The New Gas Station
With domestic natural gas in short supply, the nation looks overseas
The goldfish trick did little to persuade the people of Vallejo that it would be safe for supertankers to dock close to their shore on north San Francisco Bay. Last year, residents were shown a video of a man pouring liquefied natural gas (LNG) into a fishbowl. Since LNG evaporates instantly, the goldfish weren't harmed. But what about the people who live near a terminal where LNG is unloaded from the tankers and converted into a flammable gas every day? No matter how many safety demonstrations they staged, energy giant Shell and engineering firm Bechtel never were able to dispel community fears and abandoned their plans to import LNG there early this year.
It was just one skirmish in what is shaping up to be the energy battle of the next decade, thanks to the growing U.S. appetite for natural gas. The days when North America was able to produce its own natural gas are ending. Without a new supply from overseas, many experts believe the economy will suffer debilitating price spikes for this crucial fuel. "There is no way we can be self-sufficient," Federal Reserve Chairman Alan Greenspan told a congressional committee recently. Greenspan decided to speak out after observing that the price of contracts for natural gas deliveries several years out were skyrocketing past those of oil. Even now, with natural gas selling at nearly double the price of a year ago, supply and demand are out of whack.
Not so slick. Shipping natural gas from overseas is not easy or cheap, however. Marine terminals must be built, and security of this potentially hazardous cargo must be addressed. And with foreign oil dependence already a concern, a move toward LNG would propel the nation into a new era of reliance on countries like Algeria, Nigeria, and Trinidad.
For 60 percent of U.S. households, natural gas provides the blue flame on the stovetop and fires the home furnace or water heater. Even all-electric homes may rely on natural gas; it has become the fuel of choice for big power plants. Industry also uses natural gas as a chemical feedstock. But many wells are depleted, and other stores are off-limits under environmentally protected land. The Department of Energy predicts natural gas use will increase 52 percent by 2025 while production will rise only 35 percent. "We've decided we want a lot of electric generation from gas because it's cleaner," says Robert Ineson, a director at Cambridge Energy Research Associates. "But we've thought it to be limitless and inexpensive, and that's proven not to be the case."
But there are major reserves of "stranded" natural gas in poor countries or remote locations around the world that can be captured as LNG. Until this year, LNG accounted for less than 1 percent of U.S. natural gas use. Four import terminals built in the 1970s saw little use. LNG production was expensive, while domestic natural gas was cheap. Now energy companies have improved methods and reduced costs some 30 percent. Production is soaring and LNG has begun steaming to U.S. shores. This summer, for example, the updated import facility at Cove Point, Md., owned by Dominion Resources, will receive its first LNG shipment since it was mothballed in 1980. Shell, slated to import there, also has a deal to use the old Elba Island, Ga., facility, and wants to build its own Gulf of Mexico site.
At least 20 proposals for new LNG facilities are on the drawing boards, spurred by a recently streamlined federal approval process. And the Federal Energy Regulatory Commission relaxed antimonopoly regulations for LNG facilities, reasoning that companies that make such huge investments deserve sole access to markets they create. But it isn't only big money entering the fray. One ambitious firm, Cheniere Energy, which earlier this year changed its ticker symbol to "LNG," plans four Gulf of Mexico terminals and has signed big deals with two natural gas customers--Dow Chemical and Sherwin Alumina. "We want to be the primary gateway for LNG into the United States," says CEO Charif Souki.
No doubt the toughest hurdle will be state and local approval. Shell and Bechtel learned this with the Vallejo, Calif., LNG terminal on the site of a former nuclear submarine base offshore at Mare Island. The community, devastated by the 1996 base closure, has rebuilt as commuters discovered its Victorian homes a short ferry ride from San Francisco. The city envisions upscale redevelopment, green space, and bay views, not tanks and pipelines. "We all enjoy our air conditioning and lights going on in the evening, but it's an issue of where to place these facilities," says resident Rod Boschee.
Danger sign. A potent issue in Vallejo and elsewhere is the threat of terrorism. To reach Mare Island, the 900-foot tankers would have had to pass beneath the Golden Gate Bridge. The industry points out that commercial shipping began in 1959; Japan, for example, imports nearly all of its natural gas. And after more than 33,000 LNG voyages covering more than 60 million miles, no significant accidents have occurred. Insulated double-hulled tankers keep the fuel cold, and in its liquid form, natural gas doesn't burn. In gas form, it does not lend itself to rapid combustion. "Safety is one of LNG'S most crowning achievements," says Gus Noojin, CEO of Shell's U.S. gas division. "Even if there were a catastrophic event, there could be a fire, but not an explosion."
But skeptics say the systems that protect tankers and terminals from accidents may not prove as robust against deliberate attack. "I think there's a certain amount of denial," says James Fay, a retired Massachusetts Institute of Technology professor and LNG researcher. "A fire is far from benign." In LNG'S worst disaster in 1944, 128 Cleveland residents died when a substandard liquefied gas storage tank ruptured and the vaporizing LNG caught fire. More LNG plants certainly will require additional federal investment in security, Coast Guard escorts, and safety zones. But terrorism isn't the only security issue. Relying on foreign gas means worrying about events like the ethnic violence that interrupted flows this year from Nigeria, a key LNG producer.
The American Gas Association, which represents utilities, says that even with imports, the current demand rate would require the opening up of more federal lands for gas development. "It's wonderful that we can look to LNG as a safety valve," says AGA spokeswoman Daphne Magnuson. "But it's sad that policymakers have put off looking at the larger energy policy issues for so long that this is now seen as the best solution."
HOW IT'S DONE
TURNING LIQUID. Natural gas drilled from underground is superchilled at "liquefaction" plants. At -256° F, the gas reduces to a fraction of its size (like shrinking a gallon to a teaspoon.) Tankers ship the liquid gas to ports to be "re-gassed" and fed into pipelines to homes and businesses.
This story appears in the July 14, 2003 print edition of U.S. News & World Report.