LNG undoubtedly will play a pivotal role in the coming years in bridging the ever-widening gap between natural gas supply and demand in North America. Currently, dozens of industry collaborative ventures are vying to be among the first to propose, license, and construct LNG regasification facilities in the US and Mexico that will take on future deliveries from the burgeoning global LNG trade.
But issues such as long development cycles for receiving terminals, complex permitting requirements, environmental concerns, and the public's misconception about LNG and its safety continue to impede even the most fervent players' plans to capitalize on North America's need to increase gas imports to meet rising demand, particularly in the US Northeast and West Coast regions.
These were some of the trends outlined by industry panelists Apr. 20 at the North American gas strategies conference presented by Calgary-based Ziff Energy Group in Houston. Panel members, each of whom held a different stake in the developing North American LNG market, did concur that only a fraction of the currently proposed LNG receiving terminals in North American eventually would reach completion.
Of the roughly 30 LNG import terminal projects now proposed for North America, only about one third or less will be built, the panelists said. A high prediction came from Jim Heavner, senior vice-president, upstream, for Aliso Viejo, Calif.-based Fluor Corp., who estimated that by the end of the decade, 10 LNG import terminals would reach operational status.
Meanwhile, Rob Bryngelson, senior vice-president, Excelerate Energy LLC, The Woodlands, Tex., reckoned that only six LNG terminals would be constructed during that timeframe, distributed evenly among three areas—two on the East Coast, two on the Gulf Coast, and two in Baja California, Mexico, or off California.
LNG's new era
The North American gas supply gap is expected to grow "quickly and significantly," said Robert Wilson, senior vice-president, commercial, with Tractebel LNG North America LLC. Demand from gas-fired electric power generation is estimated to increase 1.2%/year, which will be offset only slightly by a decrease in industrial demand, he noted.
With North America's gas supply "flat to declining," the gas market has already seen the doubling of demand prices from a long-run average of about $2.50/MMbtu to a "new-era level" of $4-5/MMbtu, Wilson said. And even as large North American gas reserves remain, "they are increasingly more expensive, less accessible, and smaller" than in the past, he added.
In Wilson's view, LNG projects should, however, get a boost from widespread vocal support from the US federal government and other entities, including the US Federal Energy Regulatory Commission, the US Department of Energy, Federal Reserve Bank Chairman Alan Greenspan, and the National Petroleum Council.
Wilson noted that Standard & Poor's of New York reported that there are sound reasons behind energy investors providing financial backing for LNG projects. Sponsors for such projects typically have strong balance sheets, he said.
Also, the physical infrastructure supporting LNG operations is not subject to obsolescence, he said. "Basically, the process that is being used today is the same process that's been used over 30 years in creating LNG and vaporizing [it]. I think the only real improvements are the scale and the efficiency of the component pieces," Wilson said.
Global LNG suppliers
In 2002, global supply of 114 million tonnes of LNG was produced in 71 LNG trains, Wilson said, adding that the average size of an LNG train was 1.5 million tonnes/year (tpy). "That contrasts with the 3-5 million [tpy] trains that you've heard about and even larger trains being proposed. Qatar has got a total of four 7.8 million tpy trains proposed," Wilson noted.
The three top suppliers of LNG in 2002 were Indonesia, Algeria, and Malaysia. Collectively, these three producers account for about 56% of the world's LNG during that year. During that year, Indonesia produced 28 million tpy of LNG from 14 trains, Algeria 20 million tpy from 21 trains, and Malaysia 16 million tpy from 8 trains.
Wilson stated, however, that Qatar, now the fourth largest LNG-producing country, will be the "supplier to watch" in coming years. Qatar has proposals in place for a total of 13 trains, which will produce a total of 69 million tpy of LNG by 2009, he said. "Interestingly, not all of that supply is destined for the US," he added.
Siting challenges
When it comes to siting LNG terminals, Excelerate's Bryngelson said that "no place is a good place," mimicking the phrase commonly vocalized by activist-group opponents.
Bryngelson fears that the result of this mindset will be that "Facilities will continue to be located away from demand." Also, since developers are having an easier time siting facilities along the Gulf Coast, LNG supplies there will likely evolve into a "gulf glut."
Bryngelson also said that regulators and politicians in the US listen closely to the public with regard to siting issues. This might result in LNG terminals ending up being built in the easiest areas to permit, rather than in the best places to serve markets.
To meet public demand, industry has come up with several new concepts for LNG facilities. For example, Excelerate is in the process of constructing the world's first offshore LNG terminal in the Gulf of Mexico, which is slated to come online by yearend with first gas deliveries expected in January 2005, Bryngelson said.
Other concepts, explained Fluor's Heavner, include gravity-based terminals, floating storage and regasification units, and salt cavern storage.
