North America should end up with more than enough capacity for importing liquefied natural gas (LNG), and the various gas quality/compatibility issues for imports can be solved, but unanswered safety and global market questions still loom large, according to speakers at a national meeting of state regulators Nov. 12 in Anaheim, CA.

Panelists expressed some doubts even after the discussion moderator, Massachusetts state regulator Robert Keating, introduced the topic by citing a finding of a joint federal Department of Energy (DOE) and National Association of Regulatory Utility Commissioners (NARUC) LNG partnership that estimated up to 25% of future U.S. gas supplies could come from LNG imports based on all the new import capacity now in the pipeline.

Mike Zenker, director of gas and power research at UK-based Barclays Capital, was skeptical about the U.S.’s chances of getting all the LNG needed to fill the capacity of the terminals now being planned and built. The question is: “Will LNG really fulfill the promise of fueling all the new and upcoming gas-fired electric generation plants?” Zenker asked rhetorically.

“The LNG boom that we’ve all heard about is clearly under way,” he said. “The real question is whether LNG globally is going to continue to fuel more of the North American marketplace. Maybe not.'”

Like most analysts in 2007, Zenker sees “a lot” of LNG coming onto the global market next year, but he is unsure that much of it will end up in the United States, other than occasional spot cargoes. “The fact is that the appetite for LNG in the Asian and European markets is growing faster than it is here,” Zenker said.

Zenker argues that in Asia and Europe end-users or utility distribution companies are signing long-term, fixed-price contracts for LNG whereas in the United States that isn’t happening as much downstream from the terminals, except what the Mexican government is signing up for from Sempra Energy’s North Baja California receiving terminal, which opens next year.

In a separate presentation last Tuesday in Houston, Sempra LNG’s CEO Darcel Hulse told the Wachovia Securities LNG conference that he sees the global competition as a good thing, and he is confident the United States will be able to hold its own as it does in other more mature global commodities such as oil and precious metals.

“Destination flexibility is part of the market,” Hulse said. “We believe if the U.S. wants gas the price will be there to attract it. Can we compete in a global commodity market? Sure, I believe the United States can compete for any global commodity out there as we have proved in oil, in gold, aluminum and copper.”

Hulse does not agree with critics who predict the United States will be a “dumping ground,.” and “market of last-resort” for global LNG. “I don’t believe that. I believe if the market is dynamic, the price will determine where the gas flows.”

Back at NARUC, a further complication surfaced in discussion of the critical LNG as outlined by Thomas Blanchat, a nuclear engineer heading the hydrocarbons security and testing programs at Sandia National Laboratories in New Mexico. Sandia and its parent organization, the DOE, are in the middle of looking at key LNG issues, Blanchat said, and the study of preventive and mitigation measures is still to be completed.

“Our most recent work was not intended to be site-specific, but to look at the impact of large-scale LNG fires (30 to 35 meters up to 100 meters in diameter),” Blanchat said. In doing this work, Sandia and DOE wanted to give state and federal regulators a model for how to do site-specific safety and security analyses.

In essence, Blanchat confirmed that some very sophisticated research correlations have been completed on LNG fires of various sizes, but he indicated that they are far from any of the definitive answers that some state regulators may feel they need to site LNG facilities.

On the issue of interconnectivity — mixing various natural gas sources from different regions of the world — Bob Wilson, environmental management director at National Grid’s Brooklyn-based KeySpan Energy, said a collaborative effort among about a dozen utilities in the Northeast has resulted in “a lot of answers,” and a lot of this part of the LNG puzzle is “common sense.”

Wilson said the will and the technology are available in the U.S. natural gas industry to be able to successfully mix imported and domestic supplies. He urged state regulators to look at a report by the consortium of utilities and to read and understand the FERC policy statement on the gas import interchangeability issues.

“When you really look at that FERC policy statement, it makes a lot of sense,” Wilson said. “It is not a one-size-fits-all mentality because they recognized that might compromise the fungibility of our product.”

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