Ken Silverstein EnergyBiz Insider Editor-in-Chief

While Sempra may not be responsible for the trend, it is certainly part of it. And so are BG Group, ExxonMobil and Royal Dutch Shell, which have invested billions in LNG-related assets. The United States now has four LNG import terminals on land and one more off-shore in the Gulf of Mexico. About 40 more facilities have been proposed or gotten permission to be built from federal regulators, although the market can't possibly support all of them. At the same time, LNG plants are going up in Canada and all to feed the eastern United States.

Oil executives are bullish on LNG and have predicted that it will surpass petroleum as the world's main fuel source by 2025, making up 20-25 percent of the total gas demand in the United States. LNG now accounts for 3 percent of all gas usage here. At a recent conference sponsored by the Cambridge Energy Research Institute in Houston, its analysts said that LNG will experience more growth the next seven years in this country than it has in the last 40 years.

"Huge investments in LNG are under way and irreversible," says Michael Stoppard, CERA senior director of global LNG as reported by Hart Energy. "On the upstream supply side, where most of the money is spent, global needs justify major spending increases. Planned LNG supplies are not an overreaction nor an overbuild."

LNG is super-cooled before it is shipped in containers to storage facilities. In its vaporized state, natural gas is voluminous and moves inefficiently through high-pressured pipelines. Moreover, pipelines are not ubiquitous and so other means of transportation from off-shore points must be considered. By cooling natural gas and reducing its volume, the subsequent LNG can be shipped.

According to the U.S. Department of Energy, the United States is the third largest importer of LNG. Korea and Japan are the top two with France and Spain falling behind this country. And with the economies of China and India expected to blossom, they will demand ever-increasing amounts of LNG in the future.

But where is this supply coming from? Answer: Algeria, Angola, Indonesia, Libya and Nigeria -- countries that might not possibly be in-tune with American ideals or countries that might be politically unsteady. Critics of LNG say that if the United States ever becomes dependent on those imports, the outcome could be unfortunate.

Imperfect Solution

Certainly, LNG is an imperfect solution to the dilemma before U.S. policymakers. A greater reliance on it means even more reliance on foreign governments and especially some that have tenuous relations with this country. Investors then require added assurances -- something that puts the ball in the court of lawmakers and regulators. At this point, though, it appears that national policy will favor increased LNG usage because the natural gas demand here outstrips the domestic supplies.

Indeed, the Energy Policy Act of 2005 gives the Federal Energy Regulatory Commission "exclusive" jurisdiction to site LNG plants. Most of the activity is occurring along the Gulf Coast that is receptive to such facilities while much of the opposition is taking place along both coastlines where the public is fearful of accidents or terrorists activity. Opponents point to a deadly event in Algeria that occurred two years ago in which 30 people died as well as one in the 1940s in Cleveland, Ohio where 128 were killed.

Fall, River, Massachusetts is fighting a proposed plant right now. Opponents there argue that such a plant is not only dangerous but would discourage future economic development. "The only people who think this is a good idea are opportunistic," says Joe Caravalho, president of the Coalition for Responsible Siting of LNG Facilities in Fall River, in an Associated Press story. "This isn't about anything other than profit over people."

Billions Invested

Despite the fears, more LNG development appears as good as gold. Developers not only say that they can build those facilities in a safe manner they also say that the current economic situation dictates they are constructed. Winter heating prices are soaring, with the price of natural gas as high as $15 per million BTUs last December. New supplies are needed to ease those prices as well as to feed American's energy appetite.

Moreover, the current high price of natural gas means that LNG development is far more attractive. Experts say that as long as prices stay above $3.50 per million BTUs, developers can recoup their mega-investments far more quickly. "Developers have huge capital costs they now need to recover," says Bob Linden, a member of PA Consulting Management Team in Washington, D.C. They have invested billions in tankers, terminals and gasification plants, he says.

Activity is already underway. ConocoPhillips is building a plant about 90 miles outside of Houston that will come on line in 2007. It will first move 1.5 billion cubic feet of natural gas a day but the company plants to double that capacity. Meantime, Washington Gas expects to build a storage facility in Chillum, Maryland. It says that the 1 billion cubic foot storage facility could be operational by 2008. And, Downeast LNG expects to file an application to get permission from FERC in September to build a $400 million import facility. If approved, the company says that the Robbinston, Maine-based facility would take three years to build.

LNG is hot right now because current natural gas supply shortages in this country are choking economic expansion. The dynamics mean that a super-cooled fuel source can be imported economically from other countries while developers can get quicker returns on their investments. Despite the promise, however, the imports would come from less-than-stable regimes or from nations less friendly to the United States. And that possibility coupled with security concerns stirs the opposition.

Policymakers understand the situation. But, they have determined that LNG projects must be put on a fast track to meet expected future demand for energy. If not, they reason that economic uncertainty and even higher natural gas prices are a real possibility.

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