With liquefied natural gas imports on the upswing, a key question for policymakers is where to site new LNG terminals that can handle the additional shipments. Robert Stibolt, senior vice president at SUEZ Energy North America, explains his company's experience after more than 30 years of managing an LNG facility near Boston. Stibolt also talks about what the industry is doing in response to security risks. And he examines likely locations for future LNG terminals, including a new offshore facility proposed near Massachusetts and a potential pipeline from the Bahamas to Florida.
Brian Stempeck: Welcome to OnPoint. I'm Brian Stempeck. Joining us today is Bob Stibolt. He's the senior vice president at Suez Energy North America. Bob thanks a lot for being here.
Robert Stibolt: Well thank you for having me.
Brian Stempeck: Now you're in town this week, basically you're going to be testifying at a hearing in the House. Talk about natural gas prices this winter and what your company is doing about that. Give us a sense of what we're looking at over the next few months.
Robert Stibolt: Well, I think it's a great deal of concern that if we have a cold winter supplies will be stressed. We lost quite a bit of production during the two hurricanes we had, a significant proportion of U.S. consumption. So concerns that we could see spikes in gas prices, natural gas prices, in the winter on very cold days.
Brian Stempeck: Now we've already seen, basically so far, record natural gas prices. How much higher do you expect those to go? I mean are they going to go a lot higher than that this winter as we look ahead?
Robert Stibolt: Well, I think we're sitting on something of a knife blade. If we have a mild winter, likely that we have sufficient supplies and we'll see lower natural gas prices. If we have a cold winter we could see spikes. I think in our company we're thinking you could see as much as $20 a million Btu. In recent years that number has been more in the $5-$6 range.
Brian Stempeck: Right.
Robert Stibolt: During the winter, so much higher than historical levels.
Brian Stempeck: Now your company runs liquefied natural gas terminals in the Northeast. And basically, as we hear about natural gas prices, there's kind of an interesting issue related to LNG. The Federal Energy Regulatory Commission reported recently that the U.S. actually imported 13 percent less LNG during a recent timeframe than they did last year. Basically we're being outbid on the spot markets. Why is that? Why is that happening right now as we have record prices? How is it that the U.S. is being outbid?
Robert Stibolt: Well, I think there are a number of phenomena going on in the world market. One in Europe, they're implementing the Kyoto Protocol. One of the things that that has done is they are now cycling their coal plants, which traditionally ran base load. And they're running their gas-fired generation all hours. So that's increasing the demand for natural gas in Europe. I think looking forward there's probably significant mitigation of that that will occur as new Russian supplies and North African supplies come into Europe. But right now we're seeing a bit of a squeeze.
Brian Stempeck: Just looking into the future though I mean it seems like LNG is obviously a key component of where we get our natural gas from. Do you expect the U.S. is going to continue being outbid by other demand from Europe and other places?
Robert Stibolt: Well, everything we see in the fundamentals we look at economically suggests that the answer to that is no. As we look longer term, again, we expect Europe to take advantage of North African and Russian supply. That will free up some of the LNG resources to come to the U.S. And we will be the most attractive market. I think the only other strongly competing market will be Asia. And we're seeing dramatic economic growth in Asia, which is doing really quite a bit on both the natural gas and the oil demand side.
Brian Stempeck: Right. Now your company basically, as I mentioned before, runs LNG terminals. And there's a terminal basically in Massachusetts. And you're talking about building a new one a little bit further offshore. And that terminal has been in effect for, I think, about over 30 years now, correct?
Robert Stibolt: Since 1971.
Brian Stempeck: Give us a sense, I mean this is a major issue we hear about on Capitol Hill. Talking about where to site these new facilities, the security threats, a variety of issues related to LNG terminals. Give us a sense, in the past 30 years what your company's experience has been with that terminal and kind of the steps you've taken to increase security and those types of things?
Robert Stibolt: Well, I think with respect to the terminal itself, certainly following 9/11 there were efforts to really tighten up the security and be sure it was really impermeable in terms of anybody getting into the terminal not authorized to be there. I think with respect to the ships we're now running modern tankers, the most recent technology. Again, those tankers are coming from Trinidad. So I think it's a very secure system in fact. Our society also has a bit of a tendency to have a distorted view of risks. You know we'll see certain things that are very risky, we think are risky, that are really less risky than other things. So for example if you look at LNG you're talking about liquid that's not under pressure, 260 degrees Fahrenheit below zero. The way I describe it is have you ever tried to start a fire at the South Pole in the middle of winter? It's a much safer fuel than actually some of the oil product fuels that get shipped on tankers. And the energy content of some of those tankers is actually about twice as large as what we ship on a typical LNG tanker.
Brian Stempeck: With that said, why, there's so much resistance though to building new LNG terminals, basically outside of the Gulf Coast and the Southeast. Why is that? Is it just a not-in-my-backyard type phenomenon?
Robert Stibolt: Well I think it is. I think it is. And I think when you look at an onshore terminal it's always going to have impacts wherever you site it. I think that's one of the challenges. You have to make trade-offs. I mean we're a society that loves energy. We use a huge amount of energy. And I think the average American perhaps doesn't have a good feel for the very large scale we're actually talking about here. So we do need to make trade-offs. Now we're looking at some alternatives. Again, if you site it offshore there's some real advantages to that kind of an approach.
Brian Stempeck: Now your company's doing that as well off the coast of Gloucester in Massachusetts. Give us a sense on how that will resolve the problem? Is it just because it's further away from the city? Is that the main idea?
Robert Stibolt: Well I think it's further away from certainly areas where anybody is living. It's offshore and so it's really essentially out of sight. I mean as you look out there you see ships, but you see ships in that shipping lane anyway. So people aren't seeing something they haven't seen before. Again, I think when you are siting onshore you're always getting into the issue of globally we need the supply, but one particular area is impacted to get the supply in for an entire region. And that's always a challenge.
Brian Stempeck: It seems to me that there's kind of a growing consensus that all the LNG terminals can't be just along the Gulf Coast. They need to be spread out around the rest of the country. Where do you think they're going to be built? I mean where are these terminals going to be constructed in the next few years?
Robert Stibolt: Well I expect that we'll see quite a few that are in fact built in the Gulf Coast because you have a full infrastructure there that can move the gas and really move the gas to other markets including the Northeast. When we look at the logistics we actually see a very strong linkage of the Gulf Coast to the Northeast. But I think you also need to get more supply into the Northeast, not just New England, but New York, mid Atlantic, because you're downstream of the pipeline bottlenecks in those locations. And some supply coming in directly to those regions really does ease the logistics.
Brian Stempeck: As energy companies look to site those terminals, what advice would you have to Congress or to the Federal Energy Regulatory Commission about how to streamline that process? I know you've been briefing members of Congress during the past few weeks on this issue.
Robert Stibolt: Well, in fact, there are already some very favorable provisions in the recent energy bill that streamline the process in terms of not taking jurisdiction away from state and local agencies that have jurisdiction, but creating a schedule that ensures that a decision gets made. So I think we already have a much improved and streamlined process. I think the other issues one needs to think about is, is the infrastructure there to support a terminal? I think some of the locations that have been proposed don't really have the pipeline take away capability to actually move the gas into the market, so some of those locational issues are essential. And I think locating terminals in areas that at least fit with the population demographics, if you will, in terms of maybe having the most beneficial impacts. Bringing jobs where they're needed and not having environmental impacts or other impacts that are undesirable.
Brian Stempeck: Where else is your company, Suez, where else are they looking for terminals? I know there's talk also about building a pipeline from the Bahamas to Florida and having an LNG terminal kind of operating there. How would that work?
Robert Stibolt: Yeah. So we're actively working on alternatives there. There are really two alternatives there. One is a terminal right in the Bahamas that would regasify the LNG and bring it through a pipeline into Florida. Florida is very desperately short of gas. And we've seen prices there spiking $10-$12 on some days above the benchmark Henry Hub price, which reflects the Gulf Coast supply. The other alternative is another offshore regasification operation that would come through perhaps the same pipeline into Florida. And one of the things we do there is we get downstream of bottlenecks again into the southern part of the state where it's very difficult to move gas by pipeline, but there's a large population there.
Brian Stempeck: Now building these facilities offshore or in the Bahamas, I mean is that basically an acknowledgment that it's too tough to build these facilities on the mainland?
Robert Stibolt: Well I think there are locations on the mainland that very well might work. We're not, as a company, looking at those ourselves. We're looking more at the offshore solutions for our particular projects. Or something in a port of the Bahamas that perhaps -- they're already well set up to handle the new infrastructure there. Gulf Coast, we're not really looking at building things in the Gulf Coast because there are a number of parties already doing that. But we may contract for capacity in the Gulf Coast.
Brian Stempeck: All right Bob, we're out of time. We're going to stop there. Thanks a lot for coming on the show.
Robert Stibolt: Thank you.
Brian Stempeck: I'm Brian Stempeck. This is OnPoint. Thanks for watching.
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