Solid Hope. Coal-fired powerplants look more attractive. (Photo courtesy of Bechtel CORP.)

Coal-fired power is back in vogue. Liquefied-natural-gas terminals are being proposed and even built again. Petroleum commands a price never before seen. If it weren’t for the construction boom in the Canadian oil sands, one observer might think he was in a time warp that has dropped him back in the 1970s.

In a broad sense, the wheel has fully turned. Natural-gas prices made a step-increase four years ago, pushing gas over the threshold of about $3 per million Btu at which LNG can compete with native natural gas (see graph p. 29). Owners of the three existing U.S. LNG terminals that had been shut down reopened them and began planning expansions. Others prospected for sites to construct new terminals. Today, about 40 LNG import terminals have been proposed on all coasts of North America. One new one is opening for business this month.

As in the 1970s, oil prices again suddenly spiked last year. After bottoming out in 1998 at about $10 per barrel, crude oil stayed in its historic range under $30 until spring 2004, when it began a climb that peaked at $56.18 in October. The electric-generation industry was not much affected by that, having largely weaned itself from oil after the 1973 price shock.

Oil Sands Boom

But analysts now are forecasting prices of about $40 bbl or higher for years to come, making difficult-to-recover oil economically attractive. Canada’s oil-sands reserves are believed to exceed even Saudi Arabia’s recoverable reserves, and industry sources say a long-term increase in prices is certain to encourage even more expansion in the hyperactive oil-sands market sector.

Sand Dollars. Syncrude Upgrader Expansion adds capacity. (Photo courtesy of Syncrude Canada Ltd.)

But the sector is not geared for quick response. "These projects are so mammoth you have to follow a staged progression. You can’t fast-track them," says Peter Stalenhoef, Heavy Industry Group president for PCL Constructors Inc., Edmonton, Alberta.

PCL’s workload offers a view of the opportunities in the oil sands. The company this spring will complete $357 million of work for Syncrude Canada Ltd., Fort McMurray, Alberta, on a hydrogen reformer, a hydrotreater plant, connections for pipe racks and 335 pipe-rack modules. PCL also is constructing a powerplant and an extraction plant at a total cost of about $37 million.

In March, Canadian Natural Resources Ltd. will start the Horizon Project near Fort McKay, Alberta. That $4.9-billion project includes construction of a new mine with an on-site upgrader, worth about $2.9 billion. Other facilities include a 175-MW gas-turbine powerplant, sulfur plant and hydrogen plant for hydrotreatment, says Stalenhoef. And he has seen a report that about $57 billion of work has been announced in the oil sands. "All of the established facilities are continuing to grow," he says.

Offshore Gold. Front Runner Spar rides production wave into deepwater Gulf of Mexico. (Photo courtesy of J. Ray McDermott Inc.)

The deepwater outer continental shelf is another expanding frontier for production of hard-to-recover oil. Last summer, J. Ray McDermott S.A., Houston, completed the Front Runner Spar platform and turned it over to Murphy Exploration and Production Co., New Orleans, for production in 3,330 ft of water in the Gulf of Mexico. Operating at depths of up to 9,000 ft, the spar can produce 60,000 barrels of oil and 110 million cu ft of gas per day. The U.S. Minerals Management Service says deepwater oil and gas production is growing, while shallow-water production is declining.

New Reality Show

Cheap energy has driven the North American economy for decades, but that reality is changing. According to data compiled by Platts, which, like ENR, is owned by the McGraw-Hill Cos., the price of natural gas peaked last year at $8.12 per million Btu. It is still near its peak and should stay there for the next few years, Platts says. Only a change in supply will affect the price, say Platts forecasters. Tom Woods, senior consultant to Platts, says average annual gas prices "should remain above $5 per million Btu" in the near term, and they will still be above $4.50 in 2009.

Platts forecasts oil around $39 bbl for the next five to six years. "It may be a little higher in the near term, but erosion below $40 is not likely, assuming there is no major world recession or a third incremental oil supply" beyond OPEC and Russia, Woods says.

Boosting Gas Supply

Liquid Asset. Trinidad’s Atlantic LNG makes natural gas exportable, earning foreign exchange. (Photo courtesy Ron Levine/Liaison International/©Bechtel Corp.)

LNG has come back with a strength not seen in 30 years. LNG makes commercial sense when gas prices rise above $3.50 per million Btu, says Jude Laspa, executive vice president of Bechtel Group, San Francisco. LNG growth and related construction is "a process that in all likelihood is going to continue," he says.
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Bechtel is engineering, procurement and construction contractor for $1.2-billion Process Train 4 at Atlantic LNG in Trinidad and Tobago, and previously built Trains 1-3 as EPC. Higher gas prices have pushed construction of liquefaction plants near stranded gas fields such as Trinidad’s. ALNG transforms the gas into an exportable form, earning foreign exchange. Plants also are in construction in Africa, Asia and Australia, and plans are in the works for similar plants in Peru, Egypt and Indonesia as well.

At the receiving end of the LNG production line, Dominion Energy, Richmond, Va., last month completed recommissioning and a first expansion of its Cove Point, Md., LNG terminal. Now it is about to start another one. The work just completed, at a cost of more than $200 million, added a 2.8-billion-cu-ft storage tank to the plant, which was recommissioned starting in 2003. Marlboro Enterprises Inc., Chattanooga, was the general contractor for recommissioning, and CB&I, The Woodlands, Texas, constructed the tank under an EPC contract.

Dominion is proposing two more storage tanks, five pipeline projects and two compressor stations in Virginia, Maryland and Pennsylvania by 2008 to increase output capacity from 1 billion cu ft per day to 1.8 billion and storage capacity from 7.8 billion cu ft to 14.6 billion. The total cost is estimated between $700 million and $800 million. CB&I has been awarded another turnkey contract for the Cove Point expansion work.

"LNG injects a lot of gas into a pipeline system that was never designed for that kind of supply," says Lawrence J. Makovich, senior director, Americas Gas and Power Group at Cambridge Energy Research Associates, Cambridge, Mass. The growth of LNG thus will drive further additions to the pipeline system. The systems in the Gulf Coast are adequate, but pipelines in Florida and southern California are likely to become congested, he says.

Difficulty in delivering gas resulted in a 25% increase in oil burned for power generation in 2003, says Makovich. "We will need a huge storage increase in...