With natural gas supplies in a glut and prices at ten-year lows, the industry is already making plans to try to open up world markets. This will involve considerable infrastructure building. In order to ship gas abroad, it must be liquefied to a temperature of -259 degrees F, pumped aboard tankers, shipped across the ocean, and then turned back into gas at a similar facility. Not all countries in need of natural gas have the capacity to do this. As a result, construction of liquefied natural gas terminals is a high-risk venture.
LNG terminals will cost between $1.5 and $10 billion and take five years to build. The regulatory process is daunting. Terminals must first seek permission from the Department of Energy to export natural gas and then get a permit from the Federal Energy Regulatory Commission to construct the facility. Environmental opposition is likely so most facilities are being confined to the workhorse states of Texas and Louisiana.
To complicate things futher, the Department of Energy discriminates between countries that are part of the Free Trade Agreement and those that are not, giving preference to the former. Unfortunately, FTA countries tend to lack LNG terminals while non-FTA countries often have them. South Korea is the only exception.
There are now three operating terminals in the U.S., Freeport, Texas, Sabine Pass, Louisiana and Cameron, Louisiana. Currently they only import LNG from Trinidad and other nearby sources and then re-export, handling 53 billion cubic feet (Bcf) in 2011. The Kenai terminal in Alaska was the only U.S. terminal liqeufying domestically produced natural gas but it shut down last December.
Nine projects (the brown and blue dots) with a capacity to liquefy 14.0 bcf per day have applied to DOE to export domestically produced LNG. All are on the Gulf of Mexico except the Jordan Cove site in Coos Bay, Oregon. This would gas piped from Colorado and Wyoming. Five terminals (the brown and red dots) have applied to FERC for approval to build facilities with total capacity of 9.5 Bcf per day. Last week Sabine Pass received the first approval and is expected to begin operations by 2015.
As with nuclear reactors, liquefied natural gas terminals are a long-term investment fraught with uncertainties. Considering the reversals of the natural gas market in the last five years alone, these projects involve enormous risk. But as potential exporters of America’s abundant gas supplies to an energy-hungry world, they also promise considerable reward.