High Hurdles for Imports

For Americans flying over the deserts of the Middle East, it is a doleful sight: mile after mile of flaring wellhead fires burning off natural gas, a fuel that has become painfully scarce in many parts of the U.S. Equally bounteous reserves of gas exist in many other parts of the world, from Soviet Siberia to the marshy fields of Holland--and several of the nations with the biggest reserves must export gas if they are to tap the potential wealth, because their populations are too small to use all they have (see chart). Yet apart from a trickle of imports flowing in by pipeline from Canada, the gas deposits in most other countries might just as well be on Mars for all the help they offer in easing American shortages any time soon.

Unlike the relatively simple procedures for shipping crude oil across vast stretches of ocean, importing foreign gas to the U.S. poses a cluster of complex problems--financial, political, technical and environmental. Though some imported gas is now seeping in from distant points, and efforts are under way to bring in more, it will probably be five years at least before any appreciable supplies of such fuel enter the U.S. to help warm homes and run factories. Even then the amount is unlikely to fill more than a small fraction of U.S. demand.

Giant Fireball. A key problem is that the wildly expensive technology needed to ship gas over water requires long start-up times and makes the fuel extremely costly to import. For example, Algeria, which has taken the lead in trying to boost exports to the U.S., is spending billions of dollars to build six liquefaction plants, but they are not expected to be fully operational for a decade. These facilities freeze the fuel into liquid natural gas (LNG), which is then loaded on specially constructed tankers that cost up to $150 million each.

A fleet of nine newly constructed LNG ships owned by El Paso Natural Gas Co. will begin carrying gas from Arzew, Algeria, to Cove Point, Md., and Elba Island, Ga., early next year. That gas, for which El Paso signed a contract before the Arab oil embargo, will sell in the U.S. for about $1.25 per 1,000 cu. ft., v. a top federally controlled price of $1.44 for domestic gas shipped across state lines and $2 or more for uncontrolled intrastate gas. Algerian gas bought under a postembargo agreement, however, will cost Americans $3.30 per 1,000 cu. ft. The Algerians are expected to lift the price even higher in future contracts.

Another drawback to increased gas imports is the danger of a ship spilling some of its cargo in or near a port. That could result in a catastrophe far worse than the oil spills from tankers that have worried many Americans this winter. As the frozen LNG warms into gas, it could ignite, creating an immense fireball threatening lives and property in the vicinity. Last year New York, New Jersey, Delaware and other coastal states petitioned the Federal Power Commission to promulgate national safety standards that would keep LNG port facilities out of populous areas. The agency is still considering the request. On top of that, independent gas producers, who fear competition from imports, loudly argue that buying from foreigners would only make the U.S. more dependent for its energy needs on unreliable sources. Asks Dallas Gasman D.K. Davis: "Do you want Chicago to become dependent on Algerian gas so that they can shut the pipe some day?"

Despite the hurdles, however, a growing number of gas-producing countries are making plans to cash in on the rich American market. For example, Saudi Arabia recently decided to pipe its gas instead of simply flaring it off. To get the job done, the Saudis signed a $7.5 billion contract with the Arabian American Oil Co. (Aramco), which eventually intends to export gas to the U.S. Iran is sinking $6 billion into liquefaction plants and a fleet of 35 LNG carriers to ship gas to its American and European markets beginning in 1982.

The Soviet Union, which is believed to have the world's largest deposits of gas, could become a major source of U.S. imports. The Russians have been pushing hard in recent years to exploit their vast gas reserves in Siberia, including the northern Tyumen Oblast, near the Ob Gulf, and the Urengoy field, reportedly the world's largest. Their aim: to make the Soviet Union a major exporter by 1980 (at present, so few of the reserves have been tapped that the Soviets themselves import gas from Iran). The only deal involving Americans, however, is a tentative agreement between the Soviets, Occidental Petroleum, El Paso and a group of Japanese firms to develop a major field near Yakutsk in Siberia. After years of negotiating, the Soviets are still surveying the area. If the deal finally goes through, gas would be piped 2,000 miles to Vladivostok for shipment to the U.S. and Japan.

Mixed Blessing. By contrast, the U.S. will probably not be importing much gas from Europe. Holland, the Continent's leading producer and exporter, is phasing out shipments to other countries in an effort to conserve its supplies. Britain, too, intends to hold on to most of the gas that it is beginning to pump from underneath the North Sea. Indeed, according to the Paris-based Organization for Economic Cooperation and Development, European demand is already outstripping its reserves. By 1985, the organization estimates, European gas imports from Iran, Algeria, the Soviet Union and elsewhere will total almost 3 trillion cu. ft. a year, six times the 1975 figure.

For the U.S., however, the cost and difficulties of shipping LNG long distances will, for the foreseeable future at least, keep gas imports from becoming the major energy prop that oil imports now are. At a time when the Government is striving to lessen dependence on foreign energy, that could be at least an ironically mixed blessing.

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