United States Department of State (Washington, DC)
Charles W. Corey
13 January 2004
Houston, Texas — ChevronTexaco executive discusses intricacies of supplying liquefied natural gas
West Africa is poised to be a key supplier of natural gas to help meet ever-expanding U.S. energy demands, says Bill Hauhe, manager of global liquefied natural gas (LNG) market development at ChevronTexaco.
Speaking at a recent LNG workshop at the second annual Africa Oil and Gas Conference, sponsored by the Corporate Council on Africa in Houston, Texas, Hauhe said the United States is currently importing natural gas from Canada because U.S. demand now outstrips U.S. production. Demand for natural gas in the United States is predicted to increase year after year, he said.
(The United States Department of Energy recently forecast that by 2025, natural gas produced on the North American continent will meet only 75 percent of U.S. demand, thus further fueling the need for greater natural gas imports.)
"In North America the question is not market capacity," Hauhe told his audience. "To us [at ChevronTexaco] that is not the issue. The issue is how do you get LNG into the United States? There are only four LNG receiving terminals in existence right now," he said: Everett, Massachusetts, outside Boston; Cove Point, Maryland; Elba Island, Georgia; and Lake Charles, Louisiana.
"Several others are being proposed," he said, "and for us, we are proposing our own LNG terminal," known as Port Pelican, which ChevronTexaco expects to complete within the decade.
ChevronTexaco's proposed Port Pelican LNG terminal -- which will be located 37 miles offshore in the Gulf of Mexico -- Hauhe said, will utilize existing pipelines and infrastructure to efficiently bring liquefied natural gas into the United States.
"We will be able to bring in ships from the Atlantic Basin, tie them up offshore, offload the ships' LNG supply into storage, regassify it [reconverting it to gas from the liquefied form in which it is shipped], and send it onshore [via pipeline]. For us, we see that as the key issue."
( LNG is natural gas cooled to minus 259 degrees Fahrenheit. The cold temperature shrinks the gas into liquid form so it can be transported aboard double-hulled tankers. The LNG is then regasified and fed into existing natural gas pipelines for distribution.)
Hauhe reminded his audience that ChevronTexaco is Africa's largest U.S.-based private investor, operating in more than 50 countries on the continent. It was ChevronTexaco, he said, that scored the first offshore oil discoveries in both Angola and Nigeria. He said the company plans to invest up to $20 billion on the African continent over the next five years.
Hauhe called LNG production a "catalyst for positive change" across the continent, noting that ChevronTexaco is hoping to export large amounts of LNG from its production operations located offshore of Nigeria and Angola.
Special challenges come with the development of natural gas fields, he said. "The challenge of [developing] gas as opposed to oil is that it usually has to be developed in very large volumes to justify the economics of the long-distance transportation" and infrastructure needed, he explained.
"Unless there is a local indigenous demand for that gas, the gas that is produced must find a market or be reinjected into the ground. The processing and transportation of needed gas to distant markets, he said, "requires vast sums of capital, specialized equipment, infrastructure, and special expertise."
For distances up to about 2,000 kilometers, he said, pipelines are usually the most economical way to move gas to market. For longer distances, such as between West Africa and North America, he said, special double-hulled LNG ships are the preferred option.
The construction of needed LNG infrastructure, Hauhe explained, will allow for the expansion of domestic gas utilization across the North American market.
Hauhe went on to outline what both host governments and investors are expecting to gain from the development of natural gas projects across Africa.
With natural gas, he said, host African governments are expecting to utilize gas revenues to achieve sustainable development. "They want something that is not just going to last for six years and go away. We are talking about decades of development and sustainability for the economy. Also, they want to see ... something done about developing and further enhancing their own energy resources."
From an investor perspective, Hauhe said, ChevronTexaco seeks host governments that will be supportive of LNG projects as they are developed. "These are long-term projects," he reminded everyone, "so we would like to see the governments there standing behind these projects and supporting them."
Acceptable price structures and predictable commercial and financing terms in the host country are also essential to any successful project, he said, because the natural gas price must be competitive worldwide.
Any new project needs to be competitive, he said, adding that market prices for LNG dictate the terms of the deal. "You will basically sell at no higher, no lower than the market -- and that is constantly changing," he said, which poses an "ongoing dynamic" between the buyer and the seller on pricing.
In that regard, he said, "we want to make sure that each individual project is competitive within a portfolio of projects. We want to ensure that each project is robust for the company and partners, including the government if they take an equity stake."
What is also important, he said, is attention to the market. "LNG buyers can never be forgotten. The four key issues are reserves, and market, market, and market. LNG has to have a place to go. It is not a fungible [interchangeable] commodity like oil is yet."
"In the world today, oil can go to any one of hundreds of refineries around the world. You put it in an oil tanker and it can go basically anywhere, and in fact, cargoes are diverted all the time -- bought and sold many times on the water -- and end up anywhere. It is traded on an international market basis... Everybody can pretty much use it."
LNG markets are more limited, however. "There are not that many places where you can deliver LNG" because of the extensive infrastructure required, he said.
Speaking for ChevronTexaco, Hauhe said his company looks for long-term relationships of 20 years or more. He then outlined the challenges for LNG projects, reminding everyone that LNG projects are unique and different from oil projects.
"In oil projects, you develop those operations knowing that you will have a place to put your oil," he said. "In LNG projects, you don't necessarily know that, so you need to develop the commercial arrangements simultaneously with the technical and reserve-type activities so you can effectively develop a project."
(The Washington File is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)
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