Overview of LNG industry in the U.S. Fisoye Delano

© UH IELE. 2

Outl ine

• What is LNG?

• Is LNG a safe fuel?

• The LNG value chain

• How much does LNG cost?

• Does the U.S. need more LNG?

• Conclusion

© UH IELE. 3

What Is LNG?• LNG is liquid form of the

natural gas used for cooking, heating and power generation.

• LNG is commonly used in the U.S. for “peakshaving.”

• LNG is used as an alternative transportation fuel.

Typical LNG Composition

Others5%

Methane 95%

Source Methane Ethane Propane Butane Nitrogen

Alaska 99.72 0.06 0.0005 0.0005 0.20

Algeria 86.98 9.35 2.33 0.63 0.71

Baltimore Gas & Electric 93.32 4.65 0.84 0.18 1.01

New York City 98.00 1.40 0.40 0.10 0.10

San Diego Gas & Electric 92.00 6.00 1.00 - 1.00

Source: Liquid Methane Fuel Characterization and Safety Assessment Report . Cryogenic Fuels. Inc. Report No. CFI-1600, Dec. 1991

LNG COMPOSITION (Mole Percent)

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Is LNG A Safe Fuel?

• LNG is odorless, colorless, non-corrosive, and non-toxic. – Natural gas vaporized from LNG can cause

asphyxiation in an unventilated confinement.

• LNG has been safely handled for many years.

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Is LNG A Safe Fuel?

• Worldwide LNG Facilities:– 17 LNG export (liquefaction) terminals.– 40 import (regasification) terminals.– 136 LNG ships altogether handling approximately 120

million metric tons of LNG every year.– Over 240 peakshaving and LNG storage facilities, some

operating since the mid-60s.

• The U.S. has the largest number of LNG facilities in the world.

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Source: EIA

U.S. Liquefied Natural Gas Facilities

Source: EIA

U.S. Liquefied Natural Gas Facilities 113 active LNG facilities in the U.S.

Is LNG A Safe Fuel?

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LNG facilities in the U.S.

The types of LNG facilities in the U.S. are:

• Baseload LNG plants: large facilities providing

long, steady supply of LNG to customers. There two

types,

– Baseload LNG liquefaction plants

– Baseload LNG regasification terminals

• Peak-shaving l iquefaction and storage

• Satell i te LNG storage

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Source: ConocoPhillips

LNG facilities in the U.S.

Baseload LNG liquefaction plants.

The only export plant in the U.S. is

the ConocoPhillips/Marathon plant

located in Kenai, Alaska.

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LNG facilities in the U.S.

Baseload LNG regasification terminalsThe four marine LNG import terminals in the U.S. represent base load LNG facilities.

Source: CMS

Distrigas, TractebelDistrigas, TractebelEverett, MAEverett, MA

CurrentCurrent ExpandedExpandedSendout:Sendout:(MMcf/d)(MMcf/d) 435*435* 915915

Storage:Storage:(Bcf)(Bcf) 3.53.5 4.354.35

Cove Point LNG, DominionCove Point LNG, DominionCove Point, MDCove Point, MD

CurrentCurrent ExpandedExpandedSendout:Sendout:(MMcf/d)(MMcf/d) 750750 1,0001,000

Storage:Storage:(Bcf)(Bcf) 5.05.0 7.87.8

Elba Island, El PasoElba Island, El PasoSavanna, GASavanna, GA

CurrentCurrent ExpandedExpandedSendout:Sendout:(MMcf/d)(MMcf/d) 446446 806806Storage:Storage:(Bcf)(Bcf) 4.04.0 7.37.3

CMS Trunkline LNG, LLCCMS Trunkline LNG, LLCLake Charles, LALake Charles, LA

CurrentCurrent ExpandedExpandedSendout:Sendout:(MMcf/d)(MMcf/d) 630630 1,2001,200Storage:Storage:(Bcf)(Bcf) 6.36.3 9.39.3

SummaryTotal Existing U.S. Regasification

Current ExpandedSendout:(MMcf/d) 2,256 3,916Storage:(Bcf) 18.8 28.8

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LNG facilities in the U.S.Peakshaving LNG facilities liquefy

and store natural gas in the summer for

eventual regasification during the

coldest days of winter. The storage tank

volumes in these facilities can be very

large capable of storing 1.0 to 2.0 BCF

of natural gas. In the US, LNG has

been utilized by LDCs for peakshaving

for more than 60 years.

Source: CH·IV International

57 Peakshaving Plants in the U.S.

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LNG Facilities in the U.S.Satellite LNG facilities do not contain

liquefaction units, but only storage and

re-gasification equipment. Some of

these units are used for satellite peak-

shaving duties, while others are

dedicated to vehicle fuel transfer

systems. LNG is delivered from marine

terminals or satellite facilities, usually

by truck.

Source: CH·IV International

Source: CH·IV International

39 LNG Storage facilities in the U.S.

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LNG Facilities in the U.S.U.S. LNG STORAGE FACILITIES CAPACITY

2%

18%

80%

Marine Export Terminal,2.3 bcf

Marine Import Terminal,18.8 bcf

LNG Peak Shaving andSatellite Storage, 86 bcf

Source: EIA

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U.S. LNG Regulations

Regulations are designed to prevent incidents from occurring and if they do occur, from human or other error, to protect the public from any impact.

• 49CFR Part 193 Liquefied Natural Gas Facilities: Federal Safety Standards

• 33CFR Part 127 Waterfront Facilities Handling Liquefied Natural Gas and Liquefied Hazardous Gas

• NFPA 59A Standard for the Production, Storage, and Handling of Liquefied Natural Gas (LNG)

• NFPA57 Standard for Liquefied Natural Gas (LNG) Vehicular Fuel Systems

• International Regulat ions BS7777 and EN1473

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U.S. LNG RegulatorsDOE helps to coordinate across federal

agencies that have regulatory and policy authority for LNG

FERC is responsible for permitting new onshore LNG regasification terminals and ensuring safety at these facilities.

DOT regulates offshore terminals and LNG tanker operations.

USCG is responsible for assuring the safety of all marine operations at all LNG terminals and on tankers in U.S. coastal waters

U.S. EPA and state environmental agencies establish air and water standards with which the LNG industry must comply.

Others include:U.S. Fish and Wildlife ServiceU.S. Army Corps of Engineers for

coastal facilities and wetlandsU.S. MMS for offshore activitiesNational Oceanic and

Atmospheric State, county and local

(municipal) agencies play roles to ensure safe and environmentally sound construction and operation of LNG industry facilities. Local police and fire departments.

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Is LNG A Safe Fuel?• The industry is not without

incidents but it has maintained an enviable safety record, especially over the last 40 years.

• The few safety related incidents have harmed the industry’s perception by those outside of the industry.

• The experience of the LNG industry demonstrates that normal operating hazards are manageable.

LNG Incidents1944 Cleveland Ohio. LNG

peakshaving plant. 128 people died in adjoining residential area.

1973 Staten Island NY: LNG peakshaving plant. 40 maintenance workers dies

1979 Cove Point MD: LNG Receiving Terminal. 1 operator died

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LNG Value Chain

Energy companies must invest in the LNG value chain.

REGASIFICATION

& STORAGESHIPPINGLIQUEFACTION

EXPLORATION &

PRODUCTION

Sources: BG, ALNG, CMS

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LNG Value Chain

• Natural gas is found in the earth’s crust.

• Most of the time natural gas is discovered during the search for oil.

• Worldwide proved reserves of natural gas about 6000 Tcf.

• Much of this natural gas is stranded, a long way from market.

• Production operations delivers the gas to users. Source: BGSource: BG

Exploration and Production

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LNG Value Chain

• Natural gas is converted into a liquid state.

• The gas is cooled to LNG temperature of -256oF. The volume reduce by a factor of 600.

• Liquefaction makes natural gas more economical to transport.

Liquefaction

Source: ALNGSource: ALNG

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LNG Value Chain

• LNG tankers are double-hulled ships specially designed and insulated to prevent leakage or rupture in an accident.

• LNG is a cryogenic liquid and it is stored in double-walled tanks at atmospheric pressure.

• The LNG shipping market is expanding.

Source: BGSource: BG

Number of LNG ships built 1965 - 2002

0

2

4

6

8

10

12

14

1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001

Sh

ips b

uil

t each

year

Source: LNGOneWorld

Shipping

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LNG Value Chain

• At the receiving terminal the LNG is pumped into a double-walled storage tank.

• Vaporized by warming in a controlled environment.

• Vaporized gas is regulated for pressure and enters the U.S. natural gas pipeline system.

• Residential and commercial consumers receive natural gas for daily use from local gas utilities or in the form of electricity.

Storage and Regasification

Source: CMS

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$0.3-$0.5/MMBtu$0.4-$1.0/MMBtu$0.8-$1.20/MMBtu$0.5-$1.0/MMBtu

REGASIFICATION & STORAGESHIPPINGLIQUEFACTIONEXPLORATION

& PRODUCTION

LNG Value ChainLNG Value Chain

Sources: BG, ALNG, CMS

How Much Does LNG Cost?

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LNG costs are declining. Natural gas can be economically produced and delivered to the U.S. As

LNG in a price range of about $2.50 - $3.50 per MMBtu depending largely on shipping cost.

LNG COSTS ARE DECLINING

Does not include feedstock prices

2.5

1.8

0.5 0.1 0.1

0

0.5

1

1.5

2

2.5

1980's Liquefaction Shipping Regasification and Storage

2000's

$/MMBTU

Sources: El Paso

Learning reduces capital costs

0

100

200

300

400

500

600

700

65-70 70-75 75-80 80-85 85-90 90-95 TrinidadTrain 1

Trinidad Trains 2

and 3

95-99 ‘00

$ / tpa LNG Plant costs

Source: BP

Tanker Cost are DroppingLNG carrier (125-135,000 cu.m) newbuilding prices

0

50

100

150

200

250

300

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2001 2002

$M

Source: LNGOneWorld 2001©

How Much Does LNG Cost?

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Does The U.S. need more LNG?• Bulk of the natural gas used in

the U.S. comes from domestic production.

• Many fields that are several decades old and are declining rapidly.

• New natural gas reserves are being discovered, but with advanced recovery technologies these fields are quickly depleted.

U.S. Gas Supply

Canada, 14%

LNG, 1%

Domestic Production,

85%

74% from Gas Wells26% from oil wells

© UH IELE. 24

Japan

239140

10

166

3728

LNG

LNG

66Trinidad and Tobago

98

2

Australia

Algeria

64 12

Oman & OthersNigeria

38

23

Qatar

U.S. DOE – Office of FossilEnergy, bcf

Total U.S.Consumption =22.7 tcfLNG is less than1 percent

Natural Gas Imports, Exports in 2001

Does The U.S. need more LNG?

Source: U.S. EIA

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Does The U.S. need more LNG?• Estimated shortfal l in supply of

natural gas of about 8 Tcf by 2025.

• Increased imports of natural gas will be required.– Canada may not be able to

sustain increasing volumes of exports to the U.S.

– LNG imports is expected to reach 2.1 Tcf a year by 2025, or about 6% of our total consumption. LNG is currently less than 1% of total U.S. Gas consumption.

• Demand for LNG is growing.

US Natural Gas Supply/DemandGrowing Supply Shortfall

-

5

10

15

20

25

30

35

40

1990 1995 2000 2005 2010 2015 2020 2025

Tc

fDomestic Production Consumption

FORECASTACTUAL

Sources:EIA

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Proposed LNG Import faci l i t ies on U.S. West Coast

Mare IslandMare IslandBechtal/Bechtal/

– Shell abandoned project.Shell abandoned project.

Lazaro CardenasLazaro CardenasTractebelTractebel

– Conducting feasibility study.Conducting feasibility study.

TijuanaTijuanaMarathon led Marathon led groupgroup

– Filed permit Filed permit application application with CRE and with CRE and selected EPC selected EPC contractor.contractor.

EnsenadaEnsenadaSempra/CMSSempra/CMS

– Filed permit application with CRE.Filed permit application with CRE.

Baja CaliforniaBaja CaliforniaChevronTexacoChevronTexaco

– Filed permit application Filed permit application with CRE.with CRE.

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Proposed LNG Import faci l i t ies on U.S. Gulf & East Coast

BahamasBahamasAESAES

– Resolving pipeline design Resolving pipeline design and construction issues.and construction issues.

Port PelicanPort PelicanChevronTexacoChevronTexaco

– Filed with the DOT under Filed with the DOT under Deepwater Port Act.Deepwater Port Act.

AltamiraAltamiraEl Paso/ShellEl Paso/Shell

– RFP issued by CFE.RFP issued by CFE.

HackberryHackberryDynegyDynegy

– Received preliminary Received preliminary approval from FERC.approval from FERC.

Energy BridgeEnergy BridgeEl PasoEl Paso

– Applied with USCG for Applied with USCG for deepwater mooring buoy.deepwater mooring buoy.

FreeportFreeportCheniereCheniere

– Announced three Gulf Announced three Gulf Coast sites.Coast sites.

BahamasBahamasTractebelTractebel

– Tractebel buys Enron interest.Tractebel buys Enron interest.

0103-001

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• Alternative sources of natural gas supply.

– North slope of Alaska - pipeline to the lower 48 U.S. States.– Rocky Mountain region.– Offshore resources, the pacific, the Atlantic, the eastern Gulf of

Mexico outer continental shelf (OCS).

• Access restr ict ion.– Offshore resources in the eastern Gulf of Mexico.– Rocky Mountain region (limited or prevented).

• Supply gap in will remains even after the delivery of Alaskan gas commences.

Does The U.S. need more LNG?

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Conclusion

• LNG technology makes natural gas available throughout the world.

• It is important for citizens, industry and government to develop and communicate appropriate understandings of relative risks associated with LNG facilities and shipping.

• Demand for LNG is growing.

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IELE Commercial Frameworks for LNG in North America

• The 1st briefing paper was published in Jan. 2003– Available for download, http:/ /www.energy.uh.edu/ lng/ .

• The 2nd paper.

– LNG safety and the environment is in progress

• The 3 rd paper.

– U.S. supply-demand balances and energy security: A role for LNG?

• Guide to LNG in North America.

– All three papers and more information will be compiled in a complete fact book to be issued by summer 2003.

© UH IELE. 31

Sponsors of IELE LNG research consortium

• BP Energy Company-Global LNG

• BG LNG Services

• ChevronTexaco Global LNG

• Shell Gas & Power

• ConocoPhil l ips Worldwide LNG

• El Paso Global LNG

• ExxonMobil Gas Marketing

Company

• Tractebel LNG North

America/Distr igas of

Massachusetts.

• The U.S. Department of

Energy-Office of Fossil

Energy provides crit ical

support

• Ministry of Energy and

Industry, Trinidad &

Tobago participates as an

observer.

Overview of LNG industry in the U.S. Fisoye Delano