The dangers and costs of importing Liquefied natural gas (LNG). U.S. Senate Hearing 2005.

LNG Liquefaction Plant Source: Center for Liquefied Natural Gas

LNG Liquefaction Plant Source: Center for Liquefied Natural Gas

 

 

 

 

 

 

 

 

 

 

 

[ Before fracked (tight) natural gas came along, natural gas prices spiked sky-high and the U.S. Congress began looking at how new LNG import terminal construction could be expedited, since there were only 4 terminals in the U.S. The EIA predicted that LNG might supply 20% of U.S. gas in the future.  About 96% of the world’s proven natural gas reserves are outside of North America, yet the U.S. is consuming about 25% of the world’s annual natural gas production.  So when natural gas production drops off again, the topic if importing LNG will likewise happen again.  Back in 2005, there was fierce opposition to new terminals, as you’ll see in the testimony below. But since fracked gas will deplete so rapidly, perhaps opposition will be more muted in the next go-around.  It’s ironic that the U.S. is about to export LNG (6 terminals are under construction) at a time when the fracking boom may be ending.

I’ve tacked excerpts from another Senate session about the need to import Natural Gas.  We may soon be in the same fix as we were in 2005 if peak natural gas happens sooner than the 100 to 250 years many of the invited speakers to Congress predicted.

Alice Friedemann   www.energyskeptic.com  author of “When Trucks Stop Running: Energy and the Future of Transportation, 2015, Springer]

Senate 109-10. February 15, 2005. Liquefied Natural Gas. U.S. Senate hearing. 79 pages.

Excerpts:

SENATOR LAMAR ALEXANDER, TENNESSEE.   Our subject today is liquefied natural gas. We call it LNG. For those who are watching or may not be familiar with it, this basically is natural gas that might be in Russia or some other country in the world that is cooled, put in a tanker, transported to the United States, put in a big terminal—we have four of those in the United States—and then introduced into our pipelines and our energy system to heat our homes, operate our businesses, make fertilizer, create electric power, all the other things we do with natural gas. The reason it is the subject for discussion is because the price of natural gas in the United States has become the highest in the world, at least for any industrialized country. So for many industries like the chemical industry with 1 million jobs, if that should persist for too long, the possibility exists they would have to move those jobs overseas to a country where the price of natural gas is closer to the world market. Or to the farmers who use fertilizer, so much of which uses natural gas, those are increased costs, or for people who use gas in their residences, suddenly they find their home heating bills or cooling bills a lot higher. So as U.S. Senators, we are concerned about the price of natural gas.

There are a great many ways to deal with lowering the price of natural gas. We heard many of those the other day. One was conservation. That is very important. One was alternative fuels, for example, the more nuclear power we have, if we can create clean coal. Senator Dorgan talked about coal gasification in North Dakota. Because that is available, that would lower the price of natural gas. We talked about the pipeline that the Senate approved from Alaska. We talked about new ways to supply natural gas from the reserves we have in the United States.

But today’s hearing is about LNG.  Our failure to produce an adequate supply of affordable, clean energy not only pollutes the air, it is shipping thousands of good jobs overseas. In the last four years, we have gone from the lowest gas prices in the industrialized world to the highest gas prices in the industrialized world. None of the potential solutions to this problem are easy and none of the answers are particularly fast. Clearly, in the short-term, the role of aggressive conservation cannot be overemphasized. But we can’t conserve our way out of this problem. One of the only immediate solutions is more liquefied natural gas (LNG)—and quickly. There are four LNG facilities existing in the United States and 31 more have been proposed.  Most of these projects, which are our best short-term supply solution, have considerable controversy around them, especially at a local and state level.

DIANNE FEINSTEIN, U.S. SENATOR FROM CALIFORNIA.  Californians pay the highest electricity prices in the continental United States. So this too is not an easy task. One of the issues relating to reasonably cost power is the cost of fuel. Since our State relies mostly on natural gas-fired power plants, the cost of natural gas plays a large part in determining the overall cost of electricity. In order to reduce costs, we need to do two things: increase supply and reduce demand.

Additional terminals today are being built in a post-9/11 world where one of the things that we have to think about are targets in metropolitan areas. As I look at the various proposals on the west coast, it seems to me that out-of-harbor locations are better locations. Now, I could be wrong. Mr. Giles and I debated that yesterday because his proposal in the middle next to a big container facility in the Long Beach port area. Long Beach, Los Angeles receives 40% of the container traffic coming into our Nation. So one has to look at this as a potential target, which would have a dramatic impact on the economy of America if it is devastated.

Now, you might say, well the devastation would only be a mile wide.  Nonetheless, that is considerable.

PETE V. DOMENICI, U.S. SENATOR FROM NEW MEXICO.   There is not any question, Mr. Chairman, that chart up there shows that during the next 25 years, there is a big gap. It is going to be filled by something. Our experts that are doing analysis say it is going to be LNG. If it is, it is a huge amount. It may be; it may not be. But clearly, we need to know here as a committee what are the impediments to us moving ahead with LNG and what do people who are involved think about it. I would hope that, if not today, before we are finished, we will get before this committee the true safety issues. There is always a ‘‘we do not want it because’’ or ‘‘do not put it here because.’’ But I think we have to understand how much of the fear is real and how much of it is not, and then we have to proceed to figure out how much of a problem in the future can be satisfied by providing an opportunity for LNG to fill the gap.

RICHARD L. GRANT, PRESIDENT AND CHIEF EXECUTIVE OFFICER, TRACTABEL LNG NORTH AMERICA LLC AND DISTRIGAS OF MASSACHUSETTS LLC

On the issue of development, let me switch topics for a moment and address questions about the development of LNG as an important source of energy for the United States. As you know, EIA has indicated that LNG might supply as much as 20% of the natural gas consumed in the United States in the future. Additionally, there are dozens of proposed LNG terminals on the drawing board right now.

We at Tractabel are confident in the future of LNG in this country. We own and operate the terminal in Everett and have done so for 30 years. And a Tractabel LNG North America subsidiary sells LNG delivered into the Cove Point and Lake Charles. So we make deliveries in Louisiana and at the other terminals throughout the United States as well. In addition to all of this, yesterday we announced our intention to build and operate an offshore deepwater port for LNG deliveries off the Boston coast. While the Everett terminal is and will continue to be a crucial facility to meet the demand for natural gas in the region, the reality is that Everett probably cannot expand its throughput much more. And just as a matter of facts, 20 percent of all the natural gas that comes into the New England area comes through the Everett facility. So it is very important to the region’s needs. Without new means of supplying natural gas to the region, New England could face a supply gap approaching 500 million cubic feet of gas a day before the end of the decade. The new project will be able to provide an average of 400 million cubic feet of natural gas per day to the New England market, enough to heat 1.5 million homes. The estimated cost for the project, including ships and a connection to the pipeline, is approximately $900 million.

Currently there are 113 active LNG facilities in the U.S., including marine terminals, storage facilities, and operations involved in niche markets. Worldwide there are approximately 20 LNG export terminals, 45 LNG import terminals and 175 specially designed LNG ships.

I want to note that LNG is as safe, if not safer, to transport and store than most other fuels. It is not explosive, corrosive, carcinogenic, or toxic. It does not pollute land or water resources. It is not transported or stored under pressure. The Government Accountability Office (GAO) study being conducted at the request of Members of the other body needs to set its foundation on those facts. Like other fuels, LNG has risks associated with its improper handling; however, LNG has certain characteristics that minimize some of the dangers that may result from mishandling. For example, compared to other fuels, LNG is less likely to ignite in a well-ventilated area. LNG ships, with their double-hull construction, are among the best built, most sophisticated, and most robust in the world. According to shipping expert Lloyd’s Register, there has never been a recorded incident of collision, grounding, fire, explosion, or hull failure that has caused a breach to a cargo tank of an LNG ship. In fact, over the last 40 years there have been approximately 33,000 LNG carrier voyages, covering more than 60 million miles without a single major accident or safety problem either in port or on the high seas. It is also important to note that in the extremely unlikely event that an LNG vessel were involved in an incident that ruptured a cargo tank, and the LNG vapor released met with an ignition source, the likely consequence would be a localized fire, and not an explosion as is often feared.

MARK ROBINSON, DIRECTOR, OFFICE OF ENERGY PROJECTS, FEDERAL ENERGY REGULATORY COMMISSION (FERC)

I am the Director of the Office of Energy Projects at FERC. We are charged with the responsibility of ensuring the safety and adequacy of about 1,600 hydroelectric projects across the country, authorizing the construction of natural gas pipelines across the country, storage of natural gas as well, and more significantly to this group, the authorization of LNG facilities and their security and safety during their operating life.

We also take advantage of the knowledge and expertise that the local communities have in the areas of safety and security. When we do workshops on safety and security for LNG facilities, we beg, borrow, and steal to make sure that the local entities, the fire and police organizations, are involved in those workshops to let us know what their concerns are and what may need to be done that are specific to their communities, where the hospitals are located, what bridges may be impacted by this facility that would keep someone from getting to a hospital, how we can mitigate for those measures. All of those things are done robustly with the local community.

The State has a somewhat different role. The State provides a level of expertise in some areas that complements what we do at the Commission and is very much appreciated. The State has a role in terms of deciding whether or not a particular project will be constructed through their actions under the Coastal Zone Management Act, the Clean Water Act, and the Clean Air Act. All three of those provisions are dictated by the State and they can conclude in any of those that a project is not appropriate and the project cannot be constructed. We try to incorporate those agencies through the cooperative agency process, which we have used in the SES project, by the way, with the Port of Long Beach, which is the designated lead agency for the State CEQA responsibilities. To see how we cooperate with the States, we have delayed our EIS on the SES project for 6 months now while the Port of Long Beach does studies that they feel are necessary to complete their State review. On the Federal level, we deal with other Federal agencies, and I want to divide those into two groups. One group of those agencies that we deal with is on safety, and there we have a very common objective and it works very smoothly with them, the Coast Guard and the Office of Pipeline Safety. We work very, very well with them because we all have that common goal of ensuring the public safety.

About 96% of the world’s proven natural gas reserves are outside of North America. At the same time, the U.S. is consuming about 25% of the world’s annual natural gas production. With projected decreases in conventional onshore and offshore natural gas production and the projected decline in natural gas imports from Canada through to 2025, growth in U.S. natural gas supplies will depend on non-conventional domestic production, natural gas from Alaska, and imports of LNG. In order for the U.S. to meet its increasing demand for natural gas, LNG must become an increasingly important part of the U.S. energy mix. In fact, the National Petroleum Council’s September 2003 report estimates that LNG could increase from less than 2% now to as much as 12% of the U.S. gas supply by 2025. Some estimates are even higher.

In the Energy Information Administration’s (EIA) Annual Energy Outlook 2005 report, total demand for natural gas is projected to increase at an average annual rate of 1.5 percent from 2003 to 2025. EIA estimates that LNG could account for as much as 21 percent of the total U.S. natural gas supply in 2025. This equates to a daily regasification deliverability of about 17.5 Bcf/d.

Currently, there are 16 facilities under FERC jurisdiction in the continental U.S. Twelve of the facilities are land-based, peak-shaving plants that liquefy and store LNG during the summer (low demand) months for send out during winter (high demand) months. The remainder are baseload LNG import terminals. Recently, there has been a resurgence of interest in expanding existing terminals and in developing new import projects to meet the growing demand for natural gas in the United States.

The current capacity of the four existing LNG facilities (Everett, Massachusetts; Cove Point, Maryland; Elba Island, Georgia; and Lake Charles, Louisiana) totals 3.72 Bcf/d of deliverability

Senator MURKOWSKI. I love being part of a discussion with others from producing States that understand what the issues are. I am sitting in a State up north that is chock-a-block full with natural gas and opportunity to bring energy to the rest of the lower 48. And we are trying to figure out now, we are working through the FERC, we are making some headway here on a 3,500-mile pipeline. But we have also got opportunities with LNG. We have been providing a very small amount of LNG to Japan for the past 30 years. But would it not be nice if we could provide some of that to the rest of the United States? There is a frustration level I think amongst the producing States that we are prepared to help. We want to help. We want to help in a big way in Alaska, but we need somebody to receive it on the other end. And we have got some challenges up north as it might relate to LNG and getting it to the lower 48. But my questions this afternoon will be to—if we are able to work out the issues, if we are able to provide for LNG to come down through a pipe, as our legislation last year would allow for, is there an opportunity on the receiving end, the west coast end? So my question is probably directly to you, Mr. Robinson. Are there currently any regasification terminals that are located on the west coast that could accept Alaska LNG?

Mr. ROBINSON. No, ma’am there is not.

Senator MURKOWSKI. So there is nothing in the permitting process. Nobody is talking about it. There is not an opportunity for us if we were able to figure things out on our end. So ball park, how long would it take before we would be in a position to actually be able to deliver LNG?

Mr. ROBINSON. We like to work with an applicant for about 9 months prior to an application being filed to ensure that the local communities and the States are fully integrated into the process. Then once the application is filed, if we have had a successful pre-filing process, we can usually turn it around in about a year. After that authorization, there is usually a period of time where contracts have to be advertised and let, and let us say another year, 18 months to do that, and then a 3-year construction period after that.

Mr. ROBINSON. So, you are looking at probably about a 5-year period.

Senator MURKOWSKI. I am so focused on energy security for this Nation, and I just have a little difficult time recognizing that we are now going to be getting Indonesian gas going through Mexico to supply California.

Mr. PEEVEY. And Russian gas. We would love to have Alaskan gas——

Senator MURKOWSKI. Why are we going through a foreign country in order to get our gas?

Mr. PEEVEY. We would love to have Alaskan gas under the Jones Act in U.S. ships, U.S. union crews bringing that gas to California. We would love to have an LNG terminal off the coast of California or anywhere in California. We accept the need for LNG. We would love to work with you on that topic.

Mr. GILES. With respect to onshore/offshore terminals, as we have said before, there are no offshore terminals.  There are none offshore anywhere in the world. I have no doubt that it can be done and that it can be done safely. But it does not provide all the answers. For instance, in southern California, the worst problem in the area, other than they had a horrible energy crisis, is the air where they have horrible cancer and asthma. Our project is intended to keep part of the product in a liquid form and use it for LNG buses like they have with the LAX shuttle buses and that sort of thing. You cannot get that out of an offshore terminal because all of the product is gasified offshore.

So there are different needs for these terminals in different places, and I think a generic solution to how to fix the LNG situation is going to end up limiting this country’s importation of LNG. They need to have site-specific analysis.

Senator MURKOWSKI.  What is your estimate of the LNG projects that have fallen off the planning board due to community opposition, and where were those projects generally located?

Mr. ROBINSON. Oh, my goodness. Well, the ones that come to mind almost immediately are Harpswell, Maine; Mobile Bay, Alabama; and Humboldt Bay, California, which never got off the drawing board because of local opposition to them. There have been other projects that have been discussed with us and have fallen by the wayside, but those three come to mind first.

Senator MURKOWSKI. So it is all across the country. It is not necessarily on the west or on the east.

Mr. ROBINSON. There are impacts associated with offshore facilities that the captain knows much better than I do that do not make them a slam dunk. It is fine for somebody onshore to say, well, let us just put them offshore because it is sort of an amorphous type of a concept. Let us just get them offshore and they will be away from us. But again, it goes back to all siting is local, and once you get to the actual facility and you try to site it, that is when the problems start to come up. There are no sites that everybody just says are fine. As the Senator from Louisiana was alluding to, there are concerns with offshore facilities in terms of the vaporization process and the effects it would have on the fishery resources of the Gulf of Mexico.

SCOTT AVEDISIAN, Mayor, CITY OF WARWICK, Rhode Island.    The Federal Energy Regulatory Commission (FERC) concluded (May 2004) that a leak from an LNG tanker could catch fire and endanger people up to nearly a mile away; additional studies have shown that fire from LNG will burn hotter and faster than oil or gasoline, and the fire cannot be extinguished until all of the fuel is consumed. Other LNG scientists indicate that the loss of an entire tanker could produce a fire a mile wide and result in second-degree burns two miles away. Should an accident occur along Warwick’s densely populated coastline, the resulting vapor cloud or pool fire could potentially cause extensive, catastrophic damage to life and property.

A Sandia National Laboratories and Department of Energy Report found that a terrorist attack on a tanker could, in theory, cause a thermal blast that would cause major injuries and buildings to catch fire more than a third of a mile away, and cause second-degree burns on exposed skin for up to a mile. The report also concluded that foam insulation used on many LNG tankers would likely decompose under the searing heat from a fire, which ‘‘could lead to rupture or collapse’’ of adjacent tanks, leading to more intense fires of longer duration.

Additionally, studies have also shown that spilled LNG would disperse faster on the water than on land, because water spills provide very limited opportunity for containment. LNG vaporizes more quickly on water since the ocean provides an enormous heat source. Accordingly, most analysts conclude that the risks associated with shipping, loading, and off-loading LNG are much greater than those associated with land-based storage facilities

The City is also very concerned with the potential for a terrorist attack, and potential shipping-related events that could result in LNG spills, such as collisions, groundings, navigational errors, and mechanical failures. Navigation of these tankers is very difficult in confined waterways and these types of accidents are a very real possibility.

Land-based events that could result in an LNG spill include equipment failure and site-specific events such as earthquakes. Terrorist attacks against LNG ships or storage tanks could release a large amount of LNG at once. According to Gal Luft, director of the Institute for the Analysis of Global Security in Washington, locating LNG terminals in close proximity to residential or urban areas results in them becoming a major terrorist target—not just the terminals, but the whole LNG infrastructure, from tanker, to the terminal, to the truck.

The preponderance of evidence clearly illustrates that there are numerous public safety risks associated with the transportation of liquid natural gas. To expand such a facility in a highly populated, urban area and risk exposing tens of thousands of residents to the dangers of an explosion constitutes a potentially tragic and preventable hazard.

The security buffer that would likely be required could have a substantial negative impact on the commercial and recreational resources of Greenwich Bay and all of the city’s waterways. The Energy Information Administration estimates that demand for LNG will nearly double over the next two decades. Increased demand will undoubtedly lead to an ever-increasing number of ships transiting our waterways, exponentially affecting our safety, economy and enjoyment of our natural resources. From a purely economical standpoint, closure of Greenwich Bay and the waters from Warwick Point north to Conimicut will have a significant disruptive and adverse impact on the local recreational and commercial shellfishing industry. Greenwich Bay alone is home to over 4,000 recreational boats and also contains a commercial shellfishing fleet that would be devastated by additional closures due to transiting LNG tankers. Accidental groundings, navigational errors and mechanical failures would also greatly exacerbate the potentially adverse impact on the local economy. The negative socioeconomic impacts stemming from LNG ship deliveries will constitute a significant degradation of Warwick’s public and natural resources.

FIRST RESPONDER AND TRANSIT COSTS. In addition to the potential environmental and safety concerns, Warwick and other coastal communities would be in a danger zone and would have emergency ‘‘first responder’’ obligations without being provided a source of funding for necessary training and equipment. Warwick would undoubtedly incur direct ‘‘transitrelated costs’’ each time a tanker passes by its waters. Transiting LNG tankers will place a heavy burden on our local Law Enforcement, Fire and Harbormaster Departments. There is no indication that these city departments will be provided training, equipment and financial resources for any of these costs. There is also no indication as to what public safety and security impacts are associated with such a disaster. Transiting LNG tankers will place an undue economic burden on the City of Warwick’s financial resources.

PATRICK C. LYNCH, ATTORNEY GENERAL OF THE STATE OF RHODE ISLAND.   On behalf of the more than one million citizens that I was elected to represent and defend, I  am grateful for this committee taking the time to closely examine the environmental and public safety threats associated with the proposals to have LNG supertankers ply the precious coastal waterways of Rhode Island and Massachusetts, which are situated along some of the most densely populated areas in the United States. I am also compelled to state that the composition of the panels that will field questions by the Subcommittee members is clearly unbalanced in that it heavily favors industry, as well as some of the very federal agencies that have thus far demonstrated that they have not been able to discharge their duties in a manner that will adequately protect the safety of citizens of densely populated cities and communities. These citizens will be forced to live in close proximity to either the LNG terminal or LNG supertanker operations proposed for Fall River, Massachusetts, and Providence, Rhode Island. Although my office made a number of attempts to be given the chance to participate on the panels before you, and were denied that chance, I appreciate this moment to share my serious concerns about the way in which our Federal Government determines where to site LNG terminals.

Both LNG terminals, if licensed by FERC, would necessitate LNG supertankers traveling many miles through narrow waterways in order to reach their respective destination points in Fall River, Massachusetts, and Providence, Rhode Island. Much of the coastal waterway comprises Narragansett Bay, which is Rhode Island’s greatest natural and recreational resource. Narragansett Bay is one of the few estuaries in the country that remains relatively free of heavy industry. The Bay and its tributaries support not only a significant commercial fishing industry, but also form the backbone of Rhode Island’s multi-billion-dollar tourism industry. For the Fall River terminal, LNG supertankers would have to navigate up the narrow ‘‘East Passage’’ of Narragansett Bay and then through the Mount Hope Bay, 60 percent of which is in Rhode Island territory. The navigation route to Fall River requires the LNG supertankers to travel under four separate bridges, two of which are in Rhode Island—the Newport/Pell Bridge and the Mount Hope Bridge.

This past Thursday—February 10, 2005—a 350-foot tanker ran aground where LNG supertankers are also expected to travel. It stands as the latest of many groundings that have occurred over the years, and will continue to occur in the future, because of the difficult, site-specific conditions that exist along the navigation route. This recent grounding highlights the fact that the narrow federal channel along East Passage of Narragansett Bay is the wrong place to supertankers, which are as long as three football fields and carrying an extremely dangerous and volatile product.

I can not emphasize enough that all along the navigation routes whether to Fall River or Providence, there are many densely populated communities that clearly fall with the deadly thermal radiation zones that would emanate from a LNG pool fire. These affected communities include the cities of Providence, East Providence, Fall River, Warwick, and Cranston; and the towns of Bristol, Barrington, Tiverton, Warren, Middletown, Portsmouth, Newport, and Jamestown.

Last, both proposals stand to substantially interfere with the recreational uses of Narragansett Bay, disrupt other commercial operations and industries, and obstruct the multi-billion-dollar urban revitalization efforts that are unfolding along the shores of Providence and East Providence

Included within the attachments are graphics that depict thermal radiation zones where Rhode Islanders risk being injured or killed in the event of an accident or intentional act. Around the proposed KeySpan facility, we have produced an image that shows a number of schools, universities, hospitals (including the state’s primary trauma center), chlorine manufacturing facilities, and other critical energy infrastructure that would be damaged or destroyed in the event of a catastrophic breach of the LNG supertanker’s contents. Focusing solely on the KeySpan proposal, the consequences of an intentional release of LNG from a supertanker as a result of an act of terrorism are extraordinary. Furthermore, as articulated in the report by Dr. Jerry Havens, a nationally respected expert on thermal radiation zones and the consequences of LNG releases, there is great cause for concern stemming from the proposals to introduce vast quantities of LNG into population centers when the means of transportation is by marine carrier.

FERC has simply ignored these most important issues. My office has painstakingly tried to get FERC to adequately analyze the public safety implications of introducing LNG supertankers into Rhode Island’s waterways, but FERC steadfastly characterizes the risks as ‘‘manageable’’ and ‘‘acceptable’’ without any substantive analysis or explanation. Without even conducting an independent threat analysis, FERC simply chooses to rely on the past safety record of the LNG marine carrier industry without any apparent concern about the real threat posed by terrorism in the United States, particularly in the post 9/11 world.

MARY L. LANDRIEU, U.S. SENATOR FROM LOUISIANAThere are only 11 States that produce more energy than they consume. They are Utah, Colorado, Montana, North Dakota, Oklahoma, Kentucky, New Mexico, Alaska, West Virginia, Louisiana, and Wyoming being the grand prize winner. There are five States that continue to consume mountains of energy, huge amounts of energy, but refuse to produce it any way. No solar, no wind, no oil, no gas, no coal, no nuclear, but expect the rest of us to produce it. And they are California at the top of the list, New York, Florida, Ohio, and Illinois.

In Louisiana, natural gas is the major source of energy that runs our chemical and power plants. Without it, industries in my state will continue to lose their competitive edge. Take for example CF Industries in Donaldsonville, Louisiana. For them and other members of the ammonia industry the cost of natural gas can represent 70 to 90% of the total cost of manufacturing its products.  The need for more natural gas is clear, what is not clear is how we as a nation plan to meet this demand over the long haul. Our focus has turned to increasing the importation of Liquefied Natural Gas (LNG) as a means to close the gap between supply and demand.

I would not be serving the people of my state well if I did not raise a red flag as to the possible long term consequences of this policy. In spite of the fact that more gas is needed in every region of the country, it does not appear the plan to import LNG is as national in scope. Of the 30 LNG plants proposed around the country, the only ones that appear to be actually moving forward aggressively are those on and off the coasts of Louisiana and Texas. In fact, we will hear testimony today about specific projects in Rhode Island and California that have run into roadblocks.

While gas prices have hovered near $6 per thousand cubic feet, Stephen Brown, the Federal Reserve’s chief energy economist for the Dallas region, estimates that if a number of these LNG projects are up and running, prices could drop as low as $3.25 per thousand cubic feet.

However, as much as Louisiana and the rest of the nation need new sources of gas, we must address at least three critical issues as we move to meet the rising demand. First, states and communities like Louisiana that are asked and in some sense required to serve as a platform for the energy needs of the nation as a whole should be directly compensated through a revenue sharing mechanism that recognizes the impact these facilities will have on them. Secondly, the safety issues related to siting these facilities in one region of the country in order to deliver gas to the other regions of the country must be fully considered. As a result of September 2001, safety has taken on an even more important role in shoring-up the security around our nation’s critical infrastructure. The security around our LNG facilities such as ships, terminals and storage areas will have to be given an even higher priority. I am pleased that the recently released Sandia report asserts that the risk arising from both intentional and accident events can be significantly reduced and managed with appropriate security, planning, prevention, and mitigation. In addition, we must also recognize that since international LNG shipping began in 1959, tankers have carried 40,000 LNG cargoes without a serious accident at sea or in port—partly due to the double hulled design of tankers. Finally, there may be environmental impacts pertaining to the use of offshore LNG facilities that need to be addressed. Some conservation groups as well as NOAA have raised appropriate concerns about the potential impact of offshore facilities on marine life (redfish, shrimp, et al.) in the Gulf of Mexico. Perhaps these concerns will prove to be unwarranted. However, we cannot ignore them.

We have a model for how to use LNG in an efficient and safe manner. Japan is the world’s largest LNG importer and relies on LNG for about 97% of its natural gas consumption. Tokyo Bay has 5 LNG terminals which receive about 8 large shipments of LNG per week without incident.

CAPTAIN DAVID L. SCOTT, CHIEF, OFFICE OF OPERATING AND ENVIRONMENTAL STANDARDS, U.S. COAST GUARD

As the Federal Government’s lead agency for maritime homeland security, the Coast Guard plays a major role in ensuring all facets of marine transportation of LNG—including LNG vessels, shore side terminals, and proposed LNG deep water ports—are operated safely and that the risks associated with the marine transportation of LNG are managed responsibly.

LNG VESSEL SAFETY.  LNG vessels have had an enviable safety record over the last 40 years. According to a recent Congressional Research Service report, since international commercial LNG shipping began in 1959, tankers have carried over 33,000 LNG shipments without a serious accident at sea or in port. Insurance records and industry sources show that there were approximately 30 LNG tanker safety incidents (e.g. leaks, groundings or collisions) through 2002. Of these incidents, 12 involved small LNG spills which caused some freezing damage, but did not ignite. Two incidents caused small vapor vent fires which were quickly extinguished.  There are approximately 175 LNG vessels operating worldwide.

THOMAS E. GILES, EXECUTIVE VP & CEO, SOUND ENERGY SOLUTIONS, MITSUBISHI, LONG BEACH, CA

Sound Energy Solutions is a subsidiary of Mitsubishi Corporation, and we are developing an LNG receiving terminal at the Port of Long Beach, California. Once completed, this terminal will receive ocean-going tankers carrying liquefied natural gas from a variety of Pacific Rim countries. The bulk of this LNG will be vaporized into natural gas at the terminal and transported to the SoCal Gas system. Some of the LNG will be sold as a liquid for the use in LNG vehicles, replacing diesel fuel and helping to clean up the air quality in the Los Angeles Basin. The facility will cost approximately $450 million to construct and have a gross annual capacity of 5 billion tons of LNG.

MICHAEL R. PEEVEY, PRESIDENT, CALIFORNIA PUBLIC UTILITIES COMMISSION, SAN FRANCISCO, CA

The California Public Utilities Commission recognizes that there is a need for additional sources of natural gas supplies from LNG facilities. The California Public Utilities Commission agrees with the Federal Energy Regulatory Commission that LNG terminals are needed to provide reliable supplies of natural gas and help put downward pressure on the already high prices for natural gas in North America.

Due to the high prices of natural gas, there are presently numerous proposals for LNG facilities to be constructed along the West Coast, which could provide substantial volumes of natural gas to California. According to the FERC’s website as of February 7, 2005, in pending applications filed with MARAD and the Coast Guard, there are two proposed sites in federal waters offshore Southern California (i.e., BHP Billion for 1.5 Bcfd and Crystal Energy for .5 Bcfd), there are two proposed sites in Baja California, Mexico (i.e., Sempra and Shell for 1.0 Bcfd and Chevron Texaco for 1.4 Bcfd), there is one proposed site in Southern California in an application filed with the FERC (i.e., Sound Energy Solutions for 0.7 Bcfd) and there is a potential site offshore Southern California identified by the project sponsor (i.e., Chevron Texaco 0.75 Bcfd). In addition, a new proposal for a floating storage and regasification unit (FSRU) offshore of Baja California, Mexico was recently announced in an article in the San Diego Union-Tribune on February 3, 2005. According to the San Diego Union-Tribune’s article, ‘‘Energy experts say only one or two liquefied natural gas receiving terminals are needed to supply the Baja California and Southern California region.’’ The California Public Utilities Commission has made no determination as to how many LNG terminals are needed in this region, but suffice it to say that nobody expects all of these projects are necessary or will be built.

There is a much greater chance of public acceptance of LNG facilities when the state has decision-making authority and is included in the process, and when there is meaningful public participation in the process as well, than when the state and the public are excluded.

JACK REED, U.S. SENATOR FROM RHODE ISLAND.  As we speak, the Federal Energy Regulatory Commission is considering proposals to establish LNG receiving terminals in Providence, Rhode Island and Fall River, Massachusetts. Both of these projects would place LNG terminals in urban communities and require LNG tankers to pass by 11 Rhode Island towns and cities and more than 25 miles of densely populated coastline, literally all the way up Narragansett Bay. In my written testimony, I have outlined my major concerns with FERC’s current process for siting LNG terminals. Perhaps most important, I believe that FERC is not serving the American people well by simply processing LNG proposals submitted by energy companies on a first-come/first-serve basis without regard to the relative public policy benefits of one site over another, particularly in places like New England. FERC should, instead, consider a regional approach to LNG terminal siting. FERC should step back and take a comprehensive look at all the options, including offshore terminals, remote facilities that are being built in Canada, and other sites in the northeastern United States that are not in the heart of densely populated urban communities. Unfortunately, so far FERC has rejected our pleas for such an approach.

FERC is moving rapidly toward finalizing its environmental impact statement on the KeySpan project in Providence, yet the Coast Guard has not completed its security plan that will answer significant questions about the Federal, State, and local resources that will be required to protect the 950-foot long LNG tankers that will transit the bay up to 100 times per year.  FERC’s approval process for LNG terminals is deeply flawed and leaves too many questions unanswered. We do not know exactly what impact the arrival and departure of 100 or more LNG tankers each year will have on recreational and commercial traffic on the Bay—or whether any of our bridges will need to be closed during transits—because the Coast Guard has not completed its safety and security reviews. The Coast Guard is working diligently with KeySpan and with its state and local partners to complete those reviews, but the Coast Guard has told my office repeatedly that it does not have the resources to adequately secure these LNG tankers and marine terminals, while fulfilling its other post-9/11 responsibilities. The arrival of 950-foot long LNG vessels will require a whole new level of personnel and infrastructure, yet we have no cost estimate and no guarantee these new federal resources will be made available.  Similarly, a tremendous new burden will be placed on our state and local law enforcement and first responder agencies.

 

Senate 109-2. January 24, 2005. Natural Gas Symposium. U.S. Senate Symposium. 95 pages.

Excerpts:

PETE V. DOMENICI, New Mexico, CHAIRMAN. Our consumption is outstripping production at an increasing rate. In 2004, we imported 15% of our natural gas.  The EIA estimates that in 2025 we will have to import 25%, nearly double what we import now, most of it as LNG, liquefied natural gas. According to the EIA, in 2004, we imported 6 million cubic feet of LNG. In 2025, they think the importing will be 6.4 trillion cubic feet.  Progress so far on siting these LNG facilities has been nonexistent, almost impossible to get done. [Yet] there is a natural gas crisis, in terms of demand and supply..that affects residential, commercial, industrial consumers and has cost the consumers many billions of dollars.

ROGER COOPER, EXECUTIVE VICE PRESIDENT, AMERICAN GAS ASSOCIATION.  We need to change how we measure energy efficiency to avoid ignoring huge energy losses. What are these energy losses? It is the loss of energy when we extract a raw material, turn it into electricity, and deliver it to a customer. Typically about two-thirds of the energy is lost in that process, but currently we tend to ignore in our energy efficiency measurements looking at that side of the equation.

AGA requests that existing Federal energy efficiency legislation be amended so that we measure not only the energy efficiency of the appliance, as we do today, but we also look at the energy efficiency in a full-fuel cycle, so from wellhead to burner tip, from mine mouth to electric appliance.

Also, we need to align the interests of gas distribution utilities and their customers for greater conservation. In the past quarter century, the average residential household has reduced their natural gas consumption by 25%, about 1% a year on average. But that is not enough. Today most natural gas distribution utilities can earn their fair, State-approved returns, approved by the public utility commissions, only by getting their customers to use more, not less, natural gas. But the good news is that it need not be the case. The solution lies in changing utility rate designs. Properly done, using  conservation tariffs approved by State public utility commissions, we can reduce natural gas consumption, lower bills to consumers,  increase energy efficiency, and provide a reasonable return to shareholders. This concept has been endorsed by NARUC, by the Natural Resources Defense Council, by the ACEEE, and other organizations.

JEANNE CONNELLY, VP, Federal Relations, Calpine Corporation.  A lot of attention has been paid to improving efficiencies on the demand or the customer side, but we believe that it is also possible to improve efficiency on the supply side in the production of electricity. We have heard from many people that the majority of new power plants that have been built in the last decade have been gas-fired. But something interesting happened in the late 1990’s. While the amount of electricity produced from gas continued to grow, the amount of gas used to produce that electricity did not grow concomitantly. And the answer is improved efficiencies because at that same time in the late 1990’s, a lot of the new, very efficient, combined-cycle natural gas plants started to come on line. They use somewhere between 30 to 40% less natural gas to produce the same amount of electricity as the older, inefficient gas plants.

So from 1999 to 2003, the amount of electricity produced from gas increased 11.5%, but the amount of gas used to produce that electricity increased only 1%. So you had a savings of 650 billion cubic feet of gas. Texas, which has a competitive market for energy, improved the efficiency of its gas-fired generation by over 10% from 1999 to 2003. But Louisiana, which still operates as a regulated monopoly system, improved their efficiency by only 1%. And the difference is that in a competitive market, the most efficient units get called on first. They are dispatched first.

So our proposal for reducing the use of natural gas is to encourage all public utilities to use a system of efficient dispatch, whereby the most efficient units are dispatched first, whether they are owned by the utility or the power is generated from a non-utility owner, as long as it is available in the same region. And then the oldest, most inefficient units might never be called on or they would only be called on at times of peak usage. If all gas-fired generation were from the new, combined- cycle plants with an average heat rate of 7,500, in 2003 the country could have saved another 650 billion cubic feet of gas, just in 2003. And this translates into millions of dollars of savings to ratepayers where the cost of gas is passed right through to the ratepayer. And the environmental benefits are tremendous as well since you have quite a reduction in emissions of NOx and carbons. Since some regions of the country that have old and new gas also have an over-capacity of power right now, you could do this without having to have capital expenditures.

SCOTT ANGELLE, Secretary, Louisiana Department of Natural Resources.   Louisiana has a long and distinguished history of oil and gas production. Currently 34% of the Nation’s natural gas supply and almost 30% of the Nation’s crude oil supply is either produced offshore Louisiana or moves through the State’s coastal wetlands. This production is connected to nearly half of the total refining capacity in the United States.

We understand just how vital these energy resources are to the Nation’s economy, but Louisiana, like other coastal producing States, sustains impacts and bears the cost of onshore support infrastructure. In my State, some of this infrastructure contributes to the loss of more than 24 square miles of our coastal land each year, a rate of land loss believed to be the fastest on the planet Earth. In fact, during the time of this afternoon’s meeting alone, Louisiana will lose a football field-wide area from the Capitol Building to the Washington Monument. If what is happening in Louisiana today were happening in this city, the steps of this building would be washing away today, the White House tomorrow, and perhaps the Pentagon soon thereafter.

When States like yours, Senator Bingaman, holds drilling on Federal lands onshore, they receive 50 percent of those revenues in direct payments, which is appropriate. In contrast, Louisiana produces an average of 5 billion—that is billion with a B—off its shores and gets only a fraction of a percent back. We believe this inequity is profound. It is critical we receive our Federal share of revenues to build and maintain onshore infrastructure to continue to support this production activity. We believe it makes sense to take care of the energy-producing States that produce the energy for the benefit of the rest of the Nation.

Like a good bank account, one must make a few deposits to make a few withdrawals. Relative to America’s energy industry, Louisiana has made her share of deposits and we need to make a withdrawal on the Federal Treasury to protect the infrastructure. Help us to allow us to continue helping America. What else must Louisiana do to get the attention? Just last month, the Federal Government sited the newest LNG facility in America in Cameron Parish, Louisiana. We are doing our share but we do need some help to protect our infrastructure.

MARK D. MYERS, DIRECTOR, ALASKA DIVISION OF OIL AND GAS, STATE OF ALASKA. [There is a lot of potential in Alaska to produce natural gas if pipelines are built. These pipelines could carry 4.5 to 5.6 billion cubic feet of gas a day (bcfd) as soon as 7 years from now].   At these rates, the proven reserves in the North Slope will last between 16 and 23 years. The remaining gas for a 35-plus-year project will need to come from either conventionally yet-to-be-discovered gas or unconventional gas that is proven in the ground but not proven yet to be commercial.

Currently, 59 bcfd of natural gas is consumed daily in the United States. The EIA estimates that domestic demand for natural gas will increase to 77 bcfd by 2015, and to 84 bcfd by 2025. If the Alaska natural gas pipeline currently envisioned is built, the 35 tcf of known Alaska reserves could satisfy 4.5 bcfd of the total domestic demand for a period of two decades. Alaska’s vast gas resources are estimated to also include 250 tcf of undiscovered conventional resources, 590 tcf of onshore (100 tcf within or near existing North Slope infrastructure.  The economic return and risk associated with building a gas pipeline depends largely on its useful lifespan, a function of both available reserves and pipeline capacity.

MARK COOPER, DIRECTOR OF RESEARCH, CONSUMER FEDERATION OF AMERICA.   In the past 25 years, we have failed to adopt a coherent, balanced policy. We are paying the price today, but if we fail in the next 25 years, the price will be much greater.  Natural gas transportation, distribution, and storage infrastructure exhibit characteristics of natural monopoly and public goods. They are a natural monopoly in the sense that there are not likely to be redundant facilities in a given area because of high fixed and sunk costs.

As a result, the manipulation of markets and a socially irresponsible undersupply is likely to occur unless there is public policy. We believe a critical first step in building the consensus that we have failed to build in the past 25 years is to restore confidence in the transparency and fairness of these markets. And that means starting with an information infrastructure, that people believe in and therefore will be willing to make the hard choices that we firmly believe must be made.  We need to stop deregulating where markets are too weak to protect consumers to diminish abuse.  We need to adopt requirements to expand storage. We have inadequate storage. Every price shock we hear, stocks were low.  We need a reporting system of prices and stocks and balance in supplies that is honest, audited, and instills confidence in the public.

KEITH RATTIE, CHAIRMAN, CEO, & President, Questar Corporation.  I am here today on behalf of the Interstate Natural Gas Association of America, INGAA. The bottom line is that America will need all the natural gas the market can deliver over the next couple of decades. We cannot conserve our way out of the supply problem except at an unacceptable cost to our economy and our standard of living. We do not have the luxury of choosing to just say no to new pipelines or to new natural gas development or to LNG terminals required to access the massive amounts of natural gas that have been found in this country and around the globe. In short, we need new supply from new areas and new pipelines to move more gas.

STEVE NADEL, EXECUTIVE DIRECTOR, American Council for an Energy Efficient Economy.    We are a nonprofit research organization that has worked on policies for promoting energy efficiency for the past 25 years. Energy efficiency policy action is the best way to bring down natural gas prices over the next 5 years. Demand and supply are in very tight balance, and just a small reduction in energy demand could have a very significant impact on prices over the next few years before other resources start coming into play. We did a recent study using the same computer models employed by the National Petroleum Council and found that reducing natural gas and electricity use by 4 to 5% over the next 5 years could reduce gas prices by about 25% between now and 2010. Over the next 5 years, we could save over $100 billion for American consumers and businesses. So we think this is a very important first step that should be taken.  Also, we recommend that an energy efficiency resource standard be established. This would be to set energy savings goals for the energy suppliers, the gas and electric utilities, similar to Texas sets savings targets that the utilities need to meet each year.  Finally, we recommend an energy efficiency and conservation campaign to encourage consumers to reduce their use of natural gas and electricity. In particular, we think expanded funding for the Energy Star program would be a good place to start.

 

Senator ALEXANDER.  I believe the drilling rig the chairman visited might be 50 miles offshore, very difficult to see. Can anyone give me a comparison of how many wind turbines it would take, spread across the ocean, to equal one gas rig that no one can see?

Mr. KUUSKRAA. If we had a 500-megawatt power plant, that would be equal to 500 1-megawatt windmills. One rig producing about 150 million cubic feet a day, which is an average output, would be equal to that.

 

The CHAIRMAN. Are either of you aware of the huge ranch in northern New Mexico that is called the Vermejo Ranch? It is owned by Ted Turner.  The point I was going to make is—it is interesting because I did not hear from any of those who were worried about great landscapes and wilderness type areas to even comment on the fact that Mr. Turner, a friend of mine, drilled 1,500 gas wells on the Vermejo Ranch. He did not ask for permission. He did not follow the national environmental impact law. He drilled them and nobody is talking about it even to this day, about whether they should have been drilled. But I would venture that if they were public lands, there would be no chance that there would have been 1,500 wells on that property. That is just an observation.

Mr. ALBERSWERTH. Senator Domenici, I think that is because we all in this room feel that we have a stake in those public lands and we do not have a say about what Mr. Turner does on his land.

Senator THOMAS. If you own the surface and the mineral, you have a lot more freedom to do what you want to do.

The CHAIRMAN. No, but the point is Mr. Turner does not feel like that.  You understand. All of you have praised him because he is not a landlord that is supposed to be any less concerned about environmental issues on his land as we are on ours.

 

 

This entry was posted in Energy Policy, LNG Liquified Natural Gas and tagged , , . Bookmark the permalink.

Comments are closed.