Canadian Operational Research Society

Calgary Section

http://www.corscalgary.org/

PROFESSIONAL DEVELOPMENT SEMINAR

When: Noon to 1:30 PM, Friday, September 16, 2005

Room 217

TransCanada Tower

450 - 1 Street SW

(See attached map)

SPEAKER

Peter Howard

Senior Energy Analyst

Canadian Energy Research Institute

Calgary, Alberta

TOPIC

Liquefied Natural Gas: Yesterday, Today and Tomorrow

Abstract

Liquefied Natural Gas (LNG) became a commercial energy delivery system in the mid 1960’s, at a time when LNG was considered uneconomic in the sense that the delivered cost exceeded the average conventional natural gas delivered cost in Europe and North America. However LNG systems were constructed and used in Europe either as a backstop measure to address security of supply issues, as in the case of France, or to counter the lack of indigenous supplies as in the case of Japan and Korea. In both these situations, government regulations permitted the cost of LNG to be passed on to the consumer. At the same point in time, North America had abundant supplies of natural gas and a developing pipeline infrastructure to connect supplies with markets. This coupled with a regulated energy industry that would not permit the cost of LNG to be rolled into the cost of domestic production stopped LNG from entering North America. LNG was the highest priced energy form in the 1970’s North American market and thus failed to obtain a foothold.

Over the past 20-30 years, the North American supply of natural gas has grown dramatically, however the demand for natural gas has also grown to the point where the supply/demand relationship is currently at a precarious balance point. This tight relationship has contributed to market prices moving upwards towards a sustained $5.00 level. Many experts believe that the North American gas supply has reached a plateau and the future is about maintaining this level with little possibility of growth. As the demand for gas continues to grow so should the prices.

Thought considerable, North American gas reserves amount to just 4 % of the worlds total proven reserves of 6200 TCF. A significant percentage of these remaining gas reserves are considered stranded reserves in the sense that no local market exists for the gas and pipelines are not a viable option. For these reserves, LNG is one of the front running technologies for connecting these sources to the ever-expanding US markets.

As a result of countries like France, Korea and Japan continuing to import LNG, the efficiencies and economies of scale for the liquefaction, transportation and re-gasification of LNG has resulted in LNG costs coming down to the point where it can be delivered to North America for prices ranging from $3.00 - $4.50. LNG is now considered a supply source for the United States and is currently being imported into the US at 5 facilities with a contribution of upwards of 2 bcf/day to the current gas supply. This represents approximately 6 % of North American (excluding Mexico) requirements.

The Federal Energy Regulatory Commission (FERC) in the US indicates that there are approximately 70 projects in various stages of proposed, potential, permitted or under construction in Canada, Mexico and the United States. The former chairman of FERC, Pat Wood, has publicly stated that “rather than picking the winners, we would give more LNG certificates than are ever needed in the expectation that the market itself would determine which facilities would be built”.

The question of LNG terminal locations is a question of port availability, public and state acceptance proximity to the interstate pipeline grid, shipping distance from source and market net back price. The North American gas market operates as an interconnected free market with supply sources (and costs), pipeline corridors (and tolls), interchange hubs, storage locations, and demand locations. To explore this relationship the use of a linear program model is required. A description of the CERI Network Price Equilibrium Model will be presented as part of a presentation of the emerging LNG industry in North America.

About the Speaker

PETER HOWARD joined the Canadian Energy Research Institute (CERI) in November 2004 as Senior Energy Analyst. Mr. Howard has 30 years of experience specializing in engineering and technical applications in the oil and gas industry. Prior to joining CERI, Peter was a senior associate with J.R.Lacey International Ltd. and president of Arundel Information Systems Ltd. His recent experience includes being a consulting member of international study teams examining several aspects of the Russian and European gas pipeline industry. Mr. Howard is a co-author of the Gas Energy Management Model, the LOGIS data retrieval system, author of the "QTrack" liquid recovery simulator and has acted in a consulting role for numerous companies with regard to computer modeling, data modeling and computer application development.

Mr. Howard has a B.Sc in Mechanical Engineering from the University of Alberta in Edmonton and is a registered Professional Engineer in the Province of Alberta.