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The LNG Era Just Moved One Step Closer

by Dr. Kent Moors | published September 9th, 2011

A major U.S. utility just made a significant move into the future of liquefied natural gas (LNG) – to surprisingly little fanfare or media attention.

You, of course, will get the full scoop on why it’s so important.

Last week, Dominion Resources Inc. (NYSE:D) applied for permission to turn part of its Cove Point, Md., terminal into an export facility.

Cove Point is already the largest LNG receiving installation on the Eastern seaboard of the U.S.

When it became operational back in the 1970s, the assumption was that LNG imports would account for at least 15% of the natural gas used in the American market.

Of course, that was before the U.S. realized how much unconventional volume (primarily shale gas) was extractable from within its own borders.

Thanks to this terrific abundance of gas here, there is no need to import any gas any more (save for what’s used in the occasional balancing of supply and demand in localized areas, or to augment swap contracts entered into by some of the larger players internationally).

But there is a rising concern over what it will mean for the price of natural gas.

That’s because estimates of available volume are, well, staggering.

Without breaking a sweat, the American industry could increase overall production by 20% to 25% a year for several decades. And that’s before any technical advances that could allow for the retrieval of additional volume above current projections.

Sounds great… but it is also a cause for great concern. And it is particularly worrisome in the fastest-growing production basin in the U.S. – the Marcellus Shale.

In the past two years, expected volume from the Marcellus in Pennsylvania and West Virginia has skyrocketed. (Production in New York is currently subject to a moratorium.) And with it has emerged the prospect of a gas glut that would depress prices – badly.

The challenge is to find usages for all of this newfound gas.

There are three major ones…

1) As a Solution to the Coal Problem

Some of this added volume will go toward replacing coal as a fuel source in the generation of electricity.

The balance is swinging decidedly in favor of natural gas as the preferred power source.

Older coal-fired generating facilities are under pressure.

That’s due to a combination of the prospect of predictable and stable prices for natural gas, a lower carbon footprint, and the introduction of new non-carbon regulations in mercury, nitrous, and sulfurous oxide emissions requirements (“Two Non-Carbon Regulations About to Rock the Coal Sector,” October 29, 2010).

I now look for an additional 20% to 25% jump in the use of natural gas to produce electricity in the U.S. by 2020.

The industry also sees this reality. Not a single new coal-fired or co-fueled power plant (able to use both coal and gas) is being planned anywhere in the country.

2) As a Fuel for Transportation

Then there is the prospect of moving to a more gas-based transport system. There are signs of this really starting to rev up.

In both Canada and the U.S., there are frequent new developments in retrofitting trucking fleets from diesel to compressed natural gas (CNG), liquid petroleum gas (LPG), and LNG.

Within just a few years, upwards of 20% of municipal buses will run on natural gas rather than oil products.

Yellow Cab just rolled out its very first CNG-powered taxis onto the streets of Los Angeles.

Yet the real push into transport will take some time. So in the meantime, finding additional usages for all of this newfound gas is still a challenge.

(That is where the importance of this new LNG export venue comes in to play.)

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