Natural gas pipeline project in gulf forced to adapt to economic reality

The idea seems simple.

Ships carrying liquefied natural gas will anchor in the Gulf of Mexico 28 miles southwest of Tampa Bay, in water 100 feet deep, at one of a pair of buoys permanently moored far enough from land that no one on the beach can see it. The ships will hook into a pipeline buried under the ocean bottom and unload the gas.

The pipeline will carry the gas past Egmont Key at the mouth of Tampa Bay to come ashore at Port Manatee and hook into an existing pipeline to route it to power plants around the state.

At full operation, the project known as the Port Dolphin Energy terminal is supposed to deliver 228 billion cubic feet of clean-burning natural gas a year to Florida power plants, many of them converting from burning more polluting fuels such as coal and oil.

Simple or not, the Norwegian company that wants to build Port Dolphin has been working on the $850 million offshore terminal since 2007. In the four years since it was first proposed, Port Dolphin's owners have faced challenges from a competing pipeline company, an environmental group, several small beach towns and U.S. Rep. Kathy Castor, D-Tampa.

Company officials agreed to alter the route of the pipeline so it would avoid crossing the Terra Ceia Aquatic Preserve. They agreed to put $100 million into an escrow account that would help the beach towns with their sand problem. They won a favorable ruling from a federal agency to quiet the competitor's objections. Last month, the project got its final state permit.

"They were open-minded and willing to share information," said Glenn Compton of ManaSota-88, the environmental group that initially objected to the plans. "Obviously, we see advantages to having more natural gas for Florida. It was never our intention to stop this project."

Yet the Port Dolphin terminal remains unbuilt. Originally, it was supposed to start operating this summer, but it still has not gotten all of the federal permits required.

Now it won't even begin construction until 2013, according to German Castro, Port Dolphin's vice president for development. The completion date is at least three years away.

The situation could be worse. An effort to build a similar offshore LNG terminal off Florida's East Coast was officially abandoned by its owner, Suez Energy International, last week. Suez gave no explanation for dropping a project that had been in the works since 2004.

But according to industry analyst Teri Viswanath of BNP Paribas in Houston, the reason Suez canceled its project — and why Port Dolphin might never be built — is easy to grasp. The natural gas market in the United States has completely changed from when both were first proposed.

"These poor guys are so behind the eight-ball," she said.

In the mid 2000s, "gas was thought to be this rare and precious commodity," she explained. Natural gas cost more than $7 per million British Thermal Units (mmBTUs) in 2007, and there was a push to create terminals to deal with all the ships that would be bringing in gas from Nigeria and other countries.

At the time, a project like Port Dolphin seemed like a safe bet.

But in 2005, the first shale gas well was discovered in Pennsylvania, and now there are more than a hundred wells there. As a result, the price of gas has plunged to less than $4 per mmBTUs, and there's no longer a need to import it.

Some existing offshore LNG terminals built with high expectations in the past decade now face the very real possibility of being mothballed, she said.

"The problem is no longer whether the U.S. will run out of natural gas," she said, "but rather what should we do with all the gas supply we now have."

Now at least three companies are proposing to build LNG export terminals. Viswanath said it's unlikely Port Dolphin could be an export facility, because Florida isn't a state that produces natural gas.

"It would appear," she said, "that the Port Dolphin project is a victim of really rotten timing."

Not true, said Castro, the Port Dolphin vice president. It's just going to need some tweaking.

Sure, the project initially envisioned bringing in gas from overseas, he said. But now it would bring gas to Florida from Louisiana and Texas, he said. Some of those producers don't have access to the two pipelines that bring gas into the state, he said.

The key is that Port Dolphin's parent company, Höegh, is a shipping line with 40 years of experience in handling natural gas. Its ships can convert the liquefied gas back into its vapor form on board. Castro said they envision supplying not only Florida, but also Puerto Rico and other markets across the Caribbean. They could even transport gas from Lousiana to the growing markets in Asia.

Meanwhile, he said, the repeated delays in building new nuclear plants in South Florida and Levy County, and the rising cost of those nuclear plants, could benefit Port Dolphin. He said the delays could lead to Florida's utilities turning more to natural gas to provide customers with power.

The bottom line, he said, is that Port Dolphin can adapt to the changing market.

"You can skin the cat in many different ways," he said.

Craig Pittman can be reached at craig@sptimes.com.

Natural gas pipeline project in gulf forced to adapt to economic reality 08/22/11 [Last modified: Tuesday, August 23, 2011 12:19am]

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