DOE, industry call on local and federal regulators to coordinate LNG role

Maureen Lorenzetti
Washington Editor

WASHINGTON, DC, Dec. 23 -- US Sec. of Energy Spencer Abraham Dec. 18 said expanding liquefied natural gas imports will help keep domestic natural gas prices stable, but he added that local and federal regulators must work together to ensure those supplies reach US markets.

"There is a great deal of interest in the future of LNG in North America, as a result of which there are at least two dozen proposals out for the construction of LNG terminals in the US, Mexico, and Canada over the next several years," said Abraham at the LNG Ministerial Summit held in Washington, DC. "There are, however major challenges to the success of so large and complex an undertaking," he said.

The Department of Energy and the US Energy Association sponsored the summit, attended by 21 energy ministers representing most of the world's gas producing regions. US officials estimate LNG imports will increase by 2,000% in just over 2 decades to meet US natural gas demand, with 15 bcfd reaching North America terminals by 2025.
Abraham said regulators should speed up sitting and permitting for regasification and related facilities.

"That will require streamlined bureaucratic processes and the support of local governments and communities," he said.

Regulatory moves
Industry officials said the federal government already has taken decisive actions to speed up approvals. The new Maritime Transportation Security Act gives the US Coast Guard clear jurisdiction over offshore LNG terminals; future permit applications will be reviewed within a "discrete" timeline, according to Abraham.

Meanwhile, the US Federal Energy Regulatory Commission Dec. 18 updated its own LNG rules to be consistent with new regulations. Neither onshore nor offshore terminal developers will be required to offer "open-access" service to third parties or to maintain a tariff and rate schedule.

FERC will still retain environmental and safety regulation of new terminals, and open access regulation will apply when gas exits a terminal and enters an interstate pipeline. FERC may also step in and impose its own terminal tariffs if it determines a terminal operator is trying to monopolize a market through discrimination or anticompetitive behavior.

State and local jurisdictions are a different story. Industry officials estimate it may take as much as 5 years in some cases to update or revise laws. And there may be some regions of the country, such as California, where it may be very difficult to build anything at all because of longstanding opposition to energy-related projects.

To help reduce that resistance, Abraham said both industry and the federal government need to better address environmental and safety concerns often cited by local regulators.
"Success in this will require a concerted effort to educate the public on LNG's importance to the American economy and on the environmental and safety record of the industry," he said.

Other consuming countries face similar challenges, as will producing countries as they seek sites, approvals, and financing for their LNG infrastructure, Abraham said.

Producer views
Several current and potential LNG exporters spoke at the meeting, each pledging to be a reliable supplier to US markets.

Saudi oil minister Ali al-Naimi told the group that his country has no plans "currently" to enter the LNG export market. But the Saudis made clear they are mulling some kind of market position, given that their competitors in the region are dramatically ramping up exports.

"These plans could change if our efforts, in combination with our foreign partners, find sufficient reserves in excess of our local needs," Naimi said. "At that point we would evaluate all options—including LNG exports—in order to maximize the benefits to Saudi Arabia's economy," he said.

LNG critics, typically US independent producers, argue that expanding LNG imports will not help energy security or keep prices stable. They argue that a lot of LNG will come from countries that are either politically unstable, such as Venezuela, or distant, such as Russia. LNG opponents and their supporters on Capitol Hill also say there is the risk that some Middle Eastern suppliers, namely Qatar and Saudi Arabia, will try to corner the market by forming an LNG "cartel" similar to the one now in place for oil under the Organization of Petroleum Exporting Countries.

Government officials from Saudi Arabia and Qatar won't comment on whether there are plans to create an LNG cartel, although each country at the summit sought to assure US officials that it is in the mutual interest of producers and suppliers to have reliable, stable energy prices.

The energy security argument is a political hot potato that isn't likely to go away, especially in an election year, and at least one existing supplier to the US is offering itself up as a less risky alternative to potential investors.

Trinidad and Tobago Prime Minister Patrick Manning told the summit that it takes only 5-7 days for its gas to reach US terminals, "far faster than other competitors." Security is also a consideration, he said. Unlike many other LNG exporting countries around the world, "We are free," he said. "We are renowned for racial harmony."

Other major suppliers such as Venezuela, Russia, Indonesia, and Algeria also made brief presentations. Nigeria did not attend.

Company remarks
Top executives from every major US-based multinational oil company attended the conference. BP PLC and Royal Dutch/Shell Group also attended.

Executives generally mirrored Energy Sec. Abraham's call for better cooperation between federal and local officials on permits. Companies acknowledged their industry needs to do a better job addressing the public's concerns over LNG safety and environmental impacts.

In a keynote address, Exxon Mobil Corp. Chairman and CEO Lee Raymond said regulators must keep working on what he characterized as "consistent and complete policies" that encourage both domestic gas supply and expanded LNG.

"We must work for a future in which the immediate development of new resources and flexibility in fuel choices provide more balance to the North American natural gas supply and demand equation," Raymond said. "With so much at stake, failure is not an option."

Raymond said consumers need all the gas they can get from all possible sources, and he cited as an example his own company's $12 billion project with Qatar Petroleum to supply LNG to the US for a 25-year period and the company's long-term 1.2 bcfd LNG production activities in Indonesia to supply Asia Pacific markets. "Consuming countries need to recognize that they have an important role to play in facilitating timely energy development," Raymond added. "They can do this by creating reasonable regulatory regimes that will allow facilities to be designed and built without undue delay or unnecessary cost and relying on free competition and market solutions to meet future demand."

ChevronTexaco Corp. Vice-Chairman Peter Robertson cautioned that failure to establish North American LNG import capacity in a timely manner "could lead to gas-supply shortfalls and volatile prices later in this decade, with dire consequences for the economy."

Robertson called on all participants in the LNG industry to work more closely together on new infrastructure, especially for North America's West Coast.

ChevronTexaco is one of several large companies proposing terminals for California and Baja California, Mexico.

"The National Petroleum Council estimates that the United States will need a sevenfold increase in LNG supplies. I hope the dialogue about West Coast LNG can soon be moved to the top of the regional agenda. Uncertainty about energy is the enemy of economic development."

Robertson also acknowledged the importance of embracing the general public: "We know that LNG is an industry with an outstanding safety record—but we must appreciate that not everyone knows this. In North America and especially the West Coast, we cannot go forward unless people are fully informed and supportive."

ChevronTexaco is working on LNG-export projects in Africa, Australia, and Latin America to serve markets in Asia, Europe, and North America, where it plans to build the Port Pelican LNG import terminal off the Louisiana coast.

BP's Ralph Alexander, chief executive and managing director, gas, power and renewables, called on US officials to consider the growing demands on FERC.
"FERC does an excellent job—but we know it faces a mountain of project proposals each with its own particular set of issues. It's imperative that the commission has all necessary resources that allow projects to proceed without compromising due diligence or pace."

Robertson and Alexander made their remarks at a panel that discussed US and global LNG markets. Another panel participant, James Mulva, president and CEO, ConocoPhillips, downplayed concerns by some local gas utilities that LNG gas imports may not be able to meet quality standards of pipelines built to handle North American gas. Mulva said that LNG gas is as safe as gas from domestic basins.

Trade associations that represent large US producers and pipeline companies agreed with Mulva's statement. They said there is no technical reason why LNG gas's energy content cannot be adjusted to meet pipeline specifications. The real issue will be who pays for and what government entity will regulate gas quality rules, they said.

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