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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

commissioner with the Massachusetts Department of Telecommunications & Energy, and chairman of the National Association of Regulatory Utility Commissioners (NARUC) Gas Committee.

"It appears very competitive, and whether you are a regulated entity or not, you're going to have to pay serious attention to it."

Keating contributed to last year's National Petroleum Commission (NPC) study that projected LNG imports would grow to supply 14 percent to 17 percent of U.S. gas demand by the year 2025, up from 1 percent in 2003. Making this happen will require tens of billions of dollars to be invested in LNG infrastructure.

"We will need 10 to 12 import terminals by 2010, with 10 to 12 Bcf per day of capacity," says Darcel Hulse, president of Sempra Energy LNG Corp. in San Diego. Sempra estimates that between $5 billion and $14 billion will be invested in North American regasification facilities through 2010. At last count, 46 proposed LNG terminals were in various stages of development around North America, from the Pacific Coast to the Caribbean. Only about one-fourth of them actually will be needed, so developers are racing to get their projects permitted and financed first (). Projects fall into three main categories:

  • Onshore terminals: Most of the planned facilities are sited onshore, some in the United States, and others outside the country's borders. Examples include Sempra's 1 Bcf/day facility in Mexico's Baja California; and Cheniere Energy's 2.6 Bcf/day project at Freeport, Texas.
  • Offshore terminals: Offshore projects account for about one-fourth of the regasification facilities in development. At least three are being developed off the Louisiana coast: Chevron Texaco's 1.6 Bcf Port Pelican project, 40 miles out to sea; Shell's 1 Bcf/day Gulf Landing project, 38 miles offshore; and a unique, undersea buoy project 116 miles into the Gulf of Mexico, based on El Paso Corp.'s Energy Bridge concept. Excelerate Energy LLC, a startup company founded by oil billionaire George B. Kaiser, is developing the project.
  • Expansion projects: Three of the four LNG terminals currently operating in the United States are being expanded. For example, at the Cove Point facility in Maryland, Dominion Energy plans to increase capacity from 1 Bcf/day to 1.8 Bcf/day, and to add about 9 Bcf of storage capacity and two new pipelines. The fourth existing terminal (Distrigas LNG in Everett, Md.) already was expanded from 435 million cubic feet (MMcf) a day to 700 MMcf.

Regasification capacity represents only one part of the LNG value chain. When all the links are included, from exploration through regasification, 1 Bcf/day of LNG capacity requires about $4.5 billion to $6 billion in total capital investment (). Much of that investment already has been made, particularly at the exploration and production end of the chain. But gas producers are making major new investments in liquefaction plants and LNG tankers to serve the U.S. market's growing demand.

Demand Destruction

Investors that are pouring money into LNG capacity are counting on U.S. gas prices remaining fairly high-in the $4 to $5 range, generally speaking. While all the pertinent studies support these expectations, three key wild cards affect