Contents

Chapter Chapter 4.

Overview . . . . . . . . . . . . . . . . . . . . . 1. Summary . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . , . . . . . . . . . . Background. . . . . . . . . . . . . . . . . . . . . Findings . . . . . . . . . . . . . . . . . . . . . . . 1: How much gas is available for import as LNG? . . . . . . . . . . . . . . . 2: How does security of supply affect the desirability of LNG imports? . . 3: How much will LNG cost in the future? . . . . . . . . . . . . . . . . . . 4: How would added gas supplies from LNG be used? . . . . . . . . . . . . 5: How is the cost of LNG distributed among consumers? . . . . . . . . . . . . 6: How strongly do LNG imports affect the balance of payments?. . . 7: How are present Federal policies likely to affect future LNG.N(; imports? 2. Policy Background. . . . . . . . . . . . . Administration import policy . . . . . . . Maritime Administration. . . . . . . . . . . Export-Import Bank. . . . . . . . . . . . . . . Department of Transportation . . . . . . Department of Defense . . . . . . . . . . . Congressional interest. . . . . . . . . . . . . States . . . . . . . . . . . . . . . . . . . . . . . . . other States . . . . . . . . . . . . . . . . . . . 3. Future Gas Availability and Use. . U.S. gas demand . . . . . . . . . . . . . . . . . Comparisons of projection results . . Effect of prices. . . . . . . . . . . . . . . . . Effect of public policy. . . . . . . . . . . . Domestic supplies . . . . . . . . . . . . . . . . Conventional natural gas . . . . . . . . . Conventional oil . . . . . . . . . . . . . . . . Unconventional domestic oil and gas sources . . . . . . . . . . . . . . . . . . . . . Canada and Mexico . . . . . . . . . . . . . . . Canada . . . . . . . . . . . . . . . . . . . . . . Mexico . . . . . . . . . . . . . . . . . . . . . . . Gas from overseas. . . . . . . . . . . . . . . . Worldwide natural gas reserves and e x p o r t a b l e surpluses. . . . . . . . . . . Competitive importers of LNGEurope and Japan . . . . . . . . . . . . . Foreign LNG potentially available to the United States. . . . . . . . . . . . . .

Project Structure, Cost, and Financing . . . . . . . . . . . . . . . . . . . LNG projects . . . . . . . . . . . . . . . . . . . .

Algeria II . . . . . . . . . , . . . . . . . . . . . Pac Indonesia . . . . . . . . . . . . . . . . .

policies of exporting countries. . . . . . . . . . . . . . . . . . . . Producing country facilities and related costs . . . . . . . . . . . . . . . . . Transportation facilities-cryogenic tankers . . . . . . . . . . . . . . . . . . . . . Receiving country terminal and regasification facilities. . . . . . . . . . LNG financing. . . . . . . . . . . . . . . . . . . Overview . . . . . . . . . . . . . . . . . . . . . Exporting country facilities . . . . . . . Shipping. . . . . . . . . . . . . . . . . . . . . . U.S. facilities . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . Cost of service. . . . . . . . . . . . . . . . . . . Base case . . . . . . . . . . . . . . . . . . , . . Sensitivity . . . . . . . . . . . . . . . . . . . . Financial risk . . . . . . . . . . . . . . . . . . . Technical feasibility . . . . . . . . . . . . .
Pricing
Project failure . . . . . . . . . . . . . . . . .

Project interruption or delay . . . . . Cost overrun. . . . . . . . . . . . . . . . . Market uncertainties . . . . . . . . . . . Who bears the financial risk? . . . . . The Pac Indonesia project-/\n example of risk distribution. . . . . Risk of LNG embargo the producing country . . . . . . . . . . .

. . . . . .

5. Social Costs and Benefits . . . . . . . U. S. consumers of LNG . . . . . . . . . . . . Modeling of pipeline systems . . . . . . allocation issue: who gets the LNG? . . . . . . . . . . . . . . . . . , . . The price issue: who pays for the LNG? . . . . . . . . . . . . . . . . . . . . Supply impact of LNG interruption. .
Air quality benefits of gas utilization . . Balance payments . . . , . . . . . . . . . .

LIST OF TABLES Table No.

Contentscontinued
Table No.
2.. Potential Gas Supply in 1990. . . . . . . . . . . . 3. 1990 Gas Demand for Low Oil Price Cases . 4. 1990 Gas Demand for High oil Price Cases . 5. [J. S. Gas Supply Conventional, Unconventional, Coal Gas . . . . . . . . . . . . . 6. P o s s i b l e F u t u r e U . S . L i q u i d p e t r o l e m Production . . . . . . . . . . . . . . . . . . . . . . . 7. Forecasts of U. S. Conventional Natural Gas Production . . . . . . . . . . . . . . . . . . . . . . . . .
;

Page 29 31 31 32 33 33 33 34 36

33.

Table No. Cost of Service of an LNG Project Beginning

Page 96

in 1985 in the Fifth Year of operation. . . . 34. Sample Calculation of Wellhead Netback Price in 1989 for a Project Beginning in

1985. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35. Impact of Fifth Year Cost of Service of Reducing Return on Equity to 15 Percent and Interest on U. S. Debt to 10 Percent . . 36. Impact of Fifth Year Cost of Service of Increasing Return on Equity to 19 Percent and Interest on U. S. Debt to 14 Percent . . 37. Impact on Fifth Year Cost of Service of

96

97

8. Potential Supply . . . . . . . . . . . . . , . . . . . . 9. Forecasts of U.S. Conventional Liquid Petroleum Production . . . . . . . . . . . . . . . . 10. Estimated Potential Production From Enhanced Recovery . . . . . . . . . . . . . . . , . . 11. Annual Production From U n c o n v e n t i o n a l Sources to the Year 2000 at $1.75 and

97

Reducing the Round Trip Voyage Distance to 3,274 Nautical Miles . . . . . . . . . . . . . . , 38. Impact on Fifth Year Cost of Service of Reducing the Round Trip Voyage Distance
to 16,694 Nautical Miles . . . . . . . . . . . . . 39. Distribution of Financial Risk for Liquefaction and Loading Facilities of the Pac Indonesia Project . . . . . . . . . . . . . . . . . 40. Distribution of Financial Risk for Ships of 41.

98

$3.00/Mcf. . . . . . . . . . . . . . . . . . . . . . . . . .
12. 13. 14. 15. 16. 17. Projections of Coal Gas Production . . . . . . Potential Syncrude Production From Coal Shale Oil Production. . . . . . . , . . . . . . . . . Canadian Gas Potential . . . . . . . . . . . . . . . Mexican Oil and Gas Export Potential . . . . Availability of Foreign LNG to the U n i t e d . . . . .

38 39 39 39 41 43 44

98

102 104

States Beginning in the 1980s. . . . . . . . . . . 18. Natural Gas Supply/Demand projections for 1985 and 1990, European Economic
Community . . . . . . . . . . . . . . . . . . . . . . . .

the Pac Indonesia Project . . . . . . . . . . . . . . Distribution of Financial Risk at the Receiving/Regasification Terminal of the Pac Indonesia Project . . . . . . . . . . . . . . . . . 4.2. Illustrative 1985 Residential and Industrial
Gas Prices With and Without Incremental Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustrative 1985 Residential and Industrial Gas Prices With LNG Rolled-In and Without LNG; . . . . . , . . , . . . . . . . . . . . . . . . . . . . . . Illustrative 1985 Residential and Industrial Gas Prices With LNG Rolled-In and With LNG Incrementally Priced . . . . . , . . . . . . . Distribution of Imported LNG by Consuming State for Each Pipeline Importer . . . . . . . . . . . . . . . . . . . , . . . . . . Estimated LNG Sales by State . . . . . . . . . . . Air Pollution From Burning Gas Versus Other Fuels, in Thousands of Metric Tons per Tcf/Equivalent . . . . . . . . . . . . . . . . . . National and (California Ambient Air Quality Standards. . . . . . . . . . . . . . . . . . . . . . . . . Potential Expenditures in the United States
Included in the Cost of an LNG Import Project in the Fifth Year of Operationin 1990.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

105

55 55 57 58 58 45. .59 70 80 82 48. 84 49. 85 87 87 87 46. 47. 43.

19. LNG and Pipeline Gas Import Projects to OECD Europe . . . . . . . . . . . . . . . . . . . . . . . 20. Japanese LNG Import Projects . . . . . . . . . . 21. Comparison of LNG Import Project Volumes and Planned Import Levels-Japan 22. Distances Between LNG Liquefaction Ports

118

119

44.

and Typical Import Locat ions. . . . . . . . . . . Potential Availability of Foreign LNG to the United States Before 1990. . . . . . . . . . . . . . 24. Operational LNG Projects, as of July 1, 1979
23. 25. Estimated Capital Costs of Indonesian-Based LNG; Facilities for Pacific Indonesia Project . 26. Capital Costs per Million Btu of Daily (Contractual Quantity . . . . . . . . . . . . . . . . . 27. Estimated Capita] Requirements for El Paso Atlantic-Six Vessels. . . . . . . . . . . . . . . . , 28. Estimated Annual Operating Expenses for El Paso Atlantic-Six Vessels. . . . . . . . . . . . 29. Point Conception Terminal Estimate of Capital Costs. . . . . . . . . . . . . . . . . . . . . . . . 30. Point Conception Terminal Estimate of Annual operating Costs . . . . . . . . . . . . . . . 31. Point Conception to Gosford Pipeline Estimate of Investment Requirements . . . . 32. Capital Costs for Import Facilities per Million Btu of Daily Delivered Quantity of LNG . . . . . . . . . . . . . . . . . . . . . . . . . . . .

119

122 123

1.24 125

126

LIST OF FIGURES
Figure No. 1. Volume Page

88

Reduction From Natural Gas to LNG . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Vlll

Contentscontinued
Figure No. 2. Major Segments of an LNG Import
3. Projected Oil Production by

Pa$f

I;igurfn Nf], for a Tvpica I,N(; Irnport Prwjcc in th(? Fifth Year= of op[?r;it ion. . . . . . . . . . . . . . . . 13. Major Segments of an 1,N(; Imfwrt Prwjcct . 14. Pricing Prmisions of Pac lndon[?sia and Algcria 1 I 1 report Pr{)jects . . . . . . . . . . . . 15. (hrnparison of the ~orwsast [1. S. 1:iriff on Rcgasifi[?d 1,lN(; in th(? ,\lgcr.ia II Prwjcct \littl the Il?liiwrwd Pri(w of Fuel oil . . . . . 16. borwcast f.o.1). Prim?s Piiid for 1,N(; in Pa(> I n d o n e s i a a n d Algeria II Projwts. . . . . . 17. 1,N(; (;ost of S[?r\ficc by Proj[?(t S[~ction . . . I/l. 1.N(; (k]st of Ser.\ ice 1)~1 1}flw of (l)st . . . . l:], ]]lsl}ositiorl Of 1,N(; (pip[?linc /}). . . . . ~ ~ 20. (;(]nsl]rnl)tiorl of [,N(; (pip[?linr ,,1) . . . . . 21. I)isposit ion of I,N(; (pipeline H) . . . . . . . . . ZZ. I~[?rL:[?rlt [)istril)lrtiorl of 1.N(; \olunl[?s and (hsts (flipcline A) . . . . . . . . . . . . . . . . 23. P[?rw?nt []istrTihLrt ion of [,N(; tolumcs and (;osts (pip(?linc B) . . . . . . . . . . . . . . . .

Project . ,.

Conventional

Methods From Known U.S. Reservoirs, 1976-95. . . . . . . . . . . . . 4. Comparative Estimates of Undiscovered Recoverable Resources of Crude Oil and Natural Gas Liquids in the United States as of Date of Estimate . . . . . . . . . . . . 5. Annual Production From Unconventional &)Lrr(:[~s to th[~ Year 2000 at $1.75 and

36

37

$:3.00 /Nl(;f . . . . . . . . . . . . . . . . . . . . ., . . . . 6. J$or]d Natural (;as Rf?ser\r[?s . . . . . . . . . . . 7. Nlar>h[?t Status OF;CI) (;tis Rcs[?r\es . . . . . . 8. hlarkct Status NOPF;(; (;as R[?scrs\7es . . . . . . :). Nl:~ r.k[?t St :~t LIs ( ) [lP;(: ( hs R(?sc rkr[?s . . . . . . . 1(). Nlarket Status: [ 1.S. S. R., Ir;in, and Algc?r-ia . . 11. Major> [ Incomnlittc?d (;as R(?scr-\[?s I+;xpor.tal)le to t$ror.ki hlarkcts . . . . . . . . . . . ] ~ (;ost of s~?r.l,i(;~? as ~~ ~;lrr](:tior~ of 1)ist[lr~(:[~

37 47 48 ~:] .50 51 52

ix