Demand, and criticism, rises for liquefied natural gas

HACKBERRY, La. - Just down the road from this isolated fishing hamlet in the bayou country of southwestern Louisiana, a massive complex is rising to handle the nation's growing demand for natural gas.

Cranes tower over containers that stand 170 feet tall and 250 feet in diameter as hundreds of construction workers bustle about. Sempra Energy expects the $750 million terminal to begin operating in 2008 as the arrival point for tankers carrying liquefied natural gas.

While the energy industry regards LNG as vital in meeting demand for natural gas in the United States, proposals to build terminals are raising environmental and safety concerns.

Though little used until natural gas prices jumped in recent years, gas cooled to minus 260 degrees and turned into liquid is the only practical way to import supplies from overseas.

Energy companies have proposed 35 new U.S. terminals in 10 states and five offshore areas near the coast. Eighteen terminals have been approved by the Federal Energy Regulatory Commission.

The majority of the projects are proposed for the Northeast, California and the Gulf Coast. Some are near urban areas, where, despite demand for natural gas, LNG developers are running into opposition.

Among the projects are a $700 million terminal near Freeport, Texas, being built by Freeport LNG Development L.P.; McMoRan Exploration Co.'s Main Pass offshore terminal off southern Louisiana with a $1 billion price tag; and Hess LNG L.L.C.'s $350 million to $500 million terminal proposed near Fall River, Mass.

In 1999, gas traded on the New York Mercantile Exchange at an average price of $2.35 per million British thermal units. Last year, the price averaged $9.20. In between, there were price spikes as high as $20.

The United States consumes 60 billion cubic feet of gas daily - about a quarter of its energy consumption. Gas heats more than 60 million U.S. homes and is the fuel of choice for generating power in many areas.

At the same time, gas supplies are getting tighter.

In the Gulf of Mexico, production has declined more than 4 billion cubic feet per day since 2001, while production in the North Sea is dropping 15 percent a year as easy-to-reach deposits play out. Alternatives such as deepwater drilling in the Gulf, drilling deep into the bottom of shallower Gulf waters, and going after gas in the Rocky Mountains are more expensive.

Importing natural gas in its liquid state often is a cheaper alternative, said Darcel Hulse, Sempra chief executive officer.

Natural gas is important for more than home heating and electricity production. Chemical plants use gas as a raw ingredient in products and to generate steam and power. The industry says an ample supply of gas with stable prices is needed to keep the domestic chemical business competitive with foreign companies that often have access to much cheaper fuel.

"Even though some of these terminals have long lead times associated with their construction, those that do exist and those that will come on line hopefully will bring the supply-demand curve for natural gas back into proper proportion," said Dan Borne, president of the Louisiana Chemical Association, a trade group.

But along with LNG plant construction comes fears of accidents or terrorist attack. Although the fuel is not flammable in its liquid state, opponents worry about leaks at terminals and on tankers that would allow the liquid to return to its flammable gas form.

Environmental concerns also have flared. On March 28, Shell Oil Co. dropped plans to build a terminal in the Gulf of Mexico 36 miles south of Cameron Parish after opposition from fishermen. Chevron also dropped plans in March to build a $650 million terminal off Mexico's West Coast - near the U.S. border but out of U.S. regulations' reach - after a four-year battle with environmentalists.

But the biggest concern centers on safety.

In 2004, an explosion at an LNG plant in Algeria killed 30. The worst accident on record happened in 1944, at a Cleveland LNG plant that burned and killed 128 people after a tank leaked LNG into the sewer system, where it became a flammable vapor and exploded.

Tim Riley, a lawyer and consumer advocate based in Oxnard Shores, Calif., said not enough was known about the potential hazards of an LNG spill for the government to continue licensing terminals safely.

Industry advocates say the safety fears are exaggerated.

Sempra said its storage tanks were designed to withstand winds of 150 miles per hour and elevated nine feet off the ground for flood protection at its Hackberry project.

LNG tankers have double hulls, with six to 10 feet of space between the two hulls. Bill Cooper, executive director of the Center for Liquefied Natural Gas, said: "We're talking about a very robust, sturdy ship design."