The Global LNG Gamble
The Geopolitical Risks of LNG
To many energy-industry analysts, 2005 is a make-or-break year for the U.S. gas market. If we don't have at least several liquefied natural gas (LNG) terminals in construction by the end of the year, the country arguably will face serious gas-supply shortages and price spikes beginning in about 2008. 1
"The North American markets are now dependent on the growth of liquefied natural gas," says Michael Zenker, a senior director with Cambridge Energy Research Associates (CERA) in Boston. "If we don't get LNG, we don't have a plan B."
Facing such a situation, the gas industry is working feverishly to develop LNG-import terminals and regasification facilities on every North American seacoast. Development moved slowly in 2003 and 2004, and alarm bells were sounded in policy circles, most memorably due to Federal Reserve Chairman Alan Greenspan's address before the Senate Energy Committee in 2003. Soon thereafter, the federal government took action:
The Federal Energy Regulatory Commission (FERC) and the U.S. Coast Guard streamlined licensing and permitting processes; FERC eliminated "open-season" requirements to give developers clearer incentive to invest in LNG terminals, and asserted its authority over facility siting; The Department of Energy commissioned studies to analyze the risk of an LNG spill and formulate baseline science models to facilitate decisions regarding siting, design and permitting; and Lawmakers began a federal energy policy debate on LNG and natural gas in general. In late January 2005, the Senate Energy Committee convened a conference of industry leaders and policy analysts to discuss the myriad issues affecting natural gas.
Such policy developments indeed are adding steam to the LNG train. Two LNG terminals now are under construction, and several more have cleared their permitting hurdles. These projects will help the United States diversify its fuel supply by tapping into the deep wells of global LNG markets.
But some analysts are drawing attention to what they see as a dangerous elephant in the room-namely, geopolitical risks affecting the LNG trade; risks that make the U.S. utility industry more vulnerable, and intensify U.S. dependence on volatile global energy markets.
"Look at the supply chain, and where most of the LNG will be coming from," says Anne Korin, director of policy and strategic planning at the Institute for the Analysis of Global Security (IAGS) in Washington, D.C. "If you do that, you will see a lot of political risk. These areas are not oases of stability and good government." (See "U.S. LNG Imports by Source, 2002," p. 30, and "Long-Term North American LNG Supply Contracts Under Development," p. 33).
Korin and other analysts warn that reliance on LNG will expose utilities and ratepayers to a set of risks known mostly to transportation sectors. This set of risks includes political upheavals, terrorism, and the prospect of OPEC-like cartel behavior (see "LNG and Cartel Forces," p. 32). Even Trinidad & Tobago-America's predominant source of LNG today-exhibits a growing phenomenon of Islamic extremism. 2
LNG dependence might not be the worst security risk the United States faces, but the issue merits attention because it tightens the chokehold