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The Global LNG Gamble

The Geopolitical Risks of LNG
Fortnightly Magazine - March 2005

forces, not public policy.

"The whole argument for LNG is being driven by environmental concerns, price factors, and investment questions," Korin says. "These are legitimate concerns, but utilities need to take a step back and look at the whole context. If you do that, you'll see a whole slew of options that deserve to be considered." Most notably, coal, nuclear, and renewable energy sources offer domestic alternatives-albeit probably more costly and challenging ones.

"Natural gas is a bridge fuel and is the cleanest fossil fuel," says Rep. Mark Udall, D-Colo. "We need to work to bring LNG into this country, but in the long term we need to work in the direction of domestic alternatives-such as coal gasification and biofuels." 7

These alternatives are receiving public policy attention and government support, vis-à-vis tax benefits, R&D funding, and regulatory encouragement. Moreover, the largest domestic substitute for natural gas-coal gasification-is being pursued aggressively in certain corners of the U.S. utility industry. 8

But lawmakers have barely begun facing the national policy question of whether such alternatives are competing on a level playing field against LNG imports. 9 To secure global energy supplies, Americans already pay an enormous and rising toll, including defense costs estimated at more than $100 billion a year. This toll is not reflected in U.S. energy prices today; nor will it be under LNG-import scenarios that are likely to emerge from the current development trend.

Utility reliance on a global LNG trade raises the stakes in the global security gambit. America's public policy institutions have only begun exploring whether those stakes are acceptable, nor have they considered how to assess the costs. That debate seems likely to happen someday, but whether that day comes before or after U.S. utilities face LNG supply disruptions depends largely on political will-and the brutal hand of fate.

Endnotes

  1. "Balancing Natural Gas Policy: Fueling the Demands of the Growing Policy," National Petroleum Council, 2003.
  2. Kelshall, Candyce, Director, Bluewater Defence and Security Ltd.: "Radical Islam and LNG in Trinidad and Tobago," Energy Security, Nov. 15, 2004.
  3. Banaszak, Sara, PFC Energy, "Linking Natural Gas Supplies to Critical Markets," , U.S. Department of State, May 2004.
  4. Odawara, Youichi, .
  5. Luft, Gal and Korin, Anne, "The Sino-Saudi Connection," , March 2004.
  6. National Petroleum Council, .
  7. Burr, Michael T., "Gasification Gets Real," , January 2005.
  8. The National Association of Regulatory Utilities Commissioners convened a conference Jan. 24-26, 2005, at Carnegie-Mellon University. "The Natural Gas Crisis: Finding Clean Solutions" in part explored rate-design and related factors
  9. Copulos, Milton R., National Defense Council Foundation, "Set America Free" (teleconference), Jan. 22, 2005

An OPEC for Gas?

At a meeting in Baghdad 45 years ago, representatives from five countries came together to form a trading alliance: the Organization of the Petroleum Exporting Countries (OPEC). For years, the U.S. energy industry felt little influence from OPEC. But over time, the oil market became more global, the U.S. imported more cheap oil from abroad, and OPEC gained leverage. By the early 1970s, America was importing about 35 percent of its oil needs.

Then war broke out