August 2013 Port Bureau News

Greater Houston

Aug u s t

2013

Po r t B u r e a u

LPG & NGLs Liquid Petroleum Gas, Natural Gas Liquids, and the rest of Alphabet Soup

LNG For Ships?

Building a Case for LNG Bunkering

Spotlight On: Mr. Danny Schnautz Clark Freight Lines

International Energy Outlook “World Energy Output will increase by 56% between 2010 and 2040

MEMBER DRIVEN - MARITIME BASED - VALUE ADDED

CAPTAIN’S CORNER

WONDERS OF HOUSTON

The Eighth Wonder of the World—the Astrodome? If I had eight days left on earth, my bucket list would not contain seeing the Astrodome. To me the stadium is a testimony of what happens when you don’t maintain something. I understand that the Astrodome was the world’s first domed stadium, and many Houstonians have fond memories of what it has hosted - from Elvis Presley and Earl Campbell to Nolan Ryan and Billie Jean King. But to me (a non-native Houstonian), the Astrodome’s glory days have long passed.

Instead of the seven Wonders of the World let’s consider the Wonders of Houston. In a 1951 book entitled Houston: Land of the Big Rich, George Fuermann called the Port the “First of the Seven Wonders of Houston”. He wrote: “the channel was the fertilizer, water, and sun for a new crop, industry, that joined the older crops, cotton and oil, as a source of Houston’s wealth…the Houston Ship Channel has been a spellbinding magnet in fetching new industry, new citizens and new dollars to the Houston area.” I like Fuermann’s wording; however, his use of the “seven” wonders actual caused me to launch into a different curiosity quest: what are the Wonders of Houston?

Of course I started my search with Google. One interesting article popped up: The Seven Wonders of Houston, written by Claudia Feldman in July 2007 for the Houston Chronicle, which listed the Beer Can House (222 Malone St) as a Wonder. Now my beer 2|

August 2013

drinking brother, Bert, from Cleveland would probably include this as a wonder— but, I’m not sure it was what Fuermann had in mind. So I continued my quest.

Next up came the seven 70-ft-tall pillars “Seven Wonders” by Mel Chin which can be found in Buffalo Bayou’s Sesquicentennial Park. These pillars of “Seven Wonders” represent Houston’s history through the themes of agriculture, energy, manufacturing, medicine, philanthropy, technology and transportation. But these abstract concepts seemed too broad: I didn’t want themes, I was searching for things. So, the quest continued.

My third lead to figuring out the Seven Wonders of Houston required me to drive over to the impressive Federal Reserve Bank building (1801 Allen Pkwy) near downtown. Listed on cylindrical plates embedded in the sidewalk in front of the building are short tributes to Houston Economic Milestones: the 1836 Founding of Houston, the Houston Tap Railroad from 1856, the 1914 christening of the Houston Ship Channel, Humble Oil Refinery’s opening in 1919, The Texas Medical Center’s beginnings in 1945, NASA’s 1961 opening of the Manned Spacecraft Center, and the 1990 G-7 Economic Summit held at Rice University.

The wording milestones trips me up, but I can argue that five of these events showcase some of the Seven Wonders of Houston. The Petrochemical Industry, the Texas Medical Center, the Port of Houston,

our regional universities, and NASA. Here is the sad news though: I think the Port - and with it, some of our petrochemical industry - is in jeopardy of fading without adequate maintenance funding.

At a Senate hearing last week over the expansion of the Panama Canal, Senator John Rockefeller (D-West Virginia) said that “We’ve grown accustomed to an ad hoc approach to our infrastructure.” His colleague Frank Lautenberg (D-NJ) released a statement that “it will be more important than ever to make smart, multi modal investments to ... better prepare our ports, rails and roads.” I agree with these sentiments, but call attention to something that William Cassidy from the Journal of Commerce noted about the hearing: everyone agreed that we have problems with infrastructure funding in the United States “but there was little talk at the hearing of a solution”.

At this time, our maritime industry is not well positioned to garner dredging funding from Congress.

But to me, this is a simple message: importers bringing cargo to the Port of Houston contribute more than $100 million annually to the Harbor Maintenance Trust Fund - more than double what we need to maintain our waterway. But, when it comes time for fund allo-

Editor’s Note: The Port Bureau News strongly endorses all Houston landmarks. Need we remind anyone that Mickey Mantle christened the Dome with an inaugural home run? That Willie Mays hit his 500th HR into section 470? Or that President Bush was nominated for a second term on its hard-yetwelcoming turf? I think not. Go Astros. cation, we’re not getting the $50 million per year that we need to keep our channel deep and wide. Since June 14th, vessels coming into Houston have been restricted to 43’06”, and the Army Corps is working to perform emergency dredging. We know from a similar situation last year that this may end up costing us up to ten time what normal maintenance would have.

Because of the lack of maintenance, we are at risk of fading into the non-relevant Wonders column.

While most major ports around the country are going to 50’ deep, we are struggling - and failing - to maintain 45’. My opinion is we need to fight more for funding now, or eventually we will be sitting around and saying I can remember when we were impressive—like the Astrodome.

BARGING AHEAD ever so politely.

B

Buffalo Marine Service, Inc.

www.BuffaloMarine.com

Greater Houston Port Bureau | 3

July 2013 Commerce Club Featuring

Mr. Scott McClelland President H-E-B

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August 2013

Page Left: Top-Left: Scott McClelland, H-E-B, and Steve Stewart, Gulf Winds International Top-Middle: Jorgen Jorgensen, Biehl & Co., and Niels Lyngso, West Gulf Maritime Association; Upper-Left: Marian Livingston, Bank of Texas; Upper-Middle: Guy Hitt, Frost Bank, and Peter Wurschy, Texas Terminals; Upper-Right: Chairman Janiece Longoria, Port of Houston Authority, and David Vise, Merrill Lynch; Lower-Left: John Taylor, Houston Mooring Company, and David Clark, Targa Resources; Lower-Middle: Robert Sakowitz, Hazak Corporation, and Darlene Ruiz, Mediterranean Shipping Company; Lower-Right: Steve Garifalos, NYK, Laci Theriot, Chris Ransome and Associates, Niels Lyngso, WGMA, and David Clark, Targa Resources.

Page Right: Upper-Left: Mark McClelland, H-E-B, Michelle Meisenhalder, Albacore Shipping, and Bernard Parnell, BBVA Compass Bank; Upper-Right: Don Welch, Midpoint Partners LLP, David Halbert, Houston Mooring Company, and CA Rousser, the Rousser Companies; Lower-Left: Steve Nerheim, Houston Vessel Traffic, and JJ Plunkett, Houston Pilots; Lower-Right: Jordan Frisby and Ricardo Arias, Port of Houston Authority, and Danny Schnautz, Clark Freight Greater Houston Port Bureau | 5

THE EROSION OF GAINS? Port Watch - Tom Marian, Buffalo Marine Service Economic news throughout the nation is somewhat bright as various indicators reflect guarded optimism, increased construction activity and stable gains in the employment arena. Yet, a nagging undercurrent of insecurity remains as business interests ponder whether or not recent positive trends are sustainable or merely a reflection of aggressive margin expansion and the Feds exuberant printing press. On the regional maritime trade front, May’s boon gave way to a June bust as several ports documented one of their poorest months of the year.

Admittedly, it is not unusual for the last month of the 2nd quarter to exhibit cautious tendencies before the renewal of trade momentum to satisfy the late summer/early fall consumption increases. Nonetheless, if the year is poised to finish above a previous year, the monthly lull is typically not accompanied by a year-todate loss. With that, it is interesting to note that the region’s biggest port is down for both the month and the year; however, the total vessel arrivals for Texas as a whole are still in positive territory by well over 2% despite an 8.4% decrease for the month.

due to Sabine’s robust performance.

June witnessed the greatest number of vessel arrivals for the year and bested its previous peak of May by 3.5%. This back-to-back monthly rally has contributed to a year-to-date improvement of 20.5% much of which is attributable to continued expansion of the port’s refinery infrastructure and accompanying export of refined petrochemical products. The only port that can boast of better year-todate gains is Brownsville at over 30% which was no doubt aided by a 4% rise in vessel arrivals in the last month.

Granted, Brownsville’s vessel arrival numbers are about 1/8th that of Sabine’s. Corpus Christi, on the other hand, at about 80% of Sabine’s marine traffic volume, is up by over 20% for the year even after factoring in a monthly drop of vessel arrivals to the tune of over 2%. This should not come as any surprise following the previous month’s record performance. The 3rd and final port to see positive arrival numbers for the month (5%) was Port Lavaca/Point Comfort, but it historically sees the smallest number of ships and remains down by over 8% for the year.

Perhaps one of the reasons the Texas port picture remains positive is

The remaining Texas ports were off for the month. Starting with Tex-

as City which welcomed 2% fewer deep drafts.

This added to its year-to-date woes where 2013 is already over 9% below 2012. Its neighbour to the south – Galveston – which had been enjoying a more productive year saw most of those gains dwindle to less than 1% with a month-to-month decline of 8%. Freeport is faring a tad better for the year with gains standing at 3.5%, but a third consecutive monthly drop of nearly 2% does not bode well for the second half of the year. Finally, the Queen of Ports – Houston – was the only port to post double digit losses for the month. Specifically, over 15% which further dragged down its year-to-date vessel arrival performance by more than 3%. Not surprisingly, such a dramatic plummet meant every vessel category for Houston fell in the negative column. In fact, only two categories – tankers with a 5.5% decline and car carriers with a 7.7% decrease – did not suffer double digit losses for the month.

Everything else was far from heartening.

This month’s top three loss leaders for Houston were Ro/Ro vessels by 40%, Ocean-going tug and barges by over 29%, and chemical tankers by 28.5%. Of the three, only Ro/Ros were down for the year (4.5%) while the blue water barges and chemical tankers were higher by nearly 4% and over 7% respectively.

General cargo vessels and bulk carriers were also up for the year – 2% and 7% respectively – but suffered the same fate as every other category with monthly wanes of 12% and 17% respectively.

Containers and cars were down for the month by nearly 13% and almost 8% respectively; for the latter that translated to one less car carrier. These two categories also had identical year-to-date lapses at 6.1%. For the year, LPG has had an impressive run with 21% more arrivals but that was certainly not aided by the nearly 14% monthly drop.

The paltry vessel arrivals for a number of ports and vessel categories within those ports certainly eroded the gains bolstered by May’s notable performance.

Whether this is systemic or a mere hiatus before the resumption of greater imports and exports so that 2013 will be an improvement over 2012 is the question of the quarter. While the day-to-day chatter is upbeat and allegedly foretells

of brighter economic horizons, things are still somewhat disquieting as international demand for manufacturing components appears to be losing traction.

To date, July’s marine trade picture indicates that a 3rd quarter rebound is unfolding. Yet, for all that is moving forward, there are lingering indicators that stubbornly resist to respond to positive rhetoric. Hopefully, the remaining hard-earned gains will not succumb to further losses and things will remain bright through the end of the year. -Tom Marian, Buffalo Marine Service

Providing marine services to vessels along the Gulf Coast for over 20 years. We own and operate USCG approved liquid vacuum trucks, a 10,000 bbl Tank barge for marine pollution (Marpol) waste, a 10,000 bbl tank barge for carrying industrial wastewater, a 10,500 bbl tank barge for carrying clean chemicals and a 1800 horsepower Tug for removal and transportation of various material.

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Clark Freight Lines

Mr. Danny Schnautz

“I took my first truck ride when I was two days old, and all I’ve wanted to do since then was drive a truck.” Danny Schnautz is a trucker. In the office at Clark Freight Lines for twenty-three years, “I still have my CDL - even though I do end up taking customers on rides, I make sure to haul a couple of loads of year. This year, I think I’m heading up to Chicago.” Active in industry groups, regional partnerships, charities, and national freight panels, Danny is a grassroots advocate for safe, effective trucking. “We’re way ahead of where we were, but we still have a ways to go so that people realize that we’re not just steering-wheel holders, but dedicated professionals.”

Born and raised in Olney, Illinois, Danny’s father drove for US Steel. “He still drives - owns his own truck, still puts in a good full week, not one of those reduced-mile guys. He was born in 1940 but still jumps around like a 30-year old.” When Danny was young, his father was transferred to USS’s Oil Well Supply division and the family packed up and moved to Texas. Danny attended Sam Rayburn High School, and starting while in high school, was on the road. “I started driving for a company called Beta Supply; then went into the warehouse as a manager.”

sometimes it means we go down to the warehouse next week with a box of doughnuts. I’m not saying this all to brag, but it’s the way we believe our drivers deserve to be treated.”

In addition to his work at Clark, Danny sits on the Federal Motor Carrier Safety Advisory Committee (MCSAC) of the Federal Motor Carrier Safety Administration (FMCSA). The MCSAC is a 20-expert panel from motor carriers, safety enforcement, industry and labor that meets to hash out new rules/regulations and give the rulemaking process a running start on agreement.

“So, if FMCSA tried to make a rule without any input, they’d have to receive comments, address the issues, then go back for comments again - this group means we can look across the table at each other and say ‘Well, that doesn’t work for us, but what if you did it this way?’ At the same time, when I’m talking to someone from law enforcement, and we’re both trying to work something out with a shipper, the FMCSA can say ‘Wait a minute, that’s outside our scope, we don’t need to address that here.’” Danny’s experience as a real-world driver is a major contributor to his success when working with groups like MCSAC. “Truck driving... it’s another world that you enter, not just a different desk that you sit at. There are a lot of different professions like that, where you end up with a completely different mindset, but I think it’s valuable to have someone at the table that understands what a rule may mean to someone that’s living a completely different lifestyle than the people making the regulations.”

“I liked to haul flatbeds when I drove - you know that you’re putting the load on, you secure it, and you’re responsible for getting whatever it is to the final destination with no bends, with no rust. And more than that, you get to see some neat stuff. I hauled a wing pylon from Davis Air Force Base in Arizona to the upper peninsula of Michigan - it was a light load, but we had to load/unload Danny’s had a long career in the trucking industry, in a hanger, had a tarp over it the whole way. That was something and as an advocate for his drivers, his company, different.” and his business, is always willing to talk about what makes trucking better, and how the indusSoon, Danny came out of the office and drove for a comtry is changing. “I mean, at the end of the day, we pany that became Clark Freight Lines. “It was complicated - we all want better trucking. I’d love to see entry-level were over in Houston, merged, then split back up, all in the middriver training - I mean, we license and certify 80s. So I drove long-haul for a couple of years, and then came into people driving boats, and airplanes, but there’s the office here 23 years ago.” Clark Freight Lines now employs not nearly as much work required to get a CDL. just under 200 drivers with 28 support staff in the office. “One of I think if we, through tightening standards, and the things that we’re proud of is that our turnover here, our churn, more training/development programs, weed out is less than 10%. That’s about 1/10th of the industry average, and some of the steering-wheel-holders and end it’s because we try to treat our drivers well. We try to be friendly beup with a group of dedicated professioncause we all know that when they call in, we may be the only friend al truckers, it’ll be better for all of us.” they have. I remember that back in the 80s, and when a driver calls and says, ‘Here’s a problem’, we try to ask, ‘Well, how often does “I don’t think we’re going to this happen, what do run out of truck drivers, because it’s you think the issue something that people can learn. is,’ so that even if we Nothing happens in a vacuum can’t fix their problem, - if oil prices fall tomorrow, we can keep them in- we’ll need more truck drivers formed. Sometimes it’s for the increased domestic as simple as looking traffic, and the free enterup a schedule online; prise market can help out 8 | August 2013

with that. There are plenty of people out there who can drive a truck, but it’s not worth it to them. So if the market takes care of that, if a shipper can’t move their load, then drivers are going to be able to make a more consistent living as rates increase. All of a sudden, we’re not talking about a $30,000 per year job - where you may never be home, you live a hard life, and you’re not always respected - but we’ll be talking about a start-at-$50,000, work-to-$80,000 per year profession that people start to get into.

At the same time, if oil doubles, we may not need as many truckers as planners look around and say, ‘You know, I may be able to get that locally - it may be an extra $30/unit, but I’ll still come out ahead by saving on transportation.’” Danny has testified in front of Congress on TWIC implementation and fuel issues, and as editor of the Wheel magazine, edited many articles for over ten years, including the Profiles in Transportation columns for the Transportation Club of Houston.

we’re just going to dock your pay for this run,’ but if any company does that, they are creating an incentive to have the driver act in an unsafe manner- he may have a vehicle defect and keeps driving, he may be tired and keeps driving. The Clark Freight Lines Safety Manager Jeff Tippit, courts are saying, if Congressman Pete Olson, and Danny in September 2010 before a ride-along you’re the company pushing for that, you’re creating a situation where you can cause injury through “When I first came into the office, I wrote a list: ‘10 Things I negligence or recklessness because you’re not exercising reasonHate about Trucking’, and I’d glance at it every once in a while. able care.”

With time, I turned that sheet of paper over and on the same sheet wrote ‘10 Things I Love about Trucking.’” A trucker at heart, Dan“When I started, that didn’t exist. When it was regulated, you ny has earned two associates degrees from San Jacinto College didn’t have any of that anyway – but at the same time, that’s a in Business Management and Pilot Development. “I’m an air- double edged sword. Yes, carriers had some authority over routing plane pilot, too, with a commercial pilot’s license and instrument and scheduling, they made good money, but competition was limrating, and love flying. I’ve actually back-seated when we landed ited, so you really only had few options. Back then, with regional on a carrier during a Tiger cruise.” dispatch, you weren’t necessarily as responsive to the driver either.

So the regulations – and for that matter, lawsuits – have changed “Everything goes in cycles – and I really think carriers have a the marketplace a little bit.” little better treatment now than they did when I came in the office – one example was Just-in-Time – unfortunately it took something Danny’s mother still teaches piano in Pasadena, as she has like 9-11, but that interruption to the supply chain told people that for nearly 30 years. Danny was recently married; he and his wife ‘Man, we can’t cut things that close, we can’t schedule trucks to Cammie have five stepchildren, and are active at the First Bapa two hour window, we can’t schedule containers-in-port from tist Churches of Houston and Pasadena. Danny has served as a Italy to Kansas to +/- one day.’ So now inventories are built just Sunday School teacher, a director, a server, a van driver, and is a little bit higher, so trucks are +/- a day, and imports are +/- a dedicated to his faith. Danny is a reserve Harris County Deputy few days. We see that, and at the same time, I saw a notice that vi- Sheriff, holding the rank of Captain and a Texas Master Peace carious liability is created if you make a driver’s rescheduling Officer’s license. During his free time, Danny is active with a punitively fined event. And that was – and in many charity and industry groups such as the Transportation Club of places still is – a pretty standard industry prac- Houston and Transportation Club International (where he contice. A driver says, ‘I can’t make that time slot’ sistently serves in leadership positions), as well as the Rotary and the company - the shipper, the consign- International, The Salvation Army, The Bridge over Troubled ee, even the carrier, says ‘Okay, that’s fine, Waters, NDTA, HCBFFA, HACA, ITMA, and traffic clubs in nearly a dozen cities,. He is also the local precinct chair for the Republican Party. If you’re looking for Danny, he can be found on the ham radio waves under the callsign KE5 IQH.

I took my first drive when I was two days old, and all I’ve want to do since then was drive a truck Greater Houston Port Bureau | 9

Tulips, Tanks, Terminals, and Trade: The Netherlands-Flanders Joint Economic Mission to Texas “[To us,]atfirstglance,farawayTexasevokesimagesofcowboys, saloons, and vast plains... and probably to you, the Netherlands is a land of wooden shoes, tulips, and windmills.” Prime Minister Mark Rutte got a laugh and a grunt of acknowledgement from the crowd as he began his remarks to Mayor Parker, representatives from the governor’s office, and port officials from Texas and northern Europe and the 300+ professionals assembled in early July for a Trade & Investment dinner at Bell Tower on 34th.

large business delegation from Flanders and the Netherlands. Our aim? To make this relationship even better and more profitable for everyone involved.”

“Let me give you a few more figures. Dutch investment and trade has (created) 100,000 (jobs) in Texas. The total trade volume between Texas and our delta region is $15 billion. So the Lone Star State is vital to trade relations between our countries.

Of course, there’s always room for improvement.

And that’s why we’re here. Kris Peeters and I have brought along some of our colleagues and a

The joint delegation met with regional port officials as Dutch Infrastructure Minister Schultz van Haegen and Flemish Public Works/Mobility Minister Crevits brought executives from the ports of Amsterdam, Antwerp, Ghent, Rotterdam, and Zeebrugge to engage in a roundtable discussion with the Port of Houston Authority, Greater Houston Port Bureau, and Port of Galveston. The two-hour long talk focused on the effects of shale gas on the international energy transport chain, and the prospects for further cooperation between the Flemish/Dutch harbors and the Houston Port Region.

From 7-10 July, Dutch Prime Minister Mark Rutte and Flemish Minister-President Kris Peeters brought a joint trade mission to Texas in order to promote the Flemish-Dutch delta as a bilateral trade partner, investment destination, and partner in the fields of knowledge, technology and high-value production.

While in the region, Prime Minister Rutte and the delegation also visited the Vopak Terminal Deer Park West for the opening of a new rail loop facility at the terminal. Vopak’s new 120 car facility with a two-

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mile circular track caps the 108 acre site which operates as one of the company’s three hubs for global trade. Vopak president Dick Richelle spoke to the group and explained that “Houston is similar to Singapore and Rotterdam/Antwerp because of the variety of products that are being served... and the opportunity to serve customers around the globe which is simply enormous.” At the same time, he noted that when compared with the company’s

84 terminals in 31 countries, “Houston is one of the few locations that can function as a terminal, major trade flows in and out and a variety of products of being stored. There are multiple types of customers that we are serving and are significantly different.“

(Top-Left): Dutch, Flemish, and Texan Port Officials discuss maritime opportunities (Bottom-Left): Vopak’s General Manager Gulf Coast Colin Scott, and President Dick Richelle with Minister Crevits, Minister-President Peeters, Minister Schultz van Haegen, and Prime Minister Rutte opening the new Vopak rail spur. (Top-Right): Colin Scott, GHPB President Bill Diehl, Frans Dieryck, Essenscia Vlaanderen and Dick Richelle. (Middle-Right): Prime Minister Rutte and Patrick Seeba, GHPB

Greater Houston Port Bureau | 11

Jim Lewis - LNG Expertise, PLLC

Building a Case: LNG FOR SHIPS Liquid fuels are easy to transport, store and handle, making them the primary source of vehicle fuel today.

Initially, internal combustion engines were developed for gas (vapor). Coal-fueled steam was the first propulsion energy but was not able to compete with gasoline -- and later diesel -- in terms of cost, performance, range, and ease of use for personal transport. With the popularization of liquefied natural gas (LNG) in the 1960s, LNG was technically in the game but had no players (sources) and no playing field (infrastructure) for entering the vehicle game.

In the early oil patch days, natural gas was considered a waste product and was vented or flared. A well that only produced natural gas was considered “dry” and was plugged and abandoned for lack of a nearby market and the difficulty in handling it.

Growing demand for natural gas made the investment in solving the handling and transportation challenges economically feasible. This led to two main handling methods: (1) pressurization to flow through pipelines; and (2) liquefaction, achieved by condensing the gas into a liquid by cooling it to approximately -260oF. When liquefied, 620 cubic feet of natural gas (atmospheric pressure and

ambient temperatures) will condense into only one cubic foot of liquid at atmospheric pressure and -260oF, allowing compact storage and handling. The first LNG efforts were directed at storage for meeting peak heating demands.

This led to ship design for ocean transport (the Methane Pioneer, 1959) and commercial transport in the 1960s.

These shipments were from “no-market” sources to “no gas” markets. Early shipping projects were from Algeria and Libya to Europe in 1964 and from Alaska to Japan in 1969. These trades developed because of low gas value at the source and the high value of fuels in the consuming destinations.

With the growth of industrial energy requirements, space heating and power generation, the international LNG trade has now grown into a fleet of more than 300 LNG carriers. It has also led to more than 40 LNG import terminals and a similar number of export terminals.

Despite excellent insulation practices, LNG containers, such as cargo tanks and fuel tanks have some heat transfer.

This is due to the 300oF temperature gradient between the tank interior and ambient temperatures, which causes a small amount of vaporization -- referred to as “boil-off” gas.

For the LNG carriers, this boil-off gas is recovered and used as fuel for boilers to provide steam turbine propulsion along with a bit of LNG cargo as needed.

Two slowly emerging concerns have evolved over the last decade: deteriorating air quality and the escalating cost of fuels and energy in the face of accelerating demand. As a result of the ability to recover natural gas from tight gas shales, there is a U-turn in the fuel markets. The enormous gas resources being developed from tight formations have dropped the price of natural gas very significantly. Substituting natural gas for other heavier carbon content based fuels will reduce emissions of carbon dioxide and, more importantly, sulfur oxides.

While desulfuring conventional fuels is expensive on top of the cost of the fuel itself, the sulfur compounds are

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routinely removed from LNG to avoid formation of frozen solids at the very low temperatures.

The combination of lower cost and reduced emissions is an especially compelling argument in favor of using LNG as fuel for large fuel users such as ships, locomotives and heavy duty trucks. There are probably more economic studies on LNG fueling than there are economists. It is difficult to make meaningful general comparisons between fuels using conventional units, such as miles per gallon or tonnes per nautical mile, because the fuels have different volumes and heating values. One credible comparison utilizes the energy (BTUs) cost, i.e., $/million BTUs. This comparison suggests that the delivered cost for mandated low sulfur diesel fuel will be about $34 per million BTUs and in the range of $5 to $6 per million BTUs for LNG. There are a multitude of uncertainties that contribute to the total cost conclusion, but the bottom line is that the LNG will save money.

The buffet of incentives is attractive but not free. The cost per mile should include equipment and maintenance costs as well as fuel cost. For LNG the cost of equipment will be higher but maintenance lower. The net pay back period is attractive.

If international or domestic vessels are to use LNG there must be an infrastructure to support its use. This includes LNG availability, a fueling network and a safe and efficient bunkering technology. We take for granted that we can find at least one gasoline service station at every truck stop at most highway intersections. With the incentives, the infrastructure will develop. However, it will be less than optimum unless well-coordinated within this developing industry.

LNG bunkering approaches are now being widely discussed. This primary approach is following the conventional diesel and fuel oil bunkering at the berth by barge or from shore. This would require LNG barges making “milk runs” or large lift-on, lift-off LNG fuel tanks at each berth or a shore side LNG storage tank at or near each berth. In each such case, there will be some heat transferred to the fuel resulting in some boil off gas needing recovery. Delivery barges have the disincentive of increasing port congestion to comply with LNG regulations and barge-to-ship transfer. In addition, there is not yet a standard for LNG cryogenic hose fittings, possibly causing a compatibility issue.

A “ship refueling stop” facility at the port entrance could make

more rapid fueling possible and offer a better emergency response. Such a facility would need to handle the traffic patterns of the port with minimal delays. The refueling could be undertaken on the inbound transit, but there would be a small increase in draft. This would also increase the physical amount of LNG in the inner harbor thereby raising a safety concern and a regulation compliance issue.

The delay time could possibly be offset by USCG boarding and Customs and Immigration procedure delays.

Refueling on the outbound transit would provide less draft in the harbor and less delay for unloading of cargo.

The facility could easily be designed to accommodate both in-bound and out-bound vessel traffic plus service vessels in the harbor. The LNG source can be export terminals now under construction, new small liquefaction plants or both.

For a port the size of Houston and Galveston, the single “ship stop” approach would require a very large and well thought-out facility which probably detracts from competition unless it operates on a fee basis rather than a commodity base.

It is fairly clear that LNG can and should be very good marine propulsion fuel. The challenge is to do it right, be customer friendly, minimize risks and be a good deal at the gas pump. This will take good organization and diligent cooperation.

The “chicken and egg” analog has been used to describe the conundrum as to “does the LNG or the infrastructure come first”? The large LNG fueled ships are not yet here and neither are large LNG supplies. The worldwide mandate for ultralow emissions does not allow time for philosophical mediation. The Port of Houston has the smarts and the capability to be the early bird in the hunt for economic growth and blue skies.

-Jim Lewis, LNG Expertise, PLLC Golden Pass LNG terminal on the SabineNeches Photo Credit: Roy Luck

Greater Houston Port Bureau | 13

HarborLights Expands to Freeport

Port Tour for Appropriators

As of 1 July 2013, the HarborLights System is open in Port Freeport.

With a common dispatch center run by the Houston Pilots Association, the Brazos Pilots have made vessel movement information available to users of the HarborLights Vessel Traffic Management System. Stay tuned for exciting updates from the HarborLights team, Houston Pilots, Galveston-Texas City Pilots, Brazos Pilots, and the Port Bureau.

DHS National Protection and Programs Directorate Deputy Director Mr. Robert Hanson, and Staff Member Cornell Teague from the US House Committee on Appropriations - Homeland Security received a tour of the port from Port of Houston Authority HSSE Managing Director Marcus Woodring, Deputy Executive Port Director Phyllis Saathoff, and Dennis Storemski, Director of the Mayor’s Office of Public Safety & Homeland Security earlier this month. The goal of the National Protection and Program’s Directorate is to advance the Department’s national security mission by reducing and eliminating threats to the Nation’s critical physical and cyber infrastructure.

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Greater Houston Port Bureau | 15

Alphabet Soup From LPGs to NGLs

LPGs or Liquefied Petroleum Gases are a sub-set of NGL’s or Natural Gas Liquids.

Both are components of the natural gas production stream in addition to a product recovered in relatively small quantities during the refining process. However, the substantial and primary source of NGLs is the natural gas stream.

The composition of natural gas as it exists underground is not exactly the same as the natural gas delivered to homes and businesses throughout the world. The natural gas delivered for consumption is essentially pure methane, while natural gas underground contains various other gases as well as other trace compounds and water.

These various other gases and impurities are removed before the “dry” natural gas is injected into the distribution system.

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PRODUCTION Natural gas production can be classified as either conventional or unconventional.

Natural gas production from conventional reservoirs accounts for approximately 95% of the natural gas produced in the United States according to the US Geological Survey’s National Assessment of Oil and Gas materials on Natural Gas Production in the United States.

First, some definitions: if conventional, a reservoir has discrete geographic and

geologic boundaries with well-defined hydrocarbon-water contacts. Natural gas production from conventional reservoirs is further sub-categorized as either associated or non-associated. Associated natural gas production occurs in conjunction with a well that also produces oil. Conversely, nonassociated natural gas production occurs solely from a well that produces only natural gas. Non-associated natural gas production, i.e. natural gas from gas wells, historically has been about double the production when compared with associated natural gas wells.

Reservoirs of unconventional natural gas have neither discrete boundaries nor obvious geographic or geologic seals or traps. Examples include shale, coalbed, and tight formations, generally limestone or carbonate. Wells from these formations produce only natural gas.

Since natural gas is delivered into the distribution system as “dry” natural gas or methane, impurities and various other gases must be removed from the production stream. This process is known as natural gas processing and consists of separating the various other gases and impurities to produce pipeline quality “dry” natural gas.

NATURAL GAS PROCESSING Gas processing plants are located throughout the country in areas that are in close proximity to the geologic basins that produce the natural gas. Capacities of the gas processing plants range from 50 MMCFD to 8,500 MMCFD (in terms of BOE – Barrels of Oil Equivalent - 10 to 1,500 MBD) with the capacities of the vast majority of the facilities being under 200 MMCFD (35 MBD). The larger facilities are located along the Gulf Coast. These larger facilities accommodate the need to process the substantial quantities of natural gas that is produced offshore in the Gulf of Mexico.

NGL CONSTITUENTS The various gases contained in the natural gas production stream are known as NGLs or Natural

Greater Houston Port Bureau | 17

Gas Liquids. These gases include ethane and pentanes, as well as propane, butane, and iso-butane. These latter three products are also known as LPG’s or Liquefied Petroleum Gases.

NGL TREATMENTS There are two basic steps in the treatment of natural gas liquids. First the liquids must be extracted from the natural gas production stream.

Second, the

extracted liquids must be separated into the distinct individual components. There are two principle methods for extracting NGL’s from the natural gas production stream: the absorption method and the cryogenic turbo-expander process. In today’s world, the cryogenic turbo-expander method is the primary NGL extraction process.

The cryogenic turbo-expander method, using external refrigerants, chills the natural gas stream. Once cooled the natural gas stream passes into a turbo-expander that rapidly expands the chilled gases, causing the temperature of the gas stream to drop significantly. The rapid temperature drop condenses the NGL’s to a liquid phase, but the temperature is not sufficiently cold enough to condense the methane.

The methane is collected as a gas and then injected in to the distribution system as “dry” natural gas, while the NGL’s are drawn off and sent to fractionators.

Fractionation is a process separates products based on the different boiling points of each distinct product. Since each component of the NGL stream – ethane, propane, and butane – have successively higher boiling points, each product will liberated in stages. At each stage of the fractionation process, the lightest of the remaining gases are successively liberated from the NGL stream. There are generally four steps, within the fractionation process: Deethanizer– separates ethane Depropanizer– separates propane Debutanizer– separates butane Butane Splitter– separates iso/ normal butanes The benefits of natural gas processing, in addition to physically removing heavier hydrocarbons and impurities that could contaminate the “dry” natural gas distribution system, is that these products also add value to the overall petroleum production operation.

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NGL SUPPLY AND DEMAND Natural Gas Liquids (NGLs), while not a huge volume in comparison to both oil and natural gas, are nevertheless an integral aspect of the country’s petroleum hydrocarbon supply; generally comprising 10% of the more than 22 million barrels a day (BOE) of petroleum hydrocarbons that are currently produced.

HYDROCARBON SUPPLY (EIA) With the latest hydrocarbon supply at just over 22,000 MBD BOE, the composition includes dry natural gas – methane – at just over 12,000 MBD BOE, followed by crude oil at over 7,000 MBD BOE, and NGLs at about 2,500 MBD BOE. Components of the NGL stream include ethane, pentane, and LPGs, with propane, butane, and iso-butane being the elements of LPG.

MONTHLY GAS PLANT PRODUCTION

In addition to recovery of NGLs during the processing of natural gas, NGLs are also recovered when the crude oil is refined into petroleum products. This occurs during several phases of the refining process. For example, propane and butane are recovered during the initial refining phase as the crude oil passes through the atmospheric distillation tower. In addition, propylene is produced as a by-product during the catalytic-cracking process that manufactures gasoline.

NOTE: During the winter, butane is injected into the gasoline stream to improve ignition. Therefore during the winter a refiner is a net consumer of butane as opposed to the summer when it is a net producer.

OF NGLS (EIA) The upswing of about 3,000 MBD BOE in domestic oil and natural gas production. This resulted in a corresponding increase in NGL production of 700 MBD, which also resulted in a slight increase in market share. The success of unconventional oil and natural gas development, especially shale, accounts for this increase.

NGLS RECOVERED DURING THE REFINING PROCESS 20 |

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Therefore, the total production of NGL’s is the sum of what is produced at both gas plants and at refineries. Total NGL production was relatively steady from the middle of the 1990’s through 2008 at about 2,300 MBD. This volume increased about 700 MBD to the current level of around 3,000 MBD as a result of the increase in domestic oil production as

well as a corresponding increase in the refinery processing rate designed to capture an additional margin from exporting refined products.

GAS PLANT AND REFINERY PRODUCTION OF NGLS This overall increase in NGL production has resulted in a slight increase in the domestic utilization of NGLs, especially ethane, as the U.S. Chemical Industry stepped-up production. This is a huge benefit to the chemical industry. However, the more profound change has been a significant reduction in the import and a sizable increase in the export of propane. Since propane was the dominant product that was previously imported, it now is the dominant product exported. This change during the second half of 2011 transitioned the U.S. from being a net importer of NGLs to a net exporter.

NGL TRADE BALANCE (EIA) The reduced level of imports is generally noticeable across all product lines, with all regions moving to a level that suggests the current level of imports is to meet either timing or location requirements only as opposed to augmenting domestic supply. Exports, on the other hand, have increased dramatically. Pentane exports, which were basically non-existent prior to 2008, are now averaging just over 100 MBD. Similarly, propane exports increased from 33 MBD (1981-2007) to now averaging just above 225 MBD. The net balance of trade for NGLs, which historically (19812007) was deficit of about 180 MBD, switched to a favorable trade balance during the first half 2011 and has now expanded. As of the end of April 2013, the year-to-date trade balance was favorable by over 170 MBD – a swing of 350 MBD.

NGL EXPORT ACTIVITY Analyzing this trend in exports, the destination of the pentane exports extracted from the Bakken Shale in North Dakota is Canada. The characteristics of pentanes are quite similar to either natural gasoline or a crude oil condensate; very light (60-80 API Gravity), volatile, and low octane. The attraction for Canada is that pentanes (condensates or natural gasoline) are used as a Greater Houston Port Bureau | 21

diluent for heavy crude oil that enhances the flow through the pipeline infrastructure. Given that the U.S. is a significant customer for heavy crude oil, in a sense the pentanes are on loan to Canada, since they will be recovered during the refining process as the heavy oil is imported and then processed by any U.S. refiner.

EXPORTS OF PROPANES BY PADD (EIA) Concurrent with the increase in the production of NGLs, propane has also switched from being a net importer to that of a net exporter. Destinations, in addition to the usual import and export arrangements with Canada and Mexico that generally occur to balance locational differences, include the countries of the Caribbean and South America.

The source of these exports is the U.S. Gulf Coast.

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SHIPPING OPPORTUNITIES Currently, the primary effect on shipping in the Gulf Coast area is an increase in ship arrivals/departures.

Imports into PADD 3, the Gulf Coast, which in this case is synonymous with Houston, averaged about 100 MBD during the peak years of 1988 through 2007. However, with the increase in unconventional natural gas supplies, propane imports into the Gulf Coast have essentially ceased and the area is now exporting propane at levels approaching 200 MBD. It is expected propane supplies, in general, will continue to be available for export as the unconventional resource base expands and additional production of natural gas is brought on-line. This is especially true along the Gulf Coast as pipeline infrastructure connects unconventional natural gas production in the Eagle Ford area with the international markets. The ports of Houston and Texas City are well positioned to accommodate this increase.

At current export levels 200 MBD and assuming a 35,000 SDWT LPG carrier, approximately 12-17 gas carriers a month would be plying the local waters. If the projections for the growth of Eagle Ford are correct, then the vessel traffic could double by 2020.

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Slow, Steady Progress Marine Exchanges See Return on Appropriative Advocacy The Physical Oceanographic Real-Time System (PORTS®) system, under the jurisdiction of NOAA’s National Ocean Service, is responsible for providing real-time oceanographic data and other navigation products to promote safe and efficient navigation within US waters. The decision tools that PORTS make available measure and disseminate observations and predictions of water levels, currents, salinity, and meteorological parameters (winds, atmospheric pressure, air and water temperatures, etc) that mariners need to navigate safety.

mechanism for PORTS’ operations.

Operational in twenty-three port regions around the nation, PORTS instrumentation and communications systems are available via the internet, and NOAA studies have shown a 50% decrease in localized groundings following an installation of the PORTS system. A 2007 report for the Houston-Galveston area showed that regional industry and regulators were using the system to realize an annual economic benefit of between $14.1 million and $15.6 million.

Within a few weeks, the Port Bureau heard back from the East Coast; the Maritime Exchange of Delaware River and Bay reported that, as a follow up to Marine Exchange letters sent in support of PORTS funding, language had been inserted into the Appropriations Bill (Senate Report 113-078) in support of our initiative. The full language from the committee noted that:

In the early summer, CAPT Kathy Moore, Captain of the Port for Delaware Bay wrote an editorial explaining the value of PORTS: “The Coast Guard, along with other responding agencies, also makes important use of current velocity and direction data in designing and deploying booming strategies and supporting spill trajectory analyses to guide on-water collection activities during oil spill responses.” CAPT Moore also noted that a regional report, while strongly recommending the expansion of the PORTS system, also noted serious vulnerabilities in the funding

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In July, the Greater Houston Port Bureau, working in concert with Marine Exchanges around the nation, reached out to Congressional leaders in an effort to secure long-term funding for the PORTS program. Chairman of the Board of Directors, Mr. Dennis Hansell, wrote a letter to Congressman John Culberson, a member of the Subcommittee on Commerce, Justice, Science, and Related Agencies which may be read on the following page.

“The Committee fully supports the administration’s request for Physical Oceanographic Real-Time System [PORTS].

The Committee believes these operations, which exist as a partnership between NOAA and local port authorities, have been extremely valuable tools for providing information for safe vessel navigation and data for weather and coastal monitoring. The Committee encourages NOAA to request funding that reflects the totality of the program’s costs, including operations and maintenance, in future budget requests, as authorized by Hydrographic Services Improvement Act (Public Law 110-386) in future budget submissions.”

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2013 International Energy Outlook What Will Energy Look Like in 2040?

The International Energy Outlook 2013 (IEO2013) projects that world energy consumption will grow by 56 percent between 2010 and 2040. Total world energy use will rise from 524 quadrillion British thermal units (Btu) in 2010 to 630 quadrillion Btu in 2020 and to 820 quadrillion Btu in 2040 (Figure 1). Much of the growth in energy consumption occurs in countries outside the Organization for Economic Cooperation and Development (OECD),2 known as non-OECD, where demand is driven by strong, long-term economic growth. Energy use in non-OECD countries increases by 90 percent; in OECD countries, the increase is 17 percent. The IEO 2013 Reference case does not incorporate prospective legislation or policies that might affect energy markets.

Renewable energy and nuclear power are the world's fastest-growing energy sources, each increasing by 2.5 percent per year. However, fossil fuels continue to supply almost 80 percent of world energy use through 2040. Natural gas is the fastest-growing fossil fuel in the outlook. Global natural gas consumption increases by 1.7 percent per year. Increasing supplies of tight gas, shale gas, and coalbed methane support growth in projected worldwide natural gas use. Coal use grows faster than petroleum and other liquid fuel use until after 2030, mostly because of increases in China's consumption of coal and tepid growth in liquids demand attributed to slow growth in the OECD regions and high sustained oil prices.

The industrial sector continues to account for the largest share of delivered energy consumption; the world industrial sector still consumes over half of global delivered energy in 2040. Given current policies and regulations limiting fossil fuel use, worldwide 26 |

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energy-related carbon dioxide emissions rise from about 31 billion metric tons in 2010 to 36 billion metric tons in 2020 and then to 45 billion metric tons in 2040, a 46 percent increase.

World Economic Background The world is still recovering from the effects of the 20082009 global recession. As these effects continue to be felt, many unresolved economic issues add to the uncertainty associated with this year's long-term assessment of world energy markets.

Currently, there is wide variation in the economic performance of different countries and regions around the world. Among the more mature OECD regions, the pace of growth varies but generally is slow in comparison with the emerging economies of the non-OECD regions. In the United States and Europe, short- and long-term debt issues remain largely unresolved and are key sources of uncertainty for future growth. Economic recovery in the United States has been weaker than the recoveries from past recessions, although expansion is continuing. In contrast, many European countries fell back into recession in 2012, and the region's economic performance has continued to lag. Japan, whose economy had been sluggish before the devastating earthquake in March 2011, is recovering from its third recession in 3 years. Questions about the timing and extent of a return to operation for Japan's nuclear power generators compound the uncertainty surrounding its energy outlook.

In contrast to the OECD nations, developing non-OECD economies, particularly in non-OECD Asia, have led the global recovery from the 2008-2009 recession. China and India have been among the world's fastest growing economies for the past two decades. From 1990 to 2010, China's economy grew by an average of 10.4 percent per year and India's by 6.4 percent per year. Although economic growth in the two countries remained strong through the global recession, both slowed in 2012 to rates much lower than analysts had predicted at the start of the year. In 2012, real GDP in China increased by 7.2 percent, its lowest annual growth rate in 20 years. India's real GDP growth slowed to 5.5 percent in 2012.

The world's real gross domestic product (GDP, expressed in purchasing power parity terms) rises by an average of 3.6 percent per year from 2010 to 2040. The fastest rates of growth are projected for the emerging, non-OECD regions, where combined

GDP increases by 4.7 percent per year. In the OECD regions, GDP grows at a much slower rate of 2.1 percent per year over the projection, owing to more mature economies and slow or declining population growth trends. The strong growth in non- OECD GDP drives the fast-paced growth in future energy consumption projected for these nations.

In addition to concerns about the pace of world economic growth, other events have added further uncertainty to this year's energy outlook. Political unrest in several North African and Middle Eastern nations has persisted, most notably in Syria, but elsewhere as well. A number of the countries that experienced political transition as a result of the Arab Spring revolutions, including Egypt, Tunisia, and Yemen, have struggled to establish stability. In addition, the sanctions imposed on Iran as a result of its nuclear program have dampened the country's growth outlook. Unrest in the Middle East has been one reason that oil prices have been in the range of $90 to $130 per barrel well into 2013. The Brent crude oil spot price averaged $112 per barrel in 2012, and EIA's July 2013 Short-Term Energy Outlook projects averages of $105 per barrel in 2013 and $100 per barrel in 2014. With prices expected to increase in the long term, the world oil price in real 2011 dollars reaches $106 per barrel in 2020 and $163 per barrel in 2040 in the IEO2013 Reference case.

Sustained high oil prices can affect consumer demand for liquid fuels, encouraging the use of less energy or alternative forms of energy. At the same time, high prices also encourage more efficient use of energy. Energy efficiency improvements are anticipated in every end-use sector, with global liquids intensity—liquid fuels consumed per dollar of GDP—declining (improving) by 2.6 percent per year from 2010 to 2040. However, some of the greatest potential for altering the growth path of energy use is in the transportation sector. The U.S. transportation sector provides a good example of this potential to change future liquids consumption. More stringent U.S. vehicle fuel economy standards offset growth in transportation activity, resulting in a decline in the country's use of petroleum and other liquids over the projection. Improving vehicle fuel economy standards will likely be adopted throughout most of the world, helping to moderate future growth in liquids consumption.

ence case, all the growth in liquids use is in the transportation and industrial sectors. In the transportation sector, in particular, liquid fuels continue to provide most of the energy consumed.

Although advances in non liquids-based transportation technologies are anticipated, they are not enough to offset the rising demand for transportation services worldwide. Despite rising fuel prices, use of liquids for transportation increases by an average of 1.1 percent per year, or 38 percent overall, from 2010 to 2040.

The transportation sector accounts for 63 percent of the total increase in liquid fuel use from 2010 to 2040, and the remainder is attributed to the industrial sector, where the chemicals industry continues to consume large quantities of petroleum throughout the projection. The use of liquids declines in the other end-use sectors and for electric power generation.

To satisfy the increase in world liquids demand in the Reference case, liquids production increases by 28.3 million barrels per day from 2010 to 2040, including the production of both petroleum (crude oil and lease condensate, natural gas plant liquids [NGPL], bitumen, extra-heavy oil, and refinery gains), and other liquid fuels (coal-to-liquids [CTL], gas-to-liquids [GTL], biofuels, and kerogen). The Reference case assumes that countries in the Organization of the Petroleum Exporting Countries (OPEC) will invest in incremental production capacity in order to maintain a 39-43 percent share of total world liquids production through 2040, consistent with their share over the past 15 years. Increasing volumes of petroleum from OPEC producers contribute 13.8 million barrels per day to the total increase in world liquids production, and petroleum supplies from non-OPEC countries add another 11.5 million barrels per day.

Nonpetroleum liquids resources from both OPEC and nonOPEC sources grow on average by 3.7 percent per year over the projection period, but they remain a relatively minor share of total liquids supply through 2040. Production of nonpetroleum liquids is supported by sustained high prices in the Reference case; however, their development also relies heavily on countryspecific regulatory policies. World production of nonpetroleum liquids, which in 2010 totaled only 1.6 million barrels per day (less than 2 percent of total world liquids production), increases to 4.6 million barrels per day in 2040, about 4 percent of total

World Energy Markets by Fuel Type In the long term, the IEO2013 Reference case projects increased world consumption of marketed energy from all fuel sources through 2040 (Figure 2). Fossil fuels are expected to continue supplying much of the energy used worldwide. Although liquid fuels—mostly petroleum-based—remain the largest source of energy, the liquids share of world marketed energy consumption falls from 34 percent in 2010 to 28 percent in 2040, as projected high world oil prices lead many energy users to switch away from liquid fuels when feasible. The fastest growing sources of world energy in the Reference case are renewables and nuclear power. In the Reference case, the renewables share of total energy use rises from 11 percent in 2010 to 15 percent in 2040, and the nuclear share grows from 5 percent to 7 percent.

Liquid fuels World use of petroleum and other liquid fuels grows from 87 million barrels per day in 2010 to 97 million barrels per day in 2020 and 115 million barrels per day in 2040. In the ReferGreater Houston Port Bureau | 27

world liquids production. The largest components of future nonpetroleum liquid fuels production are biofuels in Brazil and the United States, at 0.7 and 0.5 million barrels per day, respectively, and CTL in China, at 0.7 million barrels per day. Those three countries account for 64 percent of the

total increase in nonpetroleum liquids supply over the projection period.

Advances in technology make liquids production in previously inaccessible regions increasingly feasible, while higher oil prices make production in those regions economically viable. An important example of the potential impact of technological advances is the rapid growth of U.S. shale oil production in recent years, a development that has the potential to change the structure of oil markets worldwide. Although the extent of the world's shale oil resources is not yet fully understood, there is potential for shale oil production to increase non-OPEC supplies of liquid fuels substantially over the course of the IEO2013 projection. A study commissioned by EIA to assess shale oil resources in 41 countries outside the United States,6 taken in conjunction with EIA's own assessment of resources within the United States, indicate worldwide technically recoverable resources of 345 billion barrels of shale oil resources, which would add considerable non-OPEC liquid fuels production potential if the resources became economically competitive with other sources of liquids supply.

DIRECTION Maritime Solutions for Moving Forward

Natural gas World natural gas consumption increases by 64 percent in the Reference case, from 113 trillion cubic feet in 2010 to 185 trillion cubic feet in 2040. Although the global recession resulted in an estimated decline of 3.6 trillion cubic feet in natural gas use in 2009, robust demand returned in 2010 with an increase of 7.7 trillion cubic feet, or 4 percent higher than demand in 2008, before the downturn.

Natural gas continues to be the fuel of choice for the electric power and industrial sectors in many of the world's regions, in part because of its lower carbon intensity compared with coal and oil, which makes it an attractive fuel source in countries where governments are implementing policies to reduce greenhouse gas emissions. In addition, it is an attractive alternative fuel for new power generation plants because of relatively low capital costs and the favorable heat rates for natural gas generation. The industrial and electric power sectors together account for 77 percent of the total projected world increase in natural gas consumption.

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An outlook for strong growth in reserves and production contributes to the strong competitive position of natural gas among other energy

sources. Significant changes in natural gas supplies and global markets continue. The largest production increases from 2010 to 2040 in the Reference case occur in non-OECD Europe and Eurasia (18.9 trillion cubic feet), the OECD Americas (15.9 trillion cubic feet), and the Middle East (15.6 trillion cubic feet). The United States and Russia each increase natural gas production by around 12 trillion cubic feet, together accounting for nearly one-third of the total increase in world gas production. Russia's production growth is supported mainly by increasing exploitation of the country's resources in the Arctic and eastern parts of the country. U.S. production growth comes mainly from shale resources.

Although there is more to learn about the extent of the world's tight gas, shale gas, and coalbed methane resource base, the IEO2013 Reference case projects a substantial increase in those supplies—especially in the United States, Canada, and China. In the United States, one of the keys to increasing natural gas production has been advances in the application of horizontal drilling and hydraulic fracturing technologies, which made it possible to develop the country's vast shale gas resources and

contributed to a near doubling of total U.S. technically recoverable natural gas resource estimates over the past decade. In the Reference case, shale gas accounts for 50 percent of U.S. natural gas production in 2040. Tight gas, shale gas, and coalbed methane resources in Canada and China account for more than 80 percent of their total domestic production in 2040.

World natural gas trade, both by pipeline and by shipment in the form of liquefied natural gas (LNG), is poised to increase in the future. LNG accounts for a growing share of world natural gas trade in the Reference case, more than doubling from about 10 trillion cubic feet in 2010 to around 20 trillion cubic feet in 2040.

Most of the increase in liquefaction capacity is in Australia and North America (the United States and Canada), where a multitude of new liquefaction projects are expected to be developed, many of which will become operational within the next decade.

At the same time, existing facilities in North Africa and Southeast Asia have been underutilized or are shutting down as a result of production declines at older fields associated with the liquefaction facilities, and because domestic natural gas consumption is more highly valued than exports.

Although LNG trade has grown at a faster rate than pipeline trade in recent years, pipeline transportation of natural gas remains an integral part of world natural gas trade in the IEO2013 Reference case. The outlook includes several new long-distance pipelines and expansions of existing infrastructure through 2040. The largest volumes of internationally traded natural gas by pipeline currently occur between Canada and the United States, and among a number of OECD and non-OECD countries in Europe. By the end of the projection period, the IEO2013 Ref-

Greater Houston Port Bureau | 29

erence case also includes large volumes of pipeline flows into China from both Russia and Central Asia.

Coal In the IEO2013 Reference case, which does not include prospective greenhouse gas reduction policies, coal remains the second-largest energy source worldwide. World coal consumption rises at an average rate of 1.3 percent per year, from 147 quadrillion Btu in 2010 to 180 quadrillion Btu in 2020 and 220 quadrillion Btu in 2040. The near-term expansion of coal consumption reflects significant increases in China, India, and other non-OECD countries. In the longer term, growth of coal consumption decelerates as policies and regulations encourage the use of cleaner energy sources, natural gas becomes more economically competitive as a result of shale gas development, and growth of industrial use of coal slows, largely as a result of China's industrial activities. Coal consumption is dominated by China (47 percent), the United States (14 percent), and India (9 percent), with those three countries together accounting for 70 percent of total world coal consumption in 2010. Their share of world coal use increases to 75 percent in 2040 in the Reference case figure data Despite the significant increase in coal use in developing non-OECD countries, the environmental impacts of mining and burning coal have driven policies and investment decisions in favor of cleaner and increasingly competitive energy sources— natural gas in particular. As a result, coal's share of world energy consumption stops growing in the next decade and gradually declines after 2025. Consumption of all other energy sources (except liquids) grows faster than coal use, particularly in the power sector. For example, the coal-fired share of world electricity generation declines from 40 percent in 2010 to 36 percent in 2040, while the renewables share increases from 21 percent to 25 percent, the natural gas share from 22 percent to 24 percent, and the nuclear share from 13 percent to 14 percent.

World coal production parallels demand, increasing from 8 billion short tons in 2010 to 11.5 billion short tons in 2040 and reflecting the same expansion in the near term, followed by much slower growth in later years. Global coal production is concentrated among four countries—China, the United States, India, and Australia—and in the other countries of non-OECD Asia (mainly Indonesia). Their combined share of total world coal production increases in the IEO2013 Reference case from 78 percent in 2010 to 81 percent in 2040. China alone accounted for 44 percent of global coal production in 2010, and its share peaks at 52 percent in 2030. Projected coal production is significantly different from region to region, ranging from sustained growth in China to limited growth in the United States to steady decline in OECD Europe.

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World delivered energy use by sector This section discusses delivered energy consumption in the buildings, industrial, and transportation sectors. Energy losses associated with electricity generation and transmission are not included in the consumption numbers.

Residential and commercial buildings World residential energy use increases by 1.5 percent per year, from 52 quadrillion Btu in 2010 to 82 quadrillion Btu in 2040, in the IEO2013 Reference case. Much of the growth in residential energy consumption occurs in non-OECD nations, where robust economic growth improves standards of living and increases demand for residential energy. One factor contributing to increased demand in non-OECD nations is the trend toward replacing nonmarketed energy sources (including wood and waste, which are not fully included in the energy demand totals shown in the IEO) with marketed fuels, such as propane and electricity, for cooking and heating. Non-OECD residential energy consumption rises by 2.5 percent per year, compared with the much slower rate of 0.4 percent per year for OECD countries, where patterns of residential energy use already are well established, and slower population growth and aging populations translate to smaller increases in energy demand.

Globally, IEO2013 projects average growth in commercial energy use of 1.8 percent per year through 2040, with the largest share of growth in non-OECD nations. OECD commercial energy use expands by 0.9 percent per year. Slow expansion of GDP and low or declining population growth in many OECD nations contribute to slower anticipated rates of growth in commercial energy demand. In addition, continued efficiency improvements moderate the growth of energy demand over time, as relatively inefficient equipment is replaced with newer, more efficient stock.

In the non-OECD nations, economic activity and commerce increase rapidly over the 2010-2040 projection period, fueling additional demand for energy in the service sectors. Total delivered commercial energy use among non-OECD nations grows by 3.2 percent per year from 2010 to 2040 in the Reference case.

Population growth also is expected to be more rapid than in the OECD countries, resulting in increased needs for education, health care, and social services and the energy required to provide them. In addition, as developing nations mature, they are expected to transition to more service-related enterprises, which will increase demand for energy in the commercial sector.

Industrial Worldwide, industrial energy consumption grows from 200 quadrillion Btu in 2010 to 307 quadrillion Btu in 2040 in the Reference case. The industrial sector accounted

for most of the 2008-2009 recession-induced reduction in world energy use in 2009, primarily because the impact of substantial cutbacks in manufacturing was more pronounced than the impact of marginal reductions in energy use in other sectors. NonOECD economies account for about 86 percent of the world increase in industrial sector energy consumption in the Reference case (Figure 8). Rapid economic growth is projected for the non-OECD countries, accompanied by rapid growth in their combined total industrial energy consumption, averaging 1.8 percent per year from 2010 to 2040. Because OECD nations have been undergoing a transition from manufacturing economies to service economies in recent decades, and have relatively slow projected growth in economic output, industrial energy use in the OECD region as a whole grows by an average of only 0.6 percent per year from 2010 to 2040.

Transportation Energy use in the transportation sector includes the energy consumed in moving people and goods by road, rail, air, water, and pipeline. The transportation sector is second only to the industrial sector in terms of total end-use energy consumption. The transportation share of world total liquids consumption increases from 55 percent in 2010 to 57 percent in 2040 in the IEO2013 Reference case, accounting for 63 percent of the total increase in world liquids consumption. Thus, understanding the development of transportation energy use is key in assessing future trends in demand for liquid fuels.

Sustained high world oil prices throughout the projection are partly the result of a strong increase in demand for transportation fuels, particularly in the emerging nonOECD economies, where income growth and demand for personal mobility, combined with rapid urbanization, will have the greatest impact on growth in world transportation energy use. In the IEO2013 Reference case, non-OECD transportation energy use grows by 2.2 percent per year from 2010 to 2040, and the non-OECD share of world demand for transportation liquids reaches 60 percent by the end of the projection (Figure 9). China, in particular, leads the projected global growth in transportation liquids demand, more than tripling its consumption from 8 quadrillion Btu in 2010 to 26 quadrillion Btu by 2040. In 2010, China's transportation energy use was only one-third of that in the United States; in 2040, China is projected to consume about the same amount of energy for transportation as the United States.

High oil prices and the economic recession had more profound impacts in the OECD economies than in the non-OECD economies. OECD energy use for transportation declined by 2.0 percent in 2008, followed by a further decrease of 3.1 percent in 2009, before recovering to 0.8-percent growth in 2010. Indica-

tions are that high world oil prices and slow recovery from the recession, with Japan and several key OECD economies falling back into recession in 2012, will mean that OECD transportation energy demand will continue to grow slowly in the nearto mid-term. In addition, demand for transportation liquids in OECD countries will be tempered by policies aimed at instituting strong energy efficiency improvements. Over the projection period, OECD transportation energy use declines by an average of 0.1 percent per year.

World carbon dioxide emissions World energy-related carbon dioxide emissions rise from 31.2 billion metric tons in 2010 to 36.4 billion metric tons in 2020 and 45.5 billion metric tons in 2040 in the IEO2013 Reference case—an increase of 46 percent over the projection period. With strong economic growth and continued heavy reliance on fossil fuels expected for most non-OECD economies under current policies, much of the projected increase in carbon dioxide emissions occurs among the developing non-OECD nations. In 2010, non-OECD emissions exceeded OECD emissions by 38 percent; in 2040, they are projected to exceed OECD emissions by about 127 percent. Coal continues to account for the largest share of carbon dioxide emissions throughout the projection.

Carbon intensity of output—the amount of carbon dioxide emitted per unit of economic output—is a common measure. It is sometimes used as a stand-alone measure for tracking progress in relative emissions reductions. Energy-related carbon dioxide intensities improve (decline) in all IEO regions over the projection period, as economies continue to use energy more efficiently. Estimated carbon dioxide intensity declines by 1.9 percent per year in the OECD economies and by 2.7 percent per year in the nonOECD economies from 2010 to 2040.

The Today In Energy report was developed by the United States Energy Information Administration. All reports and documentation, unless otherwise cited, is available within the public domain.

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