Fuel's Future
Business sees clean natural gas as the next dominant fossil fuel. But there will be political storms along the way
By Christopher Dickey
Newsweek International
Sept. 6-13 issue - The moment of maximum danger came suddenly on the evening of January 19.
The scene was the Algerian port of Skikda, where processing plants take natural gas pumped from the Sahara and cool it under enormous pressure to 162 degrees below zero Celsius. At that temperature the gas turns into a liquid that can be shipped all over the world in a new breed of refrigerated supertankers. When it arrives at its destination, liquefied natural gas, commonly called LNG, is then warmed very carefully until it becomes, again, the clean-burning stuff with the fine blue flame that sizzles hamburgers in countless kitchens, warms offices and bedrooms, and generates an increasingly large share of the electricity in the United States.
At 6:39 that January evening, one of the plant operators at Skikda noticed that the steam-pressure indicator in "Train 40," an array of compressors and separators, was rising fast. He tried to slow the fuel flow to the burners. One minute later, another operator reported that a vapor cloud was forming around Train 40. A disaster was taking shape.
For years oil companies have seen natural gas as the environmentally friendly fossil fuel of the future. Power companies have invested billions in new gas-fired plants that meet increasingly stringent emissions requirements. "Gas could overtake oil as the global No. 1 fuel of choice by 2025," says Malcolm Brinded, CEO of Shell Exploration and Production. Yet, as with other promising energy sources in the past, there's serious tension between the industry's best-laid plans and public perception of the risks that come with them.
On the plus side, virtually untapped natural-gas reserves are found all around the world. There's no gas cartel to deal with, at least for the moment. And the environmental benefits are manifest. Britain's switch from coal to gas at its power plants during the 1990s helped it more than meet its Kyoto emissions standards for 2010. Brinded even dreams that "young people" will learn "to think as positively about gas as they do about renewables such as wind and solar."
From the industry point of view, the main challenge has been the cost and difficulty of shipping the stuff. Gas can be sent through pipelines, but pipelines don't cross oceans, and many of the biggest gas fields are in terrain that's as politically problematic as the oilfields—Russia, the Middle East. Pipelines also distort markets, making it impossible to sell to the highest bidder.
The solution is LNG. As global demand has gone up, so has the financial incentive to build "liquefaction" plants like those operating in Algeria and "regasification" facilities like the one at Everett, Massachusetts, which sits in the heart of Boston. These are hugely expensive. Shell's new liquefaction plant in Sakhalin, Russia, cost more than $11 billion. But with economies of scale, the price of moving LNG goes down. Long-distance-delivery costs have been cut by more than half since 1990, and wholesale-gas prices have risen more than 50 percent in the last two years.
ExxonMobil predicts that natural gas will be the fastest-growing major energy source through 2020, and CEO Lee Raymond calls LNG "a huge deal" for the industry. Europe and Asia are now the main buyers, but North America has the most growth potential. Only four receiving terminals operate in the continental United States, but more than 30 are planned. Unless at least some are completed, many new gas-fired power plants—which are already built—simply won't be able to function. Raymond says that with North American natural-gas reserves running low, new supplies will have to be imported or brand-new power plants will "have to be junked," and "that's just not going to happen."
But are the liquefaction and regasification plants safe? The question has loomed large ever since 1944, when a badly engineered LNG storage tank leaked into the Cleveland, Ohio, storm drains and blew up, killing 128 people and injuring 435. Since September 11, 2001, fears have grown that terrorists could target LNG ships. "Because LNG infrastructure is highly visible and easily identified, it can be vulnerable to terrorist attack," warned the U.S. Congressional Research Service last year. The Coast Guard, the Office of Pipeline Safety and the Transportation Security Administration have all recently tightened security. Sen. John Kerry has recommended that Boston raise its alert level every time an LNG tanker sails into the harbor.
The industry, meanwhile, has pointed to an admirable safety record. It argues that unless LNG mixes with air at a specific ratio it won't ignite, and since facilities are designed to prevent that from happening they are not bombs-in-waiting, as alarmists claim. "Such risks, while significant, are not as serious as is popularly believed," the same congressional study said last year.
But at 6:40 p.m. on Jan. 19, according to a subsequent report on the Skikda incident by the Algerian state energy company, Sonatrach, "a first explosion was heard, followed immediately by a second more massive explosion and a huge fireball." The va—por cloud, said the report, "was unfortunately at the right explosion ratio." Flames quickly engulfed Train 40, and 30 and 20. When the fire was contained eight hours later, 27 people were dead and 56 wounded. The political and financial shock waves reached the United States, stalling or stopping plans to build receiving terminals in California, Maine and Alabama. Never mind that new plants bear little resemblance to the Algerian plants, which date to the 1970s. "People have the fear of LNG that it's going to go boom," says another oil-company executive. "If people believe it's an issue, then it's an issue."
Still, most industry sources believe the demand for natural gas will just keep growing, while development of the huge fields in Qatar, Iran, Russia and elsewhere will continue to provide ample supply at reasonable cost. Even if most of the terminal projects now planned for North America are never built, and only four or five are eventually completed, that could be enough for the next decade or so. The same executive predicts that "there will be sufficient terminals in friendly areas"—particularly more remote locations that need the jobs.
And in the long term? Malaysia and some other countries already use compressed natural gas to power taxis and public vehicles. Oil companies are developing "gas to liquid" processes to make more sophisticated fuels. But the lesson of Skikda is that fear and politics will also shape the search for affordable energy supplies.
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5853559/site/newsweek/
Solar? Eclipsed.
Why does wall street continue to look down on renewable energy?
By Rana Foroohar
Newsweek International
Sept. 6-13 issue - If alternative-energy companies are so hot, why are their stocks so unpopular? Record-high oil prices make wind and solar increasingly competitive. Fear of climate change should brighten prospects for any alternative to fossil fuels, which release the greenhouse gases that cause global warming. Yet over the past two years, the worldwide stock-market value of companies developing renewable energy—which includes everything from wind and solar to recycling—fell from $13 billion to $10.7 billion, while the value of fossil-fuel companies surged to record highs of more than $1.2 trillion.
The reason, in a word, is uncertainty. Despite all the clamor about climate change, governments around the world have yet to ratify the Kyoto Protocol on reducing greenhouse-gas emissions. The result is piecemeal national rules and on-again, off-again support for subsidizing alternatives. Until it's clear how much green energy individuals and companies have to use, and by when, the renewables market will continue to suffer, says Mark Campanale, a manager at Henderson Global Investors in London: "There's simply not a feeling of certainty in the market about renewable energy."
Memories of the bubble don't help. In the late 1990s many of these companies rose and fell like dot-coms, burning through cash without turning a profit. The poster child for green hype was Ballard Power Systems—a fuel-cell maker that was trading recently at $8, down from a 2000 peak of $192. Wind power suffered from tight margins, thanks to high RD costs and a limited number of equipment manufacturers. The solar industry suffered, too, from high cash burn and accounting troubles at some companies. The once high-flying U.S. solar-cell company ECD has seen its share price tumble more than 70 percent, and a competitor, Delaware-based AstroPower, filed for bankruptcy in February. "All of these companies tend to track the NASDAQ," says Steve Taub, head of renewables for Cambridge Energy Research Associates in Boston. "When it fell, so did they."
The market is infamous for thinking short term. Meanwhile, multinationals like Sharp, Kyocera, Shell, BP, Sanyo and Mitsubishi are making long-term investments in solar. Sharp earns $1 billion in annual revenue from its solar division. General Electric has turned Enron's old wind-turbine operation into a $1.2 billion-a-year business. Yet the markets aren't rewarding these investments, says Campanale, in part because the operations are still "very much on the margins" for large multinationals.
That's not likely to change soon. Several high-profile solar IPOs are being planned for 2005. Q Cells, a German solar-cell company, could be worth as much as $1 billion, says analyst Michael Rogal at CSLA. That's not bad. But Q Cells is only one company, and the solar sector as a whole is still lagging. For now, at least, the energy stocks that benefit most from high oil prices are other fossil fuels, not alternatives.
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5852665/site/newsweek/