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FERC Approves 5 LNG Projects Outside State

Posted on: Thursday, 22 June 2006, 09:00 CDT

By Bill Trotter, Bangor Daily News, Maine

Jun. 22--Federal regulators have just given the green light to five liquefied natural gas projects beyond Maine's boundaries, but how these developments might affect two terminals proposed for Washington County depends on factors other than government approval, according to energy market analysts.

Ken Yeasting, director of North American gas for consulting firm Cambridge Energy Research Associates, said Tuesday that aside from market demand, the main factor in LNG terminal development is project financing.

"It's going to take somebody with a large balance sheet" to bring those proposals to fruition, Yeasting said.

Current cost estimates for new terminals in the United States range from $500 million to more than $1 billion each, depending on the size of each project.

And Gabriel Wayne, a gas analyst with PFC Energy, said there are other factors besides financing that pose more of a development challenge than government approvals.

Wayne indicated in an e-mail Wednesday that local opposition and the difficulty of securing long-term supply contracts are also among the big hurdles to the completion of any terminal.

"[I]t is more likely that other important factors, such as access to LNG supply, local market issues and local competition from other projects will have a more significant impact on these terminals," Wayne wrote.

The Federal Energy Regulatory Commission, the final arbiter of LNG projects on U.S. soil, last week gave its final approval for three proposed LNG facilities -- one each in Louisiana, Texas and New Jersey. It also approved expansion proposals at an LNG facility at Cove Point, Md., and at an approved but unbuilt terminal in Cameron Parish, La.

Yeasting said FERC considers technical factors such as engineering, siting and environmental standards when it decides whether to approve a terminal proposal, but lets market forces decide whether an approved project is adequately financed and constructed.

"It's kind of a license," he said of FERC approval. "It doesn't mean you get to hunt."

There is competition to construct new terminals in New England and Canada's Maritime Provinces, Yeasting said, because prices in the region are high and it is relatively close to countries with natural gas reserves. Energy industry officials have said infrastructure improvements are badly needed in the region in order to satisfy its increasing level of energy consumption.

The two Maine terminals that have been submitted formally to FERC, both of which would be built on Passamaquoddy Bay in Washington County, would serve the Northeast market.

Downeast LNG, a Washington, D.C., company that hopes to build a terminal with a daily capacity of 500 million cubic feet in the Robbinston village of Mill Cove, has raised $8 million in capital for its proposal.

Quoddy Bay LNG, an Oklahoma City firm seeking to build a terminal on Passamaquoddy tribal land at Pleasant Point, is financed by Smith Cogeneration, a privately held company that has developed a power plant in Oklahoma and another in the Dominican Republic. The Pleasant Point terminal would have a maximum permitted processing capacity of 2 billion cubic feet of natural gas per day. Quoddy Bay officials have declined to release financial details about their company.

At current market prices, each year Downeast LNG would be able to handle roughly $1.2 billion worth of natural gas and Quoddy Bay feasibly could process about $4.8 billion worth of the fuel.

Officials with Downeast LNG and Quoddy Bay each have said their companies have not yet secured any LNG supply or partnership arrangements with larger energy firms.

Of the projects approved last week by FERC, the two planned for the Northeast are proposed by companies with relatively significant financial resources. The Maryland terminal is owned and operated by Dominion, a Richmond, Va.-based energy company with more than 17,000 employees and assets worth more than $50 billion. The Crown Landing terminal planned for Logan Township, N.J., is owned by BP, a $200 billion multinational energy corporation based in London.

Besides the Cove Point terminal, the only other existing LNG facility in the Northeast is a terminal in Everett, Mass., which has been owned and operated since 1971 by Suez Energy North America and its subsidiary Distrigas.

A terminal that has been approved by the Canadian government is under construction in Saint John, New Brunswick. Repsol YPF, a Spanish company that reported nearly $4 billion in profits in 2005, is partnering with Canadian firm Irving Oil to build the Saint John facility.

Anadarko, a $20 billion Houston company that has spent $90 million to $100 million on construction of a terminal in Point Tupper, Nova Scotia, has put that project on hold because of difficulties in finding "the right supply arrangement," Anadarko officials have said.

Yeasting said that despite the economic challenges to building terminals, at some point the global import capacity for LNG likely will exceed the worldwide supply. In other words, more terminals will be financed and constructed by energy companies than are needed to absorb the ocean-going flow of the fuel.

This overcapacity of import facilities, he said, would enable suppliers to direct LNG shipments toward whichever market has the highest price. A winter during which temperatures in Europe are cold but those in New England are relatively warm would result in more fuel being shipped to Europe, where the demand and prices would be higher, and vice versa.

"That [economic model] will support some overbuild somewhere," Yeasting said.

Together, the projects approved last week would increase the domestic import capacity of LNG by approximately 9 billion cubic square feet per day or by nearly 3.3 trillion cubic feet per year, FERC indicated in a written statement.

According to the federal Energy Information Administration, North American consumption of natural gas is expected to outpace the continent's production of the fuel by 8 trillion cubic feet per year by 2025.

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Copyright (c) 2006, Bangor Daily News, Maine

Distributed by Knight Ridder/Tribune Business News.

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Source: Bangor Daily News (Bangor, Maine)

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