LNG FIGHTS FOR MARKET SPACE

International energy companies, the Bush administration and governments in gas-rich countries are aggressively championing the creation of a global market for natural gas, with the United States at its centre as the largest importer. They are promoting the fuel as more plentiful and less polluting than oil and needed to sustain economic growth.

But in the same way that American oil output began to fall short in the 1960’s and has steadily diminished as a source of energy, the United States is already running low on its own production of natural gas.

To fill the gap, vast amounts of gas will have to be imported — in liquefied form, arriving by tanker on the coasts of the United States or elsewhere in North America.

Like oil, large reserves of natural gas are found far from the big markets for the fuel, in countries like Qatar, Iran, Russia, Angola, Yemen and Algeria. Competition for gas projects in these places has prompted a frenetic race among international oil companies to meet demand for the fuel in rich industrialised countries.

These ambitions in the United States face strong resistance. Officials in some states where energy companies plan to build terminals that would receive the gas tankers — including Alabama, California, Maine, Massachusetts, New Jersey, New York and Rhode Island — say they could fall victim to a catastrophic explosion, either accidental or set by terrorists.

President Bush, trying to maneuver past the objectors, has endorsed legislation, which is currently being debated in the Senate, that would allow the federal government to overrule the states.

It is expected that at least eight new terminals for liquefied natural gas, or LNG, to be built in the US by 2010. There are now four terminals — in Georgia, Louisiana, Maryland and Massachusetts — built during an earlier foray into LNG in the 1960’s and 1970’s.

Energy companies want to construct more than 40 such terminals at a cost of $500 million to $1 billion each. The emerging conflict is taking place as some scientists and environmentalists say that the US is once again placing too little emphasis on improving energy efficiency and making investments in other methods for producing power and heat, including wind, biomass and nuclear energy.

Meanwhile, utilities that buy gas warn that in becoming ever more reliant on natural gas from abroad, the US would be running the same risk it made when it came to depend on oil from unstable sources in the Middle East.

Natural gas is expected to overtake coal and rival oil as the leading fossil fuel in the world by 2025 — sooner if the largest energy concerns get their way. They are pursuing more than $100 billion in projects to create a global market for gas that will be increasingly vital to generate electricity, heat and cool buildings, manufacture the fertilisers that help feed the world and even run some vehicles.

Natural gas accounts for 24 percent of US energy consumption. Plentiful and less polluting than oil, natural gas, whose consumption still emits greenhouse gases, has become much more popular over the last decade after it was prized as a fuel for new power plants.

The rising consumption of natural gas comes with a significant cost, however. The price of natural gas has doubled in the United States in the last five years, exposing a vulnerable reliance and the possibility of higher prices if supplies are not increased.

Indeed, even with the global gas market in its infancy, some nations want to act as a cartel to control the price of natural gas much as OPEC has at times manipulated the oil market. Efforts to import more natural gas have already touched off a political dispute in California where resistance has mounted to plans to build several LNG terminals.

Energy companies, including Chevron and BHP Billiton of Australia, are trying to persuade people of the need for LNG. But skepticism persists. Some say it is happening without any mention of conservation and with little regard for the renewable alternatives.

Unlike oil, natural gas can be devilishly difficult and expensive to ship around the world. To create a liquid, natural gas must be cooled to 260 degrees below zero, squeezing its volume by a factor of approximately 600. Once it reaches its destination, it needs to be reheated before it can be used in the power grid.

But natural gas has many advantages, particularly in terms of convenience and cost. A typical barrel of oil commands roughly US$50 on the world market today, while 6,000 cubic feet of natural gas, its energy equivalent, is much less expensive. Even delivered from a pivotal Middle Eastern country like Qatar, it would probably cost $18 to $24, according a senior energy analyst with Foresight Research Solutions in New York.

Natural gas, once scoffed at by oil companies as a nuisance when found alongside reserves of oil, is also thought to be more plentiful than oil. BP, the British energy giant, estimates global gas reserves at 67 years of supply at current production rates, compared with global crude oil reserves equal to 41 years of annual supply.

Plaguing the LNG boom are comparisons to the scramble for oil in the last century and the transfer of wealth and financial leverage to a handful of nations in the Middle East. Strong demand for natural gas is occurring not just in the United States, but in the fast-industrialising economies of China and India, which are set to compete for supplies. The United States is expected to emerge as the world’s largest LNG market, with imports forecast to account for as much as 20 percent of natural gas consumption in the United States by 2015, up from only about two percent today. Before that happens, however, the United States will need to build the terminals able to receive LNG.

A recent report by Sandia National Laboratories concluded that terrorists blowing a hole in an LNG tanker could produce a spill of liquefied natural gas that could reheat and set off a fire that would cause second-degree burns on people nearly a mile away. The LNG industry responds that the safety record of its tankers far exceeds any other sector of the shipping industry. Only a few relatively small accidents have occurred in the last three decades, and industry groups contend that an accidental spill or a suicide bomb attack is extremely unlikely. Japan and South Korea, currently the top LNG markets, have never experienced a major accident or attack. Yet considerable apprehension persists.

Responding to the energy industry’s urgency, the US congress has included in the broad energy legislation, a provision that would effectively usurp the authority of states to block LNG terminals. Qatar and 12 other gas-rich nations, including Iran, Egypt, Nigeria and Venezuela, met in April to discuss ways to keep LNG prices satisfactorily high. The group, called the Gas Exporting Countries Forum, is still in its infancy and for now is incapable of modeling itself after OPEC.

Daniel Yergin, an energy analyst and author of The Prize, a history of the quest for oil over the last century, argues that it would be difficult for a confrontational cartel of gas producers to take hold over the next several years.

He said that is because LNG producers will be competing with each other for market access and relying heavily on Western energy companies to shoulder much of the multibillion-dollar risk of large LNG projects.

Despite such concerns, LNG imports to the handful of terminals that exist in the United States soared 29 percent last year and are set to increase rapidly throughout this decade.