending in the U.S. Court of Appeals. Contention over such projects is challenging the very basis for federal approval of LNG projects, which could impact the approval of LNG projects across the country. [5, 6]



Engineering and Environmental Issues

Some projects are facing opposition or cost overruns due to engineering and environmental issues. For example, ExxonMobil recently withdrew the Maritime Administration (MARAD) application for their proposed Pearl Crossing deepwater LNG port (originally number 37 on the project list in Appendix B). This facility was planned with baseload capacity of 2.8 bcfd, and was among the larger LNG facilities originally planned. Like many offshore LNG ports, Pearl Crossing was designed to use sea water to regasify LNG in an open loop process. However, a coalition of environmental groups, sport-fishing groups, and commercial fishing industry groups claimed that the open-loop water intake would kill large quantities of fish eggs and sea life. Public pressure from these groups likely contributed to ExxonMobil’s decision to withdraw their MARAD application on October 19, 2005. [7, 8]



Supply-Side Bottlenecks

Once the feasible projects are ultimately built, their average sendout will likely be much less than 100% of capacity. For one thing, LNG terminals are batch processes, and can only deliver gas as ships are unloaded, or out of on-site storage from previous shipments. Thus, the ultimate sendout from each terminal is dependent on how many (and how often) LNG tankers can be docked. In this respect, the number of tankers available at any given time is a key variable. In addition, the proposed terminals will tie-in to existing pipeline networks. Some observers point to additional bottlenecks in the existing U.S. pipeline system which could further limit the average sendout of these terminals [9]. For reference, the existing U.S. LNG terminals imported about 652 BCF in 2004, averaging about 1.78 BCF/day. The nominal capacity for these terminals is about 4.22 BCF/day, for an average usage factor of 42% of capacity.



International Competition for Available Supplies

Even though LNG has played a minor role in North American energy markets, the global LNG market is mature. Significant quantities of LNG have been shipped for about forty years, with most of the LNG shipped to Asia, and almost half of current global supply being shipped to Japan [10]. See Figure 3 below showing 2004 LNG imports by region [11].

The top five LNG importing countries are shown in Table 1 below, with other countries grouped by region for comparison. Table 1 indicates that the U.S. has a significant foothold in the global LNG market, and is currently importing about 10% of global supply. However, unlike the U.S., most of the other importing countries have government-owned or -subsidized utilities and manufacturing industries, which affects long-term LNG purchasing strategies.


Table 1. Top LNG Importing Countries, 2004

Country

2004 Imports (BCF)

% of World Total

Japan

2,873

44.5%

South Korea

1,048

16.2%

United States

652

10.1%

Spain

618

9.6%

Taiwan

332

5.2%

Other European Countries

805

12.5%

Other Asian Countries

93

1.4%

Other Caribbean/Central American Countries

31

0.5%

World Total, 2004 (NOTE 1)

6,453

100%

NOTE 1: Totals may not add due to rounding.

Many of the major LNG importers outside of the U.S. have locked-in long-term supply contracts with the support of their respective governments, and 20-year contracts are not uncommon [12]. These long-term contracts imply dedicated LNG tankers traveling dedicated supply routes. However, the U.S. government does not currently negotiate long-term supply contracts for the U.S. gas market, since this is handled by the private sector. Therefore, it is possible that the U.S. will continue to obtain a higher proportion of imported LNG through spot markets, as compared with other countries with socialized energy sectors and locked-in LNG supply. This could have the effect of maintaining upward pressure on U.S. gas prices despite increased LNG imports.



Conclusion

North American LNG capacity is expected to grow dramatically by 2010. This capacity growth could help offset the decline of existing North American gas fields, and could help moderate price growth. However, the proposed LNG projects will face a variety of legal, engineering, and environmental challenges which could delay or cancel some of the projects. In addition, a variety of supply-side bottlenecks will reduce the average sendout of the proposed terminals. Finally, global competition for LNG supplies may result in continued upward pressure on U.S. gas prices.

For reference, the entire global supply of LNG averaged less than 18 bcfd for 2004 [11]. Even if global LNG shipments increased dramatically by 2010, much of that capacity will likely be locked-in by Japan, South Korea, and other major LNG importers. Thus, it is unlikely that the projected 51 bcfd of North American capacity could be fully utilized by 2010.

Therefore, the proposed LNG terminals will not be a panacea for curing North America’s natural gas shortfall.




References

  1. FERC website, “The Importance of LNG” (http://www.ferc.gov/industries/lng/gen-info/import.asp)

  2. Federal Energy Regulatory Commission (FERC) Website, “Existing and Proposed North American LNG Projects” (http://www.ferc.gov/industries/lng/indus-act/exist-prop-lng.pdf)

  3. Coalition for Responsible Siting of LNG Facilities Homepage (http://www.nolng.org/)

  4. Providence Journal, July 1, 2005 “Fall River LNG plan OK’d, Providence expansion rejected”, (http://www.projo.com/news/content/projo_20050701_lng701.24a2373.html)

  5. Meritas, Inc. Legal Website, “State of California v. the United States: The Newest Jurisdictional Battle Over Energy”, (http://www.meritas.org/Article/pdf/LoBaugh_EnergyBattle.pdf)

  6. Natural Gas Intelligence Website, “Kelliher: CA vs. FERC Jurisdictional Battle ‘Biggest Threat’ to LNG Development”, (http://intelligencepress.com/features/lng/lng_feature20050321.html)

  7. Marimate Administration (MARAD) Deepwater Port Licensing Summary (http://www.marad.dot.gov/dwp/deepwater_ports/)

  8. Gulf Restoration Network Website, “Comments on the Draft Environmental Impact Statement (DEIS) for ExxonMobil’s Pearl Crossing LNG Facility are Due June 7, 2005”, (http://healthygulf.org/alerts/PearlCrossing051805.htm)

  9. Pace Global Energy Services Article, “LNG Imports Likely to Create Pipeline Bottlenecks”(http://www.paceglobal.com/paceglobal/documents/MonCols/January_HEM%20column.pdf)

  10. Pace Global Energy Services Newsletter #4—LNG, (http://www.paceglobal.com/paceglobal/documents/EVN/Energy%20Vision%20Issue4final.pdf)

  11. Energy Information Administration Website, “International Natural Gas and LNG Imports and Exports”, (http://www.eia.doe.gov/emeu/international/gastrade.html)

  12. Energy Information Administration Website, “World LNG Market Structure”, (http://www.eia.doe.gov/oiaf/analysispaper/global/lngmarket.html)




APPENDIX A - MAP OF EXISTING, APPROVED, AND PROPOSED NORTH AMERICAN LNG PROJECTS
Source: Federal Energy Regulatory Commission




APPENDIX B - SUMMARY OF EXISTING, APPROVED, AND PROPOSED NORTH AMERICAN LNG PROJECTS

Note: This list is adapted from the Federal Energy Regulatory Commission list, with information from other sources shown below.


Summary of LNG Projects






TOTAL

51.375

BCF/DAY, ALL PROJECTS

 

Shading indicates estimated startup


Location

Capacity (Bcf/day)

Project Name

Owner

Estimated Startup

Information Source for Estimated Startup Date

Constructed






A

Everett, MA

1.035

DOMAC

Tractebel

Active


B

Cove Point, MD

1.000

Cove Point LNG

Dominion

Active


C

Elba Island, GA

0.680

Southern LNG

El Paso

Active

http://www.epenergy.com/business/elbaisland.shtm

D

Lake Charles, LA

1.000

Trunkline LNG

Southern Union

Active


E

Gulf of Mexico

0.500

Gulf Gateway Energy Bridge

Excelerate Energy

Active



Total Constructed

4.215





Approved by FERC






1

Lake Charles, LA

0.800

Trunkline LNG

Southern Union

2006 Q2

http://www.businesswire.com/webbox/bw.020204/240335213.htm

2

Hackberry, LA

1.500

Cameron LNG

Sempra Energy

2008 Q4

http://www.sempra.com/lng_sreplans.htm

3

Bahamas

0.840

Ocean LNG

AES

2008 Q1

http://www.aesoceanexpress.com/home.asp

4

Bahamas

0.830

Calypso

Tractebel

2008 Q?


5

Freeport, TX

1.500

Freeport LNG Dev.

Cheniere

2008 Q1

http://www.cheniere.com/TextFiles/2005%20Press%20Releases/PR%2001-26-05%20Creole%20Trail%20Initiates%20FERC%20Permit.htm

6

Sabine, LA

2.600

Sabine Pass

Cheniere

2008 Q1

http://www.cheniere.com/TextFiles/2005%20Press%20Releases/PR%2001-26-05%20Creole%20Trail%20Initiates%20FERC%20Permit.htm

7

Elba Island, GA

0.540

Southern LNG

El Paso

2006 Q1

http://www.epenergy.com/business/elbaisland.shtm

8

Corpus Christi, TX

2.600

Corpus Christi LNG

Cheniere

2007 Q?

http://www.cheniere.com/TextFiles/PressReleasesMDC/PressReleases2003/PR%2003-8-27%20Bechtel%20MOU.htm

9

Corpus Christi, TX

1.000

Vista del Sol

Exxon Mobil

2008 Q2

http://www.epa.gov/fedrgstr/EPA-IMPACT/2004/May/Day-21/i1193.htm

10

Fall River, MA

0.800

Weaver's Cove Energy

Hess LNG

2009 Q?

http://www.greenfutures.org/projects/LNG/LNG7-29-04.html

11

Sabine, TX

1.000

Golden Pass

Exxon Mobil

2008 Q4

http://www.goldenpasslng.com/aboutproject.cfm

12

Corpus Christi, TX

1.000

Ingleside Energy

Occidental Energy Ventures

2008 Q?

news.morningstar.com/news/DJ/M11/ D05/200411051507DOWJONESDJONLINE000876.html


Total Approved (FERC)

15.010





Approved by MARAD/Coast Guard





13

Port Pelican

1.600

?

Chevron Texaco

2007 Q?

http://investor.chevrontexaco.com/ireye/ir_site.zhtml?ticker=cvx&script=410&layout=-6&item_id=470843

14

Louisiana Offshore

1.000

Gulf Landing

Shell

2010 Q?

http://www.shell-usgp.com/gl-docs/GulfLandingFacts.pdf


Total Approved (M/CG)

2.600





Approved by Canadian Authorities





15

St. John, NB

1.000

Canaport

Irving Oil

2008 Q?

http://www.canaportlng.com/

16

Point Tupper, NS

1.000

Bear Head LNG

Anadarko

2008 Q4

http://www.anadarko.com/global_activities/north_america/canada/bear_head_construction.asp


Total Approved (Can.)

2.000





Approved by Mexican Authorities





(Continued from Previous Page)





17

Altamira, Tamulipas

0.700

Altamira

Shell/Total/Mitsui

2006 Q?

http://www.mitsui.co.jp/tkabz/english/news/2004/041102.html

18

Baja California, MX

1.000

Energia Costa Azul

Sempra Energy

2008 Q1

http://www.sempra.com/lng_sreplans.htm

19

Baja--Offshore, MX

1.400

Baja--Offshore

Chevron Texaco

2007 Q4

http://www.chevron.com/news/press/2003/2003-10-30.asp


Total Approved (Mex.)

3.100





Proposed to FERC






20

Long Beach, CA

0.700

Sound Energy Solutions

Mitsubishi/ConocoPhillips

2008 Q?

http://www.energy.ca.gov/lng/documents/PROJECT_STATUS_CA-BAJA.XLS

21

Logan Twp., NJ

1.200

Crown Landing LNG

BP

2008 Q3

http://www.epa.gov/fedrgstr/EPA-IMPACT/2004/April/Day-27/i937.htm

22

Bahamas

0.500

Seafarer

El Paso/FPL

2008 Q?

http://elpaso.com/press/newsquery.asp?sID=4331

23

Port Arthur, TX

1.500

Port Arthur LNG

Sempra Energy

2009 Q1

http://www.sempra.com/lng_sreplans.htm

24

Cove Point, MD

0.800

Cove Point LNG

Dominion

2008 Q3

http://www.dom.com/about/gas-transmission/covepoint/expansion/index.jsp

25

LI Sound, NY

1.000

Broadwater Energy

TransCanada/Shell

2010 Q?

http://www.broadwaterenergy.com/index.php?module=htmlpages&func=display&pid=35

26

Pascagoula, MS

1.000

Gulf LNG

Gulf LNG Clean Energy LLC

2009 Q2

http://www.lngcleanenergy.com/news/

27

Bradwood, OR

1.000

Northern Star LNG

Northern Star Natural Gas LLC

2010 Q?

http://pfrplng.blogspot.com/2005/10/cathlamet-citizens-at-fercnorthern.html

28

Pascagoula, MS

1.300

Casotte Landing

Chevron Texaco

2009 Q?

Estimate, FERC application filed Oct. 2005 + 1-yr approval + 3 yrs construction

29

Cameron, LA

3.300

Creole Trail LNG

Cheniere

2009 Q1

http://www.cheniere.com/TextFiles/2005%20Press%20Releases/PR%2001-26-05%20Creole%20Trail%20Initiates%20FERC%20Permit.htm

30

Port Lavaca, TX

1.000

Calhoun LNG

Gulf Coast LNG Partners

2010 Q1

http://www.calhounlng.com/project.htm

31

Freeport, TX

1.150

Freeport LNG Dev.(exp.)

Cheniere

2009 Q1

http://www.contango.com/operation/lng.htm

32

Sabine, LA

1.400

Sabine Pass (exp)

Cheniere

2010 Q?

Estimate due to application status


Total Proposed (FERC)

15.850





Proposed to MARAD/Coast Guard





33

California Offshore

1.500

Cabrillo Port

BHP Billiton

2008 Q?

http://www.energy.ca.gov/lng/documents/PROJECT_STATUS_CA-BAJA.XLS

34

So. California Offshore

0.800

Crystal Clearwater Port

Crystal Energy

2008 Q?

http://www.energy.ca.gov/lng/documents/PROJECT_STATUS_CA-BAJA.XLS

35

Louisiana Offshore

1.000

Main Pass McMoRan Exp

McMoRan Exploration Co.

2009 Q1

Estimate, application complete 2005 Q4 + 3 yr construction http://www.mcmoran.com/mpeh/mpeh.htm

36

Gulf of Mexico

1.000

Compass Port

Conoco Phillips

2009 Q1

Estimate, 2005 Q4 + 3 yrs construction http://www.marad.dot.gov/dwp/deepwater_ports/index.asp#compass_port

---

Gulf of Mexico (2.8 Bcf /day Originally Proposed)

---

Pearl Crossing

Exxon Mobil

NA

Application withdrawn Oct 19 2005 http://www.marad.dot.gov/dwp/deepwater_ports/index.asp#compass_port

37

Gulf of Mexico

1.500

Beacon Port Clean Energy Terminal

Conoco Phillips

2009 Q1

http://www.marad.dot.gov/dwp/deepwater_ports/index.asp#compass_port

38

Boston Offshore

0.400

Neptune LNG

Tractebel

2009 Q2

http://www.marinelog.com//DOCS/NEWSMMV/MMVFeb15c.html

39

Boston Offshore

0.800

Northeast Gateway

Excelerate Energy

2007 Q2

http://www.excelerateenergy.com/downloads/newsletters/February_2005_Newsletter.pdf


Total Proposed (M/CG)

7.000





Proposed to Non-US Entitity (Not Listed at FERC Site)




40

Baja-Offshore,MX

0.300

Moss-Maritime Project

Moss Maritime/TAMMSA

2007 Q?

http://www.energy.ca.gov/lng/documents/PROJECT_STATUS_CA-BAJA.XLS

41

Puerto Libertad, MX

1.300

Sonora Pacific LNG

Sonora (DKRW Energy LLC)

2008 Q?

http://www.energy.ca.gov/lng/documents/PROJECT_STATUS_CA-BAJA.XLS


Total Proposd (nonUS)

1.600







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