Order Code RL32386
CRS Report for Congress
Received through the CRS Web
Liquefied Natural Gas (LNG)
in U.S. Energy Policy:
Issues and Implications
Updated May 24, 2004
Paul W. Parfomak
Specialist in Science and Technology
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

Liquefied Natural Gas (LNG) in U.S. Energy Policy:
Issues and Implications
Summary
Liquefied natural gas (LNG) imports to the United States are increasing to
supplement domestic gas production. Government officials such as the Federal
Reserve Chairman and the Secretary of Energy have spoken in favor of LNG imports
to mitigate high energy prices. Through regulatory and administrative actions,
federal agencies are trying to attract private capital for LNG infrastructure, streamline
the LNG terminal approval process, and promote LNG trade. Were these policies to
continue and gas demand to grow, LNG might account for as much as 20 percent of
US gas supply by 2025, up from 1 per cent in 2002. Congress is examining the
infrastructure and policy implications of greater U.S. LNG demand.
There are concerns about how LNG capacity additions would be integrated into
the nation’s gas infrastructure. Meeting projected U.S. LNG demand would require
six to ten new import terminals in addition to expansion of four existing terminals.
Three new terminals in the Gulf of Mexico are approved, but public opposition has
blocked near-to-market terminals which might save billions of dollars in gas
transportation costs. New LNG terminals can also require more regional pipeline
capacity to transport their supply, although this capacity may not be available in key
markets. Securing LNG infrastructure against accidents and terrorist attacks may
also be a challenge to public agencies. Since import terminals process large volumes
of LNG, a breakdown at any facility has the potential to bottleneck supply.
LNG’s effectiveness in moderating U.S. gas prices will be determined by global
LNG supply, the development of a “spot” market, potential market concentration, and
evolving trading relationships. There appears to be sufficient interest among LNG
exporters to meet global demand projections, although it remains to be seen which
new export projects will be built. An LNG spot market, which may help U. S.
companies import LNG cost-effectively, also appears to be growing. Although some
industry analysts believe the future LNG market may be influenced by a natural gas
cartel, the potential effectiveness of a such a cartel is unclear. Whether exporters
cooperate or not, an integrated global LNG market may change trading and political
relationships. In a global market, individual country energy polices may affect LNG
price and availability worldwide. Trade with LNG exporters perceived as politically
unstable or inhospitable to U.S. interests may raise concerns about supply reliability.
Recent measures before Congress (S. 2095, S. 1637, P.L. 108-199, H.R. 4413)
would affect LNG imports by encouraging domestic gas production and new LNG
terminal construction, although Congress has not been explicit about the desirability
of imported LNG overall. As Congress debates U.S. natural gas policy, three
questions emerge: 1) Is expanding LNG imports the best option for meeting
long-term natural gas demand in the United States? 2) What role, if any, should the
federal government play in facilitating the ongoing development of LNG
infrastructure in the United States and abroad? 3) How might Congress mitigate the
risks of the global LNG trade within the context of national energy policy?
This report will be updated as events warrant.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
What Is LNG? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
U.S. LNG Import Experience and Projections . . . . . . . . . . . . . . . . . . . . . . . . 4
Global LNG Market Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
LNG Safety and Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
LNG Activities of U.S. Federal Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FERC Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Offshore Terminal Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
DOE LNG Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Key Issues in U.S. LNG Import Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Physical Infrastructure Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Terminal Siting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Pipeline Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Safety and Physical Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Supply Bottlenecks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Global LNG Market Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Global LNG Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Spot Market Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Market Concentration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Global Trade and Politics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Appendix: Proposed LNG Import Terminals in North America . . . . . . . . . . . . . 21
List of Figures
Figure 1: LNG Supply Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Figure 2: U.S. Natural Gas Wellhead Price ($/Mcf) . . . . . . . . . . . . . . . . . . . . . . . 4
Figure 3: U.S. Natural Gas Supply Projections 2002-2025 (Tcf) . . . . . . . . . . . . . 5
Figure 4: U.S. Natural Gas Pipeline Flows and Proposed LNG Terminals . . . . . 10
Figure 5: Global LNG Import Market Shares Projected for 2010 . . . . . . . . . . . . 18
List of Tables
Table 1: Global Natural Gas Reserves and LNG Production Capacity . . . . . . . . 16

Liquefied Natural Gas (LNG) in U.S. Energy
Policy: Issues and Implications
Introduction
The United States is considering fundamental changes in its natural gas supply
policy. Faced with rising natural gas demand and perceived limitations in North
American gas production, many in government and industry are encouraging greater
U.S. imports of liquefied natural gas (LNG). Recent activities by the Federal Energy
Regulatory Commission, the Department of Energy, and other federal agencies to
promote greater LNG supplies have included changing regulations, clarifying
regulatory authorities, and streamlining the approval process for new LNG import
terminals. While forecasts vary, many analysts expect LNG to account for 10 to 20
percent of total U.S. gas supply by 2025, up from less than 1 percent in 2002. If
these forecasts are correct, U.S. natural gas consumers will become increasingly
dependent upon LNG imports to supplement North American pipeline gas supplies.
Recent measures before Congress provide seek to encourage both domestic gas
production and new LNG terminal construction. The Energy Policy Act of 2003 (S.
2095) includes various incentives for domestic natural gas producers (Subtitle B),
provides loan guarantees and other incentives for an Alaska gas pipeline (Subtitle D),
and clarifies federal approval authority for LNG terminal expansions (Sec. 320).1
The Consolidated Appropriations Act of 2004 (P.L. 108-199) would seek to amend
the Energy Policy Act, should it be enacted, to create a financial incentive for
constructing an LNG terminal in Alaska for shipments to the lower 48 states (Sec.
146). The Jumpstart Our Business Strength (JOBS) Act (S. 1637 as amended by S.A.
3011) contains the natural gas production tax incentives (Title VIII) originally
included in S. 2095. The Senate passed S. 1637 on May 12, 2004. The authorizing
portion of S. 2095 was unsuccessfully offered as an amendment to the Internet Tax
Non-discrimination Act of 2003 (S. 150).
The Liquefied Natural Gas Import Terminal Development Act (H.R. 4413) was
introduced on May 20, 2004. Among other provisions, H.R. 4413 would clarify that
the federal government has the primary authority to approve LNG terminal siting
(Sec. 2d); would clarify that the Federal Energy Regulatory Commission (FERC) is
the lead agency for onshore LNG terminal environmental review and permitting (Sec.
2g); would codify FERC’s prior rulings exempting LNG terminals from certain rate
regulations and open access requirements (Sec. 2d); and would streamline the
1The House version of the Energy Policy Act of 2003 (H.R. 6, 108th Cong. (2003); as
reported (H.Rept.108-375 (2003)). That version also includes domestic gas production
incentives (Title IIIB), and Alaska gas pipeline incentives (Title IIID).

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onshore terminal siting review process, requiring FERC to issue siting decisions
within one year of receiving an application (Sec. 2e)
While an increase in LNG imports is already underway, federal officials and
Members of Congress are beginning to debate the merits and risks of U.S. LNG
dependency. In 2003 congressional testimony, for example, Federal Reserve
Chairman Alan Greenspan called for “a major expansion of LNG terminal import
capacity” as essential to alleviate the harmful economic effects of high energy prices.2
In April, 2004, Department of Energy Secretary Spencer Abraham testified before
Congress that “increasing U.S. access to [LNG] imports...will help produce the fuels
we need in the 21st Century.”3 Some in Congress question such a policy, drawing
analogies to the consequences of U.S. dependency on foreign oil.4 Other observers
express concern about LNG safety hazards and vulnerability to terrorism.5
Specific questions are emerging about the implications of greater LNG imports
to the United States. LNG has substantial physical infrastructure requirements and
there are uncertainties about how this infrastructure would be integrated into North
America’s existing gas network. The potential effects of larger LNG imports on U.S.
natural gas prices will be driven by the global LNG market structure, although that
market structure is still evolving. Political relationships among countries in the LNG
trade may also change as LNG becomes increasingly important to their economies.
This report will review the status of U.S. LNG imports, including projections
of future U.S. LNG demand within the growing international LNG market. The
report will summarize recent policy activities related to LNG among U.S. federal
agencies, as well as private sector plans for LNG infrastructure development. The
report also will introduce key policy considerations in LNG infrastructure and market
structure, highlighting current market information and key uncertainties. Finally, the
report will identify key questions in LNG import policy development.
Background
Natural gas is widely used in the United States for heating, electricity
generation, industrial processes, and other applications. In 2002, U.S. natural gas
consumption was 22.8 trillion cubic feet (Tcf), accounting for 24% of total U.S.
energy consumption.6 Until recently, nearly all U.S. natural gas was supplied from
2Greenspan, A., Chairman, U.S. Federal Reserve Board. “Natural Gas Supply and Demand
Issues.” Testimony before the House Energy and Commerce Committee. June 10, 2003.
3Abraham, Spencer, U.S. Energy Secretary. Testimony to the House Committee on Energy
and Commerce Hearing on Department of Energy FY 2005 Budget Priorities. Apr. 1, 2004.
4Hearing of the Senate Energy and Natural Resources Committee on the Energy Information
Administration’s Annual Energy Outlook 2004. Mar. 4, 2004.
5Resnick-Ault, J. and Reynolds, M. “New England Officials Voice Concerns over Liquefied
Natural Gas Facilities.” Providence Journal. Mar. 29, 2004.
6Energy Information Administration (EIA). Annual Energy Outlook 2004. DOE/EIA-
(continued...)


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North American wells and transported through the continent’s vast pipeline network
to regional markets. In 2003, however, due to constraints in North American natural
gas production, the United States sharply increased imports of natural gas from
overseas in the form of liquefied natural gas (LNG). While absolute levels remain
small today, growth in LNG imports to the United States is expected by many
analysts to accelerate over the next 20 years, reflecting growing domestic demand
and expectations for a global expansion in LNG trade.
What Is LNG?
When natural gas is cooled to temperatures below minus 260°F it condenses
into liquefied natural gas, or “LNG.” As a liquid, natural gas occupies only 1/600th
the volume of its gaseous state, so it is stored more effectively in a limited space and
is more readily transported by tanker ship. A typical tanker, for example, can carry
138,000 cubic meters of LNG — enough to supply the daily energy needs of over 10
million homes.7 When LNG is warmed, it “regasifies” and can be used for the same
purposes as conventional natural gas.
The physical infrastructure of LNG includes several interconnected elements as
illustrated in Figure 1. In producing countries, natural gas is extracted from gas
fields and transported by pipeline to central liquefaction plants where it is converted
to LNG and stored. Liquefaction plants are built at marine terminals so the LNG can
be loaded onto special tanker ships for transport overseas. Tankers deliver their LNG
cargo to import terminals in other countries where the LNG can again be stored or
regasified and injected into pipeline systems for delivery to end users.
This LNG infrastructure requires large capital investments. In addition to gas
field development costs, a new liquefaction plant costs approximately $2-3 billion,
and an import terminal costs $500 million to $1 billion. Each LNG tanker costs
$150-$200 million.8
Figure 1: LNG Supply Chain
Source: Oil & Gas Journal. Nov. 10, 2003. p64.
6(...continued)
0383(2004). Table A1. Jan. 2004. p133.
7Energy Information Administration (EIA). The Global Liquefied Natural Gas Market:
Status & Outlook.
DOE/EIA-0637. Dec. 2003. p30.
8Clark, Judy. “CERA: Natural Gas Poised to Overtake Oil Use by 2025.” Oil & Gas Journal.
Mar. 1, 2004. p22.

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Due to the high capital costs of LNG infrastructure, LNG trade has traditionally
relied upon long-term fuel purchase agreements in order to secure project financing
for the entire supply chain. Of approximately 160 major LNG supply contracts
currently in force around the world, well over 90% have a contract term of 15 years
or longer.9 While these contracts have increasingly incorporated some flexibility by
accommodating extra LNG deliveries, for example, or allowing shipments to be
diverted, they have only allowed for a limited supply-demand response compared to
other global commodities markets.
U.S. LNG Import Experience and Projections
The United States has used LNG commercially since the1940s. Initially, LNG
facilities stored domestically produced natural gas to supplement pipeline supplies
during times of high gas demand. In the 1970’s LNG imports began to supplement
domestic gas production. Between 1971 and 1981, developers built four U.S. import
terminals: in Massachusetts, Maryland, Georgia, and Louisiana.10 Due primarily to
a drop in domestic gas prices, however, two of these terminals quickly closed.
Imports to the other two terminals remained small for the next 30 years. In 2002,
U.S. LNG imports were only 0.17 Tcf, less than 1% of U.S. natural gas supply.11
Figure 2: U.S. Natural Gas Wellhead Price ($/Mcf)
$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Source: Energy Information Administration. Natural Gas Weekly Update. Apr. 29, 2004.
United States demand for LNG has been increasing dramatically since 2002.
This growth in LNG demand has been occurring in part because North American
natural gas production appears to have plateaued, so it has not been able to keep pace
with growth in demand. As a result, U.S. natural gas prices have become higher and
more volatile. As Figure 2 shows, gas prices at the wellhead have risen from
between $1.50 and $2.50/Mcf through most of the 1990s to an average of nearly
$5.00/Mcf and a peak of nearly $7.00/Mcf in 2003.12 At the same time, international
prices for LNG have fallen because of increased supplies and lower production and
9“LNG Contracts.” LNG OneWorld Web site. [http://www.lngoneworld.com] Drewry
Shipping Consultants. London, England. Mar. 9, 2004.
10An LNG terminal was also built at Kenai, Alaska in 1969 for exports to Japan.
11EIA. DOE/EIA-0383(2004). Table 14. Jan. 2004. p50. Tcf = trillion cubic feet.
12Mcf = thousand cubic feet


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transportation costs, making LNG more competitive with domestic natural gas.13
While cost estimation is speculative, some industry analysts believe that LNG can be
economically delivered to U.S. pipelines for approximately $2.50 to $3.50/Mcf.14
Recent forecasts by the Energy Information Administration (EIA), National
Petroleum Council, and other groups project expansion in U.S. LNG imports over the
next 20 years. Specific LNG forecasts vary based on methodology and market
assumptions, but most expect LNG to account for 12% to 20% of U.S. natural gas
supplies by 2025.15 EIA’s reference forecast projects U.S. LNG imports to reach 4.8
Tcf in 2025, which equates to approximately 15% of total U.S. gas supply for that
year, up substantially from the current market share of about 1%.16 Figure 3 details
projected U.S. LNG imports relative to other natural gas supplies in EIA’s forecast.
Figure 3: U.S. Natural Gas Supply Projections 2002-2025 (Tcf)
Source: Energy Information Administration. Annual Energy Outlook 2004. Jan. 2004. p39.
Global LNG Market Development
Projections of accelerated growth in U.S. LNG demand reflect a general
expansion in the global natural gas market. According to the EIA’s most recent
international forecast “natural gas is expected to be the fastest growing component
of world primary energy consumption.”17 EIA projects global natural gas demand to
rise by an average 2.2 percent annually for the next 20 years, with “the most robust
growth... among the nations of the developing world,” much of it to fuel electricity
13Sen, Colleen Taylor. “LNG Poised to Consolidate its Place in Global Trade.” Oil & Gas
Journal
. Jun. 23, 2003. p73.
14Hughes, Peter. “Outlook for Global Gas Natural Markets.” BP, Gas Power & Renewables
Division. Presentation to the World Bank Energy Week 2004 Conference. Mar. 8, 2004.
15For a comparison of major forecasts see: EIA. Annual Energy Outlook 2004. DOE/EIA-
0383(2004). Table 31. Jan. 2004. p112.
16EIA. DOE/EIA-0383(2004). Table 14. Jan. 2004. p50.
17Energy Information Administration (EIA). International Energy Outlook 2004.
DOE/EIA-0484(2004). Apr. 2004. p47.

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generation.18 A significant part of this global gas demand growth is expected to be
met by new supplies of LNG. Long-term projections of global LNG growth vary, but
most major energy companies and industry analysts expect global LNG demand to
roughly triple during this period, from 5.4 Tcf in 2002, to 15 Tcf or more in 2020.19
According to EIA projections, 15 Tcf would account for approximately 10% of
global natural gas consumption in 2020.20
LNG Safety and Security
Natural gas is combustible, so an uncontrolled release of LNG poses a hazard
of fire or, in confined spaces, explosion. LNG also poses hazards because it is so
cold. Because LNG tankers and terminals are highly visible and easily identified,
they may also be vulnerable to terrorist attack. Assessing the potential risk from
LNG releases is controversial. A 1944 accident at one of the nation’s first LNG
facilities, for example, killed 128 people and initiated public fears about LNG
hazards which persist today.21 But technology improvements and standards since the
1940’s appear to have made LNG facilities safer. Between 1944 and 2004, LNG
terminals experienced approximately 13 serious accidents, with two fatalities,
directly caused by LNG.22 Since international LNG shipping began in 1959, LNG
tankers have carried over 33,000 cargoes without a serious accident at sea or in port.23
In January 2004, however, a fire at an LNG processing facility in Algeria killed an
estimated 27 workers and injured 74 others.24 The Algeria accident has raised new
questions about LNG facility safety.
LNG Activities of U.S. Federal Agencies
The Federal Energy Regulatory Commission and the Department of Energy
have been actively promoting increased LNG imports. Through regulatory and
18DOE/EIA-0484(2004). Apr. 2004. p47.
19See, for example, the following forecasts for 2020: ExxonMobil. 2003 Financial &
Operating Review
. Irving, TX. Mar. 15 2004. p5. [20.1 Tcf]; Brinded, M., Royal
Dutch/Shell. “Shared Trust - The Key to Secure LNG Supplies.” Speech to the U.S. LNG
Summit. Washington, DC, Dec. 17, 2003 [25 Tcf]; Cornot-Gandolphe, Sylvie et al.,
International Energy Agency/Cedigaz. “The Challenges of Further Cost Reductions for
New Supply Options.” Presentation to the 22nd World Gas Conf. Tokyo, Japan. Jun. 1-5,
2003 [13-15 Tcf].
20DOE/EIA-0484(2004). Apr. 2004. p47.
21Bureau of Mines (BOM). Report on the Investigation of the Fire at the Liquefaction,
Storage, and Regasification Plant of the East Ohio Gas Co., Cleveland, Ohio, October 20,
1944.
February, 1946.
22CH-IV International. Safety History of International LNG Operations, Revision 2. TD-
02109. Millersville, MD. November, 2002. p6-12.
23Delano, Fisoye et al. “Introduction to LNG.” University of Houston Law Center, Institute
for Energy, Law and Enterprise. Houston, TX. January, 2003. p23.
24Junnola, Jill et al. “Fatal Explosion Rocks Algeria’s Skikda LNG Complex.” Oil Daily.
Jan. 21, 2004. p6.

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administrative actions, these agencies have tried to foster LNG capital investment,
streamline the LNG terminal approval process, and promote global LNG trade.
FERC Regulations. The Federal Energy Regulatory Commission (FERC)
grants federal approval for the siting of new onshore LNG facilities and interstate gas
pipelines, and also regulates prices for interstate gas transmission.25 In December,
2002, the FERC exempted LNG import terminals from rate regulation and open
access requirements. This regulatory action allowed import terminal owners to set
market-based rates for terminal services, and allowed terminal developers to secure
proprietary terminal access for corporate affiliates with investments in LNG supply.26
These regulatory changes greatly reduced investment uncertainty for potential LNG
developers, and assured access to their own terminals.27 In February 2004, FERC
streamlined the LNG siting approval process through an agreement with the Coast
Guard (USCG) and the Department of Transportation (DOT) to coordinate review
of LNG terminal safety and security. The agreement “stipulates that the agencies
identify issues early and quickly resolve them.”28
Between 1999 and 2003, FERC approved the reactivation of the two U.S. LNG
terminals idled since1980. FERC subsequently approved the expansion of all four
existing U.S. import terminals. In September, 2003, FERC approved the Cameron
LNG project, the first new LNG import terminal to be sited in the continental United
States in over 25 years.29 These approvals could increase total U.S. LNG import
capacity to approximately 2.5 Tcf per year. In 2004, FERC approved the
construction of two new gas pipelines connecting Florida to proposed LNG import
terminals in the Bahamas.30 In March, 2004, FERC asserted exclusive regulatory
authority for LNG import terminal siting and construction in the face of the
California Public Utilities Commission’s claim of jurisdiction over a proposed LNG
terminal at Long Beach. Litigation may ensue. FERC also announced a new branch
devoted to LNG within its Office of Energy Projects.31
Offshore Terminal Regulations. In November, 2002, Congress passed the
Maritime Transportation Security Act of 2002 (P.L. 107-295), which transferred
jurisdiction for offshore LNG terminal siting approval from the FERC to the
25 Natural Gas Act of 1938 (NGA), June 21, 1938, ch. 556, 52 Stat. 812, (codified as
amended at 15 U.S.C. §§ 717 et seq).
26Under open access, terminal owners were required to offer terminal services on a first
come, first served basis, and could not discriminate against service requests to protect their
own market activities.
27Vallee, James E. “FERC Hackberry Decision Will Spur More U.S. LNG Terminal
Development.” Oil & Gas Journal. Nov. 10, 2003. p64.
28Federal Energy Regulatory Commission (FERC). Press release. R-04-3. Feb.11, 2004.
29Eckert, Toby. “Sempra Gets Final OK for Louisiana Gas Import Facility.” Copley News
Service. Sep. 10, 2003.
30“Cheyenne Plains, Tractebel’s Calypso Pipelines Get Green Light.” Natural Gas
Intelligence
. Mar. 24, 2004.
31Lorenzetti, M. “LNG Rules.” Oil & Gas Journal. Apr.5, 2004. p32.

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Maritime Administration (MARAD) and the U.S. Coast Guard (USCG). According
to the Department of Energy (DOE), the Act
... streamlined the permitting process and relaxed regulatory requirements.
Owners of offshore LNG terminals are allowed proprietary access to their own
terminal capacity, removing what had once been a major stumbling block for
potential developers of new LNG facilities.... The streamlined application
process ... promises a decision within 365 days....32
The proprietary access provisions for offshore terminals are similar to those set by
FERC for onshore terminals to ensure equal treatment for both kinds of facilities. In
November, 2003, the MARAD and USCG approved the Port Pelican project, the first
offshore LNG terminal ever to be sited in U.S. waters. In January, 2004, the agencies
also approved Energy Bridge, a second offshore LNG project.33 Both terminals
would be located in the Gulf of Mexico. Their combined annual capacity would be
approximately 0.8 Tcf.
DOE LNG Summit. In December 2003, the Department of Energy (DOE)
hosted an LNG Summit attended by energy ministers from 24 countries as well as
senior executives from multinational energy and infrastructure companies.
According to the welcome address by Secretary Spencer Abraham, the conference
was intended as a call “to get new [LNG] terminals up and running, to develop new
[gas] fields around the globe, and to come together in partnership on mutually
beneficial, long-term agreements.”34 The Secretary also asked federal agencies to
“speed up the siting and permitting process for regasification and related facilities.”35
Key Issues in U.S. LNG Import Policy
Federal actions have been facilitating greater U.S. LNG imports, and the private
sector is responding with plans for new LNG facilities. Nonetheless, important
concerns are emerging about the infrastructure requirements of LNG, the future
structure of global LNG trade, and the relationship between the United States and
other participants in the LNG market.
Physical Infrastructure Requirements
To meet U.S. LNG imports of 4.8 Tcf in 2025 as projected by the EIA would
require significant additions to North American import terminal capacity. Along
with planned expansions at the four existing terminals, six to ten new import
32EIA. DOE/EIA-0383(2004). Jan. 2004. p15.
33Marron, Jessica. “LNG Advances Offshore as Companies Eye Deepwater Terminal
Development.” Inside F.E.R.C.’s Gas Market Report. Jan. 30, 2004. p1.
34Abraham, Spencer. U.S. Secretary of Energy. Welcoming remarks at the LNG Ministerial
Summit. Mayflower Hotel. Washington, DC. Dec. 17, 2003.
35Abraham, Spencer. U.S. Secretary of Energy. Keynote address at the LNG Ministerial
Summit. Mayflower Hotel. Washington, DC. Dec. 18, 2003.

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terminals would be needed. LNG developers have proposed over 40 new terminals
with a combined annual import capacity exceeding 10 Tcf — far more capacity than
would likely be needed the meet the projections (Appendix).36 These developers
include major multi-national corporations with both the financial resources and the
project experience to develop such facilities. At issue is where these terminals would
be constructed, how they would be integrated into the nation’s existing gas
infrastructure, and how they might be secured against accident or terrorist attack.
Terminal Siting. Choosing acceptable sites for new LNG terminals has
proven controversial. As noted earlier, federal agencies have approved the siting of
three new terminals in the Gulf of Mexico as well as two new Florida pipelines for
proposed terminals in the Bahamas. But many developers have sought to build
terminals nearer to major consuming markets in California and the Northeast (Figure
4)
. Near-to-market terminal proposals have struggled for approval due to community
concerns about LNG safety, effects on local commerce, and other potential negative
impacts. LNG terminal opposition is not unlike that experienced by some other types
of industrial and utility facilities. Due to local community opposition, LNG
developers have already withdrawn several terminal projects recently proposed in
California, Maine, North Carolina, Florida, and Mexico. In Alabama, a state
assumed by many to be more friendly to LNG development, community groups have
effectively blocked at least two onshore terminal proposals and have called for LNG
import terminals to be built only offshore.37
In some cases state and federal agencies are at odds over LNG terminal siting
approval. For example, the California Public Utilities Commission (CPUC) has
rejected FERC’s assertion of sole jurisdiction over the siting of an LNG terminal in
Long Beach. The CPUC has opened an investigation into the terminal proposal, has
ordered the developer to apply for a separate siting approval from the state, and is
challenging FERC’s assertion that it can preempt state jurisdiction over the
proposal.38 In a similar dispute, the Governor of Alabama has said he intends to
block the development of an onshore LNG terminal in Mobile Bay without “an
adequate independent, individualized, site specific safety study” apart from safety
studies required from FERC under federal siting regulation.39 In Rhode Island, a
state representative introduced legislation which would have banned LNG tankers
from passing through the Sakonnet River, preventing them from serving proposed
LNG terminals at Fall River and Somerset, MA.40
36This figure Includes several proposed terminals in Canada, Mexico and the Bahamas.
37Editorial Board. “Move ExxonMobil’s LNG Plant Offshore.” Mobile Register. Nov. 30,
2003.
38Schmollinger, C. “Aggressive FERC Tangles With States on Jurisdiction Issues.” Natural
Gas Week.
May 7, 2004.
39Raines, B. “Gov. Riley Demands Studies Before LNG.” Mobile Register. Jan. 15, 2004.
40O’Driscoll, M. “LNG: Safety Debate Intensifies, R.I. Law Could Block Mass. Shipments.”
Greenwire. Mar. 29, 2004.



CRS-10
Figure 4: U.S. Natural Gas Pipeline Flows and Proposed LNG Terminals
43
42
26
41
40
29
38 30
1
11
34
33
21
25
24
35
4
14
16
39
15
# Existing
x
49
# App
Ap rov
r
ed
ov
3
47
# Propos
Pr
ed
opos
48
32
# Cancell
Canc
e
ell d
48
27
19 31
2
50
6
50
10 13 17
13
20 9
18
36
8
12
7
12 23
37
23
22
44
22
28
46
28
45
5
Note: Terminal numbers refer to tables in the Appendix.
Sources: Energy Information Administration, FERC, Trade Press

CRS-11
Developers have proposed terminals near consuming markets to avoid pipeline
bottlenecks and to minimize transportation costs. In 2003, for example, LNG
deliveries to the Cove Point terminal for the local Maryland market were priced well
below conventional gas supplies transported by pipeline from the Gulf of Mexico.41
If new terminals are built far from key consumer markets, delivered gas might cost
more than if LNG terminals were built locally.
Local opposition for LNG terminals may be strong in the Northeast, which has
a constrained gas transmission infrastructure. Northeast gas prices are higher than
in other parts of the country. In Maine, for example, the average wholesale price of
gas delivered between 2000 and 2002 was $6.29/Mcf, compared to $4.74/Mcf in
Louisiana.42 Were the same price differential to hold in the future, Maine consumers
would have to pay $1.55/Mcf, or 33 percent, more for LNG delivered to Louisiana
rather than the Maine coast. Many factors like weather and pipeline tariffs could
significantly change relative prices. Nonetheless, if recent regional pricing patterns
persist, displacing a handful of proposed LNG terminals from consumer markets to
the Gulf of Mexico could cost regional gas consumers billions of dollars in extra
pipeline transportation charges. On the other hand, siting new terminals in more
receptive locations could help bring them into service more quickly, and could still
exert downward pressure on gas prices while alleviating community safety concerns.
Pipeline Infrastructure. LNG supplies to the United States have been such
a small share of the total market that they have had little discernible influence on the
development of North America’s gas pipeline network. If projections of U.S. LNG
growth prove correct, however, LNG terminals may have more impact on pipeline
infrastructure in the future. As additional LNG import capacity is approved, how
new terminals will be physically integrated into the existing pipeline network
becomes a consideration.
LNG terminals may affect pipeline infrastructure in two ways. First, new
terminals and terminal expansions must be connected to the interstate pipeline
network through sufficient “takeaway” pipeline capacity to handle the large volumes
of imported natural gas. Depending upon the size, location and proximity of a new
terminal to existing pipelines, ensuring adequate takeaway capacity may require
substantial new pipeline construction. For example, the owner of the Lake Charles,
LA terminal intends to build a 230-mile pipeline to transport additional gas volume
from the terminal’s planned expansion.43 The owner of the Everett, MA terminal has
predicted that, without significant new pipeline investments, the terminal’s
production capacity could exceed takeaway capacity by 10 times or more in the next
41Jowdy, M. and Haywood, T. “LNG Imports Undermine Premiums Near US Terminals.”
World Gas Intelligence. Nov. 25, 2003.
42Energy Information Administration (EIA). “Natural Gas City Gate Price.” Web site data
series. [http://tonto.eia.doe.gov/dnav/ng/ng_sum_lsum_pg1_a_s.htm]. Viewed Mar. 16,
2004.
43Gray, Tony. “US Terminal Capacity Expansion Sees BG Penetrate Atlantic Basin Further.”
Lloyd’s List. Feb. 4, 2004. p3.

CRS-12
decade due to pipeline demand growth in New England.44 The availability of
pipeline capacity directly affects pipeline transportation costs, so it is an important
consideration in evaluating the economics of LNG versus traditional pipeline
supplies in specific markets.
Second, if gas imported as LNG cannot move freely through interstate pipeline
systems, consumers may not realize the lower prices that result from additional gas
availability. One industry observer remarked, “without more infrastructure, gas may
face the kind of glut plaguing the electric utility industry, with too much generating
capacity and too few connections.”45 For this reason, some LNG developers advocate
building LNG terminals in traditional gas producing regions, where pipeline nodes
are located. According to one industry executive, “it doesn’t make a lot of sense to
build a terminal and then have to build a huge pipeline.”46 Others argue that the most
costly constraints in the gas pipeline network are at the ends of the pipelines, not the
beginnings. Gas is expensive in Boston, for example, because there are few pipelines
supplying the region — a transportation constraint that would not be alleviated by
pumping more gas into pipelines in the Gulf of Mexico. It is not clear, therefore,
whether adding LNG supplies to traditional producing regions would be less costly
for consumers than building in-market terminals and adding to regional pipeline
capacity.
In addition to requiring sufficient takeaway capacity, LNG terminals likely will
also influence pipeline network flows. As Figure 4 shows, major U.S. pipeline
systems were designed primarily to move gas from traditional producing regions
(e.g., Gulf Coast, Appalachia, Western Canada) to consuming regions (e.g,
Northeast, Midwest). If most new LNG capacity is built in the Gulf of Mexico, then
traditional gas flows would be maintained. If a number of new terminals are built in
consuming regions, however, they may change historical gas transportation patterns,
potentially displacing traditional production and changing infrastructure constraints.
Among other potential impacts, some analysts have suggested that new LNG
terminals will result in “less market leverage and probably lower cash flows” for
some existing pipelines because new LNG supplies may be able to reach consumer
markets by alternate routes.47 It is a complex problem predicting the overall effects
of long term changes in gas flows, although such changes may have important
implications for current pipeline utilization and for future pipeline investments.
Safety and Physical Security. To protect the public from an LNG accident
or terrorist attack, the federal government imposes numerous safety and security
requirements on LNG infrastructure. The nature and level of risk associated with
LNG is the subject of ongoing debate among industry, government agencies,
44“LNG Expansion Requires Adequate Takeaway Capacity and Market Integration.” Foster
Natural Gas Report
. Feb. 5, 2004. p15.
45Foster Natural Gas Report. Feb. 5, 2004. p15
46“For Sponsors, Stake in Supply is Key to Getting LNG Terminals Built, says ExxonMobil
He.ad.” Inside F.E.R.C. Feb. 16, 2004. p20.
47“Consultant: LNG Will Cut Transportation Values, Put Downward Pressure on Prices.”
Natural Gas Intelligence. Dec. 29, 2003.

CRS-13
researchers and local communities.48 Whatever the specific risk levels are
determined to be, they could multiply as the number of LNG terminals and associated
tanker shipments grows. Likewise, the costs associated with mitigating these risks
are also likely to increase. To the extent these costs are not borne by the LNG
industry, they may represent an ongoing burden to public agencies such as the Coast
Guard, law enforcement, and emergency response agencies.
Securing tanker shipments against terrorist attacks may be the most significant
public expense associated with LNG. CRS has estimated the public cost of security
for an LNG delivery to the Everett terminal to be on the order of $80,000, excluding
costs incurred by the terminal owner.49 Marine security costs at other LNG terminals
could be lower than for Everett because they are farther from dense populations and
may face fewer vulnerabilities, but could still be on the order of $20,000 to $40,000
per shipment. If LNG imports increase as projected, the number of vessels calling
at U.S. terminals would increase from 99 (0.17 Tcf) in 2002 to nearly 2800 (4.80 Tcf)
in 2025.50 At current levels of protection, marine security costs would then be in the
range of $56 million to $112 million annually. Few, if any, interested parties have
suggested that current levels of maritime LNG security ought to be reduced, at least
in the short term. Furthermore, the public costs of LNG security may decline as
federally mandated security systems and plans are implemented. Nonetheless, the
potential increase in security costs from growing U.S. LNG imports, and the
corresponding diversion of Coast Guard and safety agency resources from other
activities have been a concern to policy makers.51 Whether the costs of security
should be assumed by industry may become an issue.
Supply Bottlenecks. Because U.S. LNG terminals process large volumes
of LNG, the potential for one facility to bottleneck supply might not be recognized.
A disruption at a U.S. import terminal (or at an associated supplier’s export terminal)
could effect regional gas availability.
In March, 2004, striking workers at an export terminal in Trinidad stopped all
LNG shipments — interrupting shipments from the largest U.S. supplier and the sole
supplier to the Everett terminal. Although the strike ended quickly and U.S. gas
demand at the time was moderate, one gas trader stated that if the strike had occurred
during the heart of winter it might have exacerbated already high Northeast gas
48For further discussion see CRS Report RL32205: Liquefied Natural Gas (LNG) Import
Terminals: Siting, Safety, and Regulation
by Paul W. Parfomak and Aaron Flynn. Jan. 28,
2004.
49CRS Report RL32073. Liquefied Natural Gas (LNG) Infrastructure Security: Background
and Issues for Congress by Paul W. Parfomak. Feb. 2, 2004. p18.
50Note that increasing tanker size may reduce the actual number of future shipments, but are
assumed not to reduce associated security costs since the hazard associated with each ship
and time in port would increase proportionately.
51Representative Edward Markey at the House Select Committee on Homeland Security
hearing on the FY2005 Department of Homeland Security budget request. Feb. 12, 2004;
Also: US Coast Guard, Port Security Directorate. Personal communication. Aug. 12, 2003.

CRS-14
prices.52 Similarly, when LNG shipments to the Everett LNG terminal were
suspended after the terror attacks of September 11, 2001, markets analysts feared
shortages of gas for heating and curtailments of gas deliveries to regional power
plants in New England.53
Some industry analysts view the Trinidad and September 11, 2001 events as
new supply risks the United States could face as LNG becomes a larger share of gas
supply. Others view these events as ordinary supply uncertainties readily managed
in other fuel markets. As one consultant stated,
they are not problems that should make the industry shy away from developing
LNG trade ... they are just problems that should make you consider how you are
going to structure long-term LNG contracts and estimate what kind of premiums
you are going to pay over indigenous pipeline supply.54
The future sensitivity of U.S. natural gas markets to LNG terminal disruptions is
difficult to forecast and will be driven by factors such as supply diversity and pipeline
development. Nonetheless, the concentration of incremental gas supplies among
perhaps a dozen major import facilities may raise new concerns about the security of
U.S. natural gas supply.
Global LNG Market Structure
In his 2003 congressional testimony, Federal Reserve Chairman Alan Greenspan
asserted that increasing LNG import capacity would create “a price-pressure safety
valve” for North American natural gas markets which would be “likely to notably
damp the levels and volatility of American natural gas prices.”55 Basic market
economics suggest that increasing marginal gas supplies from any source would tend
to lower gas prices. But the long-term effectiveness of LNG in moderating gas prices
will be significantly influenced by global LNG supply, the development of an LNG
spot market, and potential market concentration.
Global LNG Supply. The belief that LNG can serve as a “price-pressure
safety valve” by setting a price ceiling on natural gas assumes that sufficient LNG
would be available at that price to satisfy all incremental gas demand. Otherwise,
gas prices would be capped by potentially more costly North American production
alternatives. The question, then, is whether there will be sufficient LNG production
abroad to supply incremental U.S. demand and sufficient global infrastructure to
distribute it.
Table 1 summarizes basic characteristics of existing or potential LNG
exporters. As the table shows, 2003 global LNG production capacity operating or
52Reuters News Service. “U.S. Gas Traders Shrug Off Trinidad LNG Strike.” Mar. 9, 2004.
53“LNG Ban Could Spell Higher Power Prices.” Gas Daily. Oct. 5, 2001. p5.
54“Trinidad Strike Settled in Two Days, But Raises Red Flags.” Natural Gas Intelligence.
Mar. 15, 2004. p1.
55Greenspan, A., Chairman, U.S. Federal Reserve Board. “Natural Gas Supply and Demand
Issues.” Testimony before the House Energy and Commerce Committee. Jun. 10, 2003.

CRS-15
under construction (for service by 2007) totaled approximately 9.3 Tcf per year.
Table 1 also shows an additional 10.7 Tcf of global capacity proposed for service by
2010, with more proposals likely in the future. If all these proposed facilities were
constructed, total global production capacity could reach 20 Tcf annually, exceeding
EIA’s projected global LNG demand of 15 Tcf in 2020.
Global tanker capacity also appears to be keeping up with LNG demand growth.
Current tanker orders will add 54 ships to the current operating fleet of 158,
increasing overall LNG shipping capacity 41% by 2006.56 Based on these figures,
there appears to be sufficient interest among existing and potential exporters to meet
both short-term and long-term global LNG demand projections. It remains to be seen
which of these export projects will be constructed and how they will be integrated
into the global LNG trade.
Spot Market Growth. Some gas market analysts believe that a robust short-
term or “spot” market for LNG is essential for U.S. importers to manage price and
supply risk, and to do business cost-effectively. An LNG spot market could allow
for short-term balancing of physical supply and demand. It could also offer greater
LNG price discovery and transparency, benefitting companies negotiating long-term
LNG contracts and potentially serving as a more relevant index for LNG contract
price escalators than traditional petroleum indexes.57 A spot market might also
support financial trading and derivatives, important tools for managing price risk,
especially during periods of volatile prices.58
In recent years, the global LNG market has seen limited, but increasing short-
term trade. Short-term contracts accounted for 8% of global LNG transactions in
2003, up from less than 2% in 1998, and have already enabled some physical market
balancing.59 In 2002-2003, for example, South Korea purchased 50 spot cargoes of
LNG to meet extra residential heating demand during an unusually cold winter.60 In
December, 2003, Indonesia sought four LNG cargoes from rival producers to meet
delivery contracts following production problems at its Bontang plant.61
56“LNG Fleet.” LNG OneWorld Web site. [http://www.lngoneworld.com] Drewry Shipping
Consultants. London, England. Mar. 9, 2004.
57For an alternative view see: Jensen, J.T. “The LNG Revolution.” The Energy Journal. Vol.
24, No. 2. 2003. p14.
58Roeber, J. “The Development of the UK Natural Gas Spot Market.” The Energy Journal.
Vol. 17. No. 2. 1996. p2.
59Energy Information Administration (EIA). The Global Liquefied Natural Gas Market:
Status & Outlook.
DOE/EIA-0637. Dec. 2003. p41.
60“Neighbours Make up for Japan’s Cutback.” Lloyd’s List. May 6, 2003. p18.
61Hurle, Mike. “Indonesia Seeks LNG Cargoes to Cover Bontang Shortfall.” World Markets
Analysis
. Dec. 23, 2003

CRS-16
Table 1: Global Natural Gas Reserves and LNG Production Capacity
Share of
2003 LNG Production Capacity
2003
World
(Bcf/yr)
Gas
Gas
Reserves
Reserves
In
Being
Pro-
In
Country
(Tcf)
(%)
Service
Built
posed
TOTAL
OPEC?
Russia
1,680
27.6
0
234
234
468
No
Iran
940
15.5
0
0
1,753
1,753
Yes
Qatar
910
15.0
726
458
2,084
3,268
Yes
Saudi Arabia
231
3.8
0
0
0
0
Yes
U.A.E.
212
3.5
278
0
0
278
Yes
United States
187
3.1
68
0
682
750
No
Algeria
160
2.6
1,125
0
195
1,320
Yes
Nigeria
159
2.6
463
399
1,174
2,036
Yes
Venezuela
148
2.4
0
0
229
229
Yes
Iraq
110
1.8
0
0
0
0
Yes
Indonesia
90
1.5
1,432
0
852
2,284
Yes
Australia
90
1.5
365
380
950
1,695
No
Norway
75
1.2
0
200
0
200
No
Malaysia
75
1.2
916
166
0
1,082
No
Egypt
59
1.0
0
594
419
1,013
No
Libya
46
0.8
29
0
0
29
Yes
Oman
29
0.5
356
161
0
517
No
Trinidad
26
0.4
482
253
507
1,242
No
Bolivia
24
0.4
0
0
341
341
No
Yemen
17
0.3
0
0
292
292
No
Brunei
14
0.2
351
0
195
546
No
Peru
9
0.1
0
0
195
195
No
Angola
2
<0.1
0
0
390
390
No
Eq. Guinea
1
<0.1
0
0
166
166
No
Others
782
12.9
0
0
0
0
No
OPEC Total
3,006
49.5
4,053
857
6,287
11,197
World Total
6,076
100.0
6,591
2,845
10,658
20,094
Sources: Oil & Gas Journal, Dec. 22, 2003; Energy Information Administration; Trade press
Unlike petroleum markets where all prices are essentially short-term, analysts
believe LNG trade will stabilize with some mix of long and short-term contracts
since infrastructure costs are so high. No new LNG liquefaction project yet has been
launched without a long term contract.62 The likely size of an LNG spot market is
difficult to predict, however at least one major exporter expects 30% of global LNG
capacity will ultimately trade on the spot market.63 Coupled with projections of
overall LNG demand growth, a 30% spot market share implies a ten-fold increase in
62Jensen, J.T. “The LNG Revolution.” The Energy Journal. Vol. 24, No. 2. 2003. p39.
63Hand, Marcus. “Petronas Head Says 30% of LNG Trade Will be Spot Deals.” Lloyd’s List
Feb. 5, 2004. p2.

CRS-17
spot market volumes by 2020. It is an open question, however, whether this volume
of spot trade in LNG will materialize and if it will offer the full range of benefits
realized in comparable commodity markets.
A concern related to LNG spot market development is the potential role of
market intermediaries. In the late 1990’s, independent marketers like Enron and
Dynegy emerged to participate in trading of natural gas, electricity, and other energy
commodities. These market participants increased market liquidity, selling risk
management services to both producers and consumers. Many marketers fell into
bankruptcy, however, following the California electricity crisis in 2001 and
subsequent scandals. It is unclear which entities might step into LNG markets to help
provide the capabilities needed for a fully functioning market.
Market Concentration. Some industry analysts believe the future LNG
market may be susceptible to concentration-related inefficiencies. They note that
only a limited number of buyers and sellers can effectively participate in LNG trade
because the capital requirements are so great.64 Many analysts also believe that a
relatively small number of exporting countries are likely to account for the majority
of LNG trade in the foreseeable future.
Based on LNG’s similarity to the world oil trade, some observers are concerned
about the possible emergence of a natural gas export cartel analogous to the
Organization of Petroleum Exporting Countries (OPEC). One analyst remarked:
Might a few countries come to dominate the supply of LNG and adopt policies
harking back to the confrontational OPEC of the 1970’s? An association of some
kind among LNG exporters is likely. Many of them are also oil exporters, and
the desire to compare fiscal terms will be irresistible.65
In March, 2004, at the Fourth Annual Gas Exporting Countries Forum, 15 major
natural gas exporters established an “executive bureau” to develop common policies
and joint initiatives regarding natural gas exports. According to press accounts, some
forum members viewed the bureau as “a major step toward creating an OPEC-like
organization to regulate gas production.”66
The ability of a cartel to play a similar role in gas as OPEC does in oil is
debatable. According to Table 1, OPEC members control nearly 50% of proven
world gas reserves and 52% of global LNG production capacity (in service or under
construction).67 When non-LNG sources are accounted for, OPEC countries’ share
of global gas supply would be approximately 5% in 2010. By comparison, OPEC
member countries currently control over 75% of the world’s proven oil reserves and
64Jensen, J.T. p25. For example, the natural unit of trade, an LNG tanker cargo, is several
hundred times the size of a commodity contract for pipeline natural gas.
65Yergin, Daniel and Stoppard Michael. “The Next Prize.” Foreign Affairs. Nov./Dec. 2003.
66Schmidt, M. “Former DOE Policy Chief: U.S. Focusing on Importing LNG from Nearest
Locales.” Inside Energy. April 05, 2004. p10.
67If all proposed export projects were built, OPEC countries would control 56% of capacity.

CRS-18
Figure 5: Global LNG Import Market Shares Projected for 2010
Others (10%)
China (3%)
Turkey (4%)
Japan (32%)
Taiwan (4%)
UK (4%)
India (5%)
France (6%)
USA (12%)
Spain (9%)
S. Korea (11%)
Source: Chabrelie, M.F., Secretary-General, CEDIGAZ. “A New Trading Model for the Fast-
changing LNG Industry.” 1st Asia Gas Buyers’ Summit. Mumbai, India. March 24-25, 2003.
approximately 40% of global oil supply.68 Based on these figures alone, it is difficult
to draw conclusions about the potential market power of an association of LNG
exporters. It is possible, however, that the competitive relationship between LNG
and traditional pipeline gas supplies could make the world LNG market somewhat
different than that of oil.
Global Trade and Politics. Continued growth of United States demand in
an integrated global LNG market may affect trading and political relationships with
key market participants. According to one estimate, by 2010 the United States may
be the world’s second largest LNG importer (after Japan) although it would account
for only 12% of global volumes (Figure 5). South Korea and Spain, will also be
importing large quantities of LNG, and may be joined by developing nations
including India and China, seeking greater imports for rapidly growing economies.
In an integrated global LNG market, individual country energy polices may
significantly affect LNG price and availability worldwide. In 2001 and 2002, for
example, after the Japanese government forced Tokyo Electric Power to shut down
over a dozen nuclear plants for safety reasons, Japanese utilities relied more heavily
on fossil fuels for electricity generation. According to the EIA:
the result was a significant increase in Japan’s demand for LNG, so that the
majority of world spot cargoes were delivered to the Japanese market. Japan’s
increased reliance on LNG probably contributed to the reduction in short-term
deliveries of LNG to the United States... 69
Japan’s nuclear energy policies also affected South Korea, which depends on flexible
spot LNG supplies to meet winter heating demand. With LNG supplies in Asia
68Organization of Petroleum Exporting Countries (OPEC). “About OPEC.” Internet home
page. [http://www.opec.org]. Apr. 14, 2004.
69Energy Information Administration (EIA). International Energy Outlook 2004.
DOE/EIA-0484(2004). Apr. 2004. p53.

CRS-19
suddenly scarce, South Korea had to pay a substantial premium to attract spot cargoes
originally destined for Spain.70
Trade with LNG exporters such as Indonesia, Iran and Nigeria may also raise
geopolitical concerns. According to one analyst, “question remains on the merits of
increasing reliance on imported energy ... if supply sources are from a region
perceived as politically unstable or inhospitable to U.S. interests.”71 In part to
mitigate such risks, the DOE has been encouraging the development of LNG supplies
in South America and West Africa rather than the Middle East. According to the
former DOE Assistant Secretary for Policy and International Affairs, “DOE is trying
to make countries like Equatorial Guinea as attractive as possible to investors while
aiming to limit the countries’ potential political instability through contract and
regulatory reform.”72
LNG trade may also be linked to broader trading and political relationships
among key LNG partners. For example, in a recent meeting with U.S. Energy
Secretary Spencer Abraham, the Prime Minister of Trinidad reportedly used his
country’s status as the largest U.S. LNG supplier to seek most favored nation status
for Trinidad’s energy exports, duty free U.S. access for all Trinidadian-packaged
products, and U.S. aid to offset gas exploration costs.73
It is difficult to predict the nature of trading and political relationships either
among LNG importers, or between specific LNG importing and exporting countries
over a 20-year time frame. Nonetheless, experience suggests that global LNG trade
may introduce new risks and opportunities among trading countries that warrant
consideration in LNG policy debate.
Conclusions
As long as domestic demand outpaces North American natural gas production,
the option of developing LNG import capacity appears economically attractive.
Currently, LNG supplies 1 per cent of U.S. natural gas, but both industry and
government project this figure to rise to as much as 20 per cent by 2025. Such an
increase would pose a number of practical, immediate challenges, such as ensuring
adequate production and import capacity, integrating LNG efficiently into the
existing natural gas supply network, and securing LNG infrastructure against accident
or terrorist attack. Public opposition to LNG-related facilities and new trading
relationships in an increasingly integrated global gas market will also bear upon the
expansion of the industry.
70“LNG Supply Shock Would Hit Asia Hard.” Petroleum Intelligence Weekly. Mar.12, 2003.
71Verrastro, Frank A. Center for Strategic and International Studies. “LNG the Growing
Alternative.” Qatar Embassy Policy Series. Washington, D.C. Mar. 16, 2004.
72Schmidt, M. “Former DOE Policy Chief: U.S. Focusing on Importing LNG from Nearest
Locales.” Inside Energy. April 05, 2004. p10.
73Hornby, Lucy. “Trinidad to Expand Role as Top Supplier of US LNG.” Oil Daily. April
21, 2004. p4.

CRS-20
As the practical challenges to LNG import expansion are addressed, the policy
discussion turns to the long-term implications of increased LNG imports in the
nation’s energy supply. Intentionally or not, the United States may be starting down
a path of dependency on LNG imports similar to its current dependency on foreign
oil. Such a dependency would represent a major shift in the nation’s energy policy,
and may have far-reaching economic impact. Because U.S. natural gas markets are
regional, major consuming areas such as California and the Northeast might be
particularly affected.
Some energy analysts believe that U.S. dependency on imported LNG is
inevitable; the only uncertainty is how quickly it will occur. Others disagree,
promoting instead familiar alternatives such as greater domestic gas production,
switching to oil or other energy sources, and conservation. Recent measures before
Congress affect LNG imports by providing incentives for domestic gas production
and for new LNG terminal construction. If Congress considers the relative merits of
LNG and other energy supply alternatives, three overarching policy questions may
emerge.

! Is expanding LNG imports the best option for meeting long-term natural gas
demand in the United States?
! What role, if any, should the federal government play in facilitating the
ongoing development of LNG infrastructure in the United States and abroad?
! How might Congress mitigate the risks of the global LNG trade within the
context of national energy policy?
The answers to these questions may flow from enhanced understanding of the
infrastructure and market structure issues discussed in this report. With incomplete
information and limited policy analysis, LNG imports may look unrealistically
attractive to some, but unreasonably risky to others. The reality probably lies
somewhere in between. It may not be possible to predict the LNG future 20 years
from now, but choices made now can substantially affect that future.

CRS-21
Appendix: Proposed LNG Import Terminals in North America
Map
Location
Name
Developer(s)
Type
Capacity
Permit Status
No.
(Bcfd)*
1
Everett, MA
Distrigas
Tractebel
Onshore
0.70
Operating
2
Lake Charles, LA
Lake Charles
CMS Energy
Onshore
1.80
Operating
3
Elba Island, GA
Savannah
El Paso
Onshore
0.80
Operating
4
Cove Point, MD
Cove Point
Dominion
Onshore
1.80
Operating
5
Peñuelas, PR**
Peñuelas
EcoElectrica
Onshore
0.19
Operating
6
Hackberry, LA
Cameron LNG
Sempra
Onshore
1.50
Approved 8/03
7
Gulf of Mexico, LA
Port Pelican
ChevronTexaco
Offshore
1.60
Approved 11/03
8
Gulf of Mexico, LA
Energy Bridge
Excelerate Energy
Offshore
0.50
Approved 1/04
9
Freeport, TX
Freeport
Cheniere Energy
Onshore
1.50
Applied 2003
10
Sabine Pass, TX
Golden Pass
Exxon Mobil
Onshore
1.00
Applied 1/03
11
Fall River, MA
Weaver’s Cove
Poten & Partners
Onshore
0.40
Applied 12/03
12
Corpus Christi, TX
Corpus Christi
Cheniere Energy
Onshore
2.00
Applied 12/03
13
Sabine Pass, LA
Sabine Pass
Cheniere Energy
Onshore
2.00
Applied 12/03
14
Oxnard, CA
Platform Grace
Crystal / Chevron
Offshore
0.80
Applied 1/04
15
Long Beach, CA
Long Beach
Mitsubishi
Onshore
0.70
Applied 1/04
16
Oxnard, CA
Cabrillo Port
BHP Billiton
Offshore
0.80
Applied 1/04
17
Gulf of Mexico, LA
Gulf Landing
Shell
Offshore
1.00
Applied 1/04
18
Gulf of Mexico, LA
Main Pass
McMoran
Offshore
1.00
Applied 2/04
19
Mobile, AL
Compass Port
ConocoPhillips
Offshore
1.00
Applied 3/04
20
Ingleside, TX
Vista Del Sol
Exxon Mobil
Onshore
1.00
Applying 2004
21
Providence, RI
Fields Point
KeySpan
Onshore
0.40
Applied 5/04
22
Gulf of Mexico, LA
Vermillion 179
HNG Stor./ CGI
Offshore
1.00
Feasibility study
23
Ingleside, TX
Corpus Christi
Occidental Petrol.
Onshore
1.00
Feasibility study
24
Logan Twp., NJ
Crown Landing
BP
Onshore
1.20
Feasibility study
25
Belmar, NJ
Energy Bridge
Excelerate Energy
Offshore
0.50
Feasibility study
*May indicate baseload or peak delivery capacity. Includes planned expansions.
**Terminal supplies dedicated to a gas-fired electric power plant.
Source: Trade press; Company Web sites

CRS-22
Appendix: Proposed LNG Import Terminals in North America (continued)
Map
Location
Name
Developer(s)
Type
Capacity
Permit Status
No.
(Bcfd)*
26
Cherry Point, WA
Cherry Point
Cherry Pt. Energy
Onshore
0.45
Feasibility study
27
Port Arthur, TX
Port Arthur
Sempra
Onshore
1.50
Feasibility study
28
Brownsville, TX
Brownsville
Cheniere Energy
Onshore
TBD
Feasibility study
29
Sears Island, ME
Sears Island
Not disclosed
Onshore
TBD
Feasibility study
30
Southern Maine
TBD
TCPL
Onshore
TBD
Identifying site
31
Mobile, AL
Mobile Bay
Exxon Mobil
Onshore
1.00
Suspended
32
Mobile, AL
Pinto Island
Cheniere Energy
Onshore
1.00
Suspended
33
Somerset, MA
Somerset
Somerset LNG
Onshore
0.43
Suspended
34
Eureka, CA
Humboldt Bay
Calpine
Onshore
1.00
Cancelled
35
Vallejo, CA
Mare Island
Bechtel / Shell
Onshore
1.30
Cancelled
36
Tampa, FL
Tampa Bay
BP
Onshore
0.55
Cancelled
37
Gulf of Mex., LA
Liberty
HNG Stor./ CGI
Offshore
1.50
Cancelled
38
Harpswell, ME
Fairwinds
Conoco / TCPL
Onshore
0.50
Cancelled
39
Radio Island, NC
Radio Island
El Paso
Onshore
0.25
Cancelled
40
Canada (NB)
Canaport
Irving Oil
Onshore
0.55
Applied 3/04
41
Canada (NS)
Bear Head
Access NE Energy
Onshore
0.75
Feasibility study
42
Canada (PQ)
Rabaska
Gaz Metro
Onshore
0.65
Feasibility study
43
Canada (BC)
Kitimat
Galveston LNG
Onshore
0.34
Feasibility study
44
Bahamas
Ocean Express
AES
Onshore
0.84
Pipeline approved
45
Bahamas
Calypso
Tractebel
Onshore
0.83
Pipeline approved
46
Bahamas
Seafarer
El Paso
Onshore
0.75
Applied 2003
47
Mexico (Baja CA)
Costa Azul
Sempra / Shell
Onshore
1.00
Applied 2003
48
Mexico (Baja CA)
Puerto Coronado
ChevronTexaco
Offshore
0.70
Applied 2003
49
Mexico (Baja CA)
Tijuana
Marathon
Onshore
0.75
Cancelled
50
Mexico (Baja CA)
Rosarito
El Paso / Phillips
Onshore
0.68
Cancelled
*May indicate baseload or peak delivery capacity. Includes planned expansions.
Source: Trade press; Company Web sites