Oregon's coast has evergreen forests, sandy beaches, rocky cliffs and dozens of state parks.
What's missing? Try liquefied natural gas terminals.
No joke. Oregon's proximity to major LNG suppliers in Australia, Russia, Indonesia and the Middle East has made it a hot location for proposed terminals. The Federal Energy Regulatory Commission is considering three LNG terminal proposals, more than for any other state.
For Oregonians, that news is good -- and awful.
What is good is that LNG is a flexible fuel source, with supplies that can grow or shrink with demand since LNG -- natural gas cooled to low temperatures and condensed into a liquid -- can be shipped long distances. And it is seen as friendlier for the environment than other fossil fuels -- with greenhouse gas emissions almost 30 percent lower than oil's and about 45 percent lower than coal's. LNG could help meet the state's growing short-term power needs and help meet state mandates for addressing climate change.
| North American LNG terminals |
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Click the image for a larger version. Graphic source: FERC |
But many Oregonians loathe the idea of LNG terminals spoiling views, wildlife habitat or recreation on the Columbia River and Coos Bay, where the projects are being proposed. Consider what two Warrenton residents, Jann Luesse and Jim Scheller, told FERC about the proposed NorthernStar Bradwood terminal:
"We would consider it a travesty to lose these beautiful and peaceful islands to disruptive shipping and intrusive enforcement of a required exclusion zone for LNG vessels. Imagine being at anchor and being boarded or forced to move in the middle of the night to facilitate an LNG shipment."
Others say the projects would threaten salmon and undermine the millions of dollars spent already to rehabilitate the Columbia River. Terminals and pipelines, Oregonians say, would make them vulnerable to attack or accidents and might end up simply fueling California's power needs.
The governor, Democrat Ted Kulongoski, is also wary of the terminals' impact, but he cannot dismiss LNG. While he is a booster of renewable energy, Kulongoski acknowledges that sun, wind and other renewable sources would not offer significant power for at least 10 years, while efforts to save salmon figure to crimp hydropower, which supplies about 44 percent of Oregon's energy.
"This is a debate we need to have," Kulongoski told The Oregonian recently. "What's the bridge?"
But whether LNG provides a bridge to cleaner energy options won't be up to Oregonians. States no longer control the siting of LNG terminals. Congress gave FERC that authority in the 2005 energy legislation.
FERC has said that it would let the market decide which terminals get built and that it plans to examine proposed projects' compliance with safety and environmental standards. And FERC Commissioner Jon Wellinghoff has told states that if they invest heavily in energy efficiency, there might not be sufficient market demand for LNG terminals.
In states beyond the Gulf of Mexico, LNG terminals have been unpopular with environmentalists and lawmakers whose worries parallel those expressed in Oregon.
But despite concerns about LNG, Mark Dodson, president and chief executive officer of Northwest Natural Gas Co., told an industry gathering in Washington, D.C., last year that LNG is still the best option in environmentally conscious states like Oregon.
"Completely independent of ... economic analysis," Dodson said, "there is another reason nuclear and coal is dead in Oregon, and that is political."
Here is why LNG figures to be a popular energy choice: Natural gas consumption is expected to rise significantly as domestic gas production declines over the next 25 years. Meanwhile, there will be increased pressure on electric utilities to find clean fuel in the face of expected federal legislation aimed at curbing greenhouse gas emissions.
LNG will "be the most likely supply source to meet future increases in U.S. [natural gas] consumption," the Energy Information Administration said in a recent report.
As a FERC staff report put it, "Expanding LNG capacity serves as a sort of insurance policy -- not used much when times are good but very helpful if times get bad."
But with climate change legislation and a price on carbon emissions expected soon, "bad times" for natural gas supply and demand may be inching closer as regulators and policymakers are faced with trying to find generation in a carbon constrained world.
So expect, as FERC Chairman Joseph Kelliher put it, a "dash for gas" by power generators over the next decade, a race fueled not by low prices but by cost concerns based on uncertain prices for carbon emissions under expected climate regulation.
| States battling LNG proposals |
While federal regulators have approved 14 liquefied natural gas terminals, six have been built so far. Several terminals are expected to start work this year, including Louisiana's Cheniere Energy Sabine Pass LNG terminal, which is scheduled to open April 21. But while LNG terminals have been welcomed on the Gulf of Mexico, states elsewhere are using an array of legal weapons to fight LNG projects -- even though Congress in 2005 gave federal regulators the final say on such plans. Here is a sample of what's happening: • Some local officials have managed to block companies from proposed terminal sites. The Federal Energy Regulatory Commission recently suspended review of Sound Energy Solutions' proposed LNG terminal near Los Angeles because the Los Angeles Board of Harbor Commissioners and the Port of Long Beach rejected the company's attempt to sign a lease for the terminal site. • Massachusetts' congressional delegation and Weaver's Cove Energy have been sparring over a proposed terminal in Falls River, Mass. Though FERC approved the terminal in 2005, lawmakers used an appropriations bill to prevent removal of a bridge that would block LNG tankers. When the company changed its plans to use smaller boats to ferry the LNG upriver, the Coast Guard rejected the plan. Now, Weaver's Cove is planning to apply for a floating terminal, but Democratic Sens. John Kerry and Edward Kennedy have introduced legislation that would designate the Taunton River as "wild and scenic" and put it off-limits for industrial use. • The proposed Broadwater floating terminal in Long Island Sound faces opposition in Connecticut and New York (E&ENews PM, March 20). Both Connecticut senators and New York Democratic Sen. Hillary Rodham Clinton have co-sponsored a bill that would repeal FERC's siting authority in response to the commission's approval of the Broadwater. • Delaware recently won a U.S. Supreme Court ruling that allows it to block a proposed LNG terminal in New Jersey. Delaware successfully argued that a 17th-century law gives it jurisdiction over the terminal's pier that starts in New Jersey coastline but extends into Delaware waters. The terminal would be illegal under Delaware's coastal zone management plan -- federal authority that might prevent LNG terminals from being built without a state's consent. • Baltimore County, Md., changed its coastal zone authority last year to prevent AES Corp. from building an LNG facility at Sparrows Point in the Chesapeake Bay. There is already a terminal in Maryland at Cove Point. AES is challenging the Maryland coastal-zone management change in the 4th U.S. Circuit Court of Appeals in Richmond in a case that many see as a key test of state authority. Donald Santa, president of the Interstate Natural Gas Association of America, said if Baltimore County's tactic succeeds, it could be used by local and state governments elsewhere to stop LNG terminals. -- Katherine Ling |
But a big U.S. shift to LNG is not as simple as it might seem.
LNG adds a complication to the traditional natural gas market pricing scheme. A greater reliance on LNG could mean a large increase in costs because the United States would be forced to compete for supplies with Europe and Asia.
LNG is the fastest growing sector of the global hydrocarbon business and is expected to grow 5 percent a year until 2030, reaching about 16 percent of the world's natural gas market, according to Exxon Mobil Corp. Royal Dutch Shell PLC and Total SA estimate it is growing at 10 percent a year.
Most of the demand is from Asia and Europe, which rely more on LNG and often pay higher prices than U.S. markets.
U.S. natural gas prices offer a base that LNG producers can expect in the United States, which has significant storage capacity for gas when demand is low. As a result, U.S. markets are committed only to short-term contracts with LNG suppliers -- a structure that could expose the United States to supply shortages and price jumps if the country becomes too dependent on LNG.
"As price chasers, uncommitted supplies of LNG introduce a whole new dynamic to fuel price analysis," the consulting firm Global Energy Decisions said in a report.
LNG's tendency to drift toward higher prices has led to decreased U.S. imports after initial higher expectations. LNG imports hit 600 billion cubic feet in 2004, falling to around 550 billion cubic feet in 2005 and even lower in 2006. Imports were strong last year, reaching a record 771 billion cubic feet, but they fell dramatically last winter as demand in Europe and Asia jumped sharply and are expected to decrease by 12 percent this year, according to EIA.
Cambridge Energy Research Associates (CERA) recently issued an analysis cutting expected 2008 LNG imports from 3.2 billion cubic feet per day to 2.6 billion cubic feet per day because of overseas demand and realized time to full production capacity for new facilities. The firm expects U.S. imports to reach 5 trillion cubic feet by 2015, while the Energy Department's EIA predicts 2 trillion cubic feet in the same period.
LNG's volatile market dynamics are not helping make its case in Oregon, where many worry about disturbing the environment for a finicky fuel supply.
And environmentalists say this forecast of a dramatic rise in natural gas use based on carbon-emission caps is not a foregone conclusion.
"There is such a huge energy efficiency resource we need to take advantage of ... focusing on off-the-shelf [green] technologies and those we can see," said Jim Presswood, an energy lobbyist with the Natural Resources Defense Council. While natural gas must be part of the U.S. fuel mix for the foreseeable future, he said, the country does not need to rely heavily on it even in the short term.
Environmentalists also say carbon emissions associated with LNG transportation and regasification must be considered in any climate calculations, although even including that would still keep it far ahead of coal's emissions.
Kulongoski has said he does not want LNG terminals that aren't needed to meet the state's energy demands. The Oregon Energy Department has determined that one terminal would meet the state's future needs, with any additional gas being sent to California.
The governor wrote to FERC in February, requesting it to hold off reviewing the three terminal license applications until it has analyzed Oregon's need for LNG or how many terminals would be required to fulfill future demand.
"The approach of approving far more facilities than will ever be built is unacceptable to me," Kulongoski wrote. "Facilities like LNG terminals, which have the potential for significant environmental impact should only proceed if it is determined that natural gas is needed and after a comprehensive review that determines both environmental and market objectives are met."
Oregon Democratic Sen. Ron Wyden took aim at FERC authority over LNG terminal-siting this week, introducing legislation aimed at repealing the agency's siting authority. This is not the first effort to repeal FERC's siting power; other efforts have failed.
For his part, Kulongoski is threatening to stop terminals he believes are unnecessary by going to court or using permitting authority given the state under federal water and air pollution laws and the Coastal Zone Management Act -- methods tried by other states (see sidebar).
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