While the current shale-rich North American natural gas market carries little hope in the short term for new liquefied natural gas (LNG) receiving terminals, the proponents of the two surviving projects in Oregon remain optimistic that their day will come. Conventional wisdom, however, might suggest otherwise.

Nevertheless, both Peter Hansen, the project manager for Oregon LNG’s proposed terminal at the mouth of the Columbia River near Astoria, OR; and Bob Braddock, the project head for Jordan Cove along the south-central coast at Coos Bay, OR, are unflinching in their optimism for one or both of their facilities being operable about 2015-2016. They expressed resolve in separate interviews with NGI last week.

They acknowledge a depressed gas market and a daunting array of local and state permitting still to wade through — not to mention the Federal Energy Regulatory Commission (FERC) approval still needed for Hansen’s project at Warrenton, OR. Jordan Cove has a heavily conditioned FERC approval obtained last year (see NGI, Dec. 21, 2009), but it is fighting resistance locally to a connecting gas transmission pipeline, Pacific Connector, that would link the LNG terminal to interstate pipelines capable of moving supplies south to California or north into the load centers in the Pacific Northwest.

With both projects, it may appear that for every step forward there seems to be at least one or two other steps backward or to the side (see NGI, May 10).

Ill winds in the market, however, keep buffeting both projects. Oregon LNG’s backers are a major publicly held funding partner, Leucadia National Corp., a New York City-based diversified holding company, along with Hansen, who began the now $1.3 billion project in 2004 as the head of western development for Calpine Corp. When Calpine declared bankruptcy in 2005 he led a group to purchase the development rights with the help of Leucadia.

Jordan Cove is a limited partnership between an affiliate of Alberta-based Fort Chicago Energy Partners LP and Energy Projects Development LLC, which proposes to build the terminal at Coos Bay’s international port.

The backers still feel the projects will be economic over time, and both appear to have staying power, according to the two project managers.

“The present pricing of gas in North America is certainly not conducive to the expansion of any natural gas infrastructure,” Braddock said. “But given that Jordan Cove and Pacific Connector Pipeline are not scheduled to be in service until late 2015, the long-term pricing of natural gas remains the issue. I would be the last to try to predict when prices will move upward to a true replacement cost level, but in due course they will and that is the basis for the project.”

Most of the remaining permitting work on Oregon LNG’s proposal falls to the federal and state agencies. The project has completed most of its field work, so the cost of the remaining permitting is manageable, and Hansen maintains that it is still a “sustainable project” at this point in time. “Given all the work we have done, this certainly would be the wrong time to give up the project,” he said.

Hansen was asked if the shale gas boom, the nearly completed Ruby Pipeline and the prospects for a glut of gas in the domestic market weren’t discouraging his project.

“We have been at this for a number of years now and have seen all of these gyrations in the market,” Hansen said. “The one fact that remains out there is that all producers are going to want access to all markets, and it doesn’t matter whether they are producers here or in Australia or somewhere else. I view an LNG terminal, and the whole LNG chain, as just a long pipeline. Stranded gas always needs a place to go.

“My feeling is that we’re just one piece of that [global] puzzle. Currently, you get the impression there is going to be so much gas on the market that we are close to inexpensive gas here, but I think that may not hold true [in the long run]. Shale gas is not cheap gas, and there is cheap gas elsewhere [in the world]. Consequently, I don’t see anything as changed dramatically. The price dynamics right now don’t seem to favor LNG, but if you have followed this market for many years, you know things go up and they go down.

“When you’re doing a project like this, you have to take a long-term view, and that is what we are doing.”

Jordan Cove’s Braddock contends that LNG suppliers globally “continue to express a strong interest in establishing a Pacific Basin portal” tied to the North American gas grid. “At present, our project is the only opportunity for them to fulfill that ambition,” he said. Realistically, he said that those same LNG suppliers won’t commit to a project like Jordan Cove until “the critical permit uncertainties are removed or materially reduced.

“No one ever said this would be fast or easy, but the pieces are coming together.”

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