Liquefied Natural Gas (LNG) — America’s new energy resource?

http://www.bizmology.com/2008/12/04/liquefied-natural-gas-lng-americas-new-energy-resource/

by Stuart Hampton, December 4th, 2008, 7:00 am

When I was young, my imagination was captured by the wonderful TARDIS machine of TV’s Dr. Who. (For the uninitiated, TARDIS — for Time and Relative Dimensions in Space — was, on the outside, a police phone booth in which two or three people could fit. But the interior was that of a cathedral size spaceship). So small on the outside, so huge on the inside.

That same dimensional shock in reverse is what Liquefied Natural Gas (LNG) offers American energy companies. When natural methane gas is converted to liquid form through a cryogenic process, it takes up only 1/600th the volume it would occupy in its gaseous state. LNG is transported between plants by sea-going carriers and specialized truck tankers. At the final destination the LNG is regasified. So much energy, so little space used in transportation.

The UK and France bought the first export LNG from a modern plant in Algeria in 1964. But in the decades since, LNG plant development has been slow, especially in the US. Why has this concept not captured the energy market?

LNG plants were initially a result of necessity, built primarily where natural gas production basins and terminals were situated a long way from natural gas pipeline networks. Because of the high overhead in plant construction, the expensive and technically demanding gas-to-liquids-to-gas processes, specialized shipbuilding and transportation, and gas supply and pricing uncertainties, LNG has only been affordable for those with big pockets, such as multinationals BP, Exxon Mobil, Royal Dutch Shell, and BG Group, and national oil companies like Pertamina, Petronas, and Sonatrach.

And the countries engaged in the LNG trade have traditionally been hydrocarbon asset-poor countries with large populations, such as Japan, South Korea, Spain, France, Italy, and Taiwan, that have to import large volumes of LNG in order to meet their energy demands.

In addition, LNG plants have a reputation for rare but spectacular accidents. The East Ohio Natural Gas Company’s rudimentary LNG tank in Cleveland ruptured in 1944, killing 131 in the resulting explosion and fire. In 2004 an explosion at Sonatrach’s liquefaction facility in Skikda, Algeria killed 27. Rare, but like nuclear plant accidents, they serve to turn locals and environmentalists against proposed plant construction near any built up areas.

With the energy shortages of the mid-2000s, which pushed oil to $150 a barrel earlier this year, and with improved technology, LNG has received more attention recently by US companies. By 2008 some 40 LNG terminals were before the Federal Energy Regulatory Commission (FERC), the US government regulator, for consideration and approval. Eight terminals (seven import and one export) are already operating on the East Coast, Gulf Coast, Puerto Rico, and Alaska (export). Operating companies include ConocoPhillips, Marathon Oil, Southern Union, Cheniere Energy Partners, Dominion Resources, El Paso Corp., and Trunkline LNG Co.

Are US LNG terminals an important part of meeting America’s future energy needs? Maybe not. Even before the sudden slump in oil demand, the FERC itself is reporting that industry analysts predict that only 12 of the 40 proposed terminals will ever be built.

Like the TARDIS, LNG is a fantastic idea. Maybe too fantastic.

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