April 2020, Vol. 247, No. 4
Features
LNG: Global and Domestic Challenges in 2020
By Danielle Wong Moores, Energy Writer
“There’s more gas than we possibly know what to do with.”
That’s according to Charlie Riedl, executive director of the Center for Liquefied Natural Gas (CLNG), speaking about U.S. LNG during an industry meeting in New Orleans last year. And in return, the world is clamoring for U.S. LNG.
On Jan. 26, U.S. liquefied natural gas celebrated a milestone as Cheniere Energy’s 1,000th cargo quietly sailed on the Norwegian tanker Hoegh Galleon from the Corpus Christi export terminal on the La Quinta Channel in Texas.
Four years ago, Cheniere’s Sabine Pass was the first LNG export terminal in the lower 48.
Today, six export facilities and 15 trains are in service, with U.S. LNG feedgas hitting a record 9.5 Bcf/d in January and 12 to 13 Bcf/d of demand expected by the end of this year. That record positioned the U.S. as the world’s third-largest LNG exporter, behind Qatar in second place and leader Australia, even as additional trains are under construction, as well as new export terminals such as Venture Global’s Calcasieu Pass, ExxonMobil’s Golden Pass and Tellurian’s Driftwood LNG.
All of this activity might spur some to ask what the world sees that the U.S. doesn’t, when U.S. environmental activists protesting natural gas continue to make headlines and as cities propose bans on natural gas in new construction.
Riedl would phrase the question another way: “What is the rest of the world seeing that we’re doing – and trying to emulate?”
Despite ongoing media coverage of protests and bans, the U.S. is actually using more natural gas than ever before. “The interesting thing is, over the last 10 years, the amount of switching we’ve seen happen from other sources of energy to natural gas for electric generation,” said Riedl. “We’re using more natural gas than ever for our electricity generation in the U.S. at present.”
In 2018, the U.S. used about 30.08 Tcf of natural gas, with 35% going to electric generation, 33% to industrial uses and 23% for residential – and that use is expected to continue to rise especially as gas takes on a new role as backup generation to renewable sources of energy. Meanwhile, the latest numbers show that LNG makes up about 10% of the U.S. market.
Protests and Support
Like other industry groups, Riedl is keeping a finger on the pulse of the protests and bans. One of CLNG’s members, Jordan Cove, has seen significant public backlash to its proposed plan to construct an LNG export terminal on the tip of Coos Bay, Oregon. At press time, the project was denied three primary state permits, and the Federal Energy Regulatory Commission voted against approving the project, pending review of the state’s permit denials.
Thousands of activists had filled hearings, protested at the state capitol building and submitted comments, while Jordan Cove worked at the local community level to demonstrate its commitment around safety and environmental welfare. And it had strong support – albeit less outspoken. “They tend to do it at the ballot,” said Riedl. The project had been approved by all 14 local jurisdiction county and city applications.
Both Georgia’s Elba Island and Maryland’s Cove Point also saw pushback. Residents of nearby Savannah, Georgia, worried about the safety of LNG trucking in an urban setting, while environmental groups like the Sierra Club argued that the Cove Point project would cause major damage to the Chesapeake Bay and coastal forests, harming the economy in the process.
Ultimately, regulators approved both of those export terminals, citing no significant environmental effects. Courts also ruled against the Sierra Club’s multiple LNG lawsuits. The group withdrew its final suit from federal court in Feb. 2018.
Riedl has been on the ground at many of these terminals. All of them dedicate many hours and significant manpower to engaging the local community and sharing the regional benefits of an LNG terminal. Along with open houses for the general public, one of the first things many of them do is engage with first responders. “It’s just the culture of this industry, which I think really is a positive thing…A lot of that engagement starts there, and the focus around safety, the focus around what is actually going to take place at these facilities,” Riedl said.
Meanwhile, the economic benefits of these projects, many of them in the billions of dollars, is significant. The ripple effect, said Riedl, on these small towns where most projects are based is enormous, and that message deserves a wide audience.
“I just happened to be at a reception beforehand…and ended up talking with a guy who was a pipefitter,” he said. “He was saying, ‘Anybody who says that these are temporary jobs isn’t in the construction industry. If you tell me I’ve got a job for five years working on the same project and I’m going to the same place for five years. That is a permanent, full-time job for me.’”
On Jordan Cove’s website, for example, it cites more than $60 million per year in average property tax revenue to four local counties and an additional $50 million in state taxes to support schools, libraries, roads and public safety. It plans to create more than 6,000 construction jobs at peak and 8,500 spin-off jobs in hospitality, retail, tourism and health care.
The project has emphasized that environmental impacts will be avoided or minimized through proactive engagement with local tribes. Jordan Cove also plans to create more than 100 acres of saltwater marsh to restore the habitat of an endangered species of coho salmon. “Freeport [in Texas] has done a fantastic job with how they’re dealing with wildlife,” said Riedl. “They’re trying obviously to be as good a stewards to the local community as they possibly can. And I think that has gone a long way.”
Regulatory View
These large projects – often spread across dozens of acres – also involve a laborious process of permits and approvals, which can include air, land, coastal land, water and coastal water permits from the state along with final approval for the siting, construction, operation and modification of LNG terminals by the Federal Energy Regulatory Authority.
While from a regulatory standpoint, there are always things that could be done to help move a project along, Riedl says that, for the most part, projects are moving along fairly predictably and in a timely manner. Last spring’s Executive Order Promoting Energy Infrastructure, for example, helped clear up uncertainties around the state water certification process – and “sets the stage for key updates to federal standards for LNG facilities (49 CFR Part 193), transitioning to a modern, risk-based analysis for LNG facilities, all while ensuring proper environmental safeguards. This will allow LNG projects to implement the latest technologies and improve their operating procedures,” said Riedl at the time.
Challenges have also been settled in court, setting precedents, and most questions about LNG have been answered through previous applications.
But consistency is never a guarantee. One concern for Riedl, in particular, is the lack of a full complement of FERC commissioners, especially since Bernard McNamee, whose term expires this June, has already announced that he won’t seek a second term at FERC – but will stay on if the commission lacks a quorum. That is to help avoid delays and challenges similar to those experienced throughout much of 2017 when FERC was down to two commissioners.
The Senate is still awaiting nominees to fill the remaining seats.
Sen. Elizabeth Warren also introduced a bill in October 2019 to block the building of natural gas compressor stations as part of a project that would lead to or facilitate natural gas exports. It has since been referred to the Committee on Energy and Natural Resources.
It’s also worthwhile to note, said Riedl, that the primary regulatory rules governing LNG facilities came out of Pipeline Hazardous Materials and Safety Administration rules that were written for peak shavers that used LNG only occasionally – a far cry from today’s large-scale, 24/7 operations. Those regulations, he said, are “incredibly prescriptive, which limits technology deployment,” although facilities working to develop technologies and concurrently working with regulators on rule updates.
“Those regulations haven’t been updated since the ‘80s,” Riedl said. “One of my members put this to me and I thought it was a really great way of explaining it: It’s like carrying around a bag cellphone. I mean, it works, and you can still make calls on a bag cellphone, you get reception, but why would you not use an iPhone? Or a newer version. The new technology exists so there are things that our members would like to do that we from a prescriptive standpoint can’t do. So we’re working with regulators on those kinds of things in order to drive greater efficiency at our facilities. Because there are things, especially like I look at drone technology that’s being deployed for pipeline use. That same sort of technology is obviously useful or could be useful on an LNG facility. So we have these opportunities are out there that we’re working with regulators on right now.
But the lowest-hanging fruit is the ongoing trade dispute with China. The country was the U.S.’s third-largest customer as of Feb. 2019 – based on cumulative shipments from Feb. 2016 to Feb. 2019, according to the U.S. Department of Energy. At the time of this writing, China had purchased no U.S. LNG since March 2019.
With a two-year, Phase 1 accord completed, China has pledged to purchase an additional $18.5 billion in U.S. energy products this year, and $33.9 billion in 2021, but still levies a 25% tariff on U.S. LNG imports. “The more you delve into China’s commitment to buy an additional $52.4 billion in U.S. energy over the next two years, the more it becomes apparent the goal is unachievable,” Reuters financial writer Clyde Russell said in a Jan. 20 opinion piece.
Meanwhile, several more LNG export terminals are expected to be sanctioned in 2020 – including the floating LNG project Delfin, NextDecade Corp.’s Rio Grande, Energy Transfer LP and Royal Dutch Shell’s Lake Charles, and Magnolia by LNG Ltd. All potentially will export gas by 2024.
While 2019’s rapid growth in LNG exports isn’t expected to hold, demand will still continue to drive natural gas as the fastest-growing fossil fuel, according to McKinsey & Company. It’s up to U.S. LNG exporters to further that demand. “The other part of this is just this continued education globally around the benefits of gas and the way that gas can partner with renewables,” said Riedl. “That’s really the mandate that my members have given to me moving forward.”
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