Amid a glut of natural gas and overcapacity of import facilities, Hess LNG's announcement that it is reviving a controversial plan to build a liquefied natural gas terminal on the Delaware River in New Jersey seems counterintuitive.
But Gordon Shearer, head of Hess LNG, says the New York company is undeterred by current market conditions that may seem unattractive.
"We're looking at this as a very long-term investment," he said.
Hess bought the 175-acre Crown Landing property in Gloucester County for an undisclosed sum from BP P.L.C., which struggled for five years to get approval to build on the site. BP proposed constructing a 2,000-foot pier, where ships could unload the imported LNG. But the pier jutted into Delaware state waters, and the U.S. Supreme Court upheld Delaware's right to block the New Jersey project.
Shearer said Hess was exploring ways to build a pier that did not cross the state line.
"We don't have a problem building piers," he said. "It's just the State of Delaware that has a problem."
Even if Hess can figure out a way to construct a pier without offending Delaware, there is a question of whether the market needs liquefied natural gas.
When BP announced the Crown Landing project in 2003, domestic natural gas supplies were strained, demand was growing, and overseas suppliers were building plants to liquefy gas to transport by ship to the lucrative U.S. market.
During the economic boom earlier this decade, the natural gas industry poured billions of dollars into developing capacity, including new LNG terminals and new reserves such as the Marcellus Shale that lies under much of Pennsylvania.
Last year, however, the market for natural gas crashed, and for the near term there appears to be plenty of domestic supply.
LNG imports in 2008 averaged about one billion cubic feet (Bcf) per day, substantially less than the import capacity of 12 Bcf. According to a report released in October by the Interstate Natural Gas Association of America, the nation's LNG capacity "does not appear to be a limiting factor for the foreseeable future."
The Department of Energy's Energy Information Administration this year scaled back its projections for LNG imports in 2030 from 4.5 trillion cubic feet to 2.8 trillion cubic feet because of the growth in U.S. reserves.
Demand is not expected to pick up immediately despite the industry's attempts to tout natural gas as a clean alternative motor fuel and as a "transitional" fuel for generating electricity until renewable sources become more readily available.
But energy markets are notoriously fickle, and Hess is betting demand for natural gas will rebound in the six to eight years it will take to acquire permits and get the terminal built.
The Logan Township site is attractive as a gas terminal. Two major interstate gas pipelines cross the property, providing a convenient means to transmit the gas to market, particularly to New York. The land was used to deposit contaminated dredge spoils, so there is little pressure to use it for anything else.
Though BP planned to build a facility that could handle 1.2 billion cubic feet of gas a day, Hess anticipates building a plant half that size.
"Our view is there is going to be a role for LNG," said Shearer, "though probably not as large as earlier anticipated."
Hess explored a partnership to build an import terminal at Philadelphia Gas Works' Port Richmond LNG production plant before the plan fizzled in 2006. PGW still is exploring ways to maximize its underused plant, which was designed as a gas-storage facility to serve the city when Philadelphia's population was much larger.
Hess LNG's parent company, Hess Corp., also is involved in gas and oil production in Africa, so it is looking for markets to sell its output.
One thing is certain: Hess can count on opposition from environmentalists and community activists, who say LNG is dangerous and could be a target for terrorists.
"We think we can more than take care of our energy needs over time by decreasing our reliance on dangerous fossil and nuclear fuels," said David Pringle, a campaign director for the New Jersey Environmental Federation.