At least 20 supply projects, mostly in developing Southern Hemisphere nations, have been announced. Posted on 06/16/2002 1:37:45 PM PDT by Ernest_at_the_Beach
Cross-border neighbors California and Baja California are emerging as a crucial testing ground in a global gamble by energy companies to rekindle widespread use of liquefied natural gas.
Although it's in limited use today, the fuel is expected to gain wider acceptance when businesses start bringing the precious commodity from far-flung locations to
fuel-scarce regions like California and Baja California.
For now, only about 1 percent of the natural gas consumed in the United States is LNG. Some analysts predict that will increase to as much as 8 percent over the next 10 years.
Although the odds against them are long, the companies are taking the bet, enticed by returns that could run into billions of dollars.
In the energy realm, such ventures are known as "the big play."
And LNG is considered the biggest play of the moment. As the fastest-growing primary energy source, it is among the hottest segments of the industry. Action surrounding it moves with urgency.
"Speed is important," said Institute of the Americas president Paul H. Boeker. "People are in a hurry."
Only a relatively small number of firms, such as BP, CMS Energy Corp. and El Paso Corp., possess the design and operating knowledge needed to develop LNG projects. But numerous other firms are leaping into the fray. For example:
At least 20 supply projects, mostly in developing Southern Hemisphere nations, have been announced.
Fifteen receiving terminals are proposed for North America, the Bahamas and Mexico. Two are in California and five are in Baja California.
San Diego's Sempra Energy has teamed with CMS to supply both sides of the border by bringing LNG from Bolivia through Baja California.
Driving the big play is the belief that growing demand for shrinking supplies of natural gas will open a market niche for LNG.
Liquefied natural gas is natural gas chilled to minus 260 degrees Fahrenheit, which compresses it so it can be transported over long distances. The liquefaction process removes most of the water vapor, butane, propane and other trace gases usually found in ordinary natural gas.
LNG projects are so costly that they are considered financially feasible only when natural gas prices remain between $3 and $4 per billion cubic feet.
"Getting the first project is most important," said Kathleen Eisbrenner, chief commercial officer of El Paso Global LNG. "The first projects will take the market."
California and Baja California are among the most prized potential markets. Nine energy firms, either individually or as partners, are working on deals for the region.
But continent-bridging LNG supply chains are relatively new, untested and risky.
They require extracting natural gas from remote areas, like the jungles of South America and the islands and seas of Southeast Asia, and building pipelines and liquefying plants so the gas can be converted to LNG. Ocean-going tankers are needed to ship the fuel thousands of miles.
On the receiving end, coastal terminals must be built to re-gasify fuel. And pipelines are needed to deliver it to users.
The far-flung deals require billion-dollar investments. They are complex and involve many parties, including national governments, often with different agendas.
Because the arrangements are so new, the rules controlling the plants' installation are inconsistent, unclear or, as is the case with Mexico, not yet issued. Government oversight, in many cases, can be lax.
Many ventures also are encountering public opposition.
Each of the five re-gasification announced for Baja California, for instance, has met resistance from residents and grass-roots and environmental organizations. The same is true for California projects at Mare Island near Vallejo and Ormond Beach near Oxnard.
"Not all of these projects are likely to get built," predicted Nancy A. Wodka, an energy analyst for the Houston law firm Bracewell & Patterson.
The riskiest part of the LNG gamble is that there is no guarantee the fuel will find a market. Projections for LNG market expansion are, at best, merely educated guesses.
"Demand is very elastic," said Michelle Foss, director of the University of Houston's Institute for Energy, Law and Enterprise. "When (LNG) prices surged in 2001, demand dropped off. And some of the loss was permanent."
The last time LNG looked so promising in the United States was in the 1970s. Four receiving plants were built in Eastern states, but a drop in natural gas prices undermined their profitability.
Terminals at Everett, Mass., and Lake Charles, La., still are operating. The Elba Island, Ga., terminal closed for several years but was reactivated last year. A terminal at Cove Point, Md., which had been used only during peak demand and for storage, will reopen later this year.
New receiving facilities in California and Baja California would increase LNG activity in the Pacific Basin market.
as gateway
Although many companies are competing to develop projects, only a few are expected to be completed. The winners will likely be the ones that manage to set up their supply and gateway facilities first.
The difficulties in doing that were made clear at a recent Latin America energy conference presented in La Jolla by the Institute of the Americas.
Keith Meyer, vice president of CMS Panhandle Companies, a CMS subsidiary, said that once the first few developers start operations, "other projects will have to be shelved completely or wait a very long time."
Mexico constitutes one of the biggest puzzles in the big play for LNG. Companies are poised to make Baja California a major LNG gateway to California, but Mexican federal energy officials have yet to release regulations for the projects.
Francisco Barne
s de Castro, a Mexican energy undersecretary, told corporate executives and analysts at the conference that the rules would be published in a couple of weeks.
Reminded that Mexican officials have been making the same promise for the past six months, he said, "Probably a little bit more than a couple of weeks. We want to be sure everything is in the right shape."
Mexico will realize benefits, including tax revenue and employment, if it moves forward soon, said CMS' Meyer. "If not, we're still going to get LNG to North America. It will just come in through different gateways."
Partners CMS and Sempra Energy believe they will have a market advantage by tapping natural gas supplies in Bolivia, which is half the distance from Baja California as East Timor, Indonesia and Australia, locations where other ventures plan to get their gas.
The Bolivian projects have yet to get under way, however. And the pipeline route and port from which the LNG will be shipped have not been determined.
Carlos Salinas, Bolivia's energy vice minister, said he couldn't predict when plans will be completed or work will start.
CMS and Sempra "have said they need to get to the market first," he said. "And our government is trying to facilitate it as much as possible."
Might be some big money behind this political move by the California Senators!
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Wouldn't it be great if they could co-locate vegetable freezing plants with the LNG terminals? Mexico will be the first to do this. Mark my words.
Oh, BTW, all the existing sources of LNG are in Muslim countries. Keep that fact in mind.
Between the eco-terrorists driving up their cost of business to the DemoRAT governor magically abrogating contracts whenever he feels like, I can't see how any decent sized company would want to start a long-term business venture in CA right now.
Who do you think will pay for that $20 billion bond issue that Grey-Out Davis saddled the people with? Yeah, the taxpayers ostensibly, but when they can't pay, it'll have to come directly from the businesses. I wouldn't want to be in their shoes for the next dozen years or so.
Fifteen receiving terminals are proposed for North America, the Bahamas and Mexico. Two are in California and five are in Baja California.
Permitting two in California will be a nightmare. Some gas companies use LNG as a way of providing storage for their nat gas pipelines. In some respects California has a pipeline shortage of natural gas and this could be a way around the problem, but boy is the permitting of this going to be interesting.
You are right, there could be some serious money involved with this and if so, some serious democratic party campaign contributions.
If Davis can get another 4 years he can probably improve his Swiss Bank account.
He has the biggest Pay-to-play Operation in the US right now!
That is a factual error or a misprint. Gas is currently priced at $3.24 per thousand cubic feet (See Bloomberg-commodity). A million cubic feet would be worth $3,240 and a billion worth $3,240,000.
In any event LNG will only work at those prices, so any billion dollar investments to gear up for this better be right in futures price forecasts. I think they are. Ironic isn't it, that more are proposed south of CA than in it?
Islamic countries aren't the only ones capable of delivering large quantities of LNG. In addition to Australia, Bolivia as stated in the article, offshore W. Africa will soon be a large supplier.
We may need all this, but security better be airtight and a huge perimeter would be needed to protect a rather explosive target. I've heard estimates that a well placed RPG or shoulder fired missle would produce a mini-nuke like explosion. Don't tell Californians that, they'll never get built.
I don't want my Lean To to vanish!
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