LNG: Chevron, El Paso and Enron High on Future
In growing indications that liquefied natural gas will become more than a niche fuel in North America, Chevron said last week it is "reviewing options" for importing LNG to serve the West Coast by 2005, El Paso Corp. said LNG would play a bigger role in its energy picture --- and Enron Corp. said it would begin listing it for trading through EnronOnline this year.
Although there were no specific details on where Chevron would store the LNG, it said that a team would evaluate several alternative locations, including an offshore site, as part of its project review. This past week, Chevron said it could build a receiving terminal along the California coast to regasify the equivalent of 500 MMcf/d. Chevron said it could import as much as 3.8 million tons of LNG to the United States annually, which converted to electricity is about 3.5 gigawatts.
"We think this project has tremendous possibilities both in terms of helping to ease the region's energy shortages and using a clean fuel to do it," said Peter Robertson, president of Chevron Overseas Petroleum Inc.
The LNG would be supplied by Chevron's extensive holdings in Australia, and Chevron said some of the gas would be used as fuel for new and existing electric generation plants. Chevron is part owner of the Northwest Shelf LNG project off the coast of western Australia, which now ships 15 Tcf to markets in the Far East. It also is partner in the Gorgon Project offshore Australia, which has not ramped up production yet.
A terminal along the West Coast would require between 200 and 400 acres and would have to have access to deepwater ports for the LNG tankers, which when filled weigh approximately 70,0000 dead-weight-tons. A terminal alone would cost up to $400 million.
"We haven't determined the location of a receiving terminal that would be most suitable, but that is part of what we are doing in our current study," said Chevron spokesman Fred Gorell. He said both onshore and offshore sites are being considered. "The marketplace fundamentals are there to have us move forward, so we are gathering data and information, and we'll be looking at the economics." Chevron, headquartered in San Francisco, already operates natural gas and oil terminals in California.
"The key things we are looking at are safety and environmental factors, along with a site that can position us strategically in the marketplace," Gorell said. "We do think the fundamentals are in place for a regasification plant on the West Coast of North America."
In recent months, several other producers have announced plans to bring more LNG to North America, and the Chevron announcement is the second in less than a month that specifically targets the West Coast. Earlier this month, Phillips Petroleum Co. and El Paso Corp. signed a definitive agreement to supply southern California and Mexico's Baja California with Timor Sea LNG (see NGI, March 12).
The two companies' subsidiaries signed a letter of intent for El Paso's long-term purchase of LNG from a plant to be built by Phillips near Darwin, Australia, which would provide up to 4.8 million tons of LNG also beginning in 2005 for North American markets.
The Phillips deal is part of a plan by Houston-based El Paso, which said in February that it would spend $1.5 billion over the next five years to become a major LNG player in North America (see NGI, Feb. 12). Including the Phillips deal, El Paso said it would build six LNG terminals for North American markets, including three in the United States, two in Mexico and one in the Bahamas, with five serving the U.S. marketplace.
El Paso's John Somerhalder II, president of the pipeline group, told attendees at the 11th Annual Houston Energy Expo last week that "there is growing evidence that LNG needs to play a role. There have been significant technological improvements in the past decade, and LNG will be viable at several strategic locations for North America. We think there are about 700 Tcf of trapped proved gas reserves at these locations, and LNG will be a bigger part of the supply mix in the future."
Somerhalder noted that the cost of LNG tankers is "dropping," and said more efficient technology has led to a 30% decline in the cost of putting LNG into a pipeline, which he said is now less than $1.80/Mcf in capital costs (not the commodity itself). The transport distance from North American LNG facilities would make the current niche fuel "very competitive," he said.
With a reduction in costs, he said he expects North America's LNG market to grow from its current .05 Bcf/d to 2 Bcf/d once the existing North American terminals are all up and running. Then, once the proposed new LNG terminals are completed, Somerhalder said LNG could account for about 5 Bcf/d, which would play a "significant role in bridging the gap."
The North American natural gas market can grow, he said, but the "conventional production regime is stressed. We can tap the frontiers, but LNG will play an increasing role to meet North America's demand."
Also in early February, Enron Corp. said it too would begin supplying LNG to U.S. markets, announcing a plan to build a terminal in the Bahamas, which would pipeline supplies to Florida (see NGI, Feb. 5). On Friday, during a conference call with investors, COO Jeffrey Skilling spent a few minutes talking about LNG in Enron's future.
"The LNG market looks very attractive," said Skilling. "We've made a lot of progress in this area, and we have had 15 spot cargoes this year. This is up from virtually nothing last year. We are very interested in this in the future."
Skilling said Enron has options to own three LNG cargo ships, and also said that development of its gasification facility in Venezuela is on schedule. "The Bahamas project also looks very attractive for North America."
Because of its surge in business and because of the outlook in the energy industry, Skilling said that EnronOnline, its wholesale trading unit, would begin listing LNG "later this year." He had no other details. Carolyn Davis, Houston