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Frontlines

Fortnightly Magazine - September 2004

Frontlines

Imported natural gas contains more Btus and fewer impurities than the domestic variety, raising questions for LNG development.

It started as a small problem that was supposed to stay small. When Federal Reserve Chairman Alan Greenspan called for a global natural gas market in 2003, the industry knew inherently that the quality and composition of natural gas imported from places like Qatar and Nigeria would vary from the gas used domestically in the United States.

But utility execs were not fazed much. Many assumed that the American gas utility sector could resolve the problem without much effort-as the Europeans and Australians, who import sizeable qualities of LNG, have already done.

After all, if the oil majors could manage to blend and standardize the world's diverse grades of crude oil to accommodate any automobile driven around the globe, then surely the natural gas industry could do the same. Gas-fired generation is not rocket science. Neither is the home furnace, the kitchen stove, or the basement water heater.

Yet today, more than a year after Greenspan's speech, this small issue has morphed into a major obstacle-one that experts say could delay LNG development plans. The challenge of gas interchangeability has raised questions about reliability, finance, and environmental compliance, with very few answers to come by.

In a nutshell, most gas-fired equipment and appliances in America are not calibrated to the enhanced combustibility of LNG, which boasts a higher quality and fewer impurities than domestically produced and process gas.

The American Gas Association, for its part, does not believe that domestic end-use equipment will have to be altered in any major way, as different proposals call for a standardization of natural gas quality that would include foreign sources. In addition, several injection and techniques do exist for blending gas (such as with nitrogen, air, or lower Btu natural gas). Those techniques could be used to lower the combustibility or Btu content of imported LNG.

But the gas industry in its history has never had to set a gas quality standard or decide on a gas interchangeability number.

The Cost of Upgrades

Rhone Resch, vice president of energy markets at the Natural Gas Supply Association, which is part of a coalition working on the problem of gas interchangeability, believes the industry effort will be worth the wait. "We are going to come up with a characterization of value," he says.

"If we go too fast, we won't have the necessary equipment and blending capability. In order to go into the market, I as an LNG developer have to meet the correct pipeline specifications."

Resch adds that LNG developers will want to know in advance what equipment they will require, as upgrades have proven costly in the past. He cites the example of an LNG terminal operator having to install a $200 million nitrogen injection system after the fact to meet a customer's gas quality specs.

By contrast, Resch believes that high-cost upgrades for LNG gas will not be needed for appliances and similar end-use equipment, but many in the power generation sector are not convinced.

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