Once upon a time, some regions of the United States were havingproblems meeting peak seasonal demand for natural gas. Inadequatepipeline and storage capacity, combined with production exceedingnew natural gas discoveries, sent suppliers looking foralternatives. Imported liquefied natural gas became a hotcommodity. Now the story has been rewound and is playing all overagain — with bigger players and a wider stage.

The LNG market, which has had an up-and-down history in theUnited States, first gained its niche audience in the early 1960s,but because of the high cost of liquefaction, transportation inspecialized ships from remote locations, and re-gasification, ithas never played well in low-priced U.S. markets. All that haschanged with the current demand and high natural gas prices thatare expected to linger for some years. The two operating U.S.import terminals are seeing record business, and prominent energycompanies have announced plans in recent days to expand the marketlike never before.

Witness these recent news stories:

Jan. 24: The largest operating terminal, CMS Trunkline LNG inLake Charles, LA, said it more than doubled its cargoes last year,up to 55 from 27 in 1999. It conducted an open season in Decemberto offer long-term LNG terminal service and determine customerneeds for a deliverability expansion. The facility now has anexisting capacity to provide about 90 ship cargoes per year at 2.8Bcf per ship.

Jan. 28: Enron Corp. said it is looking into the possibility ofdeveloping a new import terminal for LNG in the Bahamas, connectedby a 90-mile pipeline to Florida. The cost of the proposed project,$300 million to $400 million, could be up and running by the end of2004, and be the first such facility built to feed the U.S. gasmarket since 1978.

Jan. 30: Williams Cos. filed an application with the FederalEnergy Regulatory Commission to reactivate LNG import services atits Cove Point terminal in Lusby, MD. The reactivation includesmodifying existing facilities and constructing new ones at a costof about $103 million. The total LNG storage capacity wouldincrease to 7.8 Bcf from 5 Bcf, with reactivation scheduled forApril 1, 2002.

Feb. 5: El Paso Energy Corp. announced it would spend at least$1.6 billion over the next five years to build six LNG terminals,three in the United States, two in Mexico and another in theBahamas. Five of the projects, costing $250 million to $350 millioneach, would serve the U.S. market and could be up and running sixmonths before Enron’s proposed Bahamas facility. The company’sSonat LNG subsidiary already is in the process of reactivating its4 Bcf capacity import terminal in Elba Island, GA. The plant,which could be operational this October, will be able to deliver540 MMcf/d of gas into the U.S. pipeline grid.

Feb. 6: BP Exploration (Alaska) Inc. pushed a proposal beforethe Alaska Senate Natural Resources Committee to liquefy gas thereand ship it by tanker to Asia or transport it to the Lower 48.Another proposal by Anchorage-based Yukon Pacific Corp. wouldliquefy gas at the port of Valdez then load it to tankers forshipment to markets.

What’s going on? Jeff Beale, a principal partner with CH-IVCryogenics LP in Millersville, MD, spends most of his timeoverseeing the activities of his company’s LNG engineeringactivities. An internationally known expert on LNG operations, hehas worked at both the Cove Point LNG terminal when it was running,and in 1979, he set up the engineering team for the CMS LakeCharles terminal and directed its startup. With 20 years in thebusiness, Beale said this week that he’s never seen as muchactivity in the LNG market as he’s seen in the past year.

“LNG is no longer a short-term stopgap,” said Beale. “It’sbecome just like a natural gas pipeline, and I think we’re going tosee a major growth in the LNG market, especially with what’s goingon in California and other parts of the country.”

As an outside consultant for Williams as it attempts toreactivate the Cove Point facility, Beale said LNG is “completelychanging to a commodity-driven market,” something he never expectedwhen he first came into the business two decades ago.

“Just track the gas prices,” said Beale. “That’s the realdriver.” He said that back in the 1970s, when the LNG market was infull swing, many countries set up a strong LNG trade, with Algerialeading the way. The U.S. market remained small, and wasconcentrated on the East Coast. Now, however, it’s very different.

“What we’re seeing today is LNG being treated as a spotshipment. It’s far more just a commodity like natural gas. You haveso many suppliers out there and their ‘pipeline’ is the tanker onthe ocean. It’s the same thing. If you step back from LNG and lookat it, it looks a lot like a gas pipeline; even more so today.”

More greenfield facilities are rumored, he said, in addition tothe latest announcements from El Paso and Enron, with the biggestsurprise expected for terminal construction along the West Coast.

“The ‘realty’ has always been concentrated along the AtlanticBasin,” said Beale. “You can look at all of the Pacific trade, butnothing on the U.S. side of the Pacific until the interest now.” Hesaid building a LNG terminal in Alaska “seems to be the logicalapproach” to supply the critical California market. The mostdifficult thing along the West Coast, he said, will be in findingpipeline interconnects.

For 10 years, the Western Terminal Association tried to site anLNG facility along the West Coast, but Beale said that after threeyears of work, it finally gave up. One proposed West Coast facilitylost out because it was too close to the San Andreas Fault. Thoughhe never thought there would be a Pacific-side LNG terminal, heexpects to see one soon. “There is a lot more competition there inthe marketplace.”

The last time the Energy Information Administration took anin-depth look at the LNG marketplace was 1997, said Margaret Natof,who is in charge of LNG storage information for the Department ofEnergy office. Though she knows of no studies planned in the nearfuture on the market, she said there is more interest.

“I get a lot of phone calls and there’s a lot of interest and alot of questions,” said Natof. “But it’s still only a small part ofwhat we’re tracking, and we just don’t have a lot of data.”

Only two LNG terminals in the United States are currently operating— CMS Trunkline and the Cabot LNG terminal at Everett inMassachusetts, which was bought by Tractebel last year. The Everettfacility received 44 cargoes at its terminal in 1999, up from 18 in1998, and it expected a 10% to 20% increase in import volumes by theend of 2000 (see Daily GPI, July 14,2000).

The two mothballed facilities are Cove Point and the Elba IslandLNG import terminal in Georgia. Neither has ever been in regularoperation. They were built, shut down and written off in theeighties because gas prices had dropped to uneconomic levels by thetime they were completed. Last year, Sonat, an El Paso Energysubsidiary, successfully petitioned FERC to reactivate Elba Island.Williams did the same with Cove Point.

Natof said most of the interest today remains with the “little”facilities that are used on site for businesses, which liquefypipeline gas and store it during the off-peak and re-gasify it forpeak use, but she expects that to change with the high cost ofnatural gas. LNG accounted for about 1% of the U.S. total gasconsumption, about 60 Bcf/d, in 1999, but some predict it couldgrow to between 5% and 8% if the four existing plants are expanded.

“What used to be backward is now forward,” said Beale. Wheresome energy companies once considered LNG a “four-letter word,”Beale said the attitude has totally flip-flopped. “LNG is justanother supply today, and it’s only going to grow.”

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