U.S. became net LNG importer in 1997

Edward J. Swain
Consultant
Houston

Despite a slight increase in exports, 1997-the most recent year for which full data are available from the U.S. Energy Information Agency (EIA)-saw the U.S. become a net importer of LNG for the first time.

LNG imports into the U.S. for the year nearly doubled, compared with those for 1996. Total 1997 LNG imports were 77.78 bcf, compared to 40.27 bcf in 1996 (OGJ, Jan. 19, 1998, p. 52), an increase of 93.1%.

Algeria supplied 65.67 bcf, Australia 9.69 bcf, and Abu Dhabi 2.42 bcf. About 60.7% of the imported LNG was received at Distrigas Corp.'s terminal just north of Boston. The remaining LNG was received at the Global Asset Development (formerly Pan National LNG) terminal in Lake Charles, La.

LNG imports during 1995 were at a low level, not because of lack of U.S. demand but because of limited supply. Algerian state oil and gas company Sonatrach was the sole supplier of LNG to the U.S. before 1996.

In late 1994, Sonatrach started a major renovation to restore its LNG plants to their original capacities. These projects resulted in LNG-export curtailments to all its customers, including Distrigas and Pan National LNG. As the renovation of certain facilities was completed, Sonatrach increased LNG exports in late 1996 and early 1997.

As several of Sonatrach's LNG plants were completed in 1996, LNG shipments to Distrigas' terminal increased. Also, Sonatrach's shipments to Global Asset Development's terminal increased during 1997.

Algeria's current LNG-export capacity has been restored to levels of before the start of its renovation project. Also, the Maghreb-Europe natural-gas pipeline began operating in November 1996 (OGJ, Nov. 11, 1996, p. 39; Feb. 16, 1998, p. 41).

This new 1,162-mile pipeline is designed to transport Algerian gas to Spain and Portugal via Morocco and the Strait of Gibraltar. This pipeline will free up more LNG export capacity, as Spain currently is Algeria's second largest LNG customer.

The total value of LNG imported into the U.S. was $213 million in 1997 at a yearly average price of $2.74/Mcf. The 1996 yearly average price was $2.80/Mcf, a 2.1% decrease.

LNG-receiving terminals

The four existing LNG-receiving terminals located along the U.S. East and Gulf Coasts are shown in Table 1 [38,191 bytes].

In 1988, Distrigas' terminal was restarted to receive LNG after being shutdown in 1987. The quantities of LNG imported through the terminal 1993-1997 and forecast quantities through 2003 are shown in Table 2 [21,487 bytes]; data are shown in Fig. 1 [47,684 bytes].

The terminal received 47.18 bcf (19 shipments) during 1997. Algeria shipped 15 shipments (36.71 bcf), Australia 3 shipments (716 bcf), and Abu Dhabi 1 shipment (2.36 bcf). April was the only month in which no shipment of LNG was received at the terminal.

The terminal received 27.62 bcf (11 shipments) during the first half 1998; it is assumed that the total yearly rate for 1998 will be 55.2 bcf.

The terminal primarily serves customers in New England. In the past, delivery of LNG from the terminal was mainly by trucks with some distribution by pipeline. New tie-ins to several local major natural-gas pipelines and new industrial contracts, however, have made major delivery changes in Distrigas' operations.

In 1997, the company received approval from the U.S. Federal Energy Regulatory Commission (FERC) to expand its vaporization capacity by 150 MMcfd, expand the marine terminal, and upgrade the terminal berthing. The expansion and upgrading projects are under way and were scheduled to be completed by first quarter 1999.

A 10% annual growth rate is assumed, using the 1998 estimated LNG quantity of 55.2 bcf as base and extending the forecast period to 2003. Under this growth assumption, the Distrigas terminal will be used at about 90% of capacity in 2003.

Pan National's LNG terminal at Lake Charles, La., reopened during 1989 and received one shipment of LNG from Algeria in December 1989. The quantities of LNG imported through the terminal during 1993-1997 and forecast quantities through 2003 are presented in Table 2. The data are illustrated in Fig. 1.

The terminal received 30.60 bcf (12 shipments) during 1997: Algeria made 11 shipments (28.07 bcf) and Australia 1 shipment (2.53 bcf). March was the only month that no shipment of LNG was received at the terminal.

The terminal received 15.17 bcf (seven shipments) during the first half of 1998, leading to a projected total yearly rate for 1998 of 30.7 bcf. The projected quantity of LNG for 1998 will be about the same as that received during 1997.

The terminal can move vaporized LNG into many major natural-gas trunk lines serving customers all along the middle and upper East Coast and in the central Great Lakes. In recent years, the natural-gas pipeline serving the expanding gas markets in Florida was expanded in delivery capacity.

Vaporized LNG from the Lake Charles terminal was to supply the additional natural-gas demands in Florida markets. If any additional natural-gas demands have occurred in Florida, gas supplies from offshore fields near Mobile, Ala., have met those demands. New production facilities at the offshore fields and additional distribution systems are being installed and will supply up to 1.2 bcfd of treated natural gas to serve the Florida markets.

The merger of Duke Power Co. and Pan Energy Corp. to create Duke Energy Corp. was completed in June 1997. The assets of Pan National LNG receiving terminal at Lake Charles were transferred to Global Asset Development (Duke Energy Services).

Duke Energy LNG Marketing & Management Co. is importing LNG from Australia under its short-term contract with Northwest Shelf LNG sellers. Also, it signed an agreement with Qatargas for a supply of 57,000 metric tons of Qatari LNG to be shipped in December 1998.

Although a 15% annual growth rate for importing LNG is assumed to take place in the lower Atlantic region, the Lake Charles LNG receiving terminal will likely be used at only about 25% of capacity by 2003.

The Cove Point LNG facility continues to be used to liquefy indigenous natural gas and store the LNG for later regasification during the peak demand periods in the central Atlantic and New England states. In the long-term, the facility will likely be a receiving terminal for importing offshore LNG.

Southern's LNG terminal at Elba Island, Ga., is unlikely to be in operation through 2003.

Existing, new baseload producers

LNG baseload plants in Algeria currently provide the majority of LNG to the U.S. These Algerian facilities have supplied LNG through 1998 and into mid-1999, the time frame covered by current supply contracts.

Spot purchases of LNG began entering the U.S. during 1996 from sources other than Algeria. About 4.95 bcf (two shipments) of LNG were imported from Abu Dhabi through Distrigas' terminal.

Also, five spot purchases were made during 1997: one shipment (2.42 bcf) from Abu Dhabi and four shipments (9.69 bcf) from Australia. These spot purchases indicate that LNG transactions are becoming more flexible and responsive to changes in the world marketplace.

The LNG-baseload plant in Trinidad is moving ahead since the engineering, procurement, and construction (EPC) contract was signed mid-1996. Current schedule calls for the LNG plant to be operating by mid-l999. The LNG output will be marketed into New England and such Western European countries as Portugal and Spain.

The proposed LNG-baseload plant in Nigeria will be on the coast with the first train scheduled for 2000 operations. Of the first train's output, 3% is contracted to Distrigas' Northeast U.S. operations. The remaining LNG output is slated for various Western European customers.

Another potential LNG supply source to the U.S. market, Venezuela's Cristobal Colon LNG project, continues on hold.

LNG pricing

The projection of LNG entering the U.S. marketplace does not consider low product prices and high LNG-producer costs. Some guidance of LNG-landing prices is available, however, from Sonatrach and other spot-purchase sources of LNG into Distrigas and Global terminals ( Table 3 [66,103 bytes]).

One needs to compare these prices against the price history of natural gas being purchased by electric utilities and industrial customers in the states where LNG terminals are located. These natural-gas prices are presented in Table 3. Reviewing the price history of the two customers, electric utilities and industrial, leads to an estimate of the markets in which imported LNG can be used as a baseload fuel.

When any new Atlantic Rim LNG producers come online in the late 1990s or early 2000s, will U.S. natural-gas prices be high enough to attract new supplies of LNG or will Western European customers provide home for the new supplies of LNG?

A major increase in U.S. natural-gas prices is needed to attract any new LNG producer. At the same time, however, higher natural-gas prices could bring more gas in from Canada.

Exports

The Phillips Petroleum Co./

Marathon Oil Co. joint-venture operation exported 62.19 bcf from the Port Nikiski baseload LNG plant on the Cook Inlet of southern Alaska for delivery to Tokyo Gas Ltd. and Tokyo Electric Power Co. Inc., Yokohama, during 1997.

The 1997 LNG shipments represented a decrease of 8.1% over the 1996 export volume of 67.65 bcf. Bechtel performed the expansion of the LNG facilities during 1992-1993 making the increase in exports possible from the past average level of 53.0 bcf.

The total LNG sales revenue to Phillips and Marathon was $238.4 million in 1997, a decrease of 3.3% over the $246.6 million received during 1996. The average selling price increased 4.9% from $3.65/Mcf in 1996 to $3.83/Mcf in 1997.

The 5-year (1993-1997) shipping-price history of LNG leaving Port Nikiski is as follows: 1997, $3.83/

MMBTU; 1996, $3.65/MMBTU; 1995, $3.41/MMBTU; 1994, $3.18/MMBTU; and 1993, $3.34/MMBTU.

The Japanese have been putting pressure on all their LNG suppliers to reduce the purchase price of LNG.

In 1997, seven countries supplied LNG to Japan: Australia, Brunei, Indonesia, Malaysia, Qatar, Abu Dhabi, and the U.S.

Indonesia was the major supplier at 37.6%; whereas, the U.S. supplied only 2.6% of the LNG imported into Japan. As energy resources imported into Japan are price indexed to world crude-oil prices and since the world-crude oil price decreased during 1997, the price of LNG imported into Japan decreased as well.

In January, LNG leaving Port Nikiski was priced at $4.25/Mcf. Every month after that the price fell, and in December the shipping-terminal price was at $3.58/Mcf and closed the year at an average price of $3.83/Mcf.

In mid-1988, the Phillips/Marathon joint venture signed an agreement with Tokyo Gas Ltd. and Tokyo Electric Power Co. Inc. to continue LNG sales through 2004. In 1967, it had signed the initial contract (that expired in 1989) with the two Tokyo utilities. Shipment from Cook Inlet to Tokyo began in 1969.

Under the new contract, two new LNG carriers (87,500 cu m each) will deliver about 64 bcf/year of LNG in 17 trips at maximum demand rate. Delivery at this rate was started in 1993. A review of the actual and forecast quantities of LNG shipped from Port Nikiski (Table 4 [60,394 bytes]) and (Fig 2 [49,247 bytes]) reveals that the contract quantity of 64 bcf/year was exceeded in 1995 and 1996.

During 1997, however, the LNG quantity exported to Japan was 62.2 bcf. Deliveries for the first 6 months of 1998 suggest a projected shipping quantity of LNG for the full year of 1998 at about 63.3 bcf.

The slowdown in the Japanese economy has led to fewer power-generation requirements. As the economy picks up in the coming years, so will the power requirements and in turn greater LNG needs.

Phillips operates the LNG plant and Marathon the LNG carriers. Sales and facilities' interest are split: Phillips 70%; Marathon 30%. Phillips and Marathon provided the feed gas to the LNG unit from gas fields in the upper Cook Inlet area.

The Yukon Pacific LNG project is unlikely to affect the export of LNG from Alaska to Japan through 2003.

LNG characteristics; net imports

Table 5 [94,860 bytes] presents quantities, receiving and shipping states, pricing, and heating content of 1997 U.S. imported-exported LNG. As the two terminals are receiving LNG from three sources, they need to be aware of the quality of LNG being received to prevent possible "rollover" of LNG in their storage tanks.

The heating values of the imported LNG indicate the quality and potential rollover problems.

The import-export LNG balance for the U.S., as presented in Table 6 [38,082 bytes], indicates that the U.S. became a net importer of LNG starting in 1997. Although there is an estimated growth in importing LNG, it will play a minor role in meeting future U.S. gas demands.

The Author