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October 18th, 2012

Liquefied Natural Gas (LNG)

by Andrew Price, President & COO

 

As I discussed in a previous blog entry, trucked natural gas can take the form of either Liquefied Natural Gas (LNG) or Compressed Natural Gas (CNG). The previous blog focused on CNG - natural gas compressed to about 3,500 psi to increase energy density. This blog will look at LNG.

 LNG is natural gas that has been turned into a liquid by cooling it to negative 256 degrees Fahrenheit. LNG has about 85,200 btu per gal compared to 91,600 btu per gal for propane. Although there are many proposals to produce LNG domestically, to date, almost all LNG used on the eastern seaboard is imported by ship from overseas locations including: Qatar, Trinidad, Egypt and Peru. The fuel is imported into one of four LNG facilities in New England: the onshore Canaport and GDF Suez Distrigas terminals and the offshore Neptune and Northeast Gateway terminals. The Neptune and Northeast Gateway terminals – both offshore terminals in Massachusetts Bay - have been largely unutilized since coming online in 2010 and 2008 respectively, for economic reasons. The Canaport LNG import facility in New Brunswick Canada does not currently have a truck loading facility. The Canaport facility, jointly owned by Irving and Repsol, has recently been put up for sale, casting some uncertainty on its future.

For most buyers, the GDF Suez Distrigas LNG import facility (Distrigas) is the likely source of 100% of any LNG. Distrigas is located in Everett Massachusetts and currently has the only truck loading facility close enough to service most New England load. Distrigas has four truck-loading bays with a maximum liquid send-out capacity of about 100 million cubic feet, or 1.2 million gallons per day.

Distrigas has been importing LNG since 1971 and has received about 1,000 shipments to date. Much of the natural gas imported into the Distrigas facility is currently used by the adjacent Mystic Power Plant owned by Constellation. The 2,200 MW Mystic power plant takes 30-40% of the gas imported by Distrigas. The Mystic Power plant is not able to take pipeline natural gas due to deficiencies in the local natural gas pipeline network. For this reason it takes 100% of its fuel from Distrigas. The Mystic power plant serves an important reliability function on the New England Power Grid, providing as much as 50% of Boston’s electricity on certain days. Distrigas has 3.4 billion cubic feet of onsite storage and must import an LNG shipment every 1 to 2 weeks to have enough fuel on hand to serve the Mystic power plant.

Prices for LNG in other parts of the world, including Asia where LNG can sell for $20/MMBtu and Europe where LNG can sell for $10/MMBtu, are 3-6 times current domestic prices which dropped below $3/MMBtu earlier this year. This enormous price spread has caused a significant reduction in imports at other LNG import terminals in the US.  In fact, many US LNG import terminals are looking at investing billions of dollars to gain the capability to export domestically produced natural gas overseas.

Imports by Distrigas have also been hurt by a series of attacks on infrastructure in Yemen – a supplier of LNG to Suez. The lack of competitive alternatives to Distrigas, combined with recent supply disruptions, is enough to give potential LNG buyers pause. This is especially true for those who are looking build and own their own LNG storage and regasification facilities, which can easily run into the millions. For now, because of the requirement to serve Mystic, LNG has continued to flow to Distrigas. Distrigas has also allayed fears by embarking on a significant marketing campaign to increase its sales of trucked LNG in the US.

Several companies, including Xpress Natural Gas (XNG), Prometheus, Transgas and CHI are actively involved in establishing and serving new LNG load in New England. LNG is not usually price competitive with pipeline natural gas and is therefore limited to locations and facilities that are “stranded” on oil or propane. As I discussed in the CNG blog, the introduction of compressed natural gas into the New England market may help to put pressure on LNG prices.

CES is frequently asked to help clients evaluate the merits of LNG. We have completed economic evaluations and conducted competitive bids for LNG services for hospitals, universities, industrial facilities and transportation fleets. Robust competition appears to be developing for trucked natural gas and - depending on location, usage profile and usage volume – CNG or LNG may provide significant savings compared to oil.

(Tags: Compressed Natural Gas (CNG), Liquefied Natural Gas (LNG), Trucked Natural Gas; GDF Suez Distrigas; Canaport LNG)

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