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The Future of LNG and the Permit ProcessDan Kirschner, Executive Director, Northwest Gas Association
National Waterways Conference
September 8, 2006
5335 SW Meadows Rd., #220
Lake Oswego, OR 97035(503) 624-2160www.nwga.org
NWGA Members:
Avista Corporation
Cascade Natural Gas Co.
Intermountain Gas Co.
NW Natural
Puget Sound Energy
Duke Energy Gas
Transmission
Terasen Gas
TransCanada’s GTN System
Williams NW Pipeline
3
2005 U.S. Energy Consumption
Coal23%
Nat Gas23%
Petroleum40%
Nuclear8%
Renewables3%
Hydro3%
Source: EIA Annual Energy Review 2005
4Source: EIA 2006 Annual Energy Outlook
Projected Gas Consumption
0
5
10
15
20
25
30
Tc
f
Other Residential Commercial Generation Industrial
16.6% overall growth from 2004 to 2030 (22.4 Tcf to 26.9 Tcf
5
Gas Consumption (Tcf)
Source: EIA 2006 Annual Energy Outlook
6
Growth in Gas Demand by Region
Annual %Source: EIA 2006 Annual Energy Outlook
7
474
1392
461
250716502730
2336
1186
1983
1379
2122
4298
1510
6324
2013
4794
1885
1637
1312
391
1768
669
2576
2396
1721
5083
453
426
1063
124
2165
1889
10821213
180
224
28
Pipeline Flow (MMcfd)2005
1884
3308
54
1598
238
1205
107
747
94401
99
2570912
899
811
6203
3381
1598
570
375
740
565
223
203
2564
5007
51
433
208332
117
512529
81
921
793
Elba Island
Cove Point
Everett
Blue Lines indicate LNGGray Lines indicate an increaseRed Lines indicate a decrease
294
EEA0406Lake Charles
622
3865
4333
840
An Interconnected Market
8Source: EIA
U.S. Natural Gas Wellhead Price
$0
$2
$4
$6
$8
$10
$12
$/M
cf
(no
min
al)
Western Energy Crisis
03 Storage Depletion
Hurricanes K & R
Gas Prices
9
The Price of Oil Has an Impact…
Source: EIA
Crude Oil:Natural Gas Price Correlation = 0.878
$0
$2
$4
$6
$8
$10
$12
Jul-1
997
Dec-1
997
May
-199
8
Oct-19
98
Mar
-199
9
Aug-1
999
Jan-
2000
Jun-
2000
Nov-2
000
Apr-2
001
Sep-2
001
Feb-2
002
Jul-2
002
Dec-2
002
May
-200
3
Oct-20
03
Mar
-200
4
Aug-2
004
Jan-
2005
Jun-
2005
Nov-2
005
Apr-2
006
$/M
cf
$0
$10
$20
$30
$40
$50
$60
$70
$80
$/B
bl
US Natural Gas US Crude Oil (WTI)
10
Price Drivers: Production
Source: Baker Hughes, 09/01/2006
U.S. Gas Rigs In Operation
200
400
600
800
1,000
1,200
1,400
1,600
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52Week
Rig
Co
un
t
5yr high-low
5 year minimum
5yr average
2005
2006
11
Production per Rig
Source: EIA, Baker Hughes Rotary Rig Counts
Production per Rig - mcf/day
0
500
1000
1500
2000
2500
Jul-8
8
Dec
-88
May
-89
Oct
-89
Mar
-90
Aug
-90
Jan-
91
Jun-
91
Nov
-91
Apr
-92
Sep
-92
Feb
-93
Jul-9
3
Dec
-93
May
-94
Oct
-94
Mar
-95
Aug
-95
Jan-
96
Jun-
96
Nov
-96
Apr
-97
Sep
-97
Feb
-98
Jul-9
8
Dec
-98
May
-99
Oct
-99
Mar
-00
Aug
-00
Jan-
01
Jun-
01
Nov
-01
Apr
-02
Sep
-02
Feb
-03
Jul-0
3
mcf
/day
12
Gas Production by Region
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Year
Tri
llio
n C
ub
ic F
eet
Gulf of Mexico
Gulf Coast
Mid- Continent
Rocky Mountain
Permian
San Juan
Eastern US
West Coast
Source: Lippman Consulting via AGA
40
45
50
55
Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
Bcf
d
Gas Production Productive Capacity
Productive CapacitySource: Energy and Environmental Analysis, Inc.
BubbleTight Market
15
Putting It All Together:Growing Demand + Slowing Supply = LNG?
Projected US Supply/Demand Balance(EIA Annual Energy Outlook 2006)
0
5
10
15
20
25
30
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Year
Qu
ad
rill
ion
Btu
Other Supplies
Canadian Supply
Domestic Supply
US Demand
LNG imports are the marginal resource
Frontier gas (Mackenzie, Alaska)
16
Why LNG?
Large reserves with little or no local market.Pipelines to markets impractical
(Source: BP Statistical Review of World Energy, 2005)
Country Proved Reserves (Tcf)
Russia 1,694
Qatar 910
U.A.E. 214
Nigeria 176
Algeria 160
Venezuela 149
Indonesia 90
Australia 87
Norway 84
Malaysia 87
Egypt 66
Libya 53
Oman 35
Trinidad/ Tobago 19
17
LNG enables long distance shipping
Liquefying natural gas:
• Super-chilling it to -260°F
• Reduces volume of gas 620 times
• LNG weighs less than one-half that of
water
18
It Must Make Economic Sense
Total = $2.00 - $3.70/MMBtu (Source: Center for Energy Economics)
19
Pacific Basin Sources of LNG
Peru LNGBolivia LNGSunrise
Browse BasinScarborough
Australia NWS 5
Kenai
Sakhalin
Gorgon
Darwin LNG
Australia NWS 1-4
Iran
BintuluArun Brunei
Tangguh
OmanAbu Dhabi
Qatar
Donggi
Bontang
Investment in new LNG liquefaction capacity is growing
Existing/Under Construction Proposed
Yemen
21
PortWestward LNG Skipanon LNG Jordan Cove LNG④ Northern Star LNG ⑤ Tansy Point⑥ Kitimat LNG⑦ WestPac Terminal
Challenges include:• Local acceptance• Regulatory/Permitting• Commercial considerations:
• economics/financing• takeaway infrastructure• worldwide competition • supplier commitment
NorthwestLNG Proposals
A Bit About Process…
FERC is lead agency; consults w/state agencies
USCG serves as subject matter expert for maritime safety and security for EIS USCG validates Waterways Suitability
Analysis (WSA) Provide USCG and Maritime Stakeholder input USCG issues Letter of Recommendation (LOR)
23
Waterways Suitability Analysis
Risk-based analysis: Identify risks that arise from
introduction of LNG operations into port What can go wrong? What is the likelihood? How severe are consequences?
The goals: Understand individual risks in terms of:
probabilities, threats, vulnerabilities, consequences
Use info to develop effective risk management strategies
24
WSA Includes:
Transportation through the vessel’s arrival in US waters to LNG facility
Navigation and environmental safety issues
Safety and security issues that might affect entire port; detailed review of specific points of concern
Questions?