- The Washington Times - Friday, June 20, 2003

COVE POINT, Md — For the first time in nearly 25 years, ships carrying liquefied natural gas will chug up the Chesapeake Bay next month to a massive unloading dock at Cove Point, Md.

When the odorless, icy-cold fluid arrives, Dominion Resources Inc., the company that runs the import facility, will store it in insulated onshore tanks and, eventually, warm it into a gas that can be piped to power plants, homeowners and other users.

The amount of natural gas that enters the United States this way is tiny — Cove Point is one of four such facilities in the country — but LNG imports are rising as the industry scrambles to satisfy demand at a time when inventories are low and prices are high. Analysts expect LNG imports to double in 2003 and potentially grow by 1,000 percent by the end of the decade, accounting for 11 percent of the country’s total supply.

Even the most bullish predictions, however, are tempered by comments about formidable obstacles, including concerns about the environment, natural gas price volatility and national security.

“The surprise to the political system is that we’re going to be importing yet another commodity from potentially unstable countries,” said Bob Ineson, head of the North American natural gas division at Cambridge Energy Research Associates in Houston. “I think people are going to have trouble with that.”

Last week, Federal Reserve Chairman Alan Greenspan told the House Energy and Commerce Committee that, to mitigate future price spikes, the country needs to expand its LNG-import capacity. That would give the natural gas industry the kind of supply flexibility — or “safety valve,” as Mr. Greenspan put it — available to the oil sector, which can buy barrels of crude from all over the world.

Such high-profile advocacy notwithstanding, a rapid expansion of LNG imports is far from certain, given the diversity of opponents:

• Lawmakers from natural gas-producing states say energy independence is paramount to national security, arguing that the country’s needs could be met through domestic production if not for stringent environmental regulations restricting access to public lands onshore and offshore.

Both Rep. Joe L. Barton, Texas Republican, and Rep. Billy Tauzin, Louisiana Republican, raised the issue with Mr. Greenspan last week.

• Other lawmakers concerned about national security in the wake of the September 11 terrorist attacks say LNG ships cruising along the nation’s coastline are vulnerable targets for terrorists.

For example, the Cove Point facility has been criticized by Sen. Barbara A. Mikulski, Maryland Democrat, because it is just a few miles south of the Calvert Cliffs nuclear power plant.

• The impact on local communities also comes into play, with LNG tanker traffic seen by some as a threat to public safety and health, as well as a drain on tourism in areas where fishing and boating are popular. In January, after much public debate and opposition, Shell Gas and Power backed out of a partnership with Bechtel Enterprises to build an LNG terminal near Vallejo, Calif.

Along the Chesapeake Bay, the imminent arrival of LNG imports at Cove Point for the first time since 1980 arouses scorn from sport fishermen and charter fishing boat captains.

That’s because the U.S. Coast Guard, now part of the Department of Homeland Security, plans to enforce a 500-yard buffer zone around Dominion’s offshore dock, which for two decades had been one of the best places to catch striped bass, known as rockfish.

“We made our living fishing there,” charter boat captain Buddy Harrison lamented about the spot, essentially a manmade reef, that local anglers came to know as the “Gas Stop.”

“We don’t really see that as an area where terrorists are going to strike,” he added.

Officials at Dominion, based in Richmond, say the heightened security is important in the current environment although they downplay the threats posed by LNG imports, which started roughly 30 years ago.

The shallow water along Cove Point makes it impossible for an LNG tanker, hijacked or otherwise, to get anywhere near the Calvert Cliffs nuclear plant, said Chris Buffalini, a technician at the Dominion terminal.

Dominion said no formal timetable for deliveries has been set but that regular shipments are expected once the terminal is ready for imports at the end of July. Capacity at the facility, which can store 5 billion cubic feet of LNG and turn as much as 1 billion cubic feet into gas in a day, is fully contracted for the next 20 years by BP, Shell and Statoil, a Norwegian oil giant.

Just how much LNG is sent from around the world to Cove Point and the other U.S. terminals in Elba Island, Ga.; Lake Charles, La.; and Everett, Mass., will be decided almost entirely by price.

Depending on how far the LNG has to be shipped — export terminals are as close as Trinidad and as far away as Nigeria — domestic prices between $3 and $4 per 1,000 cubic feet are generally considered high enough to spur imports, analysts said.

Indeed, much of the current fervor for LNG imports has been driven by the fact that natural gas futures on the New York Mercantile Exchange are trading well above $5 per 1,000 cubic feet.

Lower shipping and processing costs — as well as the desire by petroleum producers to find markets for natural gas that is otherwise “stranded” around the world — also have boosted interest in LNG.

Since 1995, LNG imports have grown from 5 billion cubic feet annually to 155 billion cubic feet in 2002, according to Standard & Poor’s. To put that into perspective, the United States uses roughly 60 billion cubic feet of natural gas each day.

With demand for natural gas expected to rise 14 percent by the end of the decade, “the supply is going to have to come from somewhere,” said S&P; analyst Peter Rigby, noting that domestic natural gas wells are depleting at rapid rates and that Canada also is having trouble maintaining production.

In early June, nationwide inventories stood at 1,324 billion cubic feet, 25 percent below the five-year average, according to Energy Department statistics.

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