Overview
 Natural
gas prices are so high on the East Coast of the United States
(see Figure 1) that consumption per capita is 40% below the national
average. Some 37% of the population lives in the states stretching
from Florida to Maine. They produce two-fifths of the nation's
goods and services, but consume little more than one fifth of
the gas. Instead more polluting fuels such as coal and petroleum
are used more extensively. If the East Coast were to raise their
consumption to the national per-capita average, an additional
four trillion cubic feet (~75 million metric tons) would be used
to replace more polluting fuels such as heating oil and coal.
A number of terminal developers are trying to expand the East
Coast's access to low-cost LNG. Owners of the existing three terminals
have been reopening and expanding their storage and peak send-out
capacities. Tractebel, for example, has expanded the peak send-out
capacity of its Everett, Mass., terminal from 435 to 700 million
cubic feet per day. It reports it has increased by 65% its shipments
of LNG to U.S. terminals during the first half of this year.
 Dominion,
the owner of the terminal at Cove Point, Md., reopened the nation's
largest terminal this year when it received its first cargo in
23 years. The terminal has a peak send-out capacity of a billion
cubic feet daily and can store five times that amount. Dominion
is constructing a fifth tank to provide an additional 2.5 billion
cubic feet of storage capacity. Likewise, Southern LNG is expanding
its peak send-out capacity of its terminal on Elba Island, Ga.,
to 800 million cubic feet per day. Southern is expanding the terminal's
storage capacity by 3.3 billion cubic feet to 7.3 BCF total. All
combined, the daily peak send-out of the three operational terminals
will climb from about 435 million cubic feet in 2000 to 2,500
million cubic by 2005.
Management recognize the key to serving East Coast markets is
the ability to cover peak demand during winter and summer. Weather-sensitive
residential and commercial consumers comprise a larger percentage
of the East Coast market than the rest of the nation (see Figure
2). In some respects, the East Coast resembles South Korea's LNG
market, where terminals store large amounts of LNG during off-peak
months for withdrawal during winter.
 Tractebel
LNG North America, for example, can deliver as much as 35% of
New England's gas supply in peak demand periods, but averages
just 20% of market's gas demand over the course of the year. This
capability to expand delivery volumes for short durations when
prices are high allows Tractebel to serve the market with valuable
"peak-shaving" services, earning a higher return for
the gas (see Figure 3).
Several new types terminals to serve the East Coast are also
proposed. The approaches range from traditional direct shore-based
designs like the ones proposed at Weaver's Cove in Fall River,
Mass.; Tampa Bay, Fla.; and the Irving Canaport in eastern Canada.
 Others
approaches call for locating terminals in neighboring countries,
such as the Bahamas. Tractebel, AES and El Paso have proposed
projects in the Bahamas to pipe gas to Florida. It is uncertain
who will pick up El Paso's initiative, as they have announced
their withdrawal from LNG.
Still others propose to use existing trunk-line networks from
the Gulf of Mexico. Many terminals are proposed onshore and offshore
of the Gulf Coast. Among the developers are ChevronTexaco, Cheniere,
McMoran Exploration, and ExxonMobil. The one existing terminal
at Lake Charles, La., has a natural gas peak send-out capability
of up to 1.2 BCF per day and firm sustained capability of 0.63
BCFD with storage of 6.3 Bcf of natural gas. The Lake Charles
terminal has access to 15 natural gas pipelines and the Henry
Hub.
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| Figure 4 |
New more flexible offshore designs may also serve East Coast
markets. Exmar and Höegh LNG have devised pumping, vaporization
and offloading systems for their LNG carriers. By using these
ships, importers may be able to afford to serve say Massachusetts
in winter and Florida in summer. These systems rely on much smaller
investments in stationary equipment; they will use turret-and-buoy
systems, which cost just one-fifth of traditional shore-based
terminals. The bulk of the investment is tied up in the transport
ship. Consequently, developers can build multiple turret-and-buoy
systems to be served during peak markets. Figure 4 illustrates
that an LNG supplier that could serve Massachussets in winter
and Florida in summer would have earned an additional $0.52 per
MMBtu from January 1990 to 2002 for its gas over a supplier that
was able to serve just one shore-based terminal at either market.
This $0.52 premium would add nearly $100 million per year in revenue
for a 0.5 BCFD terminal, thereby more than paying for the cost
of a turret-and-buoy system in one year.
Objectives of the Conference:
On Dec. 8 through 10, Zeus Development Corporation is hosting
a conference at the Seaport Hotel adjoining the World Trade center
in Boston to examine three questions:
1) How will LNG affect the East Coast market and what is the
elasticity of this market relative to the cost of delivered LNG?
2) What will be the effect of more LNG demand on the supply/demand
balance of the Atlantic, and can LNG become the low-cost market
maker for East Coast gas markets?
3) What are the practicalities of landing more LNG on the East
Coast given local resident concerns over safety, security and
environment, and what are the challenges of integrating LNG into
the East Coast gas distribution system?
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