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Solving US LNG's domestic delivery paradox

Tue 21 May 2019 by John Snyder

Solving US LNG's domestic delivery paradox

Delivering the US' vast LNG supply to its own ports is not as straightforward as it sounds, says John Snyder, but it offers opportunity for the enterprising

The US is set to become the world’s third-largest exporter of LNG, doubling its current export capacity by the end of this year. With all of that LNG capacity, you would think the US could easily meet its own domestic natural gas needs. You would be mistaken.

New England has a long history of struggling to meet the natural gas demands of its consumers during the cold winter months. This has led to some hefty seasonal price jumps and shortages of natural gas.

Limited existing natural gas pipeline infrastructure and a moratorium on building new pipelines in New England have made using existing US domestic gas sources to alleviate those shortages problematic.

The result has been that New England has had to rely on imported LNG, mostly from Trinidad & Tobago — and sometimes Russia — to meet its peak energy demands. LNG imported at either Everett LNG and Northeast Gateway, both near Boston, or Canada’s Canaport have played a key role in moderating natural gas prices in the region this year, according to the US Energy Information Administration (USEIA).

While that is good news for New England consumers, it does beg the question, “Why isn’t US LNG being shipped from US terminals to meet New England’s needs?”

The simple answer is that there are currently no US-flag LNG carriers in operation to carry US LNG to the two Boston-area LNG terminals. Under US cabotage laws collectively known as the Jones Act, any cargo transported between two US ports must be carried in a US-flag, US-crewed, US-built and US-owned ship.

The simple answer is that there are currently no US-flag LNG carriers in operation to carry US LNG to US import terminals

Ironically, Jones Act restrictions also prevent US LNG from being transported to Puerto Rico from the US mainland. In order to meet its current energy needs, Puerto Rico imports most of its LNG from Trinidad & Tobago.

While obvious solutions might be to waive the Jones Act or lift the moratorium on pipelines in New England, I do not see either of those scenarios happening anytime soon. The political nature of both will not play well in state houses or Congress, especially with a Presidential election looming next year.

However, New England’s natural gas constraints or Puerto Rico’s energy demands could be met by US LNG if an investor is willing to build a US-flag LNG carrier for the Jones Act trade. The ship or ships would be used for domestic service only, creating opportunities for US mariners and US shipyards.

Some of the biggest challenges for the shipowner would be finding the right design, right US shipyard partner and right price for the vessel or vessels. An LNG carrier has not been built in the US in 39 years—since Louisiana was delivered by General Dynamics Quincy shipyard in Quincy, Massachusetts to owner Lachmar in 1980.

While that may be off-putting, the recent track record of US shipyards in constructing LNG-fuelled ships says otherwise. Leveraging international technology partnerships from Europe and Asia, US shipyards have already built or are building LNG-fuelled platform supply vessels, container ships and roro vessels, as well as LNG bunker barges and ATBs. US shipyards would most likely work with international technology partners to build US-flag LNG carriers.

With the shale gas revolution underway, LNG production booming in the US and an ‘America First’ energy policy in Washington, it would seem the time is right to build a US-flag LNG carrier in the US again.

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