A Sea Change for Natural Gas Imports
About 40 miles southeast of this one-road harbor town, ChevronTexaco Corp. is pioneering a new way to deliver natural gas, the fuel of choice for a growing number of electric plants across the country.
The company recently received federal permission to build what would be the world’s first deep-water port for importing natural gas. If all goes to plan, starting in 2007 tanker ships will dock at Port Pelican in the Gulf of Mexico to offload up to 1.6 billion cubic feet of natural gas daily, enough to turn on the lights in more than 6 million homes.
About 85% of the nation’s natural gas comes today from domestic fields, with most of the remainder piped in from Canada. Port Pelican is ChevronTexaco’s $800-million bet that those sources won’t be able to continue to satisfy the country’s growing appetite for natural gas.
“Gas demand in the U.S. has picked up quite a bit, and production in the U.S. and Canada cannot keep up,” said Joe Naylor, a vice president in the San Ramon-based company’s global gas division.
Clean-burning natural gas is used to heat homes and power industrial machinery, but much of the future demand is expected to come from electric power plants. Plants fired by natural gas generate about 20% of the nation’s electricity, and that figure is expected to rise steadily as coal-fired plants are retired in favor of natural gas.
In fact, of the 358 power plants built during the first 10 months of 2003, 280 were natural-gas-fired, according to David G. Victor, director of the Program on Energy and Sustainable Development at Stanford University.
To keep up with demand, the National Petroleum Council estimates, the U.S. will need to import up to 25% of its natural gas by 2025, if no new domestic sources are discovered.
The principal barrier to importing natural gas from overseas has been the cost of shipping it, because the fuel must be converted to liquid form to make the trip. But that hurdle is rapidly disappearing, with prices rising 52% since the end of 2002.
There are five liquefied natural gas, or LNG, ports in the U.S. and Puerto Rico. Port Pelican would be the first in deep water -- which would allow it to handle a new generation of oceangoing tankers much larger than those now plying the seas.
“ChevronTexaco has roughly 1 trillion cubic feet of natural gas around the world: Australia, Angola, Nigeria, Venezuela and the former Soviet Union,” Naylor said. “Just between those five locations, we have a huge amount of natural gas, and most of it is near the water. We can turn it into LNG, put it on ships and bring it to the U.S.”
To be shipped across the ocean, natural gas is chilled to minus 260 degrees Fahrenheit. That turns the gas to liquid and shrinks it to 1/600 of its original, gaseous volume. Then it can be loaded into a double-hulled tanker ship.
At Port Pelican, a tanker would sidle up to one of two structures rooted in the sea floor 78 feet below, and a powerful tugboat would nose it up to the unloading station.
Over the next 12 to 15 hours, the gas would be piped out of the tanker and into lines submerged in the ocean, where the liquid gradually would warm up and turn back into a gas.
It then would be piped to the Henry Hub, a massive intersection of pipelines 14 miles northeast of Intracoastal City. The Henry Hub is the clearinghouse for half of the natural gas fanned out to consumers in the United States and is where the spot price of natural gas is set.
Port Pelican is the first in a series of deep-water LNG ports planned by energy companies. Shell Oil Co. and McMoRan Exploration Co. have similar projects planned for the Gulf of Mexico. ChevronTexaco also hopes to build a deep-water LNG port off the west coast of Baja California.
The Baja port would be roughly the same size as Pelican and would accept natural gas from ChevronTexaco’s fields in Australia. The project is awaiting approval by Mexican authorities.
In building ports far from shore, ChevronTexaco is anticipating a new generation of supertankers that will need deeper water to dock than do ships currently in operation.
Not everyone, though, is looking that far ahead. San Diego-based Sempra Energy, for instance, is set to begin construction on two conventional LNG port projects this year -- one in Ensenada and the other in Hackberry, La. Both are expected to begin service in 2007.
Whether offshore or along the coast, the projects can generate controversy. About two years ago, divisions of Shell and San Francisco’s Bechtel Group suspended plans for a $1.5-billion LNG terminal on Northern California’s Mare Island after locals raised health and safety concerns.
“People who are opposed to these projects in their backyards have said they’re floating bombs,” said Victor, director of the Stanford energy program. “That’s going to be a big deal in the U.S.”
Victor said the plants would be safe, and here in Louisiana there have been few safety or environmental objections.
Community leaders point out that the pipeline infrastructure already is in place -- as is a ban on commercial fishing near the underwater pipelines -- and say the project will have little effect on the waterways.
Port Pelican would employ 40 full-time workers and provide maintenance and supply business to a host of local companies. Experts say Port Pelican could bring $5 million annually to the local economy, which in the 1980s was 40% dependent on the oil and gas industry. Today the figure is about 8%.
“The town stands to reap benefits from that project over the next 20 to 30 years,” said Jay Campbell, executive director of the Abbeville Vermillion Harbor and Terminal, which oversees shipping commerce at adjacent Intracoastal City. “Those companies have become more efficient about doing things, but this will mean new jobs.”
For ChevronTexaco, the benefits are clearer, according to Fadel Gheit, senior energy analyst with Oppenheimer & Co.
With the company’s domestic natural gas supplies dwindling, Port Pelican is important both as a means to market ChevronTexaco’s overseas reserves and to keep the company as a player in the industry, Gheit said. He estimated that natural gas and related businesses contribute about 5% of the company’s revenue and said that could shrink as domestic operations wind down.
“Even if successful, the LNG projects may not even be sufficient enough to compensate for this decline,” Gheit said. “But it’s part of their strategy, because they are losing ground every day. They’re in quicksand, and they must invest heavily in these projects.”
Though natural gas accounts for about 38% of the company’s worldwide reserves, it amounted to only 28% of ChevronTexaco’s worldwide net production in 2002, according to Randy Richards, the company’s investor relations manager.
“One of our goals is to make sure that our gas resource base is not neglected,” he said. “Some of our biggest competitors are already much closer to 50-50 in terms of their production split” between natural gas and crude oil.
With the success of major gas projects in Nigeria, Angola and Australia and LNG plants like Port Pelican, Richards added, ChevronTexaco, the world’s fourth-largest publicly traded oil and gas company, eventually “will look more like an Exxon Mobil.”
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Times staff writer Elizabeth Douglass contributed to this report.
