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FERC Official Says New LNG Terminals Unlikely in West, Northeast Unless Perceptions Change

Adequate natural gas storage is key to ensure competitive markets in the future, and new liquefied natural gas (LNG) terminal development "could make a big difference," a FERC official said Wednesday. However, William Hederman, director of the Office of Market Oversight and Investigations, predicted that new LNG terminals "won't be built in the big places" like California and the Northeast unless public perceptions change.

Hederman was keynote speaker Wednesday at Ziff Energy Group's Gas Storage 2005 Conference in Houston. He said the Federal Energy Regulatory Commission believes that "storage is a big part of the answer" to enhance market efficiency, reliability, hedges and to respond to the "many" market changes among producers and generators.

Natural gas use is growing, while total gas storage capacity has "surprisingly remained relatively unchanged over the past six years," between 8.1-8.3 Tcf, with base, or cushion gas, accounting for about 50% of the amount, according to Hederman. And while FERC considers future LNG storage a top concern, it is a complex and unresolved issue. "The market is in the process of sorting out storage needs and value as the supply and demand situations change significantly and relatively quickly," he said.

Hederman's office has been "carefully monitoring storage reporting developments" as much as it can without impinging on the Energy Information Administration, which collects LNG storage data. Eventually, the market, he said, will determine how much LNG storage will ensure reliability and market integrity.

"Historically, LNG has served 'needlepoint' needs," Hederman explained, with most LNG facilities operating only to provide peak-day supply -- 90 of the 113 active facilities are dedicated to meeting the storage needs of LDCs. However, to ensure adequate gas in the future, LNG "is a development that matters."

LNG could relieve storage needs at the end of the pipelines, especially in the load areas of the Northeast and California, but the "only communities actively working effectively to build LNG are along the Gulf of Mexico." Some of the efforts to build new LNG terminals along the Gulf Coast will be successful, he said, but "there has been a lot of resistance in the load areas...that has been intense and organized," specifically in California and the Northeast. He did not comment on how many of the Gulf facilities FERC eventually will approve.

In those areas where load is needed or will be needed in the next 20 years, industry and regulators "are not communicating the benefit side well" on why LNG terminals need to be built, he said. "Safety has been the dominating conversation." Although it will be difficult to overcome public perception, Hederman urged that "people should continue to fight on that."

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