With a surplus of U.S. gas, LNG terminals look to export markets

An anticipated boom in natural gas imports to the United States led to a flurry of new proposals for liquefied natural gas (LNG) import terminals, but the recent development of new techniques to extract natural gas from shale formations has turned the natural gas market upside down, with companies now seeking to build terminals to export LNG.

The terminal at Lake Charles, La., has applied to the U.S. government for permission to export. (Photo courtesy BG Group)

The United States now has enough natural gas to supply over 100 years of use, according to the U.S. Energy Information Administration.

"As recently as 2006 or 2007, most people would have said that U.S. will import LNG to meet its natural gas needs for a long time," said Bob Corbin, director of oil and gas global security and supply, for the U.S. Department of Energy's (DOE) Office of Oil and Natural Gas. "That is the reason that so many terminals were constructed and so many were proposed. You had this game-changer, with shale gas."

As of 2004, there were just four operating LNG import terminals in the lower 48 states. During the resulting boom, there were over 40 proposals to build new import terminals. Out of that number, four were completed. A fifth, in Pascagoula, Miss., is slated to open in October.

More significantly, there are 10 LNG import terminals that received federal approvals that are not being built, according to the U.S. Federal Energy Regulatory Commission (FERC).

Moran Towing's Lynn Moran escorts a tanker to the LNG terminal in Freeport, Texas. The terminal, which opened in 2008, hopes to begin exporting in 2015. (Brian Gauvin photo)

The eight existing terminals benefit the maritime economy. Companies provide escort, docking assistance and stand-by services to LNG terminals. On average, there are between three and four tugs at each terminal. Many of the tugs at these terminals are state-of-the-art z-drive tractor tugs. The crews of these vessels receive training for safety, firefighting and handling LNG tankers, at schools and institutes across the country. The tugs are also built at American shipyards, providing more jobs.

Instead of importing LNG, the focus is now on exporting natural gas from LNG terminals in the lower 48 states. As of July, three applications have been submitted to the DOE for exporting domestic natural gas, according to Corbin. There have also been three other companies, which Corbin could not name, who have come to the DOE to find out details about the application process for exporting natural gas.

The companies that have applied all have a common factor.

"These are locations where there are currently LNG terminals that were designed as import terminals," said Corbin."They are not starting from scratch in terms of a facility. They have storage tanks. They have marine facilities. They have a lot of the infrastructure."

Cheniere Energy Partners, L.P., of Houston, Texas, received DOE approval on May 20 to export natural gas from its Sabine Pass import terminal in Cameron Parish, La., which received its first delivery in April 2008. The import terminal can process 4 billion cubic feet per day (bcf/d) of natural gas.

Cheniere plans to build a new liquefaction facility with an initial processing capacity of 1.2 bcf/d on its existing 853-acre site. Construction is projected to start in early 2012 for a mid-2015 opening date, according to the Cheniere Energy website. The company estimates that the project will cost about $6 billion, based on a tax agreement reached with the state of Louisiana, said Andrew Ware, a company spokesman.

"Sabine Pass would be the first truly import and export facility in the world," said Ware.

Freeport LNG Development L.P. owns and operates an LNG import terminal on Quintana Island near Freeport, Texas. Construction of the new terminal began in 2005 and it opened in 2008. The company is in the process of getting approvals to build a liquefaction facility in order to export LNG. That facility is projected to start operating in 2015. The company submitted applications to DOE and FERC last December. The new facility will be built on the current import terminal site. The company plans to export about 1.4 bcf/d, according to Freeport LNG's website.

A third site that could export LNG is the Lake Charles terminal in Calcasieu Parish, La. The project was approved in 1977 and LNG deliveries began in 1982, although they were suspended from 1983 to 1989 due to the high cost of LNG. BG Group, a worldwide natural gas company based in Reading, England, owns all of the terminal capacity at Lake Charles. BG Group also owns all the capacity for the Elba Island, Ga., import terminal, which began operating in 1980.

On May 6, BG Group and the owner of the Lake Charles terminal, Southern Union Co., submitted an application to DOE seeking to export natural gas. This has been done to keep the company's options open, said BG Group spokesman Mark Todd.

"In relation to our application to export LNG from Lake Charles, BG Group currently has no firm plans to construct liquefaction facilities," Todd said. In the future, if the company does decide that exports make sense, "it's something we can proceed with and the ground work is there."

BG Group delivers cargoes to all 22 LNG-importing countries, and has purchased gas from 11 of 18 LNG-producing companies, according to Todd. He would not comment on the state of imports at Lake Charles or Elba Island.

"What Lake Charles and Elba Island allow us to do is to always have a ready and liquid market for LNG imports," he said. "So wherever we are producing LNG from, it means we will always have a market in the U.S."

Despite the dramatic change in the natural gas market, Corbin points out this does not mean companies will suddenly switch to building export terminals. "If any company were to get authorizations from the U.S. government, that does not mean that a terminal would be constructed — there are lots of commercial issues that have to be addressed first," Corbin said.

The Cove Point LNG terminal on Chesapeake Bay in Maryland — one of the country's original four built in the 1970s — has also been mentioned as a candidate for exporting LNG.

Dominion Resources Inc. owns the terminal. In late January, CEO Thomas Farrell said in an investor's call that Dominion has talked about the potential for liquefaction facilities with several companies. Dan Donovan, company spokesman, said Dominion is a processor, and it would be up to its clients, Statoil, Royal Dutch Shell and BP, to pursue export options.

He did point out that a Dominion pipeline traverses the Marcellus Shale. This region, overlaying parts of eight states, from Tennessee to New York, accounts for 55 percent of the total domestic shale gas resources in the lower 48 states, according to the Energy Information Administration.

"If you take a map, where the Marcellus Shale is and took a map of our pipeline, it is almost in the same place," said Donovan. "We have the tanks and the docks and the delivery system" to transport natural gas to ships. The company does not have to buy land or build docks or storage tanks, he said. "We would just have to build the liquefaction facilities."

By Professional Mariner Staff