Although the demand for natural gas is on the rise and developers have set their sights on eastern Maine, it is not a foregone conclusion that any liquefied natural gas terminals will be constructed in the state.

According to government projections, the 18 LNG proposals that already have been approved by federal regulators in Canada, the United States and Mexico should have enough capacity to help meet the continent's natural gas needs for the next 20 years.

So why are there 27 other formal proposals nationwide that have been submitted to federal regulators for approval, including two for Passamaquoddy Bay?

Domestic gas production is projected to decrease, North American consumption is expected to increase, and retail prices have risen sharply in the past six years, according to energy and government officials. These factors, and the lack of a guarantee that any of the 18 approved facilities will be built, have led to a glut of proposals from developers who want to get in on the action while market conditions are ripe.

Since April 2005 natural gas prices have been about three times higher than they were throughout the 1980s and 1990s, according to the federal Energy Information Administration. For those two decades retail prices wavered roughly between $1.50 and $2.50 per 1,000 cubic feet, but now that unit price is around $6 and is expected to end up at a 2006 average of more than $8.

The individual capacities of the total 45 LNG terminals approved or proposed for North America, where the daily natural gas consumption is expected to increase by about 30 billion cubic feet over the next 20 years, range from 500 million cubic feet a day to more than 3 billion cubic feet a day. Energy officials differ on how many terminals may be needed to meet the demand, but judging from government figures, anywhere from 10 to 60 new import terminals, depending on their capacities, will be needed on the continent to make up for the lack of growth in domestic natural gas production.

Opponents of the projects have pointed out that government estimates indicate the planet has a finite supply of natural gas. According to the federal Energy Information Administration, there are 6,040 trillion - or 6.04 quadrillion - cubic feet of known underground gas reserves worldwide. By 2025, the worldwide consumption of natural gas is expected to be 156 trillion cubic feet a year, a pace that would use up the planet's known reserves in less than four decades.

Bob Godfrey, a spokesman for LNG opposition group Save Passamaquoddy Bay, indicated this week that there are rational arguments against introducing LNG terminals to Maine. An overabundance of proposed North American facilities, difficulties in tapping into new natural gas supplies, and the likely completion of LNG projects elsewhere in the Northeast make the Maine proposals impractical. Nine other projects are planned for the region, including expansion of an existing Maryland terminal and two offshore from Boston.

"It makes no sense to expand our reliance on fossil fuel that has a finite, relatively short life expectancy, when equal amounts of effort and expense could be used to develop clean, renewable sources of energy," Godfrey wrote in a prepared statement.

But such arguments have not persuaded developers to drop their designs.

In the summer of 2004, officials with the Passamaquoddy Tribe at Pleasant Point announced they had reached an agreement with Quoddy Bay LLC of Oklahoma City to develop an LNG terminal on tribal land at Split Rock. The next year, Washington, D.C.-based Downeast LNG announced its plans to build a terminal in Robbinston at Mill Cove.

This past winter each of the fledgling firms formally filed applications with the Federal Energy Regulatory Commission, the primary permitting agency for LNG terminals proposed on U.S. soil, and initiated the agency's formal review process. Two other possible LNG development sites have been suggested for Washington County, one in Calais and another on Navy property in Cutler, but neither proposal has been submitted for formal review by FERC.

The full federal review process for each project could take up to two years to complete, at which point FERC's board would decide whether to approve the proposals.

But getting an LNG terminal up and running is not merely a matter of getting it approved by federal regulators.

It also depends on whether an available supply of LNG to be processed at the facility can be secured. Anadarko Petroleum Corp., a $20 billion company based in Houston, recently drew attention to its supply difficulties when its chief financial officer indicated it may "mothball" construction of its Bear Head LNG terminal at Point Tupper, Nova Scotia, unless it can find "the right supply arrangement."

Jim Lewis, an LNG consultant with ICF in Houston, declined to comment specifically on Anadarko's situation but said that the size of a developer doesn't necessarily figure into the eventual success of its proposal. Cheniere Energy, also based in Houston, has had success in getting terminal projects approved and securing supply deals where larger companies have not, he said recently.

Cheniere is a publicly traded company with 130 employees, but Lewis said its relatively small size allows it to make decisions more quickly than a larger, more established oil company. Other independent companies such as Quoddy Bay and Downeast LNG may be able to mimic Cheniere's success, he said.

"They have to develop a credibility that they can pull the project off," he said.

Size may not matter, but economics does play a big role in LNG terminal development, Lewis said. A company is not going to risk $500 million on a terminal and only later learn whether it can compete in the market.

"The [natural] gas business is very difficult," Lewis said. "It takes long-term commitments."

When smaller developers are involved, such commitments and the financing necessary to construct facilities worth half a billion dollars most frequently are secured through partnerships with large, multinational energy companies or with large-scale consumers such as utilities, Lewis said.

On the supply side, there have been reported delays with development of a natural gas mining and LNG production - also known as liquefaction - project on the Russian island of Sakhalin, north of Japan. The Sakhalin II project has been beset by construction complications and underestimated costs, which now have ballooned to approximately $20 billion. The project, which has Royal Dutch Shell as its majority owner, also has raised environmental concerns about dredging and the effect of its ocean operations on whale migration routes.

Lewis said that there is no shortage of natural gas in the ground and that there are enough deposits elsewhere that North America's imports should not be dependent on Russia, Iran or Qatar, which together control 58 percent of the world's estimated underground natural gas deposits. Norway, Venezuela, Egypt, Algeria, Angola, Nigeria and Trinidad all are potential natural gas suppliers and, unlike Sakhalin, are close enough to the Northeast to be potential sources.

Lewis acknowledged that the number of proposed terminals in North America and their capacities exceed the projected need for imported gas. He said that because of the variety of proposed terminals, however, he could not pick a number of how many would be needed. Instead, he predicted the rate at which terminals are likely to be built.

"My guess is that there's going to be a new one built every 21/2 to three years," Lewis said.

Dean Girdis, president of Downeast LNG, said last week that his company's proposal should be able to avoid the issues that have complicated the Anadarko and Sakhalin projects.

Anadarko has not publicly specified what kind of "supply arrangement" it is pursuing, according to Girdis, but it may be looking to partner in a natural gas mining and liquefaction operation overseas. Downeast LNG, on the other hand, is not looking to get involved in any LNG operations outside of Robbinston.

"We're developing a terminal," he said. "That's it."

Girdis indicated that his company as yet has no definitive LNG supply agreements. He said it is in discussion with "several parties" but declined to elaborate for competitive reasons.

All the gas deposits now being mined are under contract for delivery, according to Girdis, which means that any new supply contract will have to be fulfilled with gas from deposits that are as yet untapped. Because of the time it will take to develop new natural gas mining and liquefaction operations, the soonest any such gas could be delivered is 2010, which is two years later than when Anadarko hopes to begin operations at Bear Head, he said.

The relative proximity of Passamaquoddy Bay to the target Northeast market, compared with Canadian sites, means piping transmission costs will be cheaper.

As for the costs associated with mining the natural gas of Sakhalin, Girdis said they are not typical for LNG projects. The Sakhalin project is proving costly because it is attempting to mine untapped gas in a remote location and a harsh climate.

"That's way overblown," he said. "That is an exception."

But typical construction costs are likely to soar, Girdis said. Because of the heightened interest in developing LNG supply and terminal sites, demand is increasing for firms that can fabricate the equipment needed for cooling, storing and transporting LNG, he said. He predicted that the cost of developing LNG liquefaction facilities will increase by 50 percent in the next few years.

"Supply is an issue," Girdis said. "Prices in general are going to go up substantially. It's always a lot more than you think."

Don and Brian Smith, the father-and-son team behind the Quoddy Bay project, reportedly have been looking for an LNG supply from Trinidad, which now provides the United States with more than 60 percent of its LNG imports.

Brian Smith said this week that Quoddy Bay is not actively looking for a supplier. It instead is focusing on getting permits for its proposal because suppliers, in part because of earlier rejected New England proposals, are leery of committing to a project until it has received the necessary governmental approvals.

Smith, like Girdis, said the Anadarko project is less likely to come to fruition than others closer to southern New England because of its distance from the region's population centers. The economic benefit Anadarko would get by providing gas to the lucrative Northeast market would be offset by the expense in piping the gas from relatively far away, he said.

According to Smith, data collected by Quoddy Bay indicate there is a market in the Northeast for an additional 2 billion cubic feet of natural gas a day, which would be the Quoddy Bay terminal's capacity limit. He said that the region would be better served by a relatively large facility such as Quoddy Bay's proposed terminal than by multiple smaller facilities.

"The cumulative impact of the small proposals is greater than the impact of one large terminal," he said.

The ability to transmit imported gas from Canada or Maine to consumers depends on the Maritimes & Northeast Pipeline, which was built in the late 1990s to tap into natural gas deposits off Nova Scotia at Sable Island.

Last year, Maritimes & Northeast agreed to transmit an additional 1.5 billion cubic feet of natural gas each day from Bear Head and from another terminal under construction in Saint John. The Saint John facility, Canaport LNG, is a joint effort between Canadian energy firm Irving Oil and Repsol YPF of Spain and Argentina, which will provide the terminal's LNG supply.

Maritimes & Northeast has applied to FERC to increase its delivery capacity by adding 146 miles of parallel loops along the existing 200-mile pipeline between Baileyville and Westbrook and compressor stations in Maine and Massachusetts.

Pipeline company spokeswoman Marylee Hanley said last week that because Anadarko has changed its construction schedule, the expansion plans are aimed only at handling gas from the Canaport LNG terminal, which is expected to have a processing capacity of 1 billion cubic feet a day. If Bear Head or another LNG terminal project in the region were to move ahead, however, the pipeline company would look to increase its capacity further to accommodate the additional gas supply.

"Our pipeline was built to be readily expandable," Hanley said.

Bill Trotter

btrotter@bangordailynews.net