This is what happens when a bet on energy prices goes spectacularly wrong.
Anticipating that natural gas prices in New England would remain high, two companies spent $350 million to $400 million each just a few years ago to build terminals off the North Shore of Massachusetts to bring imported fuel to local consumers.
But as soon as each facility opened, the bottom fell out of the natural gas market and neither offshore terminal has received a drop of imported fuel in more than two years.
Now the companies are stuck with $750 million worth of unused buoys and pipes sitting idle in the ocean.
“All that money, and it’s a bust for them,” said Bernie Feeney, president of the Massachusetts Lobstermen’s Association, which had opposed the two terminals because they block off a portion of rich marine grounds to fishing.
The companies that built the terminals said they are standing by their investments, noting that fuel costs have a history of fluctuating, and that something as common as a long winter could push prices high enough to justify importing gas again. The terminals were built during a period when gas companies believed that cheap liquefied natural gas from overseas suppliers would be in demand by an energy-hungry United States.
What those companies did not foresee was how much their suppliers would be undercut by an even cheaper trove of natural gas: the United States.
Thanks to the controversial drilling technique known as fracking, enormous deposits of natural gas buried in shale rock fields in the Eastern United States have flooded domestic markets in the past few years, cutting fuel prices to a quarter of what they were when the offshore LNG terminals were being built.
“There was a lot of panic and rushing to build new LNG terminals at the time,” said Seth Kaplan, a vice president of the Conservation Law Foundation. “There was no careful thought about whether they were needed — and they weren’t needed.”
For consumers, such developments are a good thing as New England is now spending much less on energy costs.
But the companies that tied up so much money in the two terminals do not know when they’ll see their investments pay off — if at all —
“It’s going to be a long time before they’re used on a regular basis as envisioned,” said Rick Smead, a specialist in natural gas markets for Navigant Consulting Inc. in Chicago.
Smead and other analysts noted each of the Massachusetts terminals has as an owner a major European conglomerate committed to keeping the facility open, and with deep pockets to weather a long drought.
But one of the companies, Excelerate Energy, has already dismantled a similar offshore terminal it owns in the Gulf of Mexico —
‘There was a lot of panic and rushing to build new LNG terminals at the time. There was no careful thought about whether they were needed — and they weren’t needed.’
The two facilities off the Massachusetts coast are not fuel terminals in the conventional sense — with platforms and pilings that jut out of the ocean; rather each is a system of underwater pipelines connected to large buoys that serve as intake valves to receive the gas from shipping tankers.
During idle periods, the intake buoys are submerged, and the only visible sign of the terminal is a small marker buoy.
Located about 13 miles southeast of Gloucester, the Northeast Gateway Deepwater Port cost $350 million and opened in 2008, when natural gas prices were hitting a peak — $12 per 1,000 cubic feet. In its first few years it received some shipments of gas, but none since 2010.
Same too, for the Neptune Deepwater Port, located 10 miles off Gloucester and built at a cost of around $400 million. It opened in 2010 and also received a few small shipments that year, and nothing since.
Meanwhile, because of the surge in gas from US domestic sources, wholesale prices have plummeted to around $3 per 1,000 cubic feet.
The low prices also claimed another controversial LNG terminal. Hess LNG had proposed building a facility at Weaver’s Cove in Fall River, but eventually abandoned it in 2011, citing the changing market conditions for LNG imports.
The Northeast Gateway is owned by Excelerate Energy of Texas, which itself is jointly owned by billionaire George B. Kaiser and the giant German energy concern RWE AG.
Jon Cook, Excelerate’s chief operating officer, said the terminal remains “in a state of readiness,” noting that recently gas prices almost got high enough for the company to resume shipments.
“The market for natural gas in the northeast part of the US remains fairly volatile and circumstances could warrant deliveries to be made in the future,” Cook said.
And prices for natural gas on the spot market for New England have indeed jumped in the past few weeks due to high winter demand and constraints on existing pipelines to bring more fuel into the region.
Forecasters said spot market prices, for fuel that fills unexpected demand, are approaching the point where importing gas via the LNG terminals may make sense again. But they caution that such price spikes are infrequent and shortlived, too.
Last year Excelerate Energy decommissioned its Gulf Gateway terminal in the Gulf of Mexico because of the adverse market conditions for importing LNG.
Excelerate removed the Gulf Gateway’s buoys, mooring system, and other equipment, and filled, capped, and buried its pipeline in the sea bottom.
The Neptune terminal is owned by GDF Suez SA, one of the world’s largest energy companies, with around $121 billion in revenues in 2011. GDF Suez owns a third LNG facility in Massachusetts, the Distrigas terminal in Boston Harbor in Everett.
That plant, too, has experienced a huge drop in imports as domestic supplies have soared. It now has one primary customer, the Mystic Power Station electric plant next door, under a long term contract that does not expire until late next decade. Shipments to the Everett facility arrive via huge tankers that, because of terrorist concerns, require a small navy of Coast Guard ships and other armed escorts.
Distrigas spokeswoman Carol Churchill said the company is far from giving up on the Neptune or Everett facilities.
“Neptune was built as a long-term investment meant to supplement the Everett LNG terminal,” Churchill said. “As with the Everett LNG Terminal, we will seek to adapt its use to the market conditions.”
Over the long-term, meanwhile, the prognosis for the Massachusetts LNG facilities is not promising.
Andrew Brooks, an oil and gas analyst at Moody’s Investors Services, a Wall Street credit agency, said gas prices are forecast to remain in the $3.50 to $4 range for at least the next few years, perhaps longer — far from the double-digit prices that would justify resuming regular LNG imports.
Meanwhile, natural gas prices in Europe and Japan are much higher than in the United States, which means exporters are unlikely to send LNG shipments regularly to New England when they can get so much more in other markets.