High energy costs return LNG to favor

Chesapeake Bay is renowned for its skipjacks, the late-19th century wooden ships that "drudge" the waters in search of succulent oysters. But starting next week, a different kind of ship will be making waves here: a tanker that looks like a floating thermos loaded with liquefied natural gas (LNG).

The gas will be the start of regular shipments to this remote but picturesque facility located about an hour east of the nation's capital. The LNG - basically natural gas that has been refrigerated to minus 260 degrees F. - will be unloaded and then regasified and sent through pipelines to huge underground storage facilities for use this winter when it gets cold.

The US has been importing LNG for years, and it's the only way natural gas can be transported over water. But this Maryland facility, run by Dominion Cove Point LNG LP, will be the largest to date. Once it is fully operational, it will send out enough natural gas every day to heat 3.4 million homes. Its importance will be underscored next week when the secretary of Energy, Spencer Abraham, is expected to visit.

Despite the need for increased security for public fears of explosions, everyone from Federal Reserve Chairman Alan Greenspan to environmentalists is hailing the effort to import LNG, a clean-burning fuel that will help the economy during a time of high natural-gas prices. To illustrate the importance of LNG, Mr. Abraham will host an LNG summit later this month. Currently, LNG supplies about 1 percent of US gas needs. In the future, some experts believe it might supply 10 to 12 percent.

"It's part of the solution, an important part," says Mr. Abraham in an interview. "There could be a lot of possibilities if we had a greater capacity to receive it."

There could be more development, given there are proposals to build 20 to 30 new LNG terminals. One company wants to use an old oil rig in the Santa Barbara Channel as a dock to pump gas onshore at Oxnard, Calif. Another group is dreaming up an undersea pipeline from the Bahamas to Florida. There are several proposals to build terminals in Mexico and then pipe it north of the border.

Fueling all the interest is the high price of natural gas. The Cove Point facility, for example, was originally opened in 1978, the same year gas was deregulated. Deregulation spurred exploration, and within two years, the LNG terminal shut down because prices were low. It was later used only to supply natural gas during times of peak usage.

"Cove Point is economical when gas is $3.50 per mcf [thousand cubic feet]," says Dan Donovan, a spokesman for Dominion. Gas is now selling closer to $5.50 per mcf.

At the same time, the cost of liquefying natural gas has come down as major consumers such as Japan have helped develop the technology. And the technology has improved at just the right moment. "Fortunately, the world is awash in stranded gas [gas resources without nearby markets]," said Daniel Yergin, chairman of Cambridge Energy Research Associates at a DOE natural-gas summit last month. In recent months, nations from Equatorial Guinea to Norway have signed up to produce gas for LNG projects. And last month, partners in a huge natural-gas field in Sakhalin island, off the coast of Russia, agreed to begin work on a $10 billion LNG facility.

In the past, the US has imported LNG from Algeria. But in the future, more of its gas will come from closer sources: Trinidad and Tobago and Venezuela.

As the gas arrives outside US ports, the LNG tankers are met by US Coast Guard ships. Security is tightened as the vessels proceed to unloading docks. For example, in Boston, Massport shuts down the Tobin Bridge as a tanker proceeds under it. "So far, it's not a problem," says Phil Orlandella, a Massport spokesman. The Coast Guard says it's had no problems, either.

Proponents of the gas say the safety measures are mainly to allay public fears that a ship could ignite in a catastrophic mushroom cloud. "The worst case that people conjure up is massive explosions and fireballs," says Paul Wilkinson, vice president for policy analysis at the American Gas Association, a Washington trade group. But, he notes, "That would be almost impossible to achieve, because when LNG escapes, it vaporizes on release."

So far, there have been no modern accidents involving LNG, but Mr. Wilkinson believes the security is worthwhile. "The biggest problem is people don't want LNG in their backyard," he says.

One of those people is Rep. Lois Capps (D) of California. She is opposed to a proposal to locate an LNG facility on an offshore oil rig in Ventura County.

"I am very concerned about this proposal, both for its potential for environmental problems and possible security problems," she told the House Energy and Commerce Committee last month. "Our tourist economy depends in large part on our beautiful coastline, and we don't want to risk it on more oil drilling."

Yet environmental groups generally support the importation of LNG. One of those is the Natural Resources Defense Council, which says LNG is something the US should be doing. "The challenge," says Ashok Gupta of the NRDC, "is siting."

Dominion likes to think Cove Point is an example of the potential for such sites. Its offloading pier is one mile offshore, and since it was built, fishermen have flocked there to catch striped bass and bluefish.

Most of its 1,000-acre property is run in conjunction with the Sierra Club and the Maryland Conservation Council. On a recent day, an osprey flapped and glided over the LNG tanks. A pair of swans had taken up residence on a pond. A fox was sighted along the beachfront. "From the water," says Mr. Donovan, "you would hardly know we are here."