CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

Liquefied Natural Gas Briefing

for California Manufacturers

and Technology Association

Commissioner James BoydJuly 29, 2004

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

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Why the interest lately in liquefied natural gas?

Canadian and Lower 48 states’ gas production is declining. Wellhead prices are rising.

The U.S. is relying more on natural gas for cleaner power generation.

Seasonal gas prices are volatile due to tight supply and pipes.

LNG production and delivery costs have declined.

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

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The United States consumes 25 percent of the world’s

natural gas.

• 22,534 billion cubic feet in 2002• 15% of supplies are imported• LNG imports to U.S. doubled from

2002 and 2003: 229 → 506 Bcf

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

4 Gas Consumption

by California Manufacturers

Top five gas-consuming industries:

• Petroleum refining (41%)

• Food processing (19%)

• Stone, clay, glass, concrete (9%)

• Paper (5%)

• Primary metal (5%)

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

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Why the interest in LNG in California?

Average daily demand: 6 Bcf– Manufacturers (36%) – Electricity generators (35%)

85% of natural gas supply is imported.

Competes with interstate-pipeline-sharing states for the lowest-cost gas supplies.

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

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Why the interest in LNG in California?

LNG terminals would give California

a seat at the table to import gas from a diversity of Pacific Rim sources.

LNG imports could foster price competition, leading to lower prices.

LNG storage helps meet peak demand.

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

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The Top 20 Countries with Natural Gas Reserves

(in Trillion Cubic Feet) Russia 1,695

Iran 929

Qatar 400

Saudi Arabia 214United Arab Emirates 204United States 177Algeria 156

Venezuela 148 Indonesia

147Nigeria 125

Iraq 113Malaysia 82

Canada 62Netherlands 58

Kuwait 57Egypt 51Libya 46Australia 44China 42

Norway 42

Red = Pacific Rim Suppliers

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

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The LNG Industry

• Approximately 30 years old

• Atlantic Basin buyers: – Belgium, France, Greece, Italy, Portugal,

Spain, Turkey, and the United States

• Pacific Rim buyers: – Japan, South Korea, and Taiwan

• 40 receiving terminals, 17 liquefaction plants

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

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Prices for LNG in the U.S.

($ per Million Btus, 2003)

Under long-term contracts: Range: $3.36 to $5.37 Weighted average: $4.55

Under short-term contracts: Range: $3.03 to $7.70 Weighted average: $4.16

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

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Potential LNG Sources for the West Coast

Source Country Distance (One-way, @ 18.5 knot ship speed)

Oman 25 days

Australia 18 days

Malaysia 17 days

Indonesia 16 days

Brunei 16 days

Russia 11 days

Alaska 5 days

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

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California’s LNG Policies

• 2003 Integrated Energy Policy Report – Encourage LNG facilities in California or

Baja California, Mexico

– Ensure new facilities protect the environment and public safety

– Coordinate permit reviews and address local concerns

• Energy Action Plan– Evaluate new supply options, such as LNG imports

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

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Is LNG a near-term supply source for the West Coast?

Earliest estimate ~ 2006 Process could take ~ 4 to 7 years

Select Site

EnvironmentalReview and

PublicHearings

Apply forPermits

PassInspection

Finance andConstruct

Facility

Obtain Permitsand Approvals

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

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Proposed LNG projects underconsideration for California

Name Location Status

Long Beach LNG Facility

Sound Energy SolutionsPort of Long Beach

Joint EIS/EIR by FERC and Port of Long Beach.

Cabrillo Deepwater Port BHP Billiton

~12 miles off shore of Ventura County

Joint EIS/EIR by Coast Guard and State Lands

Commission (SLC).

Crystal Clearwater Port

Crystal Energy LLC~11 miles off shore of

Ventura County

Filed application with Coast Guard, SLC, and Marine Mineral Service.

Port PenguinChevronTexaco Offshore Camp Pendelton Announced project.

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

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Proposed LNG projects underconsideration for Baja California

Name Location Status

Terminal GNL Mar Adentro de Baja CA

ChevronTexaco

Offshore, Tijuana Obtaining permits.

Energia Costa Azul

Sempra and Shell

Ensenada Obtaining permits.

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

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Unresolved Issues• Public perception of safety risks

• Jurisdiction re: onshore terminals

• Higher Btu content than state’s gas quality standards

• Jones Act barrier to Alaskan imports

• Who will pay to expand Otay Mesa pipeline to bring in Baja imports: terminal developers or ratepayers?

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

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Some Forums to Resolve Issues

• Safety risk perception: Site-specific EIRs • Dispute re: Federal/State jurisdictional for

onshore terminals: Courts or Congress

• LNG’s economic and pipeline-infrastructure impacts: CPUC’s Long-Term Natural Gas Supply proceeding, Energy Commission’s 2005 IEPR

CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004

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For More Information

Energy Commission’s LNG Website

http://www.energy.ca.gov/lng/index.html

Import terminal project contacts:http://www.energy.ca.gov/lng/documents/

WEST_COAST_LNG_PROJECTS.PDF