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

© UH IELE. 2 Outline 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 Others 5% Methane 95%

© UH IELE. 4 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.

© UH IELE. 5 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.

© UH IELE active LNG facilities in the U.S. Is LNG A Safe Fuel?

© UH IELE. 7 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 liquefaction and storage Satellite LNG storage

© UH IELE. 8 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.

© UH IELE. 9 LNG facilities in the U.S. Baseload LNG regasification terminals The four marine LNG import terminals in the U.S. represent base load LNG facilities. Source: CMS

© UH IELE. 10 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.

© UH IELE. 11 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 39 LNG Storage facilities in the U.S.

© UH IELE. 12 LNG Facilities in the U.S.

© UH IELE. 13 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 Regulations BS7777 and EN1473

© UH IELE. 14 U.S. LNG Regulators DOE 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 Service U.S. Army Corps of Engineers for coastal facilities and wetlands U.S. MMS for offshore activities National 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.

© UH IELE. 15 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 Incidents 1944 Cleveland Ohio. LNG peakshaving plant. 128 people died in adjoining residential area Staten Island NY: LNG peakshaving plant. 40 maintenance workers dies 1979 Cove Point MD: LNG Receiving Terminal. 1 operator died

© UH IELE. 16 LNG Value Chain Energy companies must invest in the LNG value chain. REGASIFICATION & STORAGE SHIPPING LIQUEFACTION EXPLORATION & PRODUCTION Sources: BG, ALNG, CMS

© UH IELE. 17 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. Exploration and Production

© UH IELE. 18 LNG Value Chain Natural gas is converted into a liquid state. The gas is cooled to LNG temperature of -256 o F. The volume reduce by a factor of 600. Liquefaction makes natural gas more economical to transport. Liquefaction

© UH IELE. 19 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. Shipping

© UH IELE. 20 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

© UH IELE. 21 EXPLORATION & PRODUCTION LIQUEFACTIONSHIPPING REGASIFICATION & STORAGE $0.5-$1.0/MMBtu$0.8-$1.20/MMBtu$0.4-$1.0/MMBtu$0.3-$0.5/MMBtu LNG Value Chain Sources: BG, ALNG, CMS How Much Does LNG Cost?

© UH IELE. 22 LNG costs are declining. Natural gas can be economically produced and delivered to the U.S. As LNG in a price range of about $ $3.50 per MMBtu depending largely on shipping cost. How Much Does LNG Cost?

© UH IELE. 23 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. 74% from Gas Wells 26% from oil wells

© UH IELE. 24 Japan LNG 66 Trinidad and Tobago 98 2 Australia Algeria Oman & Others Nigeria Qatar U.S. DOE – Office of Fossil Energy, bcf Total U.S. Consumption = 22.7 tcf LNG is less than 1 percent Natural Gas Imports, Exports in 2001 Does The U.S. need more LNG? Source: U.S. EIA

© UH IELE. 25 Does The U.S. need more LNG? Estimated shortfall in supply of natural gas of about 8 Tcf by 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.

© UH IELE. 26 Proposed LNG Import facilities on U.S. West Coast Mare Island Bechtal/ –Shell abandoned project. Lazaro Cardenas Tractebel –Conducting feasibility study. Tijuana Marathon led group –Filed permit application with CRE and selected EPC contractor. EnsenadaSempra/CMS –Filed permit application with CRE. Baja California ChevronTexaco –Filed permit application with CRE.

© UH IELE. 27 Proposed LNG Import facilities on U.S. Gulf & East Coast BahamasAES –Resolving pipeline design and construction issues. Port Pelican ChevronTexaco –Filed with the DOT under Deepwater Port Act. Altamira El Paso/Shell –RFP issued by CFE. HackberryDynegy –Received preliminary approval from FERC. Energy Bridge El Paso –Applied with USCG for deepwater mooring buoy. FreeportCheniere –Announced three Gulf Coast sites. BahamasTractebel –Tractebel buys Enron interest

© UH IELE. 28 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 restriction. –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?

© UH IELE. 29 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.

© UH IELE. 30 IELE Commercial Frameworks for LNG in North America The 1 st briefing paper was published in Jan –Available for download, The 2 nd 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 ConocoPhillips Worldwide LNG El Paso Global LNG ExxonMobil Gas Marketing Company Tractebel LNG North America/Distrigas of Massachusetts. The U.S. Department of Energy- Office of Fossil Energy provides critical support Ministry of Energy and Industry, Trinidad & Tobago participates as an observer.

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