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Hess LNG: Crown Landing Challenges Can Be Overcome

November 9, 2009
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An affiliate of Hess LNG recently acquired BP's 100% ownership interest in Crown Landing LLC, which was developing the Crown Landing LNG terminal on the Delaware River in Gloucester County, NJ. Hess LNG sees the site as a strategic location for an LNG facility, which could be completed about seven years from now, the company said last week.

BP Crown Landing LLC, which suffered a setback at the hands of the U.S. Supreme Court in spring 2008, suspended its terminal plans about a year ago (see NGI, Oct. 13, 2008). In late March 2008 the court ruled that the state of Delaware could block the construction of an off-loading pier that would serve the LNG terminal (see NGI, April 7, 2008). Hess LNG CEO Gordon Shearer told NGI, the off-loading pier issue will be an obstacle for his company, but not an insurmountable one.

"It's clearly an issue," Shearer said. "It's fair to say also that BP had done some work to identify alternatives, and we also have similar issues in our [Weaver's Cove Energy LLC] project in Massachusetts [see NGI, Feb. 9]. We know how people try to block unloading jetties, and so we've got some sense of potential ways forward to get around that particular issue, and that's part of what we're working on. It's not a rush job. It's going to take us quite some time to get through this process."

Any solution to emerge will likely include politics and engineering as "there's nothing that's a pure engineering solution; there's nothing that's a pure political solution," Shearer said.

Terminal completion is six-seven years away, probably a little longer, he said. Although LNG imports to the United States have picked up some from last year, they are nowhere near 2007 levels. By the time Crown Landing is online, Shearer expects more supplies to be available and for the North American market, particularly the East Coast, to be attractive.

"...[T]here is obviously a major growth under way in LNG supply, and there are certainly a lot of new projects on the drawing boards, most of which are targeted at the Asia-Pacific market area," Shearer said. "But with the economic slowdown and, in general, caution on the part of many of the traditional utilities in the Far East, the demand may not materialize to anything like the extent that people had estimated.

"Some portion of the world's LNG supply is going to end up in the United States or in North America, and that's by default. It may be the market of last resort, but it's unlikely that you're going to see people shutting in liquefaction plants because the U.S. price is lower than the European or the Asian prices. If some portion of LNG is coming to the U.S., then it's our view that the better-located terminals in terms of access to the better markets should be able to secure a piece of that in competition with any other import points."

For the time being, though, industry analysts are predicting strong draws for LNG cargoes from Asian and European markets (see related story).

U.S. East Coast premium markets for regasified LNG run from the Dominion Cove Point LNG LP terminal on the eastern shore of Maryland (see NGI, July 20) to the Distrigas of Massachusetts LLC terminal in Everett, MA (see NGI, July 21, 2008), according to Shearer. While prices in the region might not be at a parity with oil, they traditionally have offered a premium to Henry Hub, he noted. "Those premiums will enlarge and contract with various dynamics in the marketplace, but it's a situation we like. When we look at it on a portfolio basis, we've got a terminal in development in Northwest Europe. That combination creates a very attractive portfolio from an LNG supplier's perspective."

Crown Landing also is in an area that Hess has considered its North American backyard for some time, Shearer noted. "Hess is familiar with the Northeast. That's where we market most of our gas and electricity and also our oil...We've got the Weaver's Cove project up in Massachusetts. We've now got Crown Landing."

Hess also has a regasification project on the West Coast of Ireland and is in talks with the government of Bahrain on an LNG import opportunity, Shearer said.

On the upstream side, a number of regions where Hess is active could be candidates for LNG liquefaction development, the Northwest Shelf of Australia in particular, Shearer said. There also is Indonesia, Libya and Egypt. "Internationally, the E&P [exploration and production] segment of the company has upstream gas positions, which could ultimately translate into upstream LNG positions," he said. Floating LNG liquefaction (see NGI, Oct. 12) is being considered, particularly for Australia, he said.

The recently opened Canaport LNG terminal, a project of Spain's Repsol and Canada's Irving Oil, is not as well situated with respect to gas markets and has not received an abundance of LNG cargoes to date, Shearer said. "I think the jury is out on how much LNG Repsol will bring to the North American market," he said. "They don't have a huge portfolio, and they certainly aren't attracting any third-party LNG to Canaport, at least they haven't so far. And so the jury is out. [It is] an expensive trip from Canaport to southern New England where the market [for the regasified LNG] is. That's an interesting question and the jury is still out on that." Repsol Energy North America President Phil Ribbeck recently told NGI the terminal could be sending out 600 MMcf/d of gas next year (see NGI, Oct. 19).

Russia's Gazprom recently entered the North American market with a marketing and trading operation based in Houston that is in part predicated on LNG (see NGI, Oct. 26; Oct. 5). However, Shearer asked how long it will be until Gazprom realizes an LNG project at the Shtokman gas field in the Barents Sea and in the Arctic's Yamal Peninsula (see NGI, June 15). "They have some very ambitious targets, but they've got to find a market," he said. "Do they affect a market? Yes, but where do they affect it and how do they affect it? I don't know."

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