North America has entered a new era of high natural gas prices, an era that's driving plastics and chemicals giant Dow Chemical Co. and a host of other firms to pursue liquefied natural gas as a lower-price feedstock.
``The traditional market mechanisms that have balanced seasonal demand for natural gas have undergone fundamental changes,'' market analyst Peter Killen of Houston's Muse Stancil consulting firm said at Flexpo 2003, an industry conference held Sept. 17-19 in Galveston.
Extreme cold in the winter of 2000-01 sent natural gas prices flying to $10 per Btu - the equivalent of $60 a barrel for crude oil. By comparison, the winter of 2002-03 was average in temperature, but supply situations still sent natural gas to the $8-$9 mark. It's since receded to less than $5, but still is above levels occupied for most of the period between 1995 and 2002.
Supplies of natural gas kept in underground storage fell to almost 500 billion cubic feet in early 2003 - their lowest level in nine years. Even in frigid 2000-01, supplies only hit 800 billion cubic feet.
Older gas fields in Texas, Oklahoma and Louisiana aren't producing as much gas, and help from future supplies in Alaska and northern Canada isn't guaranteed. As a result, LNG is being looked at, Killen said.
The material can be used to create the ethylene needed to make polyethylene and a host of other products. For years, the cost of producing, transporting and re-gasifying LNG from major producers like Indonesia, Algeria and Malaysia was at least $3.50 per million Btu, preventing the material from competing with natural gas. The gas run-up and a drop in LNG prices - to as low as $2.80 - have changed that picture.
The U.S. currently only has four LNG conversion facilities - three on the East Coast and one on the Gulf Coast - which account for only 6 percent of all U.S. natural gas imports. The U.S. market consumes a total of about 65 billion cubic feet per day, while the existing LNG sites can produce only about 3 billion cubic feet per day.
But there are currently 27 new LNG terminals proposed in the United States, Canada, Mexico and the Bahamas. The Caribbean island of Trinidad also is a potential LNG source. Killen said it's unlikely that all of those sources will become available, because of tight regulatory requirements, but sites proposed by Dow and Freeport LNG Development LP in Quintana Island, Texas, and by Sempra Energy in Louisiana are ``the best developed.''
The first actual new LNG production will come from the Dow site and a Marathon Oil site in Tijuana, Mexico, in 2007. At that point, Dow will have access to enough LNG-fed natural gas to supply about 70 percent of daily demand at its Gulf Coast petrochemical plants.
Oil giants like ConocoPhillips Inc., ChevronTexaco Corp. and Shell Oil Co. also have projects on the board.