Economist sees value of LNG terminal
Thursday, June 21, 2007 6:46 AM PDT
By Tony Lystra
Printable version
E-mail this articleA liquified natural gas terminal in the Northwest could indirectly lead to more than 10,000 new jobs and increase the gross domestic product for Washington, Oregon and Idaho by more than $1 billion, according to a report released Wednesday by NorthernStar Natural Gas.
The report comes as Houston-based NorthernStar tries to convince federal regulators and the local public that its plan to build an import terminal in Bradwood, Ore., across from Puget Island, will be good for the region.
NorthernStar said it paid $70,000 for the report, authored by Philip Romero, a University of Oregon business and economics professor. Romero said a Northwest LNG terminal, operating at 40 percent capacity, which is the industry standard, could reduce local natural gas prices by 13 percent when it began operating in 2012.
Demand for natural gas here is spiking, the report said. Its use first outpaced electricity in the Northwest in 1998. Now, about one fifth of the region's electricity is generated by gas-fired plants, it said, and about one fourth of the natural gas delivered to the Northwest is used to generate electricity.
In addition, 94 percent of new plants constructed between 2001 and 2003 were fired by natural gas.
But, Romero said, supply will be scarce in years to come. That's partly because the West Coast is farthest away from the natural gas deposits of South Texas and the Gulf of Mexico. Companies are building new pipelines, such as the Rockies Express, which will carry more gas from the Rocky Mountains to East Coast markets instead of the Northwest, creating price competition, Romero wrote.
In addition, Canadian companies are expected to export less of that country's natural gas as they use it to mine oil from "tar sands" -- or oil suspended in clay and other sediment, he said.
If more natural gas supply isn't located, Romero said, "the free market will drive natural gas prices up" and companies, saddled with high prices, won't invest in productivity. Higher energy prices will drive up consumer prices, the report said, causing inflation and, perhaps, prompting the Federal Reserve to raise interest rates, which would further slow economic activity.
The scenario is unlikely to cause a recession, Romero said, but it could result in stagflation -- when reduced economic activity coincides with high inflation.
The solution, Romero said, is to build an LNG import terminal in the Northwest. There are five terminals operating in the U.S., one of which is offshore, and all of them are on the East and Gulf coasts. Natural gas supplies are abundant throughout the world, Romero said, and the best way to get it here is to chill it to a liquid state, import it on tankers, regassify it and pump it into the local pipeline system.
For his report, Romero said he used a number of economic multipliers -- which take into account savings on energy costs, companies' investment in new jobs and increased household incomes -- to forecast the a Northwest terminal's effect on the economy.
If the terminal were operating at 40 percent, the industry standard, it would create 10,100 new jobs, generate $304 million in extra household income and pump $1.04 billion into the Northwest's GDP, he said.
Romero conceded that energy price projections can be dodgy, but said his numbers are "conservative."
Romero, who has served as an economic advisor to the governor of California, said Wednesday that his work was done independently and that NorthernStar had no influence on its conclusions.
"I'm a realist," he said. "If you don't tell your client the truth, you're not serving your client very well."
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