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FERC Approves Two LNG Import Terminals; Providence LNG Fails on Safety Issues

In front of a packed crowd that included some concerned local, state and federal officials last Thursday, the last day of Chairman Pat Wood's term, FERC rejected the Fields Point LNG facility proposed by KeySpan in Providence, RI, saying that it did not meet current federal safety standards. However, the Commission conditionally approved the Weaver's Cove LNG import terminal in Fall River, MA, over stiff opposition, and approved the Golden Pass LNG terminal in Sabine Pass, TX.

The decision on the KeySpan project follows the Commission's conclusion in a final environmental impact statement last month that the terminal would need substantial safety upgrades to meet current federal safety standards, upgrades KeySpan said would be expensive and would require a shutdown during three consecutive heating seasons (see NGI, May 23).

KeySpan planned to convert the existing onsite LNG peak shaving facility into an import terminal without undertaking substantial changes to the existing LNG storage tanks. The $50 million LNG conversion was designed to provide a peak sendout of 525 MMcf/d of gas with storage capacity for 600,000 metric tons of LNG. KeySpan signed a partnership agreement in October 2003 with BG Group on the project. The Commission also dismissed Algonquin Gas Transmission's related 1.4 mile 500 MMcf/d pipeline extension to the proposed import facilities.

Commissioner Nora Brownell said it was a "difficult decision" to make because the region desperately needs new gas supply. But she said it was an "appropriate development" of the Commission's LNG policy that "addresses the very real concerns made by the residents in communities and all of the towns" nearby the proposed project.

The LNG conversion project encountered significant opposition (see NGI, March 7). A report conducted by former White House antiterrorism adviser Richard Clarke released last month found that urban import terminals, such as Weaver's Cove and Fields Point LNG, would be vulnerable to "catastrophic" terrorist attacks, and also make "extremely attractive" terrorist targets.

Clarke said there is little that can be done to protect against such attacks. His report painted a grim picture of what could happen in Providence if an LNG tanker was successfully targeted. It estimated that 3,000 people could die almost instantly and another 10,000 more could suffer serious burns within the first few minutes of a LNG pool fire. Many more casualties could occur as the evaporation of LNG increased. Clarke estimated a total casualty figure of 10,000-30,000 in the Providence area (see NGI, May 16).

Brownell said the order on the Providence terminal would "set some pretty clear standards for future development and expansion." She said the U.S. is known for setting high public interest standards, noting that Japan, Portugal and Spain have terminals of this size and larger in urban areas.

Commissioner Joseph Kelliher, who was named the new FERC chairman on Wednesday (see related story), also called it a "very important order" but expressed concerns about gas supply in the region. He warned that New England needs "additional LNG import capacity, and if that is not provided, gas prices will be higher and there may be supply problems, particularly during the heating seasons.

"But the Commission finds that this project is not in the public interest for safety reasons, not for economic reasons, and this order, I think is important because it demonstrates that the Commission applies very high safety standards to new LNG import facilities and it shows our commitment to protect public health and safety."

David J. Manning, executive vice president at KeySpan, said the company was "quite naturally disappointed" by the decision, and disagreed with the rationale for it. "Energy supply is an important tool for economic growth; many studies have shown that if the U.S. doesn't act now to augment its natural gas supplies, our heating and electric supply burden will not be met in the near future, particularly in the Northeast," said Manning.

"We know that safety concerns about LNG facilities often overshadow discussion of the projects. We will be reviewing today's decision and evaluating alternative options to reliably address the growing demand for natural gas in this region," Manning added.

Despite FERC's rejection of the Providence terminal, it granted approval to Weaver's Cove LNG, the other proposed Northeast LNG terminal that was on the regular meeting agenda last week. The Mayor of Fall River was even in attendance along with other state and federal officials, showing their longstanding opposition to the proposal.

But unlike the Providence terminal, the Weaver's Cove project, which is being built by Amerada Hess Corp. and Poten & Partners, passed muster because of numerous safety and security conditions imposed by the Commission, FERC said.

The $250 million Fall River, MA, LNG project would provide 800 MMcf/d of peak sendout capacity, 400 MMcf/d of baseload supply and 200,000 metric tons of LNG storage. The project would take up 68 of 73 acres at a former petroleum import terminal on the Taunton River, which feeds into Mount Hope Bay and Narragansett Bay about 50 miles south of Boston. Mill River Pipeline LLC would build two short pipelines to the Algonquin Gas Transmission system from the terminal to carry 400,000 Dth/d on average.

FERC staff said the safety and security review process for the facility was the "most extensive effort ever performed in Commission staff's consideration of an LNG import project." Staff said it would "serve as a blueprint for evaluating" future LNG proposals.

The ruling on Weaver's Cove requires the project partners to take extra safety precautions in construction and operation of the terminal, including a special vessel transit security plan to be worked out with the Coast Guard, an emergency response plan in the event of an accident or attack, and other measures. However, staff also noted that the project will have to cross significant state hurdles, including a Coastal Zone Management review, before it can be constructed.

Despite the safety requirements and other measures, the project still did not win the vote of Commissioner Suedeen Kelly. Kelly dissented, saying concerns about the impact of the project far outweigh the gas supply benefits. She noted that are supply alternatives available, including two already approved Canadian LNG import terminals and associated pipeline expansion plans by Maritimes & Northeast Pipeline and Tennessee Gas Pipeline, as well as two proposed offshore LNG terminals near Gloucester, MA.

"This project would increase the availability of natural gas supply in the New England market. However, I do not believe that this projected need for greater gas supply and delivery infrastructure in the New England area outweighs potential safety, environmental and socioeconomic concerns related to this project," said Kelly. "Therefore I do not find that it is consistent with the public interest to site, construct and operate this new LNG import terminal in Fall River, MA."

Kelly cited the safety issues associated with having LNG cargo ships in transit for four hours in the bays and river and docked for another 12 hours at the terminal. She also expressed concerns about the required dredging of about 191 acres of the shipping channel and the widening of a river turning basin, which she said would cause the loss of significant flounder spawning habitat. In addition, 980 million gallons of water could be withdrawn each year for ships' ballast, which Kelly said would do significant damage the fish population. She also mentioned the 16-minute traffic delays on bridges when cargo ships arrive.

Rep. Ed Markey (D-MA) released a statement deploring the Commission's decision on Weaver's Cove. "Today's FERC announcement sends this message to local authorities, fire fighters and police -- we care more about the needs of the energy industry than about your community's security," he said.

Wood said, however, that the "balancing" required by the statute governing FERC's decisions "compels the approval of this project... They met the criteria here. We put the mitigation in place" and the project had to be approved, he said.

"We have to give the answers that are the right answers," said Wood. "I think the Coast Guard is an important party in this equation... We are depending on the expertise of the agency charged with the safety of transit.

"I don't want to get the Commission back into the business that we were in the 1950s of a government agency picking the winners and the losers. I think identifying projects that meet the high standards that were set under our statutes, [as well as] those of the states" is the right thing to do. However, he noted that Weaver's Cove LNG now faces some pretty steep state hurdles before it can enter service.

There can be no clearer illustration of Wood's belief in the regulatory process and the market at work than his own vote of approval on ExxonMobil's Golden Pass LNG terminal. Golden Pass will be built adjacent to property that he owns in his home town.

"This is about 2.8 miles from a property that I own, and I'm very familiar with this site," Wood said during the meeting. "I appreciate the efforts that staff went through on some of the mitigation issues, particularly during the construction period that were of greatest concern to the residents in that area."

ExxonMobil's Golden Pass LNG project will provide 2.7 Bcf/d of peak day sendout capacity and 975,000 metric tons of LNG storage. It will include 43-mile and 77-mile pipelines to intrastate and interstate pipelines in the area as well as a two-mile pipeline to ExxonMobil's Beaumont refinery. ExxonMobil has a 25-year gas supply agreement with Qatar Petroleum that will begin once the terminal is in service in late 2008 or early 2009 (see NGI, June 6).

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