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MARAD Says Blanco's Objections to LNG Project May Violate Federal Law

The Maritime Administration has informed Louisiana Gov. Kathleen Babineau Blanco that one of her reasons for vetoing McMoRan Exploration's Main Pass Energy Hub liquefied natural gas (LNG) import terminal offshore Louisiana earlier this month may violate federal law.

Blanco based her veto on objections to Main Pass' proposed open loop vaporization process and on a requirement that McMoRan enter into a revenue sharing arrangement with the state.

In her veto letter, Blanco insisted that Louisiana receive some share of the revenues from LNG projects (see NGI, May 15). "This is only right," she said. "Louisiana has learned a tough lesson in not receiving a share of offshore revenues from the oil and gas industry. We cannot make the same mistake. I am asking the LNG industry to engage in revenue sharing with the coastal-producing states from the outset." Blanco also has threatened to block the federal government's August offshore lease sale unless the state gets a bigger share of the royalties from offshore oil and gas production.

But Acting Maritime Administrator Julie A. Nelson said the state can only charge the LNG company for costs incurred by the state that are attributable to construction and operation of the deepwater LNG port.

"While the Maritime Administration has broad latitude to approve a variety of fees that may be imposed by adjacent coastal states, the fees, under the Deepwater Port Act, may not exceed the economic, environmental and administrative costs incurred by a state," Nelson said in a May 18 letter. "Thus while your May 5 letter indicated that your approval of future applications would require some form of revenue sharing arrangement -- any such arrangement that is not tied to a state's reimbursement costs...is not permissible under federal law."

Nelson told Blanco that McMoRan Exploration already has announced its intention to file a revised project with a closed loop vaporization process that would avoid the environmental impacts associated with open loop vaporization, which uses sea water to warm the imported LNG.

Nelson has offered to meet with Blanco in Baton Rouge to discuss the LNG project.

McMoRan Exploration spokesman Bill Collier said the company was caught off guard by the governor's request and has not had any discussions with the state regarding a proposed revenue sharing arrangement or fees for the construction and operation of the terminal.

ConocoPhillips has offered several concessions to Alabama for approval of its Compass Port LNG terminal off the Alabama coast, including guaranteeing that up to 200 MMcf/d of gas would be on call for use in the state on a monthly basis at market prices (see related story).

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