Whatever happened to LNG?

Have you noticed that liquefied natural gas has dropped off the charts when it comes to U.S. energy supply projects? Just a few years ago, LNG was a very big deal. Today, new imported gas in liquid form from foreign countries has become a largely dead-end. Why?

It’s mostly a matter of domestic gas technology, according to Cambridge Energy Research Associates, founded by energy guru Dan Yergin. Today, says CERA, the U.S. dash-to-gas is dominated by exploitation of unconventional domestic resources. Says CERA in a recent report, “The North American natural gas market has a remarkable history of self-sufficiency and security of supply even in the face of escalating demand and regulatory change. This record was challenged, however, as the transition from conventional to unconventional gas sources (tight sands, shale gas, and coalbed methane) took hold, requiring greater drilling effort at higher cost. Productive capacity fell while demand rose, driven by soaring power generation needs.”

Gas prices rose and interest in LNG soared. Now that has changed. Domestic resources, not off-shore, have dominated natural gas productive additions, and that continues today. What’s driving the latest gas boom is use of advanced technology – horizontal drilling and hydro-fracturing — to win increasing amounts of gas from shale deposits.

This means that the economics of LNG – which looked like a winner just a couple of years ago – no longer make sense for the U.S. Says CERA, “Today, drilling for unconventional gas has become the dominant focus for upstream activity in North America. As a result, despite surging costs of key inputs such as steel and labor, unconventional gas is driving growth in supply for North America.” U.S. gas is back, and that undercuts LNG projects.

An official at the Federal Energy Regulatory Commission told POWERblog that the rush for licensing LNG projects at the commission – which was a major issue for the energy bureaucrats three years ago – has waned. Said the FERC official, “We’ve been able to ratchet down our efforts on LNG. The increase in domestic gas development has taken the edge off LNG interests in a big way.”

While LNG interest appears to have slowed in the lower 48, Alaska Republican Gov. Sarah Palin, the Republican vice presidential nominee, has been pushing LNG for her state. It makes sense, as a way to move Alaska’s plentiful natural gas to market in absence of a gas pipeline. She’s also backing a gas pipeline to move gas from the North Slope to the lower-48 market.

According to Alaskan news outlets, Palin on Aug. 20 signed an executive order ordering state agencies with authority over LNG terminals to coordinate and expedite regulatory reviews of plans by energy companies in the state, including BP, ConocoPhillips, and TransCanada Corp., for gas shipments from the port of Valdez, the terminus of the Trans-Alaska oil pipeline, to a liquefaction facility and an LNG terminal to fill tankers with the liquid natural gas for shipment to markets south of Alaska.

The North Slope gas would flow in a pipeline parallel to the existing Trans-Alaska Pipeline that moves crude oil from Prudhoe Bay wells to Valdez.

The gas pipelined from the North Slope and liquefied at Valdez could go to markets in Japan or the U.S. West Coast. A major LNG terminal for receiving liquid gas and sending it to the U.S. mainland is planned for a site near Long Beach, Calif.

Palin told the Alaska Journal of Commerce, “This solidifies our commitment to facilitating an LNG project that is a product of market interest. By committing both project capital and natural gas resource to a pipeline that would transport North Slope gas to tidewater, an LNG project can remain an integral element of the state’s effort.” Makes sense to me.