|Greenspan Touts Value of LNG as 'Safety Valve' |
(Copyright © 2003 Energy Intelligence Group, Inc.)
Oil Daily Wednesday, June 11, 2003
WASHINGTON -- The US must look to the importation of liquefied natural gas (LNG) as a "crucial safety valve" to reduce high natural gas prices, Federal Reserve Board Chairman Alan Greenspan told US lawmakers on Tuesday.
While LNG has been touted by the natural gas industry as the next logical step in increasing US natural gas supply, Greenspan's testimony will undoubtedly give greater credence to plans to increase the amount of LNG brought into the US.
Doing so will allow US policymakers some time to examine more critically the key questions of natural gas and overall energy policy, Greenspan told the House Energy and Commerce Committee during a hearing on potential fixes for current high natural gas prices.
Those key questions include whether to open more lands to new hydrocarbon drilling or to maintain existing environmental moratoriums, the construction of a natural gas pipeline from Alaska or the Canadian Arctic and even to examine the policy questions surrounding the use of nuclear power.
Greenspan was called before the committee to address the reasons and the macroeconomic impacts of the high natural gas prices, somewhere in the neighborhood of $6 per million British thermal units (MMBtu). To solve the problem as quickly as possible, Greenspan returned to one theme only -- imports of LNG.
In the simplest of economic terms, the current high prices stem from the inability of North American natural gas supplies to meet demand. The problem for the US, said Greenspan, is that "rising demand for natural gas, especially as a clean-burning source of electric power, is pressing against a supply essentially restricted to North American production."
Greenspan sees the US LNG market becoming the same as the existing crude oil marketplace, which has fully embraced imports from international supply sources to make up for the shortfall in domestic production. The result has been a marketplace free of the volatility of natural gas and should be for some time.
He noted that natural gas futures prices show an increase going out to 2009, on a heating oil equivalent basis, from less than $12/bbl to $24/bbl, while oil futures show only a $4/bbl increase over the same time period.
As an example of how the worldwide oil market can overcome supply disruptions, Greenspan pointed to the response of US refiners to the loss of Venezuelan production by purchasing crude from other exporting countries.
Such flexibility is necessary for the natural gas market and depends on an expansion of LNG import capacity. Without it, "imbalances in supply and demand must inevitably engender price volatility," he said.
Currently, there are three LNG import terminals in the US -- located in Massachusetts, Louisiana, and Georgia, with a fourth soon to be operational in Maryland.
The Federal Energy Regulatory Commission (FERC) has begun efforts to increase the number of LNG terminals in the US by revamping its approval policy for terminals in December 2002 (OD Dec.19,'02p5). Moving away from an open access policy that required terminals to accept any shipper of LNG, the new policy allows proprietary terminals, which allows the terminal operator to more closely control the flow of LNG to the terminal with their exporting operations.
Numerous plans are in the works to construct new import terminals -- notably Sempra's Hackberry terminal in Louisiana, and Cheniere Energy's attempts to construct a terminal on the Texas Gulf Coast.
Other plans to increase LNG terminal capacity rely on placing the terminals outside US borders to avoid community opposition over security and environmental concerns.
These projects include AES' Ocean Express project, which would rely on an LNG import terminal in the Bahamas that would send gas through an undersea pipeline to Florida. Other companies, notably Marathon and Sempra, have plans to construct terminals in Mexico and use existing pipeline infrastructure to carry the gas to the US.
As the largest natural gas market in the world, a number of countries are looking to increase their LNG imports to the US, including Trinidad, Russia, and numerous Middle Eastern countries. In November 2002, Algerian Energy Minister Chakib Khelil signed a LNG accord with Energy Secretary Spencer Abraham where both countries pledged to take steps to increase Algeria's LNG contribution to US markets.