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THE WALL STREET JOURNAL: LNG Quickly Joining Oil As Major US Energy Import: “Shell is involved in several LNG import facility projects.” ( Posted 26 Jan 05




COVE POINT, Maryland (AP)--Once or twice a week, a tanker unloads millions of liters (gallons) of frosty liquid at a terminal on the Chesapeake Bay, bringing to the United States a fuel that many economists believe will help temper energy prices in the coming decades.


For years, liquefied natural gas (LNG) was too expensive. It really was not needed. Even today, there are safety and terrorism worries, exaggerated or not, about shipments of the fuel.


But as growing demand for natural gas outstrips North America's conventional supplies, many experts view imports of LNG as the only way to head off decades of soaring prices for businesses and the tens of millions of households that rely on the fuel for heat and electricity.


While politicians talk of the need for greater U.S. energy independence, American consumers are expected to be relying increasingly on LNG imports from Algeria, Qatar, Russia and elsewhere.


If current trends continue, the United States "by far will be the largest consumer of LNG in the next decade," says Guy Caruso, head of the government's Energy Information Administration.


"If we don't have the capacity to bring in the amount of gas we need and domestic supply goes the way we think it will, the clear implication is higher prices," Caruso says.


Nowhere is the emerging global LNG market more evident than on the shores of Chesapeake Bay 110 kilometers (70 miles) south of Baltimore.


It was only two years ago that Dominion Resources Inc.'s (D) LNG import terminal, in the shadow of the Cove Point lighthouse, was in mothballs. Its offshore docking platform, able to handle two LNG tankers at a time, sat idle - a monument to a business gone awry.


Now, the platform built in 1974 and shut down in 1981 unloads a tanker full of imported LNG on average every four days. The cold liquid is piped through a 1.9-kilometer (1.2-mile) underwater tunnel to four huge storage tanks. Delivered at minus-162 degrees Celsius (minus-260 degrees Fahrenheit), the fuel is warmed and turned back into gas, then shipped over pipelines to mid-Atlantic customers.


A larger tank is near completion and two more tanks are planned. By 2008, the terminal will be able to handle 50 million cubic meters (1.8 billion cubic feet) of imported gas daily, more than double today's volume and enough fuel to serve 6.1 million homes, Dominion spokesman Daniel Donovan says.


LNG import terminals in Louisiana, Georgia and the Boston area also are expanding. Despite community opposition, more than 40 new LNG projects are proposed around the United States. About a dozen probably will be built, according to experts.


LNG imports still account for less than 3% of the 1.7 billion cubic meters (61 billion cubic feet) of natural gas used every day in the United States. But LNG's share could grow tenfold in the next 20 years, some analysts predict.


Still, there are concerns about how the fuel is shipped and stored.


LNG cannot explode and is not flammable as a liquid.


But a government study by the Sandia National Laboratory concludes terrorists could blast a large hole into a double-hulled LNG vessel. That would release millions of gallons of fuel that would quickly turn to gas and ignite.


The fire would be so intense that it could cause major injury and burn buildings 500 meters (one-third of a mile) away. Within seconds, the fire could give second-degree burns to people who are 1.5 kilometers (a mile) away.


"The risks of a catastrophic accident ... is a real one. Far too little is known about the vulnerability of LNG terminals and ships to terrorist attacks," says Philip Warburg, president of the Conservation Law Foundation. The group has lobbied against putting LNG terminals in populated areas in the Northeast.


Industry officials say there has never been a leak of LNG from a double-hull tanker and that protection of LNG shipments has improved since the attacks of Sept. 11, 2001.


Storage tanks, such as those at Cove Point, are designed so burning fuel would be confined within site boundaries, says Donovan, the Dominion spokesman.


There is little disagreement about the need to import more LNG.


Traditionally, U.S. demand for natural gas has been met almost entirely from pipeline-accessible fields in the United States and Canada. Experts, however, say wells in the Gulf of Mexico are in decline, Canada's production will fall off after 2015 and gas fields in the Rocky Mountain states and Alaska will not meet future demand.


By 2025, the United States is expected to need 880 billion cubic meters (31 trillion cubic feet) of gas a year, a 38% increase, but North American supplies by then will be only 24 trillion cubic feet, 11% higher, the government says.


The government projects LNG will account for 20% of the gas used by 2025. Some private consulting firms and oil industry estimates put the LNG share as high as 30% by then.


According to the American Gas Association, 61% of U.S. households, or about 63 million, use natural gas, mostly for heating; the number is growing.


Ironically, higher gas prices - two or three times what they were a few years ago - are why LNG is so popular. Even if gas prices retreat, they probably will be higher than the roughly $3.50 ( 2.70) per thousand cubic feet needed to make LNG imports profitable, experts say.


No wonder that some of the energy industry's heaviest hitters have embraced LNG's development.


ExxonMobil Corp. (XOM), which has invested heavily in gas projects in Qatar, has plans for 28 LNG vessels, including supertankers that can carry two-thirds more volume that today's fleet.


Shell (SC, RD) is involved in several LNG import facility projects. ConocoPhillips (COP) is part owner of a large new LNG terminal proposed near Freeport, Texas, and is looking to build several more.


Energy companies are expected to pump more than $250 billion into the global LNG business, according to the International Energy Agency.

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