Judy Pensabene has joined the Republican staff of the Senate Energy and Natural Resources Committee as deputy chief counsel. She is returning to the committee, where she worked...
Gas Supply: Too little, Too late?
Pipeline and LNG terminal developments may arrive too late to prevent a natural gas disaster.
For exactly two months, MidAmerican Energy sponsored a $6.3 billion project to bring stranded natural gas from Alaska's North Slope to an adjoining pipeline in Canada. But when Alaska's Department of Revenue rejected MidAmerican's proposal for an exclusive partnership to develop the pipeline, the company pulled out.
"We believed our request to be the state's sole development partner for the initial project development period was reasonable, given the magnitude of the risk involved," says Robert L. Sluder, president of the project company, Alaska Gas Transmission Co.
The Alaska pipeline is not dead; Other companies, including a consortium of oil majors, comprised of BP, ConocoPhillips, and Exxon Mobil, are nursing their own plans to bring North Slope gas to the lower-48 states. But MidAmerican's abortive attempt exemplifies the on-again, off-again saga that has been played out around the project for the last three decades.
Despite its enormous gas resource, the North Slope thus far has been too remote to develop economically. Oil rigs in Prudhoe Bay currently produce significant amounts of natural gas, but with nowhere to sell it they simply inject the gas back into vacated wells, forcing out additional crude oil.
Meanwhile, gas is becoming a scarce commodity in the lower-48 states, and a rising chorus of analysts says a crisis has already begun in U.S. gas markets. "The new market environment is not only defined by higher prices, but also by enhanced price volatility," says a July 2004 report titled . The report, co-authored by Cambridge Energy Research Associates (CERA) and Accenture, predicts that "an event as simple as an abnormally hot summer or cold winter could push prices well above recent levels, to the $6.50 to $8 per MMBtu range in the summer and above $10 per MMBtu during a particularly cold winter." ().
Unfortunately, the problem is exacerbated by the slow pace of progress to build gas infrastructure-not just pipelines like the Alaska project, but also liquefied natural gas (LNG) terminals.
Several LNG projects already have run aground on the rocky shoals of siting and permitting, and others have experienced setbacks and delays. About three dozen LNG projects are moving through the development pipeline, but progress is agonizingly slow. The difficulties are understandable: LNG terminals are complicated and difficult projects, facing the technical and permitting hurdles of a petrochemical plant, a gas-storage facility, and a seaport combined.
Furthermore, in the post-Sept. 11 world, new questions are being asked about the safety and security of LNG facilities, and no one seems to have clear answers to those questions ().
"We've seen a number of projects already move back their online dates," says Michael Zenker, CERA's senior director for North American natural gas. "It has a lot do to with siting and permitting, and also lead time to build cryogenic storage tanks. There's no evidence of acceleration, but lots of evidence of time slippage."
Permitting challenges have changed the landscape enough that no one can say today