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Authors

Sean T. Dixon

Document Type

Article

Abstract

The United States has been historically at the “end of the pipeline” for liquefied natural gas (LNG) and regular imports are needed in some regions to augment seasonal shortages in supply. Because the United States has become a more significant producer of natural gas (highest in the world), regional markets here tend to no longer rely on LNG cargoes for gas supply. According to the Energy Information Administration (EIA), “LNG imports to the United States were generally not viewed as competitive with domestic supplies of natural gas and pipeline imports from Canada through the 1980s and 1990s.” In the early 2000s, however, domestic gas production began to decline— precipitating a rise in gas prices that made foreign LNG import (then still reliant on young, expensive technologies) affordable wholesale. In order to facilitate the utilization of an inexpensive new fuel option, Congress amended the Deepwater Port Act (DWPA) to cover LNG import facilities. The DWPA, until then, had been a largely unused law, allowing for the licensing of ports located on the U.S.’s outer continental shelf where oil cargoes could be offloaded and funneled through pipelines to mainland refineries. In the 2002 amended DWPA, the joint-jurisdiction of the U.S. Coast Guard (USCG) and the Department of Transportation’s sub-agency, the Maritime Administration (MARAD), was extended beyond deepwater oil ports to include LNG port applications, licensing, construction, operation, and decommissioning by virtue of the act’s extension to natural gas. Approval of onshore pipeline interconnections remained in the purview of the Federal Energy Regulatory Commission (FERC), and commodity import/export approval remained with the Department of Energy. Along with a push to build deepwater LNG ports, interest in onshore LNG terminal construction and re-commissioning was also renewed. Unfortunately, once deepwater LNG ports started coming online (beginning with the Gulf Gateway in the Gulf of Mexico), LNG imports almost immediately began to become unprofitable and unpredictable. There were “substantial changes in year-over-year imports as a result of suppliers’ decisions to either bring spare cargos to the United States or to divert cargos to countries where prices may be higher.” In New England, a dearth of pipeline capacity acted as a bottleneck for interstate gas transmission, so the installation of three LNG import facilities—two offshore “deepwater ports” and one onshore terminal—remained economically viable. Because that region’s gas prices are closer to the global market prices, LNG cargoes frequent those deepwater ports more than in the Gulf of Mexico. LNG remains an expensive, foreign, spot-market-purchase commodity. Regardless of whether a region had the capacity to import LNG cargoes, abundant domestic supplies have made it too economically burdensome to purchase gas from foreign nations for consumer, residential, and industrial uses. In 2009, U.S. import capacity was only operating at eleven percent—meaning there could be a nine-fold increase in LNG cargoes to the United States before space would be limited. In 2010, that number dropped to six percent. With recent increases in domestic production from shale and conventional sources, “[n]atural gas prices have declined and imports of LNG have significantly declined.” Nonetheless, the DWPA accomplished its goal. There are three deepwater LNG ports in operation today, albeit at low capacities, another three approved but not yet under construction, and a handful more in the application stage (or with pending and proposed applications). Given the lack of a significant domestic market for imported LNG, the overcapacity of existing ports and land-based terminals, and an evolving natural gas outlook, the DWPA may not be invoked for another LNG port for a long while, but we still have active applications with significant safety and environmental concerns and a growing LNG exports market. In this article, Part I is a short introduction to LNG, Part II is a walkthrough of the most significant aspects of the DWPA and deepwater port management, Part III is a discussion of the public safety, environmental, and climate concerns arising from LNG trade, and Part IV is a discussion of the current LNG domestic marketplace and trends for the near-term future.

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