LNG will have impact beyond adding natural gas supplies

Jun 20, 2004 02:00 AM

by Mella Mcewen

Large tankers carrying loads of LNG and docking at terminals in the Gulf of Mexico, on the East Coast and West Coast may seem far removed from West Texas. But John Hritcko Jr., vice president, LNG strategy and development for Shell Gas & Power, said LNG will have an impact on the Permian Basin beyond additional supplies of natural gas. He pointed out natural gas will have to move through pipelines to the end-user, including the pipeline system located throughout the Permian Basin.
"North America has an extensive pipeline system that has slowly become under-utilised as production declines," he said. "Even though those LNG terminals are offshore, that gas will have to be put into those pipelines and that will increase utilization," which will benefit pipeline operators.

Hritcko was part of the National Petroleum Council's extensive natural gas study and said the members of the subcommittee looking at transportation and distribution determined that "not a lot of additional infrastructure needs to be done other than pipeline tie-ins, but a lot of money will be needed to maintain that system in the future. Many of those pipelines were put in 20, 30 or more years ago; the capacity is there, it has to be maintained."
Visiting Midland to address members of the Society of Independent Professional Earth Scientists, Hritcko stressed that an increase in imports of LNG from Australia, Africa and the Caribbean would not displace production from the Permian Basin but rather supplement it.

The natural gas study, released in the fall of 2003, he said, "concluded that while we're struggling with an aging infrastructure to meet growing demand for natural gas in the United States, the majority of supply will be produced domestically. But it won't be enough to meet demand; we'll need other resources to be developed."
He cited those other resources as LNG, development of Arctic gas reserves and coalbed methane, along with conservation and the development of renewable energy sources. The government also needs to restructure its policy of promoting natural gas use while inhibiting development of gas reserves, he said, adding there is no need to pass legislation restricting natural gas use as was done in the 1970s.

A reason LNG is emerging as a piece of the natural gas puzzle, Hritcko said, is technological advances in processing and engineering, and strong commodity prices have made LNG competitive with domestically-produced natural gas.
"LNG is not new," he said. "The country has four terminals that were developed in the late 1970s, early 1980s. But due to market conditions, LNG has not been imported on a regular basis. In fact, two of the terminals were essentially shut down for 20 years."

What will also help is what Hritcko called a fundamental shift in long-term natural gas prices.
"We no longer have the gas bubble of the 1980s through the 1990s," he said. "We are in a market where supply and demand are on a razor-edged balance."

If severe weather -- whether winter or summer -- or supplies are disrupted, say from hurricanes threatening Gulf of Mexico production platforms, Hritcko said it is harder for producers to call on resources to make up the difference. That volatility, he said, is difficult for industrial users.
"We're not running out of gas, but we are in such a fine balance that if we don't do something, we will see shortages and price spikes," he said. "High prices don't appear to be going away; analysts suggest that current prices won't be declining soon."

The US's four LNG terminals are located at Everett, Massachusetts, Cove Point, Maryland, Elba Island, Georgia and Lake Charles, Louisiana.
Currently LNG comprises less than 1 % of the nation's natural gas supplies, and Hritcko said that could grow to 12 to 16 % of the nation's supply in the future but LNG would still be a small portion of the nation's gas portfolio. Increasing LNG's role in the nation's gas supply could mitigate upward pressure on prices, perhaps eliminating huge price spikes in the winter and summer and allow industrial consumers to better budget for gas supplies.

There has been a dramatic increase in proposals for LNG facilities, he said, and regulators have approved five new facilities. But, he said, siting new facilities is difficult because many people don't want the facilities near their homes or cities "out of fear and misunderstanding of what LNG is."
That is why, he said, a key part of siting a facility is what he called "stakeholder engagement."

Hritcko defines stakeholders as residents of the region, businesses, environmentalists and elected officials.
"We have to undertake a massive public education effort," he said. "We need to educate the public that, first, the need is there for the facility and, second, that we can bring in and develop those terminals and be as safe as we say we are. There is a lack of information or a lot of misinformation about LNG, which people equate with LPG. The physical properties of the two are different, they react differently. LNG tankers are not floating bombs. I'm not saying LNG is benign, it's cryogenic and must be specially handled. It will burn, but with the proper equipment, proper handling and trained personnel, it's proven itself for 40 years."

Texas and Louisiana, he said, may be more accepting of new LNG facilities.
"They're used to having the petrochemical industry within their borders," he said. "Get outside that area and people tend to have a negative view of the infrastructure and to be afraid of the product itself."

Source: MyWestTexas.com
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