Gas finds hit LNG
Terminals languishing
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The Haynesville Shale and other massive natural gas finds have raised “big questions” about the future of liquefied natural gas in North America, and the Louisiana facilities that handle the fuel, one industry expert said.
In July, Navigant Consulting Inc. released a study that places the country’s recoverable gas reserves at as much as 2,247 trillion cubic feet, or a 118-year supply at current production levels.
“I mean that is a boatload of reserves, and if that’s the case, that just shuts down LNG tomorrow,” said David Dismukes, associate executive director of LSU’s Center for Energy Studies.
Add in recent public comments from an oil industry official that domestic LNG terminals are having trouble competing with their foreign counterparts, and it would appear there might be cause for concern.
But energy companies say they are undeterred.
The outlook for the state’s LNG industry was much different just four years ago.
Federal Reserve Bank Chairman Alan Greenspan called for a major expansion in LNG terminals, saying the fuel could help offset spiraling oil prices. Liquefied natural gas was a cheap and plentiful alternative to oil. Nigeria and other oil exporters once considered the natural gas produced along with crude a waste product and burned it off.
A Center for Energy Studies report found the state could create more than 13,000 jobs and inject more than $2.3 billion into the economy by developing an LNG infrastructure.
Then-Gov. Kathleen Blanco said the state’s economic future depended on LNG, even lobbying the federal government on behalf of Cheniere Energy Inc.’s Sabine Pass terminal.
Companies eventually filed federal and state permit applications for more than 40 LNG terminals in North America. The terminals convert the liquefied gas back into a gaseous form. Most of the proposed terminals were in the Gulf states.
Fast forward four years. In April, the Sabine Pass terminal welcomed its first LNG tanker. Since then the terminal has handled exactly zero tankers.
The reason?
Almost all of the LNG shipments are going to Europe and Japan, where natural gas fetches twice or more what it does in the United States, said Don Briggs, president of the Louisiana Oil and Gas Association. The Japanese have paid as much as $20 per thousand cubic feet; U.S. prices recently slipped to the $8 range.
Some experts have said natural gas prices in Asia could top $30 this winter. Meanwhile, the federal Energy Information Administration forecasts an average U.S. price of $10 per thousand cubic feet this year.
“That’s why we’re not getting any LNG into Cheniere,” Briggs said.
Cheniere spokeswoman Diane Haggard said 10 billion cubic feet of LNG will be coming online in the next 18 months. When that production becomes available, prices worldwide will drop and U.S. terminals will be more competitive.
While the supply problems are more severe at Cheniere, which hasn’t been able to lock down a contract for LNG deliveries, the company is far from alone.
Domestic finds’ impact
This year, the United States is expected to import just 390 billion cubic feet of liquefied natural gas — about half of what it did in 2006, about half of the 2006 total, according to the Energy Information Administration’s Short-Term Energy Outlook. The 2009 forecast calls for 480 billion cubic feet of imports, despite a major increase in overseas LNG production.
At the same time, U.S. natural gas production has increased in each of the past six years, Dismukes said.
A lot of the increase is due to what’s considered “nonconventional production,” and much of that from the Barnett Shale in Texas, Dismukes said. And the production increase doesn’t include the Fayetteville Shale in Arkansas, the Marcellus Shale in the Appalachians, or the Haynesville Shale in north Louisiana and east Texas.
Industry experts believe the latter two shales are even larger than Barnett, with Haynesville several times the size of Barnett. The shale finds are so large that energy industry members say there is almost no risk of drilling a dry hole, something that happens half the time or more with conventional wells.
However, Dismukes added that some caution should be exercised.
“A lot of these reserves are speculative. They’re not booked,” he said. “I wouldn’t want to encourage people to start counting their chickens before they’re hatched, but there are certainly a lot of eggs on the table.”
Cheniere spokeswoman Haggard said a lot of the “new” gas fields are actually fields that are being redeveloped.
Those fields will have a shorter lifespan, say six months to two years, she said.
“We will need LNG and it will be dramatic in the next couple of years,” Haggard said.
Earlier this month, Cheniere secured $250 million in financing to carry the company through the next three years.
Terminal warning
Dismukes said many of the proposed LNG terminals just won’t be developed.
“I don’t think we’re going to see a lot of new ones for Louisiana. If you’re not halfway through right now, that’s probably a tough proposition,” Dismukes said.
For example, Cheniere’s Creole Trace terminal in Cameron is on hold. McMoRan Exploration Co.’s Main Pass Energy Hub has been licensed but is still working to secure a long-term supply of LNG.
“Once that is in hand, we can obtain financing and move forward with detailed engineering and then construction,” spokesman Bill Collier said.
However, LNG prices remain an issue.
Sempra Energy’s Cameron LNG terminal is 80 percent complete now and should be finished by the end of the year, spokesman Art Larson said. Commercial operations are expected to begin during the first quarter.
Other Gulf projects are also moving forward, such as the Golden Pass LNG terminal near Sabine Pass, Texas. Kimberly Johnson Brasington, a spokesperson for Exxon Mobil Corp., said the project should be in operation by mid-2009.
Golden Pass LNG LLC is the owner of the terminal. Golden Pass is owned by Qatar Petroleum, ExxonMobil and ConocoPhillips.
Hoegh LNG’s Port Dolphin project, off the coast of Florida, is on hold while the company develops a new pipeline route that will avoid an area used to re-nourish beaches, spokesman Harry Costello said.
Once that is completed, the company will refile permits with the Maritime Administration and Coast Guard.
Hoegh hopes to get the permits by mid-2009 and complete the project by 2012, he said.
Aaron Viles, campaign director of the Gulf Restoration Network, said environmentalists remain concerned about only two LNG projects in the Gulf.
Excelerate Energy’s Gulf Gateway uses water from the Gulf to warm the supercooled liquefied gas and TORP Technology’s Bienville Offshore Energy Terminal off Alabama will if approved, he said. Environmentalists believe this system kills off an unknown quantity of sea life, including fish and fish larvae.
“It’s less of a looming threat than it was before, which is interesting because the cost of energy is now more top of mind than when we started fighting them three years ago,” Viles said.
The future?
Dismukes said LNG has been a big disappointment in many ways, particularly for the companies that built terminals.
“It just shows you how quickly the market can change, and it shows you just how risky big capital ventures in the energy business can be,” he said.
Still, lots of energy companies are betting and betting big on LNG.
A report by energy analyst Douglas-Westwood LTD says $106 billion will be spent worldwide on export terminals, carriers and import terminals from 2008-2012.
“Meanwhile, the limits of domestic gas production in North America and Western Europe are becoming clear and gas import demands are rising,” according to the report. “Increasingly, LNG is a method of choice in satisfying growing gas demand in these regions.”
In July, Navigant Consulting Inc. released a study that places the country’s recoverable gas reserves at as much as 2,247 trillion cubic feet, or a 118-year supply at current production levels.
“I mean that is a boatload of reserves, and if that’s the case, that just shuts down LNG tomorrow,” said David Dismukes, associate executive director of LSU’s Center for Energy Studies.
Add in recent public comments from an oil industry official that domestic LNG terminals are having trouble competing with their foreign counterparts, and it would appear there might be cause for concern.
But energy companies say they are undeterred.
The outlook for the state’s LNG industry was much different just four years ago.
Federal Reserve Bank Chairman Alan Greenspan called for a major expansion in LNG terminals, saying the fuel could help offset spiraling oil prices. Liquefied natural gas was a cheap and plentiful alternative to oil. Nigeria and other oil exporters once considered the natural gas produced along with crude a waste product and burned it off.
A Center for Energy Studies report found the state could create more than 13,000 jobs and inject more than $2.3 billion into the economy by developing an LNG infrastructure.
Then-Gov. Kathleen Blanco said the state’s economic future depended on LNG, even lobbying the federal government on behalf of Cheniere Energy Inc.’s Sabine Pass terminal.
Companies eventually filed federal and state permit applications for more than 40 LNG terminals in North America. The terminals convert the liquefied gas back into a gaseous form. Most of the proposed terminals were in the Gulf states.
Fast forward four years. In April, the Sabine Pass terminal welcomed its first LNG tanker. Since then the terminal has handled exactly zero tankers.
The reason?
Almost all of the LNG shipments are going to Europe and Japan, where natural gas fetches twice or more what it does in the United States, said Don Briggs, president of the Louisiana Oil and Gas Association. The Japanese have paid as much as $20 per thousand cubic feet; U.S. prices recently slipped to the $8 range.
Some experts have said natural gas prices in Asia could top $30 this winter. Meanwhile, the federal Energy Information Administration forecasts an average U.S. price of $10 per thousand cubic feet this year.
“That’s why we’re not getting any LNG into Cheniere,” Briggs said.
Cheniere spokeswoman Diane Haggard said 10 billion cubic feet of LNG will be coming online in the next 18 months. When that production becomes available, prices worldwide will drop and U.S. terminals will be more competitive.
While the supply problems are more severe at Cheniere, which hasn’t been able to lock down a contract for LNG deliveries, the company is far from alone.
Domestic finds’ impact
This year, the United States is expected to import just 390 billion cubic feet of liquefied natural gas — about half of what it did in 2006, about half of the 2006 total, according to the Energy Information Administration’s Short-Term Energy Outlook. The 2009 forecast calls for 480 billion cubic feet of imports, despite a major increase in overseas LNG production.
At the same time, U.S. natural gas production has increased in each of the past six years, Dismukes said.
A lot of the increase is due to what’s considered “nonconventional production,” and much of that from the Barnett Shale in Texas, Dismukes said. And the production increase doesn’t include the Fayetteville Shale in Arkansas, the Marcellus Shale in the Appalachians, or the Haynesville Shale in north Louisiana and east Texas.
Industry experts believe the latter two shales are even larger than Barnett, with Haynesville several times the size of Barnett. The shale finds are so large that energy industry members say there is almost no risk of drilling a dry hole, something that happens half the time or more with conventional wells.
However, Dismukes added that some caution should be exercised.
“A lot of these reserves are speculative. They’re not booked,” he said. “I wouldn’t want to encourage people to start counting their chickens before they’re hatched, but there are certainly a lot of eggs on the table.”
Cheniere spokeswoman Haggard said a lot of the “new” gas fields are actually fields that are being redeveloped.
Those fields will have a shorter lifespan, say six months to two years, she said.
“We will need LNG and it will be dramatic in the next couple of years,” Haggard said.
Earlier this month, Cheniere secured $250 million in financing to carry the company through the next three years.
Terminal warning
Dismukes said many of the proposed LNG terminals just won’t be developed.
“I don’t think we’re going to see a lot of new ones for Louisiana. If you’re not halfway through right now, that’s probably a tough proposition,” Dismukes said.
For example, Cheniere’s Creole Trace terminal in Cameron is on hold. McMoRan Exploration Co.’s Main Pass Energy Hub has been licensed but is still working to secure a long-term supply of LNG.
“Once that is in hand, we can obtain financing and move forward with detailed engineering and then construction,” spokesman Bill Collier said.
However, LNG prices remain an issue.
Sempra Energy’s Cameron LNG terminal is 80 percent complete now and should be finished by the end of the year, spokesman Art Larson said. Commercial operations are expected to begin during the first quarter.
Other Gulf projects are also moving forward, such as the Golden Pass LNG terminal near Sabine Pass, Texas. Kimberly Johnson Brasington, a spokesperson for Exxon Mobil Corp., said the project should be in operation by mid-2009.
Golden Pass LNG LLC is the owner of the terminal. Golden Pass is owned by Qatar Petroleum, ExxonMobil and ConocoPhillips.
Hoegh LNG’s Port Dolphin project, off the coast of Florida, is on hold while the company develops a new pipeline route that will avoid an area used to re-nourish beaches, spokesman Harry Costello said.
Once that is completed, the company will refile permits with the Maritime Administration and Coast Guard.
Hoegh hopes to get the permits by mid-2009 and complete the project by 2012, he said.
Aaron Viles, campaign director of the Gulf Restoration Network, said environmentalists remain concerned about only two LNG projects in the Gulf.
Excelerate Energy’s Gulf Gateway uses water from the Gulf to warm the supercooled liquefied gas and TORP Technology’s Bienville Offshore Energy Terminal off Alabama will if approved, he said. Environmentalists believe this system kills off an unknown quantity of sea life, including fish and fish larvae.
“It’s less of a looming threat than it was before, which is interesting because the cost of energy is now more top of mind than when we started fighting them three years ago,” Viles said.
The future?
Dismukes said LNG has been a big disappointment in many ways, particularly for the companies that built terminals.
“It just shows you how quickly the market can change, and it shows you just how risky big capital ventures in the energy business can be,” he said.
Still, lots of energy companies are betting and betting big on LNG.
A report by energy analyst Douglas-Westwood LTD says $106 billion will be spent worldwide on export terminals, carriers and import terminals from 2008-2012.
“Meanwhile, the limits of domestic gas production in North America and Western Europe are becoming clear and gas import demands are rising,” according to the report. “Increasingly, LNG is a method of choice in satisfying growing gas demand in these regions.”
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