Commissioner Doyle Discusses the Outlook of Forthcoming Supply Projects from Canada and USA in the Global LNG Play

I am Commissioner William Doyle of the U.S. Federal Maritime Commission. I serve as one of five Commissioners appointed by the President and confirmed by the U.S. Senate. My remarks today are mine and mine alone, and they should not be construed to represent the positions of my fellow Commissioners or the Commission.

Panama Canal

Last month, I had the opportunity to survey the construction sites on the Pacific-side of the Panama Canal expansion project. In terms of ship size, the expansion will allow a 160% increase in the size of ships able to transit the Canal. I can report to you that as of the beginning of April 2014, the construction completion percentages are as follows:

• Pacific access channel 82% complete
• Pacific Entrance dredging 100% complete
• Gatun Lake and Culebra Cut dredging 86% complete
• Design and construction of the third set of locks 67% complete
• Atlantic entrance dredging 100% complete
• Raising Gatun Lake’s maximum operating level 69% complete

U.S. Natural Gas Production and the Panama Canal

While Panama is making enormous strides in modernizing the Canal, and we improve our port and rail infrastructure, in the United States United States shale gas and liquid production are proving to be developments that will affect global commerce.

When Panama made its decision to expand the Canal, the United States and its energy production was not figured into any of the plans—because it was never expected that the U.S. would be a major producer of natural gas. The Panama Canal expansion project began in 2007; at that time the U.S. imported nearly 771 billion cubic feet (Bcf) of LNG. This made the United States the fourth largest importer of natural gas. Now, the natural gas (and its byproducts) figures in very well with Panama’s plans—especially the potential U.S. exports to Asia.

LNG Exports and the Panama Canal

Not long ago the United States was positioning itself to be the world’s largest importer of natural gas. In 2006 there were approximately 50 proposed liquefied natural gas (LNG) import projects in some stage of regulatory review. Combined with Canada, North America had about 65 prospective import projects.

The U.S. was on the verge of becoming ever more reliant on the Middle East for its natural gas. That all changed in 2008 when the independent natural gas producers in the U.S. proved that abundant amounts of natural gas could be extracted and produced from shale basins. Today, the U.S. has slashed its imports of natural gas and we could be a major competitor on the supply-side of natural gas through LNG exports.

The world’s largest market for liquefied natural gas is Asia. As it stands now, South Korea and Japan are the largest importers of LNG. In the coming years, China may be added to that list.

Once the expanded Panama Canal opens, the distance to ship U.S. natural gas from the United States to Asia will decrease by about 9,000 miles. Only about 21 of the existing global fleet of about 370 LNG tankers can currently fit through the Panama Canal. None use the Canal. However, more than 80% of the LNG tankers will be able to make the passage through the Canal once the widening is complete. North America will be competing with Australia, Russia, Africa and the Middle East as a natural gas supplier for Asia.

The development of U.S. natural gas resources, together with the Panama Canal expansion, will have a transformative impact on the U.S. energy and transportation landscape, helping to improve our energy security, the energy security of our allies, while spurring economic development and job creation around the country.

Natural Gas Liquids/Liquefied Petroleum Gas: Asian & European Markets

Natural Gas Liquids (NGLs) are fostering manufacturing jobs here in the U.S., and are also a key export —and it can only get better with the opening of the expanded Panama Canal.

U.S. exports of natural gas liquids (NGLs) are at an all-time high. NGLs include ethane, butane, propane, isobutene and pentane. The end use products of NGLs include plastic bags, detergent, home heating, small stoves, refrigeration, synthetic rubber, aerosol and gasoline. Liquefied Petroleum Gas (LPG) is propane. Once the ethane fraction has been stripped out of the NGLs for use as a petrochemical feedstock, propane is a residual end product.

U.S. exports of NGLs are expected jump to 20 million metric tons by 2020 from the current 5 million tons. This would make the United States the world’s largest exporter of NGLs — ahead of both Qatar and Saudi Arabia.

Shale gas production has spurred the demand for new ethane crackers on the Gulf Coast. These facilities should absorb most of the Gulf Coast new volumes of local ethane becoming available as feedstock. The Northeast (Mid-Atlantic) is a petrochemical lightweight compared to the Gulf, but there is interest of perhaps building an ethane plant in the region.

Europe is very interested in U.S. NGLs – ethane in particular. Europe is looking to revitalize and update its petrochemical industry. It is projected that ethane produced in the Marcellus/Utica shale basins destined for Europe is about 50 percent less expensive, even including shipping costs, than the NGL’s processed from North Sea gas.

NGLs are transported overseas by ships called Very Large Gas Carriers (VLGCs) or Ethane Carriers. As it stands now, less than 20 percent of the VLGC world fleet can fit through the Panama Canal—but the ships hardly ever use the canal. Once completed, the expanded Canal would be able to accommodate the entire VLGC fleet.

I would like highlight shale production on the East Coast of the United States as an example:

Pennsylvania’s Marcus Hook Marine Terminal

A little background first: In 2011, U.S. East Coast refineries were in big trouble to the point where the plants were set for closure. Sunoco for instance announced that it was exiting the refining business—and with that killing several hundred jobs by shutting down its 330,000 barrels-per-day (bpd) refining complex in Philadelphia – the Point Breeze and Girard Point refineries. If Sunoco could not find a buyer for the complex, it would shut down.

In addition, around the same time frame, the 185,000 bpd Phillips 66 Trainer refinery just outside Philadelphia was set to close. Delta Airlines stepped in and purchased the facility to produce its own jet fuel.

Pennsylvania, with its wet gas in the southwest, is emerging as one of the major NGL producers in the country—and its NGLs will have the capability to be utilized domestically and also exported as a product to Europe and Asia.

Marcus Hook has a lot of potential. It is another great example of the cooperation between the private sector, labor, government, and overseas stakeholders. The Obama Administration, the Governor’s office, congressional leaders, the United Steel Workers of America, the Carlyle Group, Sunoco, Norway and Scotland put their heads together —with a jobs plan, underpinned by the potential of Marcus Hook.

“Mariner Project” and its Transformation

In 2010 Markwest Liberty and Sunoco Logistics announced the “Mariner Project.” Originally, Sunoco/Markwest planned to pipe ethane from southwest Pennsylvania to an existing East Coast facility where Sunoco Logistics would construct refrigerated ethane storage facilities. The ethane would then be transported via ships to markets on the Gulf Coast.

In early 2011, Markwest/Liberty announced an expansion to its Mariner Project. This project would be known as “Mariner West” which would include delivery of Marcellus Shale ethane from Houston, Pennsylvania to the Sarnia, Ontario, Canada petrochemical markets. In mid-2013, Mariner West made its first deliveries to Ontario. Arguably, this delivery was the first time Marcellus ethane had been delivered to cracker plant (i.e., Nova Corunna cracker plant). Prior to this, ethane was considered a nuisance per se—it was either flared or mixed with other products.

In September 2012, Range Resources, and Sunoco/Markwest said it would move forward with the “Mariner East” project. The Mariner East Project is a pipeline, processing and export project that will interconnect NGLs in southwest Pennsylvania (also from Ohio and West Virginia) to Sunoco’s Marcus Hook facility. The Mariner East project is now called “Mariner East 1.”

Finally, in December 2013, Sunoco Logistics announced that it had concluded a successful open season for the “Mariner East 2.” Mariner East 2 involves developing a pipeline delivering ethane, propane and butane from Eastern Ohio to the Marcus Hook terminal.

Marcus Hook, Pennsylvania – Grangemouth, Scotland – Rafnes, Norway

The Marcus Hook refinery was set to close in 2012. The Grangemouth petrochemical plant in Scotland is one of Europe’s largest petrochemical plants, and in October 2013 Ineos was ready to shut it down. The Rafnes, a Norwegian plant has long prided itself in being able source its own NGLs for the North Sea. The North Sea reserves are in decline and about 50% more expensive than U.S. produced shale gas.

In 2012, Range Resources signed a 15-year deal with Sunoco Logistics as an anchor shipper for the Mariner East pipeline project. Consol Energy also recently announced that it will ship ethane to the facility.

Switzerland-based petrochemical company Ineos Group is the purchaser of the ethane for its Rafnes, Norway and Grangemouth, Scotland petrochemical complexes. Ineos signed agreements with the Danish shipping company Evergas to build and operate vessels to transport the ethane. These vessels will be the largest, most flexible and advanced multigas carriers ever built—designed to transport LNG, LPG and petrochemicals. Better still; the vessels are designed with dual-fuel systems allowing the ships to be powered by LNG.

If all goes well, thousands of direct and indirect jobs will have been saved and created on both sides of the