Liquefying Natural Gas Could Lower Prices

Every winter, natural gas customers wonder about ways to cut their monthly bills. It may seem like no matter how cold they get in their fight against high utility bills, it still stings to open that monthly statement. But gas companies, like Arkansas Western Gas in Fayetteville, are trying to find ways to increase supply, which may keep prices down.

One way is liquefied natural gas. By cooling natural gas to minus 258 degrees Fahrenheit, it turns into a liquid product — LNG. This makes it easier to import from overseas, where natural gas is abundant, said Alan Stewart, executive vice president of Arkansas Western Gas.

“The United States is basically running out of natural gas,” Stewart said. “Supply is not keeping up with demand, and that’s causing high prices. There’s plenty of gas in the Pacific Rim, Indonesia, Australia, even up around Sakhalin Island in Russia, and there’s plenty in the Middle East. The problem is you can’t run a pipeline that far to get here.”

That’s where liquefying natural gas, which can condense 620 cubic feet of gas into 1 cubic foot, makes importing the fossil fuel possible. Gas is taken from the source, cooled down, put into a specialized tanker and shipped across the ocean where it’s pumped into tanks at terminals. The liquid is then heated back up and sent through the pipelines, which run all over the U.S.

The liquefied natural gas industry has been around for 30 years, but when natural gas was deregulated in 1978, prices were low and LNG wasn’t needed. Now, natural gas prices are averaging about $11 per Mcf (thousand cubic feet), which is up from $6 per Mcf last year. That has led to an emergence in LNG products, Stewart said.

If supply is increased, then demand goes down, triggering a decrease in gas prices.

But LNG terminals, which can hold about 1 billion cubic feet of gas, aren’t popping up everywhere. There are four terminals in the United States: Lake Charles, La.; Savannah, Ga.; Cove Point, Md.; and Boston. There are two more new facilities being built in Baja California, Mexico, and El Paso, Texas, along with two more facilities that have permits in Louisiana.

Stewart said more and more proposals have started along the East and West coasts, which is smart.

“What we saw with Hurricane Katrina is that you can’t put all your energy eggs in one basket because a natural disaster can wipe them out,” he said.

But one problem with LNG is the safety concerns. Tom Spicer, chairman of the chemical engineering department at the University of Arkansas, said safety concerns for LNG terminals have kept them from sprouting up.

“The difficulty associated with liquefied natural gas is basically … issues associated with its flammability,” Spicer said. “There the concern is if you lose containment on the material then it can burn, and how big a fire could occur and how far away would you have to be in order to be safe from such a release.”

The other issue, Stewart said, is making it economical for someone to build an LNG terminal. Cost about $8 billion to $10 billion to build one, and for it to be worth the investment, gas would have to be around $3.50 per Mcf. In the 1990s, gas averaged about $2 to $3 per Mcf. Now, it’s well worth the investment, if investors can get through all the regulations.