LNG imports loom in the Pacific Northwest

LNG imports loom in the Pacific Northwest
Scott Simpson, Vancouver Sun, 22-Jun-2006

LNG imports loom in the Pacific Northwest

They would help dampen price volatility, expert says

Scott Simpson
Vancouver Sun
June 22, 2006

North America's expanding appetite for natural gas will soon force utilities to take the unprecedented step of importing gas from overseas, according to an association that monitors energy issues in the Pacific Northwest.

The present supply situation is "so fragile," according Northwest Gas Association executive director Dan Kirschner, that a heat-wave last week in the northeastern U.S. pushed up the spot price of gas 20 per cent in a single day as utilities boosted electricity production to meet a surge in demand for air conditioning.

Kirschner said in an interview this week that adding new sources of supply, including liquefied natural gas, or LNG, would help dampen price volatility for consumers.

Gas market analysts warn that by 2010, imports of LNG will be necessary to maintain stable prices for North American gas consumers -- whose demand for gas is expected to grow 30 per cent over the next two decades.

Traditional high-volume producers such as Alberta are already experiencing declines in the amount of gas flowing from aging gasfields.

Substitute fuels such as coalbed methane are increasingly replacing conventional gas.

But the association says in a recent White Paper that imported LNG must also be in the mix -- because the Northwest is increasingly being drawn into a continent-wide gas market.

The Northwest Gas Association is an alliance of gas utilities including B.C.'s Terasen Gas.

New continent-spanning pipeline proposals pulling gas to eastern North America will expose consumers in B.C., Washington, Oregon and Idaho to higher prices and market pressures that are already in play in more populous Eastern U.S. and Eastern Canada.

"The North American appetite for [gas] is growing more quickly than our ability to produce it," says the association. "New production capability across North America is struggling to keep pace with growing continental demand."

The association notes that it takes "years" to develop new gas supply and delivery systems -- and "efforts to cultivate new non-conventional sources have encountered hurdles and time delays."

LNG landing terminals have been proposed at about 30 locations around North America -- including projects in Kitimat and Prince Rupert -- where liquefied gas from Russia, Asia and the Middle East would be converted back into a gas and distributed around North America via an expanding continental pipeline network.

"The more supply you have coming from a broader, more diverse number of sources, the better off the consumer is going to be," Kirschner said following a meeting this week with Terasen executives.

"Additional sources of supply are not necessarily going to bring natural gas prices down dramatically. But what they will do is dampen volatility. They will create more resilience in the market to absorb shocks like Hurricane Katrina and Rita, which took off for at least a short period of time almost 80 per cent of U.S. natural gas production."

A number of LNG proposals around the continent have encountered public opposition -- but Kirschner said it is important for consumers to recognize the greater economic consequences of failing to stay ahead of demand.

That failure could force gas prices to a level that "implies pretty significant economic dislocation."

For example, rising North American gas prices have already forced Methanex to shut down its methanol production facility in Kitimat, relocating to other countries with comparatively lower prices.

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