LNG in Regional Energy Markets: Prospects for New England

1
LNG in Regional Energy MarketsProspects for New
England

• Susan Tierney
• Environmental Business Council
• LNG Facility Siting Will There Be An LNG
  Facility Sited in Massachusetts?January 20, 2006

2
Todays EBC Agenda LNG Seminar

• Overview of New England LNG Projects and
  Regulatory Process
• Two projects Weavers Cove Energy and Northeast
  Gateway Project  
• FERC's Regulatory Process for LNG
• Coast Guard Deepwater Port Act - Licensing
  Process
• Massachusetts Environmental Policy Act Process
• LNG and energy policy for the nation and region

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Overview of Remarks

• LNG 101
• Natural gas markets context for LNG
• Role of LNG historical, future
• LNG as part of national energy strategy
• Presidents Energy Plan
• National Commission on Energy Policy
• EPACT
• LNG as part of regional energy strategy
• New delivery infrastructure is needed soon to
  give the region greater access to LNG market.

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LNG 101 (Natural Gas 101)
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LNG ContextUS Natural Gas Prices

Period of attractive market conditions for LNG
into N. America
6 per mcf 4 2 0
Period of gas demand growth (especially for power
production)
WTI Spot Price
EIA, Annual Review of Energy, 2004.
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LNG 101 LNG Economics

• North American gas prices in the past decade
  effect of demand/supply fundamentals
• Rising demand, in response to low prices
• Rising marginal costs of production economics in
  N. American supply basins
• Effect on gas prices rising spot prices for gas
• Price conditions magnet for LNG
• LNG operates in international, not continental
  gas markets
• LNG will move if it can to highest priced
  markets
• LNG as a price taker, not a price maker.

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ContextGas Demand Shaped by Power Sector Demand
GW
1980s-2000 natural
gas CCGT, CT
70 60 50 40 30 20 10 0
Coal plants Gas Steam
nuclear plants
hydro
National Commission on Energy Policy, 2004.
Ending the Energy Stalemate A Bipartisan
Strategy to Meet Americas Energy Challenges,
page 44, citing Energy and Environmental
Analysis, Inc., 2004.
8
Context Natural gas for electric power in New
England

• New England Yearly Natural Gas Use/Forecast
  (1992-2025)

Electric power
Source Tierney/Hibbard, The Benefits of New LNG
Infrastructure in Massachusetts and New England
The Northeast Gateway Project, June, 2005, page
3, with data drawn from EIA, Natural Gas Annual
2003 (December 2004), State Tables EIA,
Historical Natural Gas Annual Archive 1930-2000
(December 2001), Table 25. EIA, Annual Energy
Outlook 2005 (February 2005), Supplemental Table
105.
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Context Most recent EIA outlook (AEO 06)
Forecast of U.S. Natural Gas Conditions
/mmcf (Wellhead)
Actual
Estimated
Quad Btu
Demand growth
Net Imports
Domestic production
2003 2005 2007 2009
2011 2013 2015
10
ContextMaturing Gas Resource Base

• Production response from increased drilling
  has been modest

Gas recovery from wells is declining
National Petroleum Council, BALANCING NATURAL GAS
POLICY Fueling the Demands of a Growing Economy
(Committee on Natural Gas Presentation to the
NPC), 9- 25- 2003
11
LNG 101 National Petroleum Council (03)
LNGs role in national gas supply outlook

• North American resource base has met the natural
  gas demands of Canada, Mexico, and the US to
  date. not expected to continueincreased
  imports of LNG will be required
• The global supply of natural gashas been
  estimated to contain over 30 times the resource
  volume of North America.
• Advances in liquefaction and transportation
  technologies have driven down the unit cost of
  LNG by 30 over the past decade and LNG is now
  viewed as cost competitive with domestic
  supplies.
• To meet future demand, the NPC is projecting LNG
  imports will grow to become 14-17 of the U.S.
  natural gas supply by 2025. This will require the
  construction of seven to nine new regasification
  terminals and expansions of three of the four
  existing terminals.
• This aggressive outlook for LNG import terminal
  construction will require streamlined permitting
  and construction to achieve the projected
  buildup.
• National Petroleum Council, Balancing Nature Gas
  Summary Recommendations September 2003, Volume
  1, pages 63-64.

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ContextLNGs role in U.S. gas supply outlook
(NPC, 03)
LNG growing while Canadian supplies declining
Actual Forecast
National Petroleum Council, BALANCING NATURAL GAS
POLICY Fueling the Demands of a Growing Economy
(Committee on Natural Gas Presentation to the
NPC), 9- 25- 2003
13
LNG 101Natural gas markets changing conditions

• LNG operates in an intercontinental market.
• LNG comes principally from production basins
  where there is a combination of
• active production at supply basins
• facilities able to withdraw and liquefy the gas
  for transportation to other markets where gas
  prices support introduction of delivered LNG
  product.
• There are three principal global LNG submarkets
• the Pacific Basin ( 50 of global LNG supplies,
  with 20 of global supply from Indonesia)
• the Middle East ( 25)
• the Atlantic Basin ( 25)
• EIA, The Global Liquefied Natural Gas
  Market
  
  
  Status Outlook (December 2003), page 8.

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LNG 101Major LNG Trade Patterns (2002) (in Bcf)
US competes with other N. American markets

• Massachusetts (Everett),
• Maryland (Cove Point),
• Louisiana (Lake Charles)
• Georgia (Elba Island).
• New coast of Louisiana

US is predominantly in the Atlantic Supply Basin.
Most supply from Trinidad and Tobago.

• Source EIA, The Global Liquefied Natural Gas
  Market Status and Outlook (December 2003).

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LNG 101LNGs Role in Net Natural Gas Imports
(EIA, 05)
TCF
LNG
Source EIA, Annual Energy Outlook 2005 (February
2005), Figure 85.
16
LNG 101Natural gas markets changing conditions
New England Natural Gas Imports by Source Region
(89-03)
LNG

Canada
LNG Imports to the Northeast (98 03)
Gulf
Canadian Imports to the Northeast (90 03)
Source Tierney/Hibbard, The Benefits of New LNG
Infrastructure in Massachusetts and New England
The Northeast Gateway Project, June, 2005, page
3, with data drawn from Steve Leahy, NGA,
Regional Natural Gas Supply Deliverability,
Presentation to NECAs 11th Annual Energy
Conference Exposition, Boxborough, MA, May 18,
2004.
17
LNG 101US LNG Imports by Source Country,
1992-2004
Trinidad
Algeria

• Source EIA, U.S. Natural Gas Imports by
  Country, Natural Gas Navigator.

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LNG 101Role of LNG existing projected
projects

• LNG existing projects, proposals

Addl projects on the horizon
West Coast facilities will put more of the US in
Pacific Basin markets.
FERC website, LNG.
19
LNG 101 LNG Economics

• LNG, like other new sources of supply, can be
  expected to moderate prices in the North American
  markets.
• U.S. prices will be lower with LNG than they
  would be without it, but that does not mean that
  they will necessarily reach cost-based levels
  relating to LNG costs.
• If enough LNG producers find it profitable to
  compete for the U.S. market, it will increase
  supply and weaken prices.
• Conversely, if geopolitical or investment
  constraints slow the flow of supply into the
  market below the level necessary to meet growing
  demand, or if competition from other markets is
  too strong, LNG may not be that effective in
  disciplining prices.
• The issue is not whether increased LNG imports
  into the U.S. will put downward pressure on gas
  prices. They will.

Jensen study (2-2005) James Jensen, Jensen
Associates, U.S. Reliance on International
Liquefied Natural Gas Supply, Policy Paper
Prepared for NCEP, February 2004, pages 18 and 19.
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LNG as part of National Energy
Strategy
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LNG as part of national energy strategyPresident
s Energy Plan (5-01)

• Modernize and expand energy infrastructure
• Add and diversify energy supplies

Need Fill this gap
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LNG as part of national energy strategyNational
Commission on Energy Policy (12-04)

• Expanded LNG infrastructure would increase the
  nations access to abundant global supplies
  of natural gas, providing important benefits in
  terms of lower and less volatile gas prices and
  more reliable supplies.
• A variety of factors including the evolution
  of global LNG markets and the development of
  liquefaction capacity to provide LNG for U.S.
  markets will determine how much and how
  quickly LNG can contribute
• Expanded import capacity is clearly critical.
• The primary obstacle to constructing new (or
  expanding existing) LNG receiving terminals is
  local oppositionwhich is largely motivated by
  safety concerns cryogenic nature of LNG, with
  its flammability which have been heightened
  recently by increased awareness of terrorist
  threats.
• The record is.. that these hazards can be
  adequately managed under normal operating
  conditions. LNG does not appear to pose a
  greater societal safety hazard than other widely
  used sources of energy such as petroleum and its
  by-products.
• Cooperative federalism is necessary for
  effective implementation of LNG proposals.

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LNG as part of national energy strategyEnergy
Policy Act of 2005

• Clarifies exclusive FERC authority over siting,
  construction, operation of LNG import terminals.
• Establishes comprehensive, streamlined regulatory
  process for authorizing terminals.
• Confirms existing rights of states to review LNG
  terminals under
• Coastal Zone Management Act
• Clean Water Act
• Clean Air Act.

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LNG as part of Regional Energy Strategy
25
LNG as part of regional energy strategyTierney/H
ibbard study of NE Market (6-05)

• Literature review regarding regional natural gas
  market issues
• EIA
• FERC
• Congressional Research Service
• NPC
• NCEP
• New England Governors Conference Power
  Planning Committee
• New England Council
• Jensen Associates
• ISO New England
• Governors Task Force on Electric Reliability and
  Outage Preparedness
• Northeast Power Coordinating Council
• Associated Industries of Massachusetts Foundation

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LNG as part of regional energy strategyTierney/H
ibbard study of NE Market (6-05)

• Consensus themes from the literature review
• Future natural gas price pressures can be
  mitigated by increasing the sources and volumes
  of supply delivered into MA and NE.
• Access to new supplies from off-shore supply
  basins will bolster North American supplies
  available to New England.
• LNG is an increasingly economical and competitive
  source of supply.
• MA and NE need additional supplies of natural gas
  as soon as 2007.
• New volumes of gas supply
• New delivery infrastructure
• This time horizon warrants a strong sense of
  urgency in approving new facilities that are
  located in appropriate sites.

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LNG as part of regional energy strategyTiming
of new gas delivery infrastructure

• Depends on assumptions

As soon as 2007
At least by end of decade
Peak Day Sendout Jan 04 3.8 bcf
Without vaporization refers to the NEGC
scenario in which regional supplies of vaporized
LNG have been exhausted under multi-day cold
snap conditions.
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Conclusions

• New England needs to add new gas delivery
  infrastructure now.
• Without it, there could be peak day
  deliverability problems as soon as 2007.
• New England's traditional North American gas
  supply sources have expensive productive costs,
  declining productivity curves.
• New and diverse supplies needed LNG provides
  new supply basins.
• Broad range of studies/organization support LNG
  as an essential source for growing demand.
• Price and resource adequacy benefits of LNG.
• Safety issues have good track record.
• Cooperative federalism required FERC and the
  states.

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Susan F. Tierney, Ph.D.Managing
PrincipalAnalysis Group, Inc.111 Huntington
Ave., 10th FloorBoston, MA 02199ph
617-425-8114fax [phone]stierney_at_analysisg
roup.comwww.analysisgroup.com
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Environmental Business Council Presents LNG
Facility Siting Seminar Will There Be An LNG
Facility Sited in Massachusetts?