October 23, 2007 / 6:32 PM / 11 years ago

ANALYSIS-Offshore U.S. LNG systems may calm safety concerns

NEW YORK, Oct 23 (Reuters) - With only three liquefied gas terminals on the populous U.S. East Coast and none on the West Coast, which also depends heavily on gas to generate power, experts said facilities sited far offshore may be the key to calming environmental and safety concerns that have hindered development.

Two offshore projects approved this year off the coast of Massachusetts may open the door to supplying major markets with less environmental impact and fewer safety and security risks.

“The local hurdles to build an onshore facility in Massachusetts were almost insurmountable. Building offshore was a way to get the job done,” said Bill Cooper, director of the Center For LNG, a Washington, D.C.-based trade group.

Cleaner-burning natural gas has been the fuel of choice for new power generation for the last decade, but price spikes during periods of peak demand, particularly in the Northeast, have raised concerns about the adequacy of supply.

Putting LNG facilities in key coastal markets where supply is needed cuts transport costs and eases pipeline bottlenecks, but community and environmental objections have stalled or killed at least a half dozen onshore proposals in recent years.

In order for natural gas to be imported into the U.S., it must be super-cooled into liquid form and shipped by tanker. Upon reaching U.S. shores, the liquid is warmed and regasified, then put into a pipeline.

Opponents of building regasification terminals fear that an industrial mishap or a terrorist attack could trigger an explosion powerful enough to level a town.

Located about 13 miles off the Massachusetts coast and scheduled to begin operations in December, Excelerate Energy’s Northeast Gateway is a submerged buoy system with very little surface infrastructure.

“It doesn’t tie up coastal land, you put infrastructure away from people, and you take a security risk out of the ports and away from communities,” Excelerate Energy Chief Executive Officer Rob Bryngelson told Reuters.

Special LNG tankers will hook up to marked buoys and offload gas into undersea tanks far away from coastal cities and towns, limiting concerns about safety or the possibility of attacks.

When complete, the $350 million to $400 million project will deliver about 400 million cubic feet of natural gas daily to New England, or nearly 20 percent of daily regional demand.

OFFSHORE ADVANTAGES

Landing gas close to a market like the Northeast that often trades at a significant premium to Gulf Coast supplies can be very profitable.

As winter heating needs peak in the Northeast, local utilities compete for limited pipeline space and sometimes bid up prices to $15 per mmBtu or more versus Gulf Coast gas that often trades between $6 and $8.

In addition, offshore buoy systems are quicker to build and much cheaper than land-based regasification facilities which can cost more than $700 million and take years to construct.

The permitting process for Northeast Gateway took about two years but actual construction will take only seven months.

“The principal advantage of offshore projects is that they are easier to site,” said David Manning, an executive vice president at National Grid, a big user of LNG in North America.

OFFSHORE LIMITATIONS

But while offshore systems provide one way to get gas to needy coastal markets, they are not embraced by everyone.

“For the Northeast, offshore projects have an easier time getting permitted, but on the West Coast, the jury is still out,” CLNG’s Cooper said, noting California has denied approval to at least one offshore project.

Offshore systems also meet with more community resistance when new infrastructure like onshore pipelines or compressor stations must be built to accommodate the increased supply.

And the number of special tankers that can vaporize liquid gas for insertion into a buoy-type system is limited. So far, Excelerate has only three, but five more are expected to be completed by 2010.

In addition, offshore facilities have only limited storage space, so some question whether they can be counted on to meet baseload demand during peak periods.

There are also environmental concerns about air emissions and using sea water to warm the gas, which can disrupt fishing.

But with traditional gas supplies getting tougher to find and demand on a steady track higher, new sources of supply like LNG will be needed to help close the expected gap.

LNG this year will meet less than 4 percent of total U.S. gas demand, but analysts estimate it will provide nearly 16 percent of total needs by 2030.

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