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Importing Liquefied Natural Gas

December 6, 2005 at 12:00 AM EDT
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JEFFREY KAYE: Bolivia: 2003. Riots left more than 70 people dead, and toppled a government. The president resigned and fled to the United States. The crisis was dubbed “the natural gas war.”

Protesters complained the government was selling the country’s gas too cheaply to a consortium of multinational corporations. The gas was destined for a terminal in Mexico, now being built by an American company, Sempra Energy.

The Bolivia deal — since canceled, and the subsequent unrest — were just brief chapters in the unfolding global saga of Liquefied Natural Gas, LNG. On an unprecedented scale, multinational companies are racing to develop and expand LNG facilities throughout the world.

SPOKESMAN: The United States has a large and growing demand for natural gas.

JEFFREY KAYE: Bill Cooper is executive director of an industry trade group.

BILL COOPER: Once the demand far exceeded our ability to find natural gas and move it to the market by pipeline, something else had to be developed. And the technology that developed allowed us to liquefy natural gas, which shrinks it to 1/600th of its size. Now it’s in a liquid form, and can be transportable by ships.

JEFFREY KAYE: Liquefied Natural Gas is super-cooled. At receiving terminals, it’s reheated back into a gas and sent out through pipelines. Currently in North America, there are five LNG import terminals in operation. Another 40 have been proposed or are in various stages of development around the continent.

A constellation of factors is driving the LNG surge. There’s increased demand for natural gas, a relatively clean-burning fuel. It currently accounts for 24 percent of America’s energy needs. Changes in natural gas prices — the opportunity to buy low and sell high– have also driven LNG investment decisions.

In addition, energy companies are turning away from U.S. gas fields, where gas is harder and costlier to reach in favor of foreign sources.

BILL COOPER: A lot of integrated major oil companies have had producing properties for years. And once those properties reach a stage in which they’re not getting the maximum return in the investment that they want, they’re selling those assets.

JEFFREY KAYE: But global expansion of the LNG industry has brought global protests. Among exporting nations, Bolivia was the most dramatic and bloodiest example of anti-LNG demonstrations; in Russia and Nigeria.

In Peru and Indonesia, protesters have complained that shipping and storing millions of gallons of LNG would jeopardize the environment and risk lives.

REP. LOIS CAPPS: LNG is unsafe. It’s a danger to our neighborhoods. Any explosion would threaten our homes, our schools, businesses and our churches.

JEFFREY KAYE: In North America, LNG opponents make similar arguments. In the Southwest, critics are fighting plans to site two offshore LNG terminals in California and one in Mexico. And in the city of Long Beach, California, controversy is swirling around a proposal by a Mitsubishi-ConocoPhillips partnership to construct a half-billion dollar LNG plant at the port.

SPOKESMAN: Not here, not in our home port, in our backyard of our city of Long Beach.

JEFFREY KAYE: Long Beach City Councilman Frank Colonna is making his anti-LNG stance a centerpiece of his campaign for mayor.

COUNCILMAN FRANK COLONNA: If there is a terrorist attack or some hostile action or accidental plane crash or a collision at sea or an accidental spillage, we would basically put well over — actually, it is close to 500,000 people’s lives at stake.

JEFFREY KAYE: The last major LNG accident in the U.S. took place in 1944, in Cleveland. Gas leaking from a storage tank resulted in fires that killed 131 people.

While LNG critics say that episode demonstrates the potential for disaster, LNG proponents counter tank construction has improved drastically in the last 61 years.

Another accident occurred more recently in Algeria. In 2004, 27 people died when an LNG processing plant exploded. Industry advocates argue that compared to oil and gasoline, LNG is safer to ship. They also contend that a fire at a terminal could be contained.

But to assuage fears, avoid urban opposition and get the go-ahead from the Mexican government, Sempra Energy is building its billion-dollar LNG facility, the first receiving terminal on the West Coast of North America, on a remote stretch of Baja, California, coastline, 50 miles south of the U.S./Mexico border.

DON FELSINGER: You want to have these away from population centers, and this is one that is very much removed from the population center.

JEFFREY KAYE: Why is that important?

DON FELSINGER: Well, for safety issues. Just the issue of noise, visual impact.

JEFFREY KAYE: Sempra intends to bring natural gas here from Russia and Indonesia, then pipe it to end-users in Mexico and the Southwest United States. The company, which operates power plants, pipelines and utilities, and is a leading energy trader, is investing heavily in LNG. It plans to build two more LNG terminals in Louisiana and Texas.

Company executives say natural gas market trends convinced them LNG is smart business. They can buy natural gas overseas where prices have been relatively stable and cheap, and sell it in North America where prices have tripled in five years.

DON FELSINGER: And I am convinced now that most people around the world that own gas and would like to move it to the marketplace are convinced that for the long-term North America will have prices that will support making the upstream investments to make these projects worthwhile.

BILL POWERS: Everybody in the whole chain on the producer and distribution side is making a killing. The only people that are losing are the 250 million people on the other side of the line that are ponying up the money for that commodity.

JEFFREY KAYE: Industry critic Bill Powers, an environmental engineer, worries Sempra will use its clout to unfairly manipulate gas prices and supply. He points out regulators have accused Sempra of market manipulation in past deals, charges the company denies. And Powers has another concern. He says it’s as much a mistake to rely on foreign natural gas imports as it is to depend on foreign oil.

BILL POWERS: The same structural and strategic issues are there with LNG, as well, that this is money that we send out to buy a product that is overseas and we become dependent on a product that has some variables that we can’t completely control. Who runs that country? Is that supply secure?

DON FELSINGER: Many of the countries in the world are third-world nations that are viewed as “unstable” are going to become very good trading partners with the U.S. They need a source of income for their country to grow and develop, and natural gas is the one thing they have where there is a worldwide market for them.

JEFFREY KAYE: Sempra’s LNG terminal, rising on the cliffs of Baja, California, in Northern Mexico is scheduled to start operating in 2008. In the U.S., experts agree that for business, environmental and political reasons of the dozens of proposed LNG facilities, ten might be built over the next decade.

According to some analysts, within five years LNG imports to the United States could provide the country with as much as 16 percent of its natural gas, up from about 3 percent today.