An Offshore Solution for California
Stephen Billiot, BHP Billiton LNG International Inc., USA
 

BHP Billiton is taking a market-driven approach to LNG delivery for supplying California's growing gas demand. The article describes their plans for an offshore floating LNG storage and regasification unit and the measures they are taking to minimize environmental impact and gain public acceptance for the Cabrillo Port project.

Increasing demand and higher prices for natural gas have brightened the prospects of LNG imports as an economical and environmentally friendly solution for energy consumers in the US. Considering the heightened concerns about the available supply of natural gas domestically, it comes as little surprise that the nation's top economist would weigh in on the subject. In 2003 U.S. Federal Reserve Chairman Alan Greenspan told a congressional subcommittee that the United States should enhance its ability to import LNG from other countries in order to address tight supplies and create a "safety valve" that can help to stabilize natural gas prices. Certainly, our industry has shown its desire to answer the growing call for additional LNG imports to North America. Within the past three years, several companies and/or joint ventures have announced plans for the construction of more than a dozen LNG import facilities to serve U.S. markets. Research and development efforts have led to significant advances in the analytical tools and liquefaction and transfer technologies necessary to ensure long-term economic viability of LNG imports.

These wide-ranging initiatives demonstrate the need for flexible design and engineering of specific solutions for specific projects. But it may not be enough to design a technically sound, economically viable project if the concept behind the facility does not first address the political, cultural and environmentalcharacteristics of the market it proposes to serve. If LNG imports are to offer a viable response to the growing U.S. demand for natural gas, proposed liquefaction and transfer facilities must first gain community and regulatory approval within their specific regional markets.

BHP Billiton Petroleum's proposed Cabrillo Port LNG FSRU project off the coast of California is one example of a market-driven approach to LNG import deliveries.

Analysts may differ about the relative size of U.S. gas market constraints, but most analysts agree that constraints will occur unless new supply sources are developed. Although some may look to Canada or Mexico for new supplies, BHP Billiton is looking offshore. With its Cabrillo Port project, the company is proposing an offshore LNG facility capable of delivering new natural gas supply directly into the local gas utility's pipeline system. BHP Billiton sees this as the best opportunity to meet the market's energy demands in a safer, environmentally friendlier way.

The engineering solutions designed to make this floating storage and re-gasification unit (FSRU) technically feasible are based on more than 40 years of technical innovation and improvement of floating systems for oil and gas, as well as LNG transportation. The catalyst for evolving these technologies for application in the California market was based on a thorough assessment of market demand expectations and the specific energy needs and unique characteristics of this populous and environmentally sensitive market.

California Market Defines Need

Natural gas comprises about 25 percent of all the energy used in the United States. California, the nation's largest natural gas consumer, uses natural gas to generate about one-third of its electricity needs. The California Energy Commission projects that figure will rise to nearly 40 percent by 2009.

In the last few years, California authorities have approved more than a dozen new gas-fired electric generation facilities. While the United States holds less than 4 percent of total world reserves, California produces less than 15 percent of the natural gas it consumes and relies on imports from other states and Canada. The U.S. Department of Energy projects that Americans will consume 62 percent more natural gas by 2020 than they do today, with nine out of 10 new electric generating plants fired by natural gas.

Currently, under California Public Utility Commission rules, large users of natural gas (250,000 therms or more) are required to assume responsibility for their own supply of natural gas. These large users would be the logical customers of Cabrillo Port's new supply of natural gas. By tying directly into Southern California's existing pipeline infrastructure, Cabrillo Port will offer an important new supply of natural gas to a potential customer base comprised mostly of large industrial, manufacturing and commercial concerns, oil refineries and enhanced oil recovery operators, electric generating companies, and co-generators. Other customers may include the state's gas utilities, which buy large quantities of natural gas for delivery to smaller customers as a bundled service.

Population and Environment Define Design

It's only natural that residents of a scenic, coastal state with dense population would be protective of their natural environment. Trends in industrial and commercial fuel switching from petroleum to natural gas in California are central to the state's effort to curb air pollution.

As BHP Billiton began conceptual planning for Cabrillo Port, the company looked at many locations before concluding that an offshore location, in federal waters more than 20 miles from population centers, was the optimal choice. The FSRU will be located approximately 21 miles offshore from the City of Port Hueneme, which is located approximately 65 miles west/northwest of Los Angeles. From an operational standpoint, the location presented additional benefits and only minimal technical challenges.

While the company believed technical issues could be addressed, as subsequent research and development efforts have proven, the benefits of an FSRU solution at this location proved significant from the outset.

Cabrillo Port's proposed mooring station, located in 2,800-foot waters, is 14 miles from the nearest landfall and well outside shipping lanes and marine mammal migratory patterns. At this location, Cabrillo Port requires only 20 miles of pipeline to link directly to the existing pipeline infrastructure and distribution system with no required coastal development. In contrast, proposed onshore LNG import facilities on the Baja California peninsula of Mexico could require construction of up to 1,000 miles of pipeline to deliver natural gas to California.

Additional, market-driven refinements were incorporated into the Cabrillo Port design without sacrificing safety or performance. For instance, a low-profile design and specific paint colors have been selected to blend visually with ocean waters, which would make the LNG facility far less visible from shore than the ships that currently pass through shipping lanes near the coast every day.

Public Education Supports Market Acceptance

Even with a history of rolling blackouts and dramatic energy price spikes that underscore its energy supply vulnerability, California communities have rejected onshore LNG import facilities proposed by other companies. This is another clear and dramatic example of its residents' environmental and safety concerns.

From the earliest conceptual stages, BHP Billiton looked beyond the specific energy demands and existing natural gas infrastructure of the Southern California market in its design of an LNG solution. The company placed equal emphasis on the development of a project that also recognized the region's distinct environmental, cultural and political characteristics. While the company felt its market-driven approach yielded a winning response to Southern California's energy needs, it also recognized that public support for the project would require a thorough understanding of its distinct benefits.

Based on the belief that public understanding of these unique benefits will ultimately lead to Cabrillo Port's support and approval, BHP Billiton committed resources to provide broad public education on regional energy issues, LNG imports and the solution that Cabrillo Port provides for Southern California. This engagement with various and numerous stakeholder groups is underway and will be an ongoing part of the company's Cabrillo Port operation. The efforts include establishment of local public affairs resources to provide information and answer questions, and the development of factual information on the LNG industry and Cabrillo Port project. A project-specific Web site, www.LNGSolutions.com, was created to support the company's educational outreach.

Through a dedicated schedule of public hearings and other efforts to educate the community and encourage public dialogue, anyone with an interest in energy and environment has ready access to information. As a result, an increasing number of Southern Californians now recognize the difference between Cabrillo Port and less-suitable projects that have been proposed in the past. BHP Billiton believes this continued focus on public education will address public concerns and prove Cabrillo Port to be the safest and most environmentally friendly solution to meet their energy needs.

LNG Supply to come from Australia

BHP Billiton is a joint venture partner in Australia's very successful North West Shelf LNG project and a major owner of undeveloped gas resources offshore of Western Australia. It is proposing to source LNG for Cabrillo Port from Australia. Australia's LNG exports have an exceptional track record of safety and reliability, and are expected to go through a substantial growth phase over the next five years with a number of new projects under development or at the advanced planning stages. The trans-Pacific trade of LNG between Australia and the U.S. has the strong support of the Australian and U.S. Governments with the potential to build on the already strong links between the countries.

The Cabrillo Port FSRU

The proposed Cabrillo Port FSRU is a floating offshore vessel that is projected to cost approximately $550 - $600 million, with annual operating costs estimated to be $13 - $15 million.

The vessel measures 286 by 65 meters (approximately 940 by 215 feet) and houses three spherical storage tanks into which the LNG is pumped from delivering LNG carriers. Each tank has a storage capacity of 91,000 m3 of liquid, which would store about 2 billion std. ft3 of natural gas - for a total of 6 billion std. ft3. Eight vaporizers on the vessel will allow the re-gasification of up to 1.5 billion std. ft3 per day. Normal output is expected to be approximately 800 million std. ft3 per day, representing about 10% of California's daily natural gas consumption.

LNG fuels the operation of the off-loading LNG carriers and Cabrillo Port itself, and the re-gasification process is entirely self-contained. The vaporizers use submerged combustion, where natural gas is burned under a bath of fresh water to convert the LNG into natural gas, eliminating the use of seawater and protecting against any marine life or marine environment impacts. After the LNG is converted to natural gas, the gas will be transported via an underwater pipeline to the shore. The pipeline will be buried as it approaches the shore, and emerge at an existing connection in Ventura County.

The proposed Cabrillo Port project, announced in August 2003, will be approved only through a lengthy process of environmental review, public hearings and consideration by numerous federal, state and local jurisdictions. Applications were filed in September 2003 with the United States Coast Guard (USCG), the primary U.S. agency with oversight of the project, and the California State Lands Commission. In January 2004, the USCG accepted the company's application as complete.

Design Reflects Technology Evolution

BHP Billiton's understanding and confidence in floating-based production facilities is rooted in the company's pioneering development of oil and gas floating production storage and offloading (FPSO) systems in the 1980s.

The idea and the technology for floating LNG re-gasification facilities is not new; studies go back nearly 30 years, and the structural and technological components for floating facilities have been in use for decades. At Cabrillo Port, BHP Billiton is proposing to use a well-proven conventional offshore turret mooring system for the FSRU. This will allow the FSRU to vane to wind and weather, minimizing their effects. The FSRU design was found to meet both operational and safety standards upon review by Det Norske Veritas, a leading classification, certification and safety-consulting firm to the LNG and marine industry. LNG Carriers will moor to the FSRU in a conventional side-by-side mode, the FSRU being fitted with quick-release mooring hooks normally found at shore-based facilities. The LNG will be transferred to the FSRU by means of conventional articulated loading arms that will be connected to the LNG Carrier's cargo manifold. The weather conditions at the selected location are benign enough to allow such a transfer method with minimal downtime.

Proven technology is now available to safely deliver LNG imports to the U.S. market from flexible and effective FSRU solutions. By designing LNG facilities to fit the unique nature of regional markets, our industry is poised to build greater support for imports and a stronger market for its product.

Stephen F. Billiot is the Houston-based vice president for BHP Billiton LNG International Inc., which is part of BHP Billiton Ltd., a diversified natural resources company based in Melbourne, Australia. His responsibilities include management of the Cabrillo Port facility, as well as business development in other regions, including South and Latin America. He has extensive international experience in natural gas and crude oil marketing and trading with other multi-national exploration and production companies. He earned a bachelor of science degree from the University of Texas at Austin.