Prepared Remarks of

Sean T. Connaughton

Maritime Administrator

LNG Shipping Seminar

New York Yacht Club

New York, NY

Thursday, January 11, 2007

1-5 p.m.

Good afternoon, everyone. Thank you all for that very warm welcome. Let me also thank Bill Honan for that wonderful introduction and Jim Shirley for his kind invitation to speak to you today. I bring you greetings from President Bush and from Secretary of Transportation Mary Peters.

It’s an honor to be here before so many familiar faces. Being among you today brings back many fond memories, and it reminds me of the pride my colleagues and I in Haight Gardner’s Washington Office felt as we worked along side such talented professionals.

I am here today to talk about the dramatic growth in U.S. LNG imports and the associated capital and labor requirements. I will also share with you some of the Maritime Administration’s plans to increase American involvement within this highly specialized field, especially in regard to seafarers. There are some great challenges and opportunities ahead of us that make this seminar very timely.

Since LNG is a clean energy source, it is important to overall energy strategy. The Bush Administration has made some important changes in policy, and each one has given the Maritime Administration a larger role. In 2002, the Deepwater Port Act was amended to expand the Secretary of Transportation’s authority to issue licenses for deepwater ports to include those for LNG. While onshore LNG terminals remain under the jurisdiction of the Federal Energy Regulatory Commission, the Maritime Administration, through DOT, is the lead federal agency for licensing offshore terminals. In processing applications, we work with the Coast Guard and 13 other federal agencies, as well as state and local governments. Coast Guard is the lead for conducting the environmental review, and MARAD issues the records of decision, and licenses for facilities.

In 2005, President Bush signed the Energy Act, which expanded our ability to receive LNG by streamlining the permitting process and eliminating some bureaucratic obstacles. In 2006, the Coast Guard and Maritime Transportation Act placed a firm emphasis on the safe and secure transport of LNG to our nation’s receiving facilities. This brings in another important aspect of the Maritime Administration’s work—our responsibility for training U.S. mariners, and for encouraging opportunities for them to be employed. What I have begun as Administrator is an initiative to ensure that the ships bringing LNG to our deepwater ports are crewed by U.S. mariners. We already have two agreements in effect, and I’ll tell you more about those in a minute.

While these important legislative changes were taking place, over the past five years, LNG imports more than doubled as has LNG carrier capacity calling at U.S. ports. And these trends are expected to continue.

Based on the Department of Energy Information Administration’s recently released Annual Energy Outlook for 2007; U.S. energy consumption projected for the year 2025 will be about 25 percent higher than it was in 2006. As the country's demand for energy continues to grow, so does our need for natural gas – which raises a question – where will the gas come from?

While worldwide natural gas is in plentiful supply, the United States holds less than 4 percent of world reserves.

During 2006, about 85 percent of all natural gas consumed in the U.S. was domestically produced. By the year 2025, this share is expected to fall to about 78 percent.

To make up this shortfall, LNG imports are projected to increase 8-fold to 4.4 trillion cubic feet per year. This increase in imports will meet much of the increased U.S. demand for natural gas.

With the increase in imports, which are expected to grow from 550 billion cubic feet per year in 2006 to 4.4 trillion cubic feet by 2025, significant investment in U.S. LNG terminals will be required to accommodate and service the increasing calls made by LNG tankers. Five LNG terminals are currently in service in the United States, including four onshore facilities and one offshore terminal. The current import capacity of the five operational terminals, four on-shore and one off-shore, is five percent of the nation’s take.

Now to the Maritime Administration’s role in licensing. So far, fifteen LNG Deepwater Port applications have been filed and three licenses have been issued. Eight applications are currently under consideration. If all eight of the terminals are constructed they will represent over 25 percent of the nation’s gas capacity.

I should also point out that there is an existing off-shore oil terminal in the Gulf of Mexico, the Louisiana Off-shore Oil Platform, known as LOOP, which has been operating since the 1970s. We have recently had renewed interest in further development of additional oil facilities.

Now, the expansion of our LNG deepwater port infrastructure is no simple task. It requires the close partnership between the Maritime Administration and the U.S. Coast Guard to responsibly process applications submitted by private industry parties to construct, own, and operate deepwater ports suitable for the importation of liquefied natural gas. We have committed to a process that is well defined, time sensitive, and designed to accelerate the construction of LNG ports. I believe we have delivered on this commitment.

There is another important goal that the Maritime Administration plays in this process, and that is to ensure that the crews on board the LNG ships are properly trained and trustworthy. MARAD also has a responsibility to try to create opportunities for U.S. mariners, and, while the global LNG fleet has expanded dramatically and will continue to grow, there is not a single U.S. flag vessel in the worldwide fleet. The 2006 changes to the Deepwater Port Act directed the Secretary of Transportation, and, through her, the Maritime Administrator, to give top priority to applications that will use U.S. flag vessels in operations. Applications using U.S. flag vessels are obviously not yet in play, but the Maritime Administration has secured agreements from two companies that they will use U.S. mariners.

At the end of December we announced an innovative combined public and private partnership with SUEZ Energy, the first official partnership of its kind within this international industry.  Under this agreement, SUEZ will provide training and employment opportunities for U.S. citizen officers and cadets aboard their tanker fleet.  To meet this goal, SUEZ has pledged to employ a mix of U.S. trained officers and unlicensed mariners on its existing fleet of chartered LNG vessels and both deepwater port terminals planned off the coasts of Boston and Florida. 

Last week, another applicant, Freeport-McMoRan Energy, committed to work with the Maritime Administration to develop programs for the training and utilization of U.S. mariners on LNG vessels that will service the Main Pass Energy Hub facility now being planned off the coast of Louisiana.  It is the intention of my agency to seek similar agreements from all of our deepwater port applicants.  This week, MARAD submitted a Federal Register notice seeking public comment on efforts to expand and maximize utilization of U.S. vessels and U.S. crews on LNG vessels, and we are also seeking comments on the advantages using U.S. crews.

These initiatives are sound public policy – they represent increased safety, security, and improved transportation efficiencies. We are currently in discussions with other LNG operators about utilizing U.S. mariners and anticipate making further announcements shortly.

It is important to note that the challenge of the specialized training required for service on LNG tankers places even more demand on the international pool of mariners.  And, I believe, that the United States is in an excellent position to turn this challenge into an employment growth opportunity. 

As such, the Maritime Administration has initiated an “LNG Crewing Initiative” to ensure that we develop a reliable and consistent supply of American mariners to serve on the LNG vessels that call at our nation’s gas receiving facilities.  This Initiative will work with the U.S. Merchant Marine Academy, State Maritime Academies, and labor-based training facilities to further develop and expand innovative educational programs to meet the entry level personnel shortfalls and ultimately expand the pool of qualified U.S. citizens available for LNG service. 

I am proud of my agency’s first steps in making this initiative a reality.  I am also proud to be a member of the Department of Transportation’s team responsible for the creation of a viable, flexible, efficient, and environmentally-friendly maritime infrastructure. As liquefied natural gas becomes an increasingly necessary source of imported energy, we need to be more pro-actively involved with its transportation to foster increased national security, economic growth, and the development of our overall marine transportation system.

As some of you know, I have spent much of the past several years as an elected official in Northern Virginia, where we faced tremendous problems associated with funding, growth, education and transportation. I learned a lot from that experience. One thing I learned is that public officials who care about their obligations to the citizens cannot allow themselves to be overwhelmed by complexity. You must have a clear concept of what can be done to effect improvement and you must be dedicated to making those improvements happen on your watch.

While the development of a robust U.S.-flag fleet of LNG carriers operating internationally is a praiseworthy goal, it isn’t going to happen overnight and it won’t happen just because we want it to happen. In the meantime, we can still make progress that provides skilled jobs to U.S. mariners, improves our security, and enhances the reputation of the United States as a reservoir of the best and brightest officers and crew aboard the international fleet. I think we are on our way.

It has been a pleasure being with you today.

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