When it comes to oil and gas projects and the environmental crowd, we are being bombarded with a number of new acronyms. You are probably all familiar with NIMBY (not in my back yard). I picked up a couple of new ones last month courtesy of Carlos Solé of Akin, Gump, Strauss, Hauer and Feld. First was BANANA (build absolutely nothing anywhere near anything). The second was NOPE (not on planet earth).
Solé was speaking at the Hart Global LNG (liquefied natural gas) conference in New Orleans, La., and his topic, "Challenges to Successfully Navigating the LNG Chain," was part of the larger discussion of the looming LNG boom in North America and how the industry will have to respond.
If you had a map of North America overlaid with planned and proposed LNG terminals and re-gas facilities you might well have to catch your breath. At last count, there were more than 40 at various stages of consideration. Two onshore and two offshore terminals already have approval. Four onshore terminals have pending applications, as do 6 offshore terminals. It looks a good bet that these, and a number of others, will go ahead.
At the base of the issue is growing demand and faltering gas supplies. As US gas well decline curves go the wrong way gas use continues a steady climb. The United States currently uses 21.9 Tcf of gas per year. That figure is projected to climb to 26.5 Tcf in 2015 and 29.7 Tcf in 2025, according to the US Department of Energy's Energy Information Agency. Currently, LNG makes up between 1 % and 2% of the US gas supply (there are four operational import terminals in the US). That figure could rise to as much as 12% to 16% by 2025. With the average projected capacity of new LNG terminals at 1 Bcfd, there will have to be a lot of high-priced building to meet the potential of LNG. The terminal and re-gas facilities alone have an average cost of US $50 million per 100 MMcfd capacity estimates Wood Mackenzie. And, aside from the terminals, the LNG fleet will have to double in size just to meet projected demand growth to 2015. According to Bill Sember at the American Bureau of Shipping, 319 LNG ships will be required to meet projected demand in 2015. Of these, 168 will be new builds to augment the fleet and another 44 new builds to replace retiring tonnage. That's 212 vessels at an average cost in the neighborhood of $180 million per vessel.
What you come away with when discussing the potential explosion of LNG imports into North America is somewhat akin to viewing the potential of the North Sea in the early '70s. There is a huge amount of high tech work to be done, and a wad of money is going to be spent making it happen.
Is there a fly in this ointment? Possibly. There are the inevitable NIMBY, BANANA and NOPE arguments. And, there are environment concerns, now centered around the potential damage to marine life from seawater heat exchangers planned for the degassification process, among others. These issues should not be showstoppers.
And, all this development will have to be supported by gas prices in at least the $4 to $5/Mcf range for the foreseeable future. But, no one that we spoke to at the conference expressed much concern about gas price scenarios.
One thing for sure - if this develops as it seems it might, it will sure be fun.