Tuesday, January 20, 2004

LNG Security
Last week’s post on the pros and cons of liquefied natural gas prompted one reader to raise the following questions:

> what is the impact of terrorist threats on the development of LNG resources, terminals ...?
> how does the focus on domestic security (physical vs energy)
impact the development of such resources?

I’ll attempt a first pass answer, hopefully without handing the wrong folks any new ideas in the process. I would appreciate any thoughts from those who know more about this subject than I do.

There are two distinctly different aspects of security to consider. The first relates to security of the supply chain, or conversely to its vulnerability to disruption. An LNG terminal and a domestic natural gas supply source (i.e. wells, pipelines, pumps, etc.) both rely on a local distribution system, so the vulnerabilities to disruption only differ as you move back up the chain.

For example, an LNG terminal is itself vulnerable, being a fixed installation of known location with access from both land and water. The tanker delivering LNG to the terminal is also vulnerable, particularly when either discharging cargo or loading at its home port. Working backward, the loading facilities and the liquefaction plant in the country of origin could be disrupted, as could the fields producing the gas feeding the liquefaction plant. (We saw this in Indonesia a couple of years ago, due to a regional uprising.)

The domestic resource, by contrast, has the same vulnerabilities that most of our other energy networks do: long stretches of pipeline and facilities in remote and presumably unpatrolled territory. A determined terrorist could create a minor disruption lasting days or even weeks. But the impact of this disruption would be at least partially mitigated through network flexibility and other sources, or through market-based responses.

By comparison, the LNG supply chain is also vulnerable to disruption, particularly if the liquefaction plant and loading port are in a less-developed country. In that respect LNG has many of the same vulnerabilities as the domestic US source, but in a higher risk environment. However, as global LNG trade grows and supplier flexibility increases, a missed cargo or two could be made up from another location, so the impact of a disruption might not be very large, unless it were permanent.

The simililarties between the two alternatives part company in their potential for the second kind of security problem, namely a catastrophic incident caused by terrorists. Domestic gas pipelines don’t lend themselves very well to this kind of thing, no matter how vulnerable they might seem to disruption. An LNG tanker is a different category of target, with much greater potential for mayhem, as has been pointed out by many of the local groups opposing planned LNG terminals around the country.

I suspect that reality would be somewhat different from the nightmare scenarios these groups envision, and that causing an LNG tanker to explode while docked in a populated area would be much more difficult than it appears. But this is a classic low-risk, high-consequences situation, and there is something about human nature that tends to inflate the amount of worry we should otherwise assign to them.

It’s hard to draw a solid answer from the above comments, but on balance I would have to give the security nod to the domestic gas source, considering its somewhat more secure supply chain and the lower risk—in terms of outcome if not of likelihood—to public safety.

This finally leads to my reader’s second question. If we accept that one of the many advantages of expanding domestic gas resources in preference to building more import capability (i.e. LNG terminals) is greater physical security, then there’s a strong case to be made for government policy that breaks down the environmental, permitting, and NIMBY barriers to developing these domestic resources, not as matter of energy policy, but as part of Homeland Security. I have yet to hear someone articulate that case publicly, amidst the current lovefest for LNG.

No comments: