Liquefied Natural Gas: Understanding the Basic Facts Liquefied Natural Gas: Understanding the “I strongly support developing new LNG capacity in the United States.” —President George W. Bush Page 2 4 Growing Demand Emergence of the for Natural Gas Global LNG Market About This Report Natural gas plays a vital role in One of several proposed the U.S. energy supply and in supply options would involve This report was prepared by the U.S. Department of Energy (DOE) in achieving the nation’s economic increasing imports of liquefied collaboration with the National and environmental goals. natural gas (LNG) to ensure Association of Regulatory Utility that American consumers have Although natural gas production Commissioners (NARUC). DOE’s Office of adequate supplies of natural in North America is projected Fossil Energy supports technology gas in the future. research and policy options to ensure to gradually increase through clean, reliable, and affordable supplies 2025, consumption has begun Liquefaction enables natural of oil and natural gas for American to outpace available domestic gas that would otherwise be consumers, working closely with the National Energy Technology Laboratory, natural gas supply. Over time, “stranded” to reach major which is the Department’s lead center this gap will widen. markets. Developing countries for the research and development of with plentiful natural gas advanced fossil energy technologies. resources are particularly NARUC, a nonprofit organization interested in monetizing composed of governmental agencies engaged in the regulation of natural gas by exporting it as telecommunications, energy, and water LNG. Conversely, more utilities and carriers in the 50 states, the developed nations with little District of Columbia, Puerto Rico, and or no domestic natural gas the Virgin Islands, serves the public rely on imports. interest by improving the quality and effectiveness of utility regulation. Design and editorial support: Akoya Select photos courtesy of: Anadarko Petroleum Company; Atlantic LNG Company of Trinidad and Tobago; British Petroleum; Chevron Texaco; ConocoPhillips; Dominion Cove Point LNG, LP; Excelerate Energy; HOEGH LNG; Pine Needle LNG, LLC NC; Texaco Production Operations; Tractebel LNG North America; Trunkline LNG Basic Facts 6 8 16 Current Status of U.S. Components of the Informed Decision Making LNG Imports LNG Value Chain For more than 40 years, the The United States currently If the United States is to safety record of the global LNG has six LNG terminals—four increase LNG imports, industry has been excellent, on the mainland, one in the significant capital investment due to attention to detail in offshore Gulf of Mexico, and will be necessary by energy engineering, construction, one in Puerto Rico—that firms across the entire LNG and operations. More than receive, store, and regasify LNG. “value chain,” which spans 30 companies have recently Some economists call for the natural gas production, proposed new LNG terminals development of more import liquefaction capacity, transport in North America, along the capacity to enable the United shipping, storage, and U.S. coastline or offshore. Each States to participate fully in regasification. proposal is rigorously evaluated world LNG markets. before an LNG terminal can be Over the past two decades, constructed or expanded. Expanded LNG imports would technology improvements likely help to dampen natural have been key to a substantial Americans face the challenge gas price volatility in the United increase in liquefaction of making sound and timely States, particularly during peak efficiency and decrease in decisions about LNG periods of demand. Such LNG costs. infrastructure to assure an expanded imports would also abundant supply of natural gas support U.S. economic growth. for homes, businesses, industry, and power generators, in the near and long term. Growing Demand for Natural Gas While U.S. demand is rising, production of natural gas in major mature provinces, including North America, is The United States relies on clean-burning natural gas beginning to decline. Lack of a steady supply increases for almost one quarter of all energy used. Natural gas the potential for higher energy prices and price volatility, has proven to be a reliable and efficient energy source which affect the profitability and productivity of industry that burns much cleaner than other fossil fuels. In the and may spur certain gas-intensive industries to relocate last 10 years, the United States produced between 85 to parts of the world where natural gas is less expensive. and 90 percent of the natural gas it consumed.1 Most This, in turn, could impact jobs, energy bills, and the of the balance was imported by pipeline from Canada. prices paid for consumer goods. Annual U.S. natural gas consumption is projected One way to help meet rising demand would be to to rise from 22.1 trillion cubic feet (Tcf) in 2004 to increase imports of natural gas from outside North 30.7 Tcf in 2025.2 Reasons for the increase include: America. Net imports of natural gas are projected to supply 19 percent of total U.S. consumption in 2010 • Utilities realize advantages by using natural gas- (4.9 Tcf) and 28 percent in 2025 (8.7 Tcf).3 This fired generators to create electricity (lower capital natural gas will be transported via ship in the form of costs, higher fuel efficiency, shorter construction liquefied natural gas (LNG). Net imports of LNG are lead times, and lower emissions). expected to increase from 0.6 Tcf in 20044 to more • The residential sector benefits from the higher fuel than 6 Tcf in 2025—at that point satisfying almost 5 efficiency and lower emissions of gas appliances. 21 percent of total U.S. natural gas demand. • The industrial sector relies on natural gas as a Discussions of the benefits and risks of expanding LNG feedstock or fuel for manufacturing many of the imports will be central to U.S. energy supply decisions products we rely on today, including pulp and in the years ahead. A key consideration is the potential paper, metals (for computers, automobiles, and of LNG imports to ensure that adequate and reliable telecommunications), chemicals, fertilizers, fabrics, supplies of natural gas are available to support U.S. pharmaceuticals, and plastics. economic growth. • The transportation sector is beginning to see Numerous recent studies have underscored the natural gas as a clean and readily available importance of LNG in the nation’s energy future: alternative to other fossil fuels. • A 2003 study by the National Petroleum Council conducted at the request of the Secretary of Energy found several keys to ensuring a reliable, reasonably priced natural gas supply to meet future U.S. FIGURE 1 demand—including increased imports of LNG.6 Natural gas accounted for almost one-quarter of all energy used • A 2004 Energy Information Administration (EIA) in the United States from 1998-2003. study, Analysis of Restricted Natural Gas Supply Cases, included a forecast scenario based on a “restricted” expansion of U.S. LNG import terminals. The results showed an increase in natural gas prices, dampening consumption and economic growth. • A 2004 study by the Manufacturers Alliance outlined the critical role of natural gas in manufacturing and the potential contribution of Source: Energy Information Administration, Annual Energy Outlook 2005 LNG to improve U.S. industrial competitiveness in the global marketplace.7 2 Meeting Future Demand The world’s major LNG-exporting countries hold about 25 percent of total natural gas reserves. Two countries The United States will not be the only nation with significant reserves (Russia and Norway) are competing for natural gas imports in the future. In currently building their first liquefaction facilities. At 2001 the worldwide community consumed about 90 least seven more are considering the investment to trillion cubic feet (Tcf) of natural gas. Consumption of become LNG exporters in the near future. natural gas worldwide is projected to increase by an average of 2.2 percent annually or 70 percent overall In some cases, conversion to LNG makes use of from 2001 to 2025, to about 151 trillion cubic feet.8 natural gas that would once have been lost. For example, Nigeria depends on its petroleum exports as Fortunately, global natural gas resources are vast— a primary source of revenue. In the process of oil estimated at about 6,079 Tcf in recoverable gas as of production, natural gas was flared—a wasteful 2004, roughly 60 times the recent annual volume practice that adds carbon dioxide to the atmosphere. consumed.9 In total, worldwide natural gas resources Converting this natural gas to LNG provides both are estimated at more than 15,000 Tcf, including gas economic and environmental benefits. that has yet to be discovered.10 The international LNG business connects natural gas 1 Energy Information Administration (EIA), Annual Energy Review 2003, September 2004. that is “stranded”—far from any market—with the 2 EIA, Annual Energy Outlook 2005. 3 EIA, Annual Energy Outlook 2005. people, factories, and power plants that require the 4 DOE, Natural Gas Imports and Exports, Fourth Quarter 2004. energy. It becomes necessary to transport natural gas as 5 EIA, Annual Energy Outlook 2005. LNG because the distribution of the world’s supply of 6 National Petroleum Council, Balancing Natural Gas Policy–Fueling the Demands of a Growing natural gas is not consistent with patterns of demand. Economy, September 2003. 7 Norman, Donald A., Liquefied Natural Gas and the Future of Manufacturing, Manufacturers Russia, Iran, and Qatar hold 58.4 percent of the world’s Alliance, September 2004. 8 EIA, International Energy Outlook 2004. natural gas reserves, yet consume only about 19.4 9 EIA, International Energy Annual 2003, released May 2005. percent of worldwide natural gas. Such countries tend 10 U.S. Geological Survey, World Petroleum Assessment 2000. to “monetize” their gas resource—converting it into a salable product.