Ferguson's Forecast: Poor Arguments for California LNG Terminals

Advocates of California LNG terminals released a report on April 28 by Philip Romero of the University of Oregon business school. It argues that a California LNG terminal, or at least one on the West Coast, will lower natural gas prices in California ( Circuit , April 29, 2005). But its position is not substantiated. Will imported LNG lower gas prices? And if so, only if some receiving terminals are in California? Perhaps. One can make a good argument that without imported LNG, gas prices will be even higher than they are today. U.S. LNG imports increased 50 percent last year, and prices remain high. Without LNG, prices would have to rise even higher to reduce consumption, since North American gas production is limited. But many experts doubt that imported LNG will actually lower prices. Even if Romero had made and won that argument, why put LNG terminals in California or elsewhere on the West Coast? Why not make use of the massive pipeline infrastructure that exists in and around the Gulf of Mexico? The price of gas in California is pegged to the price at the Henry Hub in Louisiana, so lowering the price of gas there would lower the price in California, too. The report fails to make the case for California terminals. The sole potential advantage of West Coast LNG terminals that I can see is that they would be closer to potential sources of LNG from around the Pacific Rim (Russia, Bolivia, and Australia) and perhaps even from the Middle East (Qatar and Iran). On the other hand, China, Japan, and India are also competing for these resources, so what the eventual price will be is anybody?s guess. My reluctant belief, which was the topic of an op-ed piece published in the Sacramento Bee, is that California does need to seriously consider siting an LNG terminal with proper concern for the environment. My fear is that without it, California?s electricity increasingly will be generated from coal-fired plants via schemes like the Frontier power line to Wyoming. I have not given up on natural gas as the preferable ?bridge fuel? to tide us over until we reduce our dependence on fossil fuels through improved efficiency and renewable resources. Giving California access to LNG from the Pacific Rim should help slow the rush to coal that is developing. Weak arguments in support of LNG, however, don?t do any good.

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Ferguson’s Forecast: Poor Arguments for California LNG Terminals

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