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Baja LNG: market has room for one terminal
Kristen Nelson Petroleum News Editor-in-Chief
Market fundamentals support a liquefied natural gas terminal on the West Coast, but significant challenges remain. And while a number of LNG terminals are in the planning stage, the market only has room for one, Gerardo Rivera told the Alaska Natural Gas Development Authority board July 7.
Rivera, who is with the ConocoPhillips LNG Group out of Houston, said eight projects are in development along the West Coast, with those in Baja California probably the farthest along: Marathon near Tijuana; Sempra and Shell north of Ensenada; and ChevronTexaco offshore near the Mexican Coronado Islands. Projects face major challenges Mitsubishi, Crystal Energy and Calpine all have projects in Southern California.
The Marathon project has one of its permits, the CRE from the energy regulatory commission in Mexico, but there is a significant amount of opposition to the project from residents of Tijuana, he said.
The Shell and Sempra proposals are farther along: Both have their environmental permits and Rivera said he believes they will get their CRE permits. But both face local opposition.
ChevronTexaco is talking about both onshore and offshore facilities and Rivera said the focus is on an offshore facility north of Rosarita. “One of the biggest hurdles there is that the government of Mexico does not have standards and regulations established for an offshore facility yet.” ChevronTexaco has no permits.
The most prominent project in Southern California is the Mitsubishi project at Long Beach, which has some local support, but has yet to clear the California coastal commission.
Crystal Energy is a small company proposing to use an existing platform offshore Oxnard to bring in a ship, offload, re-gasify and deliver gas directly to the market. This project is also in very preliminary stages. Technology of offload from an LNG ship to a fixed platform is not yet proven, he said.
Calpine is also looking at using an existing oil platform which is near abandonment. Three key permits needed Projects in Mexico require three key permits: the CRE from the energy regulatory commission, the MIA environmental permit from the Mexican equivalent of the Environmental Protection Agency and local land use permits from municipalities and states.
No project has all three permits, he said.
ConocoPhillips also has a Baja California terminal project at Rosarita, a project which has been under way since early 2001. Just a year ago, the company’s application for an environmental permit for the facility was denied. ConocoPhillips has learned that “there’s a significant amount of opposition in the community” to industrial development, Rivera said, partly because of a lack of understanding about what LNG is, and partly because residents question why facilities should be built in Baja to supply gas to California. When told about permitting difficulties in California the Baja response is: “if you can’t even get approval in your country, why come down here?”
Rivera said that while a number of projects are being developed, “there remain some significant hurdles before they will get to the point where they’ll actually have a project that will break ground…”
Market for 1 tcf; 8 tcf worth of projects Rivera said that while ConocoPhillips believes “the market fundamentals support an LNG import project along the West Coast,” there are eight projects with total capacity of more than 8 trillion cubic feet a day of re-gasification capacity. The reality, he said, is that the market supports one terminal.
All of the terminal activity is “a little misleading,” he said. “You can’t assume that there’s that much demand down there. The demand is about a bcf a day, which is one terminal, 7 million tons per annum of LNG capacity.” When one projects gets its permits and breaks ground, he said, the seven other projects will be dropped.
ConocoPhillips believes most of the supply for that one West Coast terminal “will come from excess supplies in Asia Pacific,” where projects with lower cost structures are under development. It’s the lower cost structure that is significant, he said — how does the cost structure for Alaska LNG compare to LNG from Indonesia or LNG from Sakhalin? Because Alaska LNG would be at a cost disadvantage, LNG from Asia-Pacific areas could “come in at a lower cost in California than an Alaska LNG project.”
In addition to permitting, there are a lot of commercial issues remaining, he said, a lot of hurdles to overcome.
And as for West Coast developers committing to buying LNG for terminals, Rivera said it’s a bit of a chicken and egg deal: “the developers want to buy the supply, but then the sellers — the producers — want to see who’s going to be the winning developer.” A developer who locks up supply could be called the winner, he said, but if a producer commits to a developer who doesn’t build a facility, the producer misses out on the opportunity to sell 7 million tons a year to the eventual winner.
“So there’s only going to be one terminal there,” Rivera said: “No one wants to commit to the particular developer because there’s still a long ways to go before the deals are going to be complete.”
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