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North America's Source for Oil and Gas News
February 2004

Vol. 9, No. 9 Week of February 29, 2004

LNG safety draws attention

Receiving terminals ‘very different animals’ from Algeria liquefaction plant damaged in blast

Larry Persily

Petroleum News Government Affairs Editor

While the federal Energy Department expands its study of liquefied natural gas tanker and terminal safety issues, critics of LNG sites near urban areas continue to push for more assurances their communities will be safe from explosion and fire.

The federal study, ordered by Assistant Energy Secretary Mike Smith, will look at the safety risks of a large LNG spill in the water. The department has not given a date for completion of the study, which is an expansion of an earlier report attacked by critics as inadequate and allegedly misused to support permitting of new LNG terminals.

And the Federal Energy Regulatory Commission also is studying LNG spills on water to develop a model for calculating vapor and fire hazards. The report is due in March.

Adding to the safety focus on the nation’s rush to build LNG import terminals, a bond rating agency warned of possible higher insurance costs and increased public scrutiny of the industry following a deadly Jan. 19 explosion at an Algeria liquefaction plant that killed 30 people.

Although U.S. natural gas users are looking forward to new supplies from whichever of the more than 30 proposed LNG receiving terminals eventually are built, the Algeria explosion provided opponents of LNG expansion with a visible reminder of the risks in handling natural gas.

Algeria blast started in boiler

The Algeria blast, however, did not start in the liquefaction equipment but in an ordinary steam boiler separate from the gas processing equipment, according to initial industry reports. The steam boiler explosion set off the liquefaction trains.

But a more recent report carried by Reuters quoted the Algerian Energy minister as saying he was told by insurance experts that gas may have leaked from a cracked pipe and exploded. The Los Angeles Times reported, however, that only small amounts of LNG were stored in the area of the explosion.

Working from the initial accident reports in an effort to reassure nervous residents of proposed LNG sites, industry officials have explained that regasification plants don’t include steam boilers.

“There will be a small percentage of people who overreact to the news,” said Deborah Resley, a 23-year veteran of the natural gas industry in Texas, England and Trinidad.

Liquefaction and regasification “are very different animals,” said Resley, a Houston-based LNG consultant. Liquefaction is a massive refrigerator, chilling natural gas to minus 260 degrees Fahrenheit and turning it into a liquid for shipment aboard insulated tankers at 1/600th its volume as a gas. Regasification terminals allow the LNG to warm up, restoring the methane to its gaseous state.

“Basically, what a regas terminal does is take lumpy deliveries and smooth it out for the pipeline system,” Resley explained of handling a tanker delivery of perhaps 150,000 cubic meters of LNG and turning it into more than 5 billion cubic feet of natural gas.

Ratings service warns of higher insurance rates

Fitch Ratings, one of the three major international investment rating agencies, reported the week after the Algeria blast that insurance rates on LNG plants could increase in the near term, with rates easing back after all the facts are known and insurers regain full confidence in the industry.

Regardless of people’s concerns, the domestic market still needs new gas supplies. “The fundamentals in the gas market in this country are not going to go away,” Resley said.

“I hope the companies that are developing these regas terminals are taking on a massive explanation exercise,” she said. “The whole business of marketing gas is about information. … The more informed people are, the better armed they are to understand the risks.”

People also need to remember the nation needs new gas supplies, said Ralph Alexander, BP’s chief executive for gas, power and renewable energy. “I think the greater risk for the U.S. is to reject LNG as a supply,” Alexander said in an interview published in Natural Gas Week.

Still, the perception that LNG presents safety hazards is going to be a continuing problem for companies looking to build new terminals to serve domestic needs, said Jim Jensen, a Massachusetts-based LNG consultant with 30 years experience in the industry. “The perceptions and the reality are often very different.”

Public education important

Jensen, like Resley, said educating the public will be important, adding that much of the “scare stuff going on right now” probably is not realistic.

Meanwhile, ExxonMobil confirmed it has scaled back its work to develop a new LNG receiving port near Mobile, Ala., in part because of community opposition. Alabama’s Republican governor was vocal in his opposition to the site, calling for an “in-depth, individualized, independent study” before federal regulators consider issuing a permit for the project.

Gov. Bob Riley said the study should look at “the most credible worst-case scenario” for a potential LNG accident at the site in Mobile Bay.

Jensen said he believes residents’ concerns, strengthened by the Algeria explosion, will push more than just the ExxonMobil project to the back of the line or out of the game entirely among proposed LNG sites. But that’s OK, he said. There are more proposed projects than the nation needs. “There’s a lot of deadwood that’s got to be cut out anyway.”

Not all projects will be built

Of the almost 10 sites proposed for the U.S. West Coast and Mexico’s Baja Peninsula, Jensen expects just two terminals will be built this decade. And of the more than 20 sites proposed for the U.S. Gulf and East coasts, most industry observers look for just three or four to start operating this decade.

And, as the industry works to reassure potential LNG neighbors of the safety of the facilities, it points out there have been just two fatal LNG accidents worldwide in the past 60 years. An improperly designed storage tank in Cleveland collapsed in 1944 and killed 128 people in the resulting fire, according to a September 2003 report by the Congressional Research Service.

The Cleveland tank was built with a low-nickel content steel alloy that turned brittle when exposed to the extreme cold of LNG storage. New storage tank technology has prevented a repeat of the Cleveland accident.

No matter that technology has improved over the past 60 years, many residents of coastal communities get nervous about the risk of terrorist attacks, which was covered in last year’s Congressional Research Service report.

“The LNG industry has a long history of safe operations and has taken steps to secure its assets against terrorist attacks,” the report said. “Recent studies have also shown that the potential hazard to the public of an LNG attack, while significant, is not as serious as is popularly believed.”

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