Liquefied Natural Gas to Begin Shipping in 2015
Sabine Liquefaction, a subsidary of Cheniere Energy Partners, L.P, has entered into a liqufied natural gas (LNG) sale and purchase agreement with their sixth customer, Centrica. Centrica serves over 11 million households in Britain. The agreement allows Centrica to purchase 91,250,000 MMBtu of LNG volumes per year for twenty years.
Sabine Liquefaction is developing six liquefaction trains and has already begun construction on the first two. They expect to start construction on the third and fourth trains in the first half of 2013 and the permitting process and preliminary engineering have been initiated for the fifth and sixth trains. After all six trains are completed, the Sabine Pass will be able to ship out approximately 4 billion cubic feet of gas per day.
A liquefaction train is what an LNG plant uses to compress natural gas into a liquefied state. The gas is first refined to remove any impurities and is then cooled down to approximately -160 degrees celcius for shipping.
Cheniere isn’t the only US company to have signed long-term agreements with major LNG buyers and recent indications point to several more long-term contracts being announced in the near future. What was just a possibility last year has become a reality in 2013.
As natural gas becomes a world commodity, supply will decrease for the United States as demand increases in places like China and Japan where costs are significantly higher. This could provide upward pressure on domestic gas rates and once natural gas prices reach $4.50 – $5.00, coal and other fuel sources can become attractive electricity generation options again – potentially causing electricity rates to rise.
Below is a snapshot of current global natural gas prices. Courtesy of FERC.Read More
Panama Canal Expansion Will Help Provide a World Market for US Natural Gas
For nearly 100 years, the Panama Canal has provided a faster and safer path for goods to be shipped between Asia and North America. However, with ships growing wider and deeper to carry more goods per trip, the Canal has been forced to expand. Six years ago, Panama started a $5.25 Billion dollar expansion so that vessels up to three times larger can carry goods along the 48-mile route.
Meanwhile in the United States, technological advances in the drilling industry have allowed us to tap into some of the largest natural gas reserves in the world. Though natural gas prices in the United States have steadily declined since 2008, global demand and global prices are rising. Previously a local commodity, natural gas is now being transformed into a liquid state, becoming Liquefied Natural Gas (LNG), making it easier to be shipped overseas and sold at higher prices. Therefore, shale gas in the US combined with an expanded Panama Canal provides an opportunity for natural gas to enter the global marketplace. This could mean pricing mirroring the oil market, thus eliminating the current low price advantage of the domestic stock.
Jorge Luis Quijano, the Panama Canal Administrator, promises that the expanded passage through Panama will create new markets to exploit bigger ships and deeper ports (Washington Post). The new locks will help accommodate another 2,600 ships, oil tankers and LNG carries. Previously, only 10% of the world’s 369 LNG-carrying vessels could pass the canal. However, the expansion will accommodate up to 80% of the fleet. Expected completion is June 2015.
For more information on the opportunities the expansion can bring please visit this link.
Two cargo ships entering Panama Canal’s Gatun Locks. Ships are raised up to 87 feet to pass through the different lanes of the canal. Image courtesy of PRWeb.Read More
Excessive Natural Gas Supply Spurring Innovation in the US
Total overall energy production in the United States is expected to surpass Saudi Arabia by 2020 due to America’s vast natural gas resources. With the surplus supply comes an emergence of new innovations. As new uses for the excessive and inexpensive supply become operational, the result will be upward price pressure on natural gas and, in turn, electricity.
The boom in shale drilling has significantly reduced the cost of natural gas in the United States and has encouraged many energy/chemical companies, like Sasol & Cheniere Energy, to build plants.
On December 3, 2012, Sasol, a South African energy company, made an announcement that it plans to build a fuel plant in Louisiana with ability to convert natural gas into diesel and jet fuel, as well as other products.
The plant will be similar to smaller plants located in South Africa and Qatar and cost anywhere from 11 to 14 billion dollars to build. Designed to produce 96,000 barrels of fuel a day using gas-to-liquids (G.T.L.) technology, this facility will be the first of its kind in America.
The photograph above is one of Sasol’s gas-to-liquids facilities. Courtesy of EnergeticCity.
David Constable, Chief Executive with Sasol, explained that adding the exclusive G.T.L. technology in the United States’ energy mix will advance the country’s energy independence. More information on the Sasol plant announcement can be found at: http://goo.gl/kVYbQ.
While the Sasol plant’s success depends on natural gas prices remaining lower than other fuel sources, Cheniere Energy’s exporting plant should succeed depending on overseas natural gas demand.
Recently, natural gas drilling has slowed due to the decrease in prices. However, plans for the US to begin exporting the fuel to Asian countries, where natural gas trades three-to-four times American prices, could encourage drilling to rise again. With natural gas eventually being sold on the global market to the highest bidder, it should provide upward pressure on domestic gas rates. Once natural gas prices reach $4.50 – $5.00, coal and other fuel sources can become attractive electricity generation options again – potentially causing electricity rates to rise.
The U.S. Energy Department is considering approving 15 more liquefied natural gas (LNG) terminals with a total export capacity of 26.5 billion cubic feet a day.
Overall, in an analysis performed by NERA Economic Consulting at the request of the U.S. Energy Department, the benefits of exporting natural gas far outweigh the concerns. Exporting has the potential to bring in near $32 billion in annual revenue and thousands of new American jobs.
Exporting almost one-third of the total US consumption and converting a portion of the rest to liquid fuel will change natural gas prices and our total energy portfolio forever. How much will this effect the energy cost to the end user? That remains to be seen.Read More
Coal plants in Texas, U.S. no longer under pressure to comply with strict EPA standards
The U.S. court of Appeals overturned the Environmental Protection Agency’s cross-state air pollution rule (CSAPR). This standard would have required 23 states, including Texas, to decrease sulfur dioxide and nitrogen oxide emissions.
Judge Brett Kavanaugh’s justification for ruling against the standard states:
EPA has used the good neighbor provision to impose massive emissions reduction requirements on upwind States without regard to the limits imposed by the statutory text. Whatever its merits as a policy matter, EPA’s Transport Rule violates the statute. Second, the Clean Air Act affords States the initial opportunity to implement reductions required by EPA under the good neighbor provision. But here, when EPA quantified States’ good neighbor obligations, it did not allow the States the initial opportunity to implement the required reductions with respect to sources within their borders. Instead, EPA quantified States’ good neighbor obligations and simultaneously set forth EPA-designed Federal Implementation Plans, or FIPs, to implement those obligations at the State level. By doing so, EPA departed from its consistent prior approach to implementing the good neighbor provision and violated the Act.
This is a victory for coal plants across Texas and the United States – most will avoid shut down and/or installation of pricey equipment to comply with the EPA’s rules. As you can see in the chart above, almost half of US electricity needs are fueled by coal-fired power plants.Read More
California’s Cap and Trade Program Launching January 1
The California Air Resources Board (CARB) is in the end stages of assembling a greenhouse gas cap and trade program. The program officially launches on January 1, 2013 and will cover major sources of greenhouse gas emissions in the State.
The goal of this program is to fight climate change and reduce greenhouse gas emissions to 1990 levels by the year 2020 eventually achieving an 80% reduction from the 1990 level s by 2050.
California, the first and only state to have created a cap and trade system, has now been joined by Quebec.
“Linking with Quebec is a significant advance in California’s efforts to fight climate change and steer our economy toward a clean energy future,” stated Mary Nichols, chairwoman of the CARB.
CARB is developing California’s carbon market and is scheduled to vote on rules this month. If approved, the first linked auction for Quebec and California companies will take place in November.
Cap and Trade Explained
Emissions caps are established by collecting emissions data from large industries. Business are then grouped and assigned an average emissions benchmark. Businesses are allowed to emit 90% of the benchmark in the first year and companies that operate below the cap may sell their excess allowance on the ‘market’. Companies with emissions above the benchmark may purchase these credits.
The cap and trade is a great way to reward companies for reducing their greenhouse gas emissions but will hurt those using fossil fuels, especially those using coal – the dirtiest fuel. The ultimate goal of the program is to eliminate the reliance on any fossil fuels for energy and incent renewable energy growth.
Obama proposed a nationwide cap and trade program in 2009 which didn’t pass. West Virginia and Indiana– states using coal for more than 90% of electricity generation – are safe from any adjustments for now.
Assuming a nationwide program is eventually put in place, any region heavily relying on fossil fuels for their electricity needs will absolutely see an increase in their electricity prices. To comply, plants will need to purchase emissions credits – costs which would be passed on to the consumers.
Decommissioning fossil fuel-fired power plants and preventing any new construction may be the best way to reduce the nation’s carbon footprint, but will definitely affect the end users. Picture courtesy of Legal Planet (legalplanet.wordpress.com)
Japan Possibly Importing LNG From Continental US
Due to last year’s tsunami effects on Japans nuclear fleet, the country now heavily relies on liquefied natural gas (LNG) for their power needs. The fracking revolution has flooded the US natural gas market – prompting many producers to consider export projects.
Japan is currently in talks with Sempra Energy’s LNG project in Cameron, Louisiana; Dominion Resources’ LNG project in Cove Point, Maryland; and Freeport LNG in Texas to buy a combined 30 million metric tons of LNG a year. More information can be found here.
Gas prices in Asia are about seven times higher than US prices, making the export to Japan a profitable opportunity for US natural gas corporations. Like any commodity, exporting from the US decreases the supply and increases the demand causing prices to potentially increase.Read More
Natural Gas Gluttony Causing One Major Producer to Reduce Drilling Operations
Chesapeake Energy Corporation (NYSE: CHK), the second largest producer of natural gas in the United States, is making vast changes in order to protect their shareholders. Natural gas prices have hit a ten year low causing Chesapeake to decrease drilling in the Barnett, Haynesville and Marcellus Shale Plays. The company is immediately curtailing gross gas production by up to .5 billion cubic feet (Bcf) per day. If prices remain low, the company is willing to increase the curtailment to 1 Bcf a day.
An abundance of shale gas plays (see above image) has led to a surplus in natural gas inventories. Coupled with the mild winter the US has seen, natural gas prices steadily declined. After Chesapeake’s announcement, the market closed up $0.182 to $2.525. Pundits still feel that to have a real impact, other producers such as Exxon, EnCana and Devon Energy will have to follow suit.
Please visit http://rapidpower.net/rpm-market-news to see a real time update on 12, 24 and 36 month natural gas futures prices.Read More
EPA’s CSAPR Delayed
The EPA Cross State Air Pollution Rule finalized in July 2011 has been delayed pending further review. The US District Court of Appeals granted a request from several power generators who stated the January 1, 2012 implementation date was too soon.
The Federal Electric Regulatory Council (FERC) is also concerned with the impact that the rule would have in places like Texas and the New England States where demand is high.
The court is asking that oral arguments regarding this matter take place by April 2012.
As RPM clients, we will continue to keep you informed on this critical piece of legislation.
Previous Articles Regarding the CSAPR:Read More
Q4 2011 – Solar Power
Solar Power: Time To Shine?
Renewable energy sources such as Solar power have become an increasingly popular energy resource over the years thanks to decreasing prices and increased awareness via reduced production costs, green energy advocates, government incentives and panel manufacturers’ marketing efforts.
Although solar power is still approximately three times more expensive than electricity produced by natural gas, prices have fallen by two thirds since 2008. To further solar power’s affordability, federal and state governments are offering tax breaks and subsidies.
The federal government offers a tax credit of 30 percent for the gross cost of solar panel installation for residents and businesses. On top of the tax credit, each state offers its own incentives for all forms of renewable energy, including solar.
The Department of Energy (DOE) rolled out the SunShot Initiative in 2007 to decrease solar energy system costs by 75% before 2020. When this goal is reached, systems will even be affordable without any rebates or tax cuts. The main goal has been to drive innovative technology.
Under the initiative, the DOE began backing the company 1366 Technologies this October with a $150-million loan. 1366 believes their new manufacturing process will significantly cut costs, making prices competitive with that of coal.
New thin-film photovoltaic cell technologies are also bringing down the costs and large companies like GE are beginning to manufacture the panels. In October GE announced plans to build the largest thin-film panel factory in the United States.
These initiatives are not only bringing down costs, they are creating jobs and with their implementation, protecting the environment.
Solar’s portion of the power business remains small but has great potential to flourish. According to the U.S. Energy Information Administration (EIA), solar power is capable of providing many times the total current energy demand.
U.S. Department of Energy (DOE) SunShot Initiative; http://www1.eere.energy.gov/solar/sunshot/
Information on state, local, utility and federal incentives and policies that promote renewable energy and energy efficiency: http://www.dsireusa.org/
HAVE SOLAR COSTS COME DOWN ENOUGH FOR YOUR FACILITY?
See the example of a Ft. Worth, Texas territory cost comparison*:
THE SAME SYSTEM COST 1.6 TIMES MORE IN 2006 THAN IT WOULD NOW
*These are simply estimates calculated by RPM based on real numbers from NREL and a solar panel installer. While every state in the US is given the same federal tax credit, each state adds its own incentives. For example, New Jersey offers a yearly payback through their surplus agreements for the first 15 years of your systems life which could slash costs up to 60%.
SOLAR POWER FACTS
- Low-temperature solar collectors also absorb the sun’s heat energy, but instead of making electricity, use the heat directly for hot water or space heating in homes, offices, and other buildings.
- Covering 4% of the world’s desert area with photovoltaics could supply the equivalent of all of the world’s electricity.
- The Gobi Desert alone could supply almost all of the world’s total electricity demand.
- Passing of Bill 632 restricts any Home Owner’s Association from banning solar panels on home rooftops.
- Photovoltaic cells are used to transform energy from the sun directly into electrical power. The amount of electricity generated by a cell depends on a few things including device size, weather and length of exposure to light.
- Since the sun is an intermittent energy source, another electricity source would need to provide power during the evening or during a storm when light is not present or potent. Highest electricity demand is during the day time so the ‘back-up’ energy source would be used sparingly.
- Using solar energy produces no air or water pollution and no greenhouse gases
The nation’s economy gained much-needed strength in the third quarter, as the pace of growth nearly doubled compared to the previous three months.
According to an advanced estimate released on October 27, U.S. gross domestic product grew 2.5% – almost double the second quarter. A poor 0.4% growth in the first three months of the year was followed by a slightly more promising 1.3% increase in the second quarter.
Stronger consumer spending significantly contributed to the growth, helping to make up for cuts in government spending.
An increase of at least 3% is needed to create enough jobs to lower the unemployment rate but economists aren’t expecting to see that rise even through 2012.
OIL AND GAS UPDATE
EIA projects average household heating expenditures for natural gas, propane, and heating oil will increase by 3 percent, 7 percent, and 8 percent, respectively, this winter (October 1 to March 31) compared with last winter, while electricity heating expenditures fall by less than 1 percent. Average expenditures for households that heat with oil are forecasted to be higher than in any previous winter.
This forecast reflects higher prices for natural gas, propane, and heating oil, and slightly milder weather than last winter in much of the nation contributing to lower consumption in many areas.
EIA expects the U.S. average refiner acquisition cost of crude oil to average $99 per barrel in 2011 and $98 per barrel in 2012, compared with $100 per barrel and $103 per barrel, respectively, in the previous Outlook.
Natural gas working inventories ended September 2011 at 3.4 trillion cubic feet (Tcf), about 2.6 percent, or 91 billion cubic feet (Bcf), below the 2010 end-of-September level. EIA expects that working natural gas inventories will approach last year’s high levels by the end of the injection season, typically October-November each year. The projected Henry Hub natural gas spot price averages $4.15 per million British thermal units (MMBtu) in 2011, $0.24 per MMBtu lower than the 2010 average. EIA expects the rate of growth in domestic natural gas production to slow in 2012, with the Henry Hub spot price averaging $4.32 per MMBtu.
Enforcement of the Cross State Air Pollution Rule Nears
The Cross State Air Pollution Rule (CSAPR) is approximately 3 months away from being enforced in 27 states. To meet the terms of this ruling, power companies are being forced to significantly reduce their sulfur dioxide and nitrogen oxide emissions by January 1, 2012 or shut down.
Finalized this July, CSPAR will mainly affect power producers who rely on coal to generate electricity. Those regions with heavy coal-based generation may see power prices raise as many plants are obligated to retrofit with new technology or shut down.
Projected decrease in emissions beginning this January
The EPA states, “This rule will not disrupt a reliable flow of affordable electricity for American consumers and businesses.” Additionally, the EPA explains that any increase in costs will be outweighed by the benefits of the ruling. (For more information on the EPA’s stance on the rule, please visit: http://www.epa.gov/crossstaterule/)
Several states, including Florida, Nebraska, Oklahoma and Kansas, beg to differ and have challenged the EPA over its decision. Attorney General Greg Abbot in Texas explained that the EPA is ignoring the increased potential for power outage risks and unemployment for coal miners and power plant employees.
RPM will continue monitoring any changes in the ruling.Read More