Calif LNG News Service: LNG world has turned upside down, and North America will EXPORT "surplus" nat gas

[Hans Laetz, Newsgroup Editor]

News Analysis by HANS LAETZ
California LNG News Service

News item: the world's largest LNG importer, Korea Gas Corporation,
today announced it will buy 40 percent of capacity at Canada's
proposed Kitimat LNG export terminal. KOGAS will buy 2 million tons of
Kitimat gas annually for 20 years, a deal worth more than $20 billion.

This was unthinkable two years ago, when multinational energy
companies were all slavering over the thought of importing vast
amounts on liquefied natural gas from Australia and Siberia into the
rich west coast markets of North America.

Now, the Canadians have found Asian investors to reverse the flow,
from their newly-discovered domestic gas fields, and actually ship LNG
west, from British Columbia to Korea and other Asian ports. That's
right: export natural gas from the network of pipelines that feed
electric generating stations and kitchen stoves across the continent,
from British Columbia to Florida, from Ensenada to the Bronx.

Remember how "North America was facing a critical shortage of natural
gas," as BHP Billiton said in Oxnard? Remember the California Energy
Commission report predicting new blackouts unless California opened
its golden shores to LNG terminals, at whatever cost (written, as I
recall, by a guy who quit to go to work for an LNG wannabe)?

That is -so- 2005. Get with the times!

Our good friends at Halliburton have invented a new method to drill
for natural gas that has unlocked unbelievable amounts of natural gas
from shale formations deep below the United States and Canada.
According to a Penn State petrochemist who testified before the
California Energy Commission last month, the new technology has
created a 118-year-supply of U.S. natural gas, just from one state:
Pennsylvania. And Oklahoma/Texas has a field of its own that is nearly
as large.

As a result of the Halliburton technology leap, called "horizontal
fracture drilling," the three largest known natural gas reserves in
the world now stack up as:
(1) Qatar.
(2) Siberia.
(3) Pennsylvania.
North America is swimming in so much natural gas that traditional,
profitable "vertical" drilling rigs are being mothballed. And do not
believe the so-called "rig count" that shows the North American gas
drilling business shutting down -- those only count old-fashioned
vertical rigs, not the high-tech horizontal rigs that are breaking
loose all the new nat gas supplies.

Meanwhile, Russia's Gazprom is pushing ahead with plans to import huge
amounts of gas to California and Baja California through its new
Ensenada LNG facilities that it extorted from Shell. "Our goal is to
be a major trading company in North America," says Gazprom's North
American president (see prior post). "Our vision is clear. When our
LNG does come to North America, we will have a huge supply position.

So why is this happening? The worldwide depression has driven U.S.
natural gas prices down, hard. While the price of oil has begun
recovering, nat gas is still heading down, down, down. The world is
swimming in LNG. Storage areas are brimming. U.S. nat gas supplies are
bountiful and cheap.

Thus, it makes business sense, based on what has been discovered in
the last two years, to reverse engineer that planned Canadian LNG
import plant and make it instead an LNG export plant. Who knew?

But at the same time, Russia has announced that it will commence
shipping massive amounts of liquefied natural gas to the United
States, via the LNG terminal that Sempra built in Baja California to
avoid U.S. environmental rules. By Christmas, the lights of San Diego
and cookies baked in Los Angeles will be fired by natural gas that is
Made in Russia.

Why is this profitable?

Simple: the government-owned oil company in Russia needs to dump huge
amounts of LNG that it produces in Siberia. Becaused of the local
geology there, Gazprom is forced to extract natural gas next to its
new oil wells off Siberia. And by using huge amounts of energy to
compress that natural gas into LNG, Gazprom is also able to remove
large amounts of other petrochemicals that are, in turn, valuable to
use to "lighten" the high-sulfur oil it is extracting there.

In other words, making vast amounts of LNG at a monetary loss is
simply a byproduct of the process the Russians are using to turn their
"sour" crude into more-valuable "sweet" crude. They have to dump the
LNG somewhere. Why not California?

And, forget the earlier Russian promise to sequester their gigantic
load of carbon dioxide underground in Siberia. Too expensive. Up the
stack it goes.

Meanwhile, back in Korea, KOGAS is not stupid. They see a way to tap
into North America's bountiful new natural gas discoveries, and take
advantage of North America's low, low natural gas prices. Thus, they
are buying 40 percent of the Kitimat LNG export terminal -- which was
until a year ago an import terminal.

For a small investment, the Koreans will get ownership equity and
guaranteed LNG supplies from a port just north of Seattle. Bonus: no
pesky Putin problem in Canada, doncha know?

So, we are very soon going to see fully-loaded LNG tankers steaming
past each other in the mid-Pacific, merrily consuming titanic amounts
of energy as they chug back and forth across the International Date
Line. Maybe they someday will also be able to toot their horns at
tankers full of Sarah Palin's LNG steaming down to Ensenada, or Chile,
or whereever, from the gasification plant that Alaskans seem hellbent
on constructing.

How will this burning of natural gas to make LNG affect the planet? As
much as 25 percent of the energy produced in this commerce will be
consumed in the liquefication, transportation, gasification, etc. What
will the carbon footprint of this be?

For an answer, turn to Woodside and BHP Billiton, which are madly
trying to evade having to pay a carbon tax down in Australia. They
know that creating LNG by cramming natural gas into giant compressors
to freeze it takes enormous amounts of energy, and creates enormous
amounts of carbon pollution.

This Transpacific heaving of LNG cargoes back and forth across the
vast ocean makes all kinds of commercial and political sense. Everyone
makes money, California and Korea get a new source of imported
hydrocarbons, Vladimir Putin gets his hands on an energy tap in San
Diego. Win, win, win.

Except the atmosphere. Huge amounts of energy burned, vast amounts of
CO2 wafting into the atmosphere.

NEXT COLUMN : How the world's largest natural gas trading company --
headquartered in sunny San Diego but populated by former Enron experts
in Houston -- spent billions betting on the wrong horse.