| LNG: North America's new liquid energy? |
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By Laura Gibson “LNG [Liquefied Natural Gas] could be the next major global energy commodity” according to the US Department of Energy.1 And by 2025 LNG is expected to supply almost 21% of the natural gas consumed by the US. This quantity is put into context when we consider that a quarter of the natural gas consumed worldwide each year is consumed by the US. 2 So, what exactly is LNG? LNG is, quite simply, natural gas in its liquid form. Cooling natural gas to cryogenic temperatures of -259°F/ -161°C changes it from a gaseous state to a clear, colourless, odourless liquid. During the cooling process most of the side compounds found in natural gas are removed and we are left with a natural gas that is composed mainly of methane. This liquid form is neither toxic nor corrosive and when it is returned to a gaseous form it burns efficiently, producing fewer greenhouse gases than any other fossil fuel. Another advantage is that LNG can be economically transported over long distances and stored in large quantities. And where does it come from? Countries with large natural gas reserves that far exceed domestic consumption can produce a supply of LNG. Currently, Qatar is the largest producer of LNG in the world and expects to account for 30% of total LNG supplies worldwide by 2011.3 Other LNG producing countries include Algeria, Australia, Brunei, Indonesia, Libya, Malaysia, Nigeria, Oman, and Trinidad and Tobago.  Fig 1. Existing, under construction and proposed gas liquefaction projects LNG in the USA At the moment, LNG provides only 2.8% of the US’s natural gas supply and 83% of natural gas is produced domestically. The other 12-14% is imported from Canada.4 However, US supplies of natural gas are dwindling and this production level cannot be sustained. Canada’s natural gas supplies for export are also flattening as natural gas is being used domestically in the oil sands extractions and more frequently in electric power plants.5 Unsurprisingly, North American demand is not diminishing: 64 million US families still rely on natural gas to fuel their homes and as supplies diminish and gas prices rise, American industries are considering moves abroad where their worldwide competitors are paying far less for energy.6 This gap must be filled and this is where LNG seems to come into its own… There are six existing re-gasification terminals in the US at the moment, located in Massachusetts, Maryland, Georgia, Louisiana, Gulf of Mexico and Puerto Rico. Forty-three additional re-gasification terminals have been proposed or are already under construction, mainly in the Gulf of Mexico.7  Fig. 2. Existing LNG re-gasification terminals in the US Although predominantly an LNG importer, there is one liquefaction plant in Alaska where natural gas is converted to LNG for export to Japan, another large LNG importing country. Three further liquefaction plants are proposed for Alaska. Historically this would not have made sense economically but rising natural gas prices and improved technology has made liquefying natural gas cost-competitive in this region right now. In Canada… Unlike the US, Canada does not import LNG at present. However, to date, four Canadian projects have received federal and provincial approval and are on the drawing board: Kitimat, British Columbia; Gros Cacouna and Rabaska, Quebec; and Irving Canaport, Atlantic Canada. A handful of other projects are also in the planning stage. The Atlantic projects are primarily designed with the purpose of supplying the US Northeast market since Nova Scotia offshore production meets present natural gas needs for the in the Atlantic provinces. The Irving Canaport LNG plant in St.John New Brunswick has received all necessary approvals & is now being built. Irving's partner is REPSOL, the Spanish energy firm. The gas will be shipped to the US North East market. The Quebec projects will provide an alternative source to markets in East Canada since Quebec currently relies on gas from West Canada. And the B.C. projects will supply natural gas to Vancouver Island and the Lower Mainland.  Fig. 3. Canada Liquefied Natural Gas projects Capital costs for each LNG import facility will be about CDN $500million. Natural Resources Canada argues that these import facilities will provide opportunities to extend Canada’s pipelines and bring direct economic benefits in the form of employment and taxes.8 Others are questioning the validity of this huge level of financial investment at a time when natural gas prices are not high enough to justify such an extension of the infrastructure. Changes in the North American LNG market However, Canadians cannot afford to ignore the burgeoning LNG market as they once might have. Two years ago Canadian gas was exiting Alberta for US customers at more than $10 per thousand cubic feet and the industry seemed secure and profitable.9 Yet, North American gas prices have remained lower over the ensuing period and available LNG has ensured ample supplies of natural gas in the US. When summer gas prices in the US rose higher than those in the UK or Japan, LNG poured into North America, filling winter storage capacity and preventing winter price booms. Subsequently, Canadians are losing their market share in the US: in 2001 approximately 94% of natural gas imported into the US was Canadian output but by July 2007 this level had fallen to 75%.10 Alberta’s producers are hoping that LNG exporters turn their attention to Asia once more where they can sell LNG at almost twice the rate they can in the US. But if Canadian producers wish to play a more proactive role in events, reducing costs in Alberta will be the main challenge. As Randy Eresman, CEO of EnCana Corp., Canada’s largest gas producer stated, Alberta will have to “re-establish [the] competitiveness” of the province’s gas industry.11 A global perspective At this stage, LNG might seem an attractive solution to the US energy question since it fills the gap between decreased production and increased demand, which serves to keep gas prices lower. At a national level it offers Canada alternatives, as well as challenges. However, natural gas, be it in liquid or gaseous form, is a non-renewable source of energy and this fact will impact and affect North America. Qatar may have proposed raising its LNG production to 77 million tonnes per annum at the December 2007 World LNG summit in Rome to the delight of LNG importers, but it will struggle to do so without damaging its gas reservoirs in the Northfield.12 Indonesia, previously one of the major global LNG exporters, has all but exhausted the gas reserves for LNG exports and is being forced to replace declining crude oil production with natural gas. At best, Indonesia is expected to renew only 50% of its LNG export contracts.13 The US will find itself competing more rigorously with other LNG importing countries for decreasing supplies. This will also force it towards trading with countries such as Algeria, which are out of sync with North American worldviews. As the LNG market changes from one where long-term contracts lock exporters into particular destinations for a number of years to a commodity based market where LNG is traded like oil and cargoes are sold to the highest bidder, LNG prices will start reflecting speculations, geopolitical events and stock levels. LNG will no longer be an economically viable option for filling the North American energy gap. Other opposition to LNG Additional opposition to LNG tends to arise over safety concerns. A sentiment of “not-in-my-backyard” prevails over LNG. Hazards can arise from the cryogenic temperatures that the liquid is stored at and it’s dispersion and flammability characteristics; if a vapour cloud of LNG has a concentration of natural gas in air of no less than 5% and no more than 15% and is near an ignition source, it can produce a very high heat explosion.14 There is a rigorous list of regulations and guidelines designed to prevent such accidents occurring and generally LNG accidents are perceived as few in number. [For a full list of LNG related accidents in North America see http://www.energy.ca.gov/lng/safety.html] Another potential hazard arises from risk of a terrorist attack at LNG onshore terminals. All such ports in the US are required to have federally approved security plans. Development in other areas has been halted by ecological and environmental concerns. In Maine for example, the US Fish and Wildlife Service denied a Downeast LNG operation to build a gas pipeline through Moosehead National Wildlife Refuge.15 The Future of LNG As US natural gas demand outstrips domestic supply and available Canadian supply, LNG will assume a more important role in filling the North American energy gap for at least the next decade. However, taking a more global perspective forces us to acknowledge that North America cannot rely on a constant supply of low-priced LNG for the unforeseeable future. Utilising the existing LNG infrastructure in North America may turn out to be profitable but the very large sums of money that are required to extend this infrastructure might possibly be better invested in longer-term solutions to the North American energy question. 1http://www.fe.doe.gov/programs/oilgas/storage/lng/feature/index.html |