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FERC okays LNG terminals But getting enough LNG a problem; EIA says Mac, Alaska lines economic By Allen Baker For Petroleum News
Three new LNG terminals and two expansion projects approved by the Federal Energy Regulatory Commission June 15 could allow additional imports of nearly 10 billion cubic feet of natural gas daily — well in excess of the amount that would be carried by the proposed pipelines from the North Slope and the MacKenzie Delta combined.
But the industry is facing a serious question as the terminal approvals pile up: whether cargoes will be available to keep those ports busy. A typical terminal costs in the neighborhood of three quarters of a billion dollars, and it won’t be a good investment if it’s sitting idle.
All of the new capacity approved in this round will come into the Gulf Coast and East Coast markets, which already have substantial import capacity in operation and more under construction.
The new projects with FERC approval are:
• BP’s Crown Landing in New Jersey, which has been held up by court battles over whether neighboring Delaware can block the needed piers. The terminal would have a sendout capacity of 1.2 billion cubic feet daily.
• Sempra’s Port Arthur terminal in Texas, which would be built in two phases with an ultimate output of 3 bcf/day.
Cheniere’s Creole Trail LNG in Louisiana, with an output of up to 3.3 bcf/day.
In addition, the regulatory agency gave the green light to two terminal expansions.
One is Dominion’s existing Cove Point in Maryland, where potential output would increase by 800 million cubic feet daily. The other is an expansion of Cheniere’s Sabine Pass project to 4 billion cubic feet daily, from 2.6 billion, for an increase of 1.4 billion cubic feet daily.
That brings the total to 9.7 billion cubic feet of new daily capacity, approved by FERC in just one series of rulings. Add the current capacity of around 5 billion cubic feet daily, and 5.5 billion cubic feet of daily capacity under construction, and you get a total of more than 20 billion cubic feet of daily capacity. That’s without taking the West Coast into account at all.
What’s the market going to demand? Well, considerably less than that, if the economists are right.
According to the U.S. Energy Information Administration’s International Energy Outlook, released June 20, LNG imports will reach 4.4 trillion cubic feet by 2030, or 12 billion cubic feet daily, compared with that 20 billion cubic feet of daily capacity.
The United States and Canada have 4 percent of the world’s proved gas reserves. Meanwhile, North America provides 28 percent of world consumption (27.4 tcf/year out of 95 tcf) – 19 tcf being the United States’ share. That translates into 10 years worth of production at current rates. Now a Trickle Despite the rush to permit and build new LNG terminals, current U.S. facilities are running at well under half of their capacity, even in peak demand periods, according to EIA figures. On average, they handled 1.7 billion cubic feet a day last year, down 3 percent from 2004.
About 30 billion cubic feet monthly, or a billion cubic feet a day, is coming from the big Trinidad LNG trains. But cargoes from other sources are essentially seasonal, and seldom approach a billion cubic feet a day in total.
Here’s a typical example:
Last October, in the high-price environment following the Gulf hurricanes, Trinidad sent the LNG equivalent of 33 billion cubic feet of gas to U.S. ports. Algeria was the second-largest LNG source that month with about 12 billion cubic feet, while Egypt provided under 9 billion. Malaysia and Nigeria together provided 6 billion more for a total of 59.6 billion cubic feet, or just under 2 billion cubic feet daily.
Granted, imports are constrained by the fact that there are currently no terminals on the Pacific Coast to receive LNG from Australia’s big producers, of from Indonesia.
But the new terminals and expansions approved this month are all along the Atlantic and Gulf coasts. Their backers presumably are hoping for shipments from projects underway in Nigeria and maybe from equally gas-rich Venezuela down the road.
Cargoes certainly will come from Qatar, which is expected to be exporting the LNG equivalent of about 10 billion cubic feet a day by 2010. But transport costs are higher from that Middle Eastern nation, which can also ship to closer markets in Europe and India.
As with oil, natural gas reserves are concentrated in the Middle East and Eurasia, which have nearly three-quarters of the world’s total, according to the EIA. Russia, Iran, and Qatar combined account for about 58 percent of the world’s natural gas reserves. That’s not a positive sign for U.S. consumers who will have to foot the bill for keeping expensive LNG tankers at sea for longer periods to bring the fuel to North America. The Asian equation The opening of Sempra’s Baja California terminal in 2008 will make it easier to get shipments routed to the U.S. market from the Australian region, and from Sakhalin Island as well.
The Sempra terminal will be able to send out a billion cubic feet a day at the start, about a sixth of California’s consumption, and a planned expansion could add capacity for 1.5 billion cubic feet more. Other West Coast terminals are in the planning stages, despite opposition by coastal residents.
But the way the world market is shaping up, there may not be much excess supply for those U.S. terminals either. Future shipments from Australia and elsewhere in Asia are being swallowed up by Japanese and Korean utilities locking in huge quantities with contracts that often run a quarter of a century.
Chevron has already made long-term deals with Japanese utilities for half of the potential production from its Gorgon field off Australia, which hasn’t actually been sanctioned and is facing environmental as well as pricing pressures. Current estimates are 10 million tonnes of annual production (1.3 billion cubic feet daily) after an investment of $8 billion, or perhaps considerably more based on current noises coming from the company. Japan’s leading role Japan is already importing 58 million tonnes of LNG annually, the equivalent of 7.6 billion cubic feet of natural gas daily, and is expected to increase that to around 10.5 billion cubic feet daily (80 million tonnes annually) by 2020.
Korea, the world’s second-largest importer, took in 22.6 million tonnes of LNG last year to yield about 3 billion cubic feet of natural gas daily. Consumption there is also increasing at around 5 percent a year, though that pace could slow.
India is already importing around 10 million tonnes, or 1.3 billion cubic feet a day, with projections calling for that amount to triple by 2015.
While China has backed away from Gorgon and other LNG deals recently due to higher prices, that country is likely to get back into the market for clean-burning natural gas, as the air over its cities becomes even more choked with pollution.
Both China and India are expected to rely on imports for 40 percent of their natural fas consumption by 2030, according to the EIA report. That would mean imports of around 13 billion cubic feet daily. And while there have been proposals for new pipelines to help supply those nations, those projects face some major logistical and political hurdles. Bullish for pipelines Asia will certainly see new LNG supplies coming on line from Gorgon, Tangguh, Bayu-Undan, Sunrise, Sakhalin, and so on, at a cost of many tens of billions of dollars.
On June 19, for example, ConocoPhillips said it may commit up to $10 billion to boost capacity at its Darwin, Australia, LNG plant from 3.5 million tonnes annually to as much as 10 million tonnes. But that will require more production than Bayu-Undan is expected to provide, with undeveloped offshore fields such as Sunrise and Caldita seen as possible gas sources.
But Asia’s growing demand isn’t likely to allow a glut of LNG to developing in the world market. That means high prices, which are expected to dampen demand to some extent, according to the EIA energy outlook.
The high prices have another impact, however, providing a rosier picture for the proposed pipelines from North America’s Arctic.
The EIA says that according to its projections “rising natural gas prices make it economical for two major North American pipelines that have long been in the planning stages to come online. The first, a Canadian pipeline to transport natural gas from the MacKenzie Delta, is expected to become operational in 2011. The second, an Alaska pipeline, is expected to begin transporting natural gas from Alaska to the lower 48 States in 2015, contributing significantly to U.S. domestic supply. From 2003 to 2030, Alaska’s natural gas production accounts for most of the growth in domestic U.S. conventional natural gas production, with flows on the pipeline exceeding 2 trillion cubic feet in 2030.”
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