NGI The Weekly Gas Market Report / NGI All News Access

FERC Denies Rehearing of Weaver's Cove, Providence LNG Orders

Citing its high safety standards and concerns about gas supply in New England, FERC Thursday denied numerous requests for rehearing of two prior orders on the proposed Weaver's Cove liquefied natural gas (LNG) import terminal in Fall River, MA, and KeySpan and BG LNG's Fields Point LNG import terminal in Providence, RI. In July, the Commission had conditionally approved the Weaver's Cove project but had rejected the Fields Point LNG application based on safety concerns (see NGI, July 4, 2005).

"I want to emphasize that the actions we take today demonstrate our commitment to high safety standards," said FERC Chairman Joseph Kelliher. "New England is facing a winter of very high natural gas prices. The region sorely needs additional gas supplies and a stronger energy infrastructure. Both of these projects are needed, yet we approve only one, the one that meets our high safety standards."

Kelliher noted that the Commission imposed 44 safety and security conditions on the 800 MMcf/d Weaver's Cove project when it issued its original order in July. However, that wasn't enough for Rep. Jim McGovern (D-MA), who subsequently added seven lines of text to the Transportation Authorization Bill, later signed into law by President Bush, that blocked the demolition of the Brightman Street Bridge, connecting Fall River and Somerset, MA, to allow LNG traffic up the Taunton River (see NGI, Aug. 15, 2005).

Some parties filed for rehearing because they believed the highway law compelled the Commission to revoke the authorization as moot. However, Kelliher said that since the Commission's authorization was "not conditioned on removal of the bridge, we decline to revoke authorization."

There also were concerns about whether the Weaver's Cove terminal, which has been proposed by Poten & Partners and Amerada Hess Corp., would impair operations of a Navy lab operating a research and development facility for testing and evaluating submarines, unmanned underwater devices and other systems associated with undersea warfare. The Navy had expressed concern that the Coast Guard safety and security zones would negatively impact its in-water testing (see NGI, Aug. 22, 2005). Nevertheless, FERC said that the Coast Guard concluded that it could address those concerns. The Navy lab has since withdrawn its opposition to the project and its rehearing request, Kelliher said.

Commissioner Suedeen Kelly voted against the original Weaver's Cove order and dissented on the Commission's rejection of the rehearing request on Thursday. "I continue to believe that it would not be in the public interest...to authorize siting construction and operation of the Weaver's Cove LNG facility because there are reasonable alternatives to this project for meeting New England's growing demand for natural gas," said Kelly. "Given this on balance, the safety, environmental and socioeconomic concerns raised with respect to this project in my mind outweigh the benefits of the additional natural gas supply it would provide."

In response to the Commission's decision to reject rehearing of the Weaver's Cove case, Fall River Mayor Edward Lambert said he intends to appeal the decision in federal court. "We believe that we were denied our due process in terms an adjudicatory hearing that FERC's regulations should have forced them to give us. But we will take that to court and hope to be successful in overturning this decision," he said in an interview with NGI.

The mayor said the Brightman Street bridge alone should stop the project, but he's not counting on that. A spokesman for the mayor said recent activity shows that Weaver's Cove LNG may be attempting a political solution that would somehow allow the law on the bridge to be changed. "Even though we think we have the ace in the hole with the [existing law on the bridge], we are going to go ahead with a lawsuit and fight it in every way shape and form," he said.

Despite the political and legal battle over the project, it may end up living or dying based on market fundamentals alone. With two LNG import terminals already under construction in Atlantic Canada, two terminals proposed offshore Massachusetts, one planned on an island outside Boston Harbor and three planned in Maine, there will be much more than enough regasification capacity to serve New England's needs. In all likelihood, the first couple projects will be sufficient to meet demand for years to come, and they likely will soak up much of the available global LNG, which is in short supply.

Providence LNG Stymied

In rejecting rehearing of the Fields Point LNG order, Kelliher said that the Commission previously determined that it "does not comply with the current LNG safety standards. Specifically, the impoundment site is undersized. The thermal radiation and flammable vapor exclusions zones extend off site and the existing tank may not comply with the current seismic standards.

"We deny KeySpan and BG LNG Services joint requests for rehearing as well as other rehearing requests. We also deny the request for conditional authorization of the project for various reasons," he said. "Among them are the consistent representations by the project developer that conditional authorization was impossible from both a practical and economic standpoint. For example, in order to meet current seismic standards for storage tanks, KeySpan would have to take the existing tank out of service for at least three heating seasons. KeySpan has stated that was legally and contractually impossible."

Kelliher also said to conditionally authorize the project, the Commission would have to determine, among other things, that "it is in the public interest to take the existing facilities out of service and reduce the region's gas storage capacity for at least three heating seasons."

However, FERC said the companies still can file an amended application with, for example, a proposal to upgrade the existing facilities in conjunction with construction of the proposed facilities.

In a statement following the decision, KeySpan said it was encouraged by the "apparent invitation" to file an amended application. It "comes at an important moment for those who know how critical new energy supply is for Rhode Island," said David J. Manning, executive vice president at KeySpan. "We still feel strongly that our proposal will provide much needed new energy supply, without significant environmental impacts or any increased safety risk, at a time when the region's energy needs are increasing. Although we need to study the order in depth and consider our alternatives in light of it, we are encouraged by the opportunity to file an amended application."

Manning added that the Northeast states need to be better prepared for potential supply disruptions in Gulf Coast region in future years and more regional LNG must be a part of that preparation.

"Most long-range weather forecasts agree that an increase in ocean storm activity will be with us for the next 10 years or so," he said. "This fact and its potential to cause supply interruptions in the Gulf region needs to be part of the thinking of public officials and policymakers as we go forward after today's FERC decision. Bringing LNG to the Gulf and then piping it all the way to New England is just not reasonable -- from an economic or reliability standpoint."

The Fields Point LNG facility has been part of the Providence community for more 30 years. It was upgraded and modernized in 1999 and 2000, and remains a significant component of the region's gas supply. It is currently used for LNG storage. The $50 million KeySpan-BG proposal would convert it from a truck-fed peaking facility to a ship-fed baseload LNG supplier with 525 MMcf/d of peak sendout capacity and 600,000 cubic meters of storage.

©Copyright 2006 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.