Demand for Natural Gas Brings Big Import Plans, and Objections
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Published: June 15, 2005 (Page 2 of 3)
The price of natural gas has doubled in the United States in the last five years, exposing a vulnerable reliance and the possibility of higher prices if supplies are not increased. Indeed, even with the global gas market in its infancy, some nations want to act as a cartel to control the price of natural gas much as the Organization of the Petroleum Exporting Countries has at times manipulated the oil market.
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Wary CoastlinesEfforts to import more natural gas have already touched off a political dispute in California where resistance has mounted to plans to build several L.N.G. terminals, including one in Long Beach and two off the coast, one close to Oxnard, north of Los Angeles, and the other near Camp Pendleton, north of San Diego.
Energy companies, including Chevron and BHP Billiton of Australia, are financing a group called Californians for Clean Affordable Safe Energy to persuade people of the need for L.N.G. The group is part of a $1 million campaign supporting L.N.G. created by a Republican political strategist, Mike Murphy.
But skepticism persists. "If you jump-start an industry this way and bring in an abundance of natural gas, you're creating an addiction to something that wasn't there," said Susan Jordan, director of the California Coastal Protection Network, an environmental group in Santa Barbara campaigning against L.N.G. terminals. "This is happening without any mention of conservation and with little regard for the renewable alternatives."
Unlike oil, natural gas can be devilishly difficult and expensive to ship around the world. To create a liquid, natural gas must be cooled to 260 degrees below zero, squeezing its volume by a factor of approximately 600. Once it reaches its destination, it needs to be reheated before it can be used in the power grid.
Half the Cost of Oil, or Less
But natural gas has many advantages, particularly in terms of convenience and cost. A typical barrel of oil commands roughly $50 on the world market today, while 6,000 cubic feet of natural gas, its energy equivalent, is much less expensive. Even delivered from a pivotal Middle Eastern country like Qatar, it would probably cost $18 to $24, according to Bernard J. Picchi, a senior energy analyst with Foresight Research Solutions in New York.
Natural gas, once scoffed at by oil companies as a nuisance when found alongside reserves of oil, is also thought to be more plentiful than oil. BP, the British energy giant, estimates global gas reserves at 67 years of supply at current production rates, compared with global crude oil reserves equal to 41 years of annual supply.
Plaguing the L.N.G. boom are comparisons to the scramble for oil in the last century and the transfer of wealth and financial leverage to a handful of nations in the Middle East.
The United States, for much of the 20th century, was the world's largest oil producer, easily satisfying its own needs. But, with a fast-growing economy and increased reliance on the automobile, the nation began to import more oil than it exported after World War II. In 1973, when the Arab oil embargo pushed prices sharply higher, oil imports amounted to only 36 percent of domestic oil consumption. Now they account for nearly 60 percent.
As with oil, American production of natural gas is no longer enough to meet domestic demand. Reliance on natural gas in the United States increased sharply after electricity companies designed more than 90 percent of the power plants in the 1990's to run on natural gas. Meanwhile, imports from Canada, whose large natural gas fields are connected by pipeline to the United States, have started to run short as well.
Strong demand for natural gas is occurring not just in the United States, but in the fast-industrializing economies of China and India, which are set to compete for supplies. The United States is expected to emerge as the world's largest L.N.G. market, with imports forecast to account for as much as 20 percent of natural gas consumption in the United States by 2015, up from only about 2 percent today. Before that happens, however, the United States will need to build the terminals able to receive L.N.G.
So energy companies watched with interest in March when a small Houston company, Excelerate Energy, completed the first such project in the United States in more than 20 years, off the coast of Louisiana, near Cameron, a sleepy parish seat.
The terminal is welcomed by many residents there as a source of jobs. But Cameron's embrace of L.N.G. stands in contrast to the positions in communities in California and along the east coast, where demand for natural gas is the strongest and most L.N.G. ports have been proposed. These include proposals for Long Island Sound, nine miles off Rocky Point, N.Y.; Providence, R.I.; Logan Township in southern New Jersey; and Harpswell, Me. Concern over the possibility of damage from an accident or terrorist explosion involving a terminal or tanker has prevented such projects from getting off the ground in these coastal communities.
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Wary CoastlinesA recent report by Sandia National Laboratories concluded that terrorists blowing a hole in an L.N.G. tanker could produce a spill of liquefied natural gas that could reheat and set off a fire that would cause second-degree burns on people nearly a mile away.
Industry Cites Safety Record
The L.N.G. industry responds that the safety record of its tankers far exceeds any other sector of the shipping industry. Only a few relatively small accidents have occurred in the last three decades, and industry groups contend that an accidental spill or a suicide bomb attack is extremely unlikely. Japan and South Korea, currently the top L.N.G. markets, have never experienced a major accident or attack.
Yet considerable apprehension persists. In an analysis in May for the attorney general of Rhode Island, Richard A. Clarke, the former counterterrorism adviser to the Clinton and Bush administrations, concluded that terrorist groups could easily attack an urban L.N.G. port or tanker, exposing the areas around Providence and Fall River, Mass., to "a high risk of generating catastrophic damage" from explosions and fires.
Responding to the energy industry's urgency, Congress included in the broad energy legislation approved this spring in the House, and given clearance in May by the Senate Energy and Natural Resources Committee, a provision that would effectively usurp the authority of states to block L.N.G. terminals.
Six governors from coastal states, including Arnold Schwarzenegger of California and Mitt Romney of Massachusetts, wrote to the Senate committee, asking for states to remain on equal footing in L.N.G. reviews.
Senator Charles E. Schumer, Democrat of New York, said this month that he opposed an L.N.G. terminal in Long Island Sound, citing security concerns.
Those officials are opposing senators like Lamar Alexander, Republican of Tennessee, and Tim Johnson, Democrat of South Dakota, who are pushing to bolster federal authority.
Meanwhile, foreign governments that are pinning their hopes on exporting L.N.G. to the United States are investing in ventures to build terminals. One West African supplier, Angola, has acquired part of a venture called Gulf LNG Clean Energy that is planning a port in Mississippi.
Qatar, the Connecticut-sized nation in the Persian Gulf that is expected to become the world's largest L.N.G. exporter over the next decade, has shown keen interest in the L.N.G. provisions in the energy bill before the Senate.
Qatar and 12 other gas-rich nations, including Iran, Egypt, Nigeria and Venezuela, met in April to discuss ways to keep L.N.G. prices satisfactorily high. The group, called the Gas Exporting Countries Forum, is still in its infancy and for now is incapable of modeling itself after OPEC, but its members agreed to establish a liaison office in Doha, Qatar.
Daniel Yergin, an energy analyst and author of "The Prize," a history of the quest for oil over the last century, argues that it would be difficult for a confrontational cartel of gas producers to take hold over the next several years. He said that is because L.N.G. producers will be competing with each other for market access and relying heavily on Western energy companies to shoulder much of the multibillion-dollar risk of large L.N.G. projects.
"Managing price would be negative for an industry set to grow rapidly over the next 10 years," Mr. Yergin said. "There is more pronounced interdependence of consuming and producing countries for natural gas than for oil."
Others view the growing reliance on imported natural gas in the United States more ominously.
"We accept having L.N.G. as part of the energy solution, but we're very concerned about making the same mistakes we made with imported oil," said David Schryver, vice president for Congressional affairs at the American Public Gas Association, which represents municipal gas utilities that would consume much of the imported L.N.G. "Facing the prospect of another OPEC for natural gas is alarming."
Despite such concerns, L.N.G. imports to the handful of terminals that exist in the United States soared 29 percent last year and are set to increase rapidly throughout this decade.
"Going without L.N.G. requires making some difficult lifestyle changes in the way we consume our energy," said Charif Souki, chief executive of Cheniere Energy, a Houston company with plans to build three L.N.G. terminals in Louisiana and Texas. "If you have a better alternative, then please pursue it."
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