Overview of LNG in the United States Dan McGinnis, Vice President of Gas Infrastructure Tractebel Project Development Inc. Natural Gas Conference Louisiana State University October 27, 2003
What Is Liquefied Natural Gas? LNG is the same natural gas used around the world for heating and power-generation purposes, only in a different form. When chilled to -260 degrees Fahrenheit, natural gas liquefies and reduces to 1/600th of its original volume. Liquefaction allows large quantities of natural gas to be transported via ship and stored efficiently and economically. Sparks for the LNG industry OPEC Oil Embargo in the 1970s Entire countries, or at least regions, needed to diversify fuel sources Gas-rich countries looking to leverage stranded reserves January 2001 natural gas price spike NYMEX trades at $10 per MMBtu Today, sustained natural gas futures prices of $4-$5 per MMBtu
LNG Supply Chain Supply Terminalling Marketing & Distribution Gas Utilities (Vapor, Liquid) Industrial Production & Transmission Liquefaction Shipping Terminalling & Regasification Electric Utilities Non-utility Generators (Links in which Tractebel has a stake)
LNG s Appeal Is Growing LNG/natural gas cleanest burning, highest energy efficiency of all fossil fuels Ample supply (ex. Trinidad has 70+ trillion cubic feet of proven and probable reserves, Algeria has some 130 trillion cubic feet of proven gas reserves, while Qatar has approximately 900 trillion cubic feet.) Decreasing costs (decline of about 30% since 1970s) Facilities can be upgraded quickly and substantially to meet increases in demand Marketing flexibility Can divert from full markets to thriving ones Can make short-term, even single contracts to maximize both export and import facilities Transport cost-competitive with pipelines over long distances
Example of Supply Side Costs * Exploration and Production $.75 - $1.00 Liquefaction $1.00 - $1.50 Shipping (distance related) $.35 - $1.50 Storage and Regasification $.15 - $.25 Total $2.25 - $4.25 *Internal estimates
U.S. Natural Gas Market Growth Projections Calendar Year Trillion Cubic Feet 35.0 U.S. Demand U.S. Domestic Supply 30.0 25.0 20.0 15.0 10.0 5.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 EIA reports that U.S. production is expected to grow from about 19 Tcf to 25 Tcf between 2000 and 2020, while demand is projected to grow from about 23 Tcf in 2000 to 32 Tcf in 2020, a roughly 75% increase in the projected shortfall over the 20 year period. Source: U.S. Energy Information Administration Annual Energy Outlook 2003
Clear Market Driver: Power Production U.S. installed capacity by fuel and age GW, 2001 Coal Gas Hydro Nuclear Oil Total* 1950 and prior 6 4 17 2 29 1951-1960 49 24 17 9 99 1961-1970 71 47 27 3 15 163 1971-1980 118 51 25 39 38 274 1981-1990 62 20 11 51 3 156 1991-2000 10 73 4 2 5 98 2001-2002 115 116 Total Share 316 34% 334 36% 101 11% 95 10% 72 8% 935 * Total includes all other forms of generation, not listed separately Source: RDI, CERA
U.S. Natural Gas Market Neither U.S. natural gas production nor Canadian imports likely to meet all of the increased demand Mexico importing natural gas from U.S. to meet its rising demand U.S. market will likely need to evolve from an almost strictly continental market to a global one linked by LNG Natural Gas Production Areas in U.S. and Canada
Will LNG Account for a Bigger Piece of the Market? Prominent organizations and individuals are agreeing that LNG represents an important, long-term natural gas supply solution The U.S. Federal Energy Regulatory Commission The U.S. Department of Energy Alan Greenspan of the Federal Reserve Bank The National Petroleum Council Recent Standard & Poor s Report LNG projects excellent candidates for financing Project sponsors typically have strong balance sheets, and end users typically have investment-grade credit risks Physical infrastructure in LNG supply chain not susceptible to obsolescence Stranded gas reserves in Trinidad, Algeria, and Nigeria [and other countries] are plentiful, and liquefaction and regasification technology are commercially proven S&P believes these reasons add up to attractive opportunities for energy investors
Challenges in Siting New LNG Facilities in the U.S. Long lead times in developing LNG facilities (about 5 years) LNG imports require alignment of the entire supply chain Complex permitting activities Large capital requirements Public knowledge of LNG is poor, evidenced by perceptions of safety and security risks NIMBY sentiment continues to be extremely powerful
Recent Federal Government Developments In its preliminary approval of the Hackberry LNG project in Louisiana in December 2002, FERC issued a press release which stated that [FERC] will set a different policy in regulating new LNG projects where markets are competitive and other criteria are met. Goal is to remove economic and regulatory barriers to spur development of onshore LNG import terminals. This will allow new imported LNG to supplement existing natural gas supplies. Key changes: FERC will no longer require for all new LNG projects: open access status FERC-approved cost-based rates Any affect on existing LNG terminals? Deep Water Port Act amended to include natural gas/lng/cng Offshore LNG terminals would be under Coast Guard jurisdiction Offshore LNG permit applications would have discrete timeline
LNG Global Supply Sources Alaska Norway Russia Trinidad Venezuela Algeria Egypt Libya Nigeria Equatorial Guinea Qatar Abu Dhabi Oman Yemen Malaysia Brunei Peru Angola Indonesia Chile Australia Current Liquefaction Plant Proposed, Planned, or Under Development
LNG Import Facilities Everett Cove Point Lake Charles Elba Island Puerto Rico Dominican Republic Existing LNG Terminal Trinidad Proposed LNG Terminal
Projected Growth for LNG in the U.S. Calendar Years 2.5 Trillion Cubic Feet 2 1.5 1 0.5 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Source: U.S. Energy Information Administration Annual Energy Outlook 2003
U.S. Natural Gas Supply Sources less than 1% Source: EIA Annual Energy Outlook 2003 6% 15% 15% 84% U.S. Canada LNG 79% U.S. Canada LNG 2002 2025 (projected) U.S. Federal Energy Regulatory Commission Chairman recently said imports, including LNG, should become bigger factors Pipelines in U.S. getting harder to build LNG terminals can be placed right there in the market that needs it
Conclusion Overall, the outlook for LNG in the U.S. is brighter than it s been in a long time Clean, energy efficient fuel Ample supply Decreasing costs across LNG supply chain Transport cost-competitive with pipelines over long distances Facilities can be upgraded quickly and substantially to meet increases in demand Marketing flexibility New, vocal support from federal government and others