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LNG Rising

Despite development challenges, LNG capacity is destined to play a bigger role in the U.S. energy mix.
Fortnightly Magazine - April 2004

Despite development challenges, LNG capacity is destined to play a bigger role in the U.S. energy mix.

When MidAmerican Energy announced its plans to build a pipeline to bring stranded Alaskan natural gas into the lower-48 states, the U.S. energy industry stood up and took notice. If successful, the project will bring the largest infusion of gas that this country has seen in many years-and not a moment too soon.

U.S. gas demand continues rising, even as production at North American gas fields has plateaued. Bridging the supply-demand gap will require an estimated 10 billion cubic feet (bcf) of new gas supplies per day by 2010. 1 The Alaskan pipeline could meet nearly half of that demand.

But gas won't begin flowing through that pipe until 2010 at earliest, and U.S. customers can't wait that long. Without significant new gas sources opening up, demand will begin to exceed the available supply sometime between 2006 and 2007. In the worst-case scenario, prices would skyrocket, forcing industrial gas users out of business, threatening the economy, and fueling a political firestorm. It's an ugly picture, no matter how you look at it.

Fortunately, significant new gas sources-and not just from Alaska-are opening up. The catch, of course, is that most of these sources are much further away than Alaska's North Slope. They're in places like Indonesia, Qatar, and Russia. And the only practical way to transport gas across such distances is to liquefy it, ship it in LNG tankers, and offload it at regasification terminals.

Not long ago, liquefied natural gas (LNG) was considered too expensive for the U.S. market. But technology advances have reduced the costs of producing LNG, and the price of gas in the United States has risen to the point that now LNG can compete alongside domestic natural gas. As a result, billions of investment dollars are flowing into LNG infrastructure to serve the U.S. market ().

Getting that infrastructure built, however, is proving to be anything but easy.

Site Snags

Siting LNG facilities is fundamentally difficult because numerous factors must converge to make a location usable. LNG regasification plants must be located at tanker-friendly seaports near a major gas pipeline. Yet they also need a lot of elbow room for safety and security reasons, which further narrows the list of appropriate locations.

Siting and permitting can be a drawn-out process, because this country has little experience with these facilities. Only four major LNG regasification terminals are operating in the United States today, so regulators may not be fully prepared to deal with a flurry of new applications. And disputes over state versus federal jurisdiction might cause further difficulties ().

As if these issues weren't challenging enough, the LNG industry suffered a serious setback recently when an LNG liquefaction plant in Algeria exploded. Although the cause of the tragedy is still being investigated (), the incident has added fuel to the fire of local opposition.

recently discussed siting issues with Tony Marsh, a managing director with the marine and energy division of Marsh USA Inc. in Houston; Amos Aviden, a principal