Friday, November 26, 2010

It's a Gas!! Let's Build an Import Export Terminal!!

In Case Anyone Believes the Petro-Biz is Short of Cash

Here's a cool bit of news.  Kinda restores your belief that anything is possible and good times are still rolling.

First, Turn back the clock to 2002. Things are looking pretty sketchy in the North American natural gas tank. Reserves are low. Exploration has pretty much hit a dead end. So the industry decides it's time for another liquid natural gas (LNG) import and regasification terminal. They pick a spot on the Texas coast, 70 miles south of Houston on Quintana Island and, shortly, there is an ownership group, Freeport LNG Development LP (50% owned by financier Michael Smith and 50% by ConocoPhilips) and a plan, with a tentative clientele (ConcocoPhilips and Dow Chemical) already waiting in the wings. Budgeted at $500,000 03/04 dollars, the terminal began operating in 2008.

In the meantime, what happens? Moore's Law kicks in. Computer hardware and software gets good enough to provide 3-dimensional geological modeling which enables precisely controlled directional horizontal drilling and hydro fracturing techniques to be used in natural gas exploration and extraction. Opens up whole new vistas for gas exploration.

Surprise, surprise! By 2010, the natural gas situation in North America is registering impending glut. What do you do if you just hit the "on" button on an importing terminal, when suddenly the place you are importing LNG to is already floating in the stuff? Easy. You switch plans and make it an export terminal. This is a little more difficult than switching the direction of flow in the pipes. Now you have to liquify gas and load it onto ships, instead of unloading LNG off ships and regasifying it. Totally different process.

Import Terminal + $2B = Export Terminal

Put together a slightly different group of players, throw another $2 billion of 2010 dollars at it and presto, you will have a new LNG export terminal ready to ship 1.4 Bcf/day to China by 2015.

Look at it another way. From 2003 to 2015, you've got a whole buncha engineers, equipment, businessmen, workers, techinicians, etc., etc., basically chasing their tails around.

And there's nothing to say that 2015 is going to turn out any more of a sure thing. Maybe China finds enough shale gas of its own. Maybe Russia finds new sources and gives the Chinese a deal they can't refuse. Maybe the whole fracking process runs into too much opposition due to effects on groundwater or other snag. Maybe some new alternative fuel comes along and obsoletes everything. Not necessarily all that far-fetched.

Yet they say this industry doesn't have the ability to invest in making the tar sands more environmentally sustainable.

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