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Northwest Weighs Gas, LNG Roles

Proponents of three competing liquefied natural gas (LNG) projects in Oregon made their case for the Pacific Northwest needing more natural gas in the decades to come, and tried to differentiate their spins on LNG's key role in providing more gas-on-gas competition in the region during the sixth annual regional energy conference June 3-4 sponsored by Northwest Gas Association and Northwest Industrial Gas Users.

Noting that North American natural gas prices longer term have to increase from higher exploration and development costs, NorthernStar Natural Gas President Paul Soanes said LNG is a price taker in North America that will help increase reliability and reduce price volatility. Soanes thinks LNG "competes favorably in North America with prices around $4/MMBtu as evidenced by some 70 cargoes of LNG recently announced for the Gulf of Mexico coast."

NorthernStar's Bradwood Landing LNG terminal proposal along the Columbia River in Oregon gained a conditioned approval from the Federal Energy Regulatory Commission last year, and has been working through various appeals and finalizing local and state permitting so far this year.

In painting a picture of domestic gas production going up (2 Bcf/d year-over-year in February), but demand still exceeding it by about 9 Bcf/d, Sempra Energy's Jeff Bush told the conference participants that wholesale gas prices are "looking for a bottom," citing the May Nymex settlement at its lowest level since 2002 ($3.21).

Another LNG project proponent, Bob Braddock, the project director for Jordan Cove LNG at Coos Bay along the south-central Oregon coast, offered a "dynamic pricing analysis" that concludes there is a potential for bringing an additional 2 Bcf/d of supplies into the Pacific Northwest through a combination of LNG imports and a new interstate pipeline from the Rockies. He sees the joint Jordan Cover and Pacific Connector Pipeline proposals as providing half of those new supplies.

Braddock said the region's access to that much additional gas will push down the basis differential between the Canadian gas import hub at Sumas, WA, and Henry Hub in the Gulf Coast region. "It also pushes down Henry Hub prices as new supply points create greater gas-on-gas competition both regionally and nationwide," Braddock said.

Oregon LNG CEO Peter Hansen, who is helming the third and most recent entrant among the three LNG projects in the region, explored the rhetorical questions raised by various opponents of LNG and/or new pipelines into the region. Not surprisingly, he concluded that LNG eventually will be needed, but he sees that need further off in the future as in keeping with his project's later timeline than those of its two competitors.

Hansen contends that more supply is good for consumers, so he is puzzled by why consumer groups would oppose the projects. "Why would a consumer ever want to restrict supply," he asked rhetorically.

Located at the mouth of the Columbia River -- rather than upriver like Bradwood -- Oregon LNG promotes its plans as the best location for receiving regular shipments of LNG off the large Q-Max Class of carrier ships. Hansen's project last week signed a memorandum of understanding (MOU) with the Oregon Department of Energy.

Other speakers at the conference included state regulators from Washington and Oregon, representatives from the major private-sector utilities, academics and government officials. Copies of the presentations were to be posted on the Northwest Gas Association website (www.nwga.org).

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