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THE WALL STREET JOURNAL: Energy Firms Turn to Pipelines,In Bet Gas Ports Won’t Happen

June 12, 2006; Page A8

Several energy companies are making big bets that new tanker terminals for importing natural gas along the East Coast won’t be built, a turn of events that could put upward pressure on consumer heating and electricity bills there.

Several years ago the industry geared up to build several liquefied-natural-gas, or LNG, terminals along the East Coast as the declining cost of liquefying and transporting natural gas from around the world on tankers made the projects more economical. But stiff community opposition threatens most terminal plans, experts say.
As a result, several companies plan to build natural-gas pipelines to bring gas to the region over land from other parts of the country. “We don’t see realistically eastern U.S. LNG facilities being built. It is just really tough to get things constructed from an environmental and permitting standpoint,” says Martha Wyrsch, president of Duke Energy Gas Transmission, a unit of Duke Energy Corp. It announced earlier this month that it would partner with CenterPoint Energy Inc. to build a 1,600-mile gas pipeline from Texas to Pennsylvania. The companies haven’t disclosed how much the pipelines would cost.

Earlier this year, Kinder Morgan Energy Partners LP and Sempra Energy said they were teaming up to build a $4 billion, 1,300-mile gas pipeline from the Rockies to Ohio. Combined, the new pipelines should deliver as much as 3.5 billion cubic feet a day into the East Coast market by 2009.

Neither pipeline project would be moving ahead unless the companies felt confident the less-expensive, brand-new LNG terminals wouldn’t be there to compete, said Bernard J. Picchi, energy research director at Foresight Research Solutions LLC. Building a pipeline to bring gas into the Northeast is considerably more expensive than an LNG terminal, he said.

That higher cost would be passed along to consumers. Mr. Picchi says the pipeline gas will likely cost $1 to $1.75 per million British thermal units more than LNG. East Coast consumers will likely feel this inflation: More than half heat their homes with gas and about one-third of their electricity is powered by gas.

Operators of the proposed LNG terminals say they aren’t giving up yet, and say that pipeline construction faces its own share of risks. “Any major energy infrastructure project is going to have a challenge to be built, no matter whether it is an LNG terminal or a pipeline,” says John Hritcko Jr., regional project manager for Broadwater Energy, a joint venture between Royal Dutch Shell PLC and TransCanada Corp. that is trying to build an LNG terminal in the Long Island Sound. State and federal permits for the project are pending.

Some LNG terminal construction is moving forward. The three existing LNG terminals on the East Coast are being expanded. Several new terminals are under construction along the Gulf Coast and in Mexico. And there still is a chance that an LNG terminal could be built on Canada’s eastern coast. The proliferation of terminals along the Gulf Coast will likely keep nearby natural-gas prices there among the lowest in the nation.

But plans for multiple new East Coast terminals, delivering gas directly to consumers, have largely fallen by the wayside. Industry observers say the new pipelines are a death knell. “The die has been cast for the East Coast,” says Ira Joseph, LNG analyst with PIRA Energy.

“Consumers in the Northeast would benefit from siting LNG terminals in the area, but I don’t see those being sited and constructed in the near future,” says Donald Mason, an Ohio Public Utility Commissioner and chairman of the National Association of Regulatory Utility Commissioners’ gas committee. “The pipeline projects can move forward in a more costly but more timely manner,” he says.

Write to Russell Gold at [email protected]


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