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Offshore LNG Projects Face New Regulatory Delays; ExxonMobil Prefers Onshore Sites

Offshore LNG Projects Face New Regulatory Delays; ExxonMobil Prefers Onshore Sites

The statutory hiatus imposed on several offshore liquefied natural gas (LNG) import terminals by the U.S. Coast Guard/Maritime Administration earlier this year is not a big concern for ExxonMobil. Spokesman Bob Davis said the company would prefer to build an onshore facility anyway and certainly will not be building all three of its remaining LNG projects.

"Our Peal Crossing project is currently on hold as are [most of the other] offshore LNG facilities," said Davis. "One of the issues is how the LNG is going to be regasified. There are two schemes that have been looked at: one uses sea water and the other uses just the gas itself. The design of most of the offshore projects is to use sea water, and there are some environmental questions about that which the Coast Guard is looking into. There also are some sub issues.

"But our preference is to go onshore, and we're optimistic that we are going to be successful in securing permits at both locations [Sabine Pass, TX, and Quintana, TX]," Davis said. He predicted that FERC would approve the two projects by mid year with Golden Pass coming slightly later than Vista del Sol because the 77-mile pipeline associated with Golden Pass would traverse several sensitive wetland areas.

"What we wanted when we initiated permitting on all of these sites was that we have some flexibility... We're optimistic that we will go with an onshore project," said Davis. "We're going to build at least one terminal. I can't really say whether we are going to build two, but we're definitely not going to build three. If we got the permits for the onshore terminals we would go the onshore route and the offshore would not be built."

Davis noted that an average cost for an onshore LNG terminal is about $600 million, whereas an offshore facility can easily run $900 million to $1 billion. "It's the marine environment," he said. "It would need a gravity-based structure, which is a massive structure that would provide the foundation of it. Obviously from an operational standpoint there are added costs too because just like an offshore platform you have to helicopter crews out there on a seven-to-seven day rotation."

Mark Prescott of the Coast Guard Deepwater Ports Standards Division told NGI that his office is really still just getting up to speed in processing these applications. It issued the first deepwater LNG port permit just last year and is learning more and more with each scoping meeting on each LNG project.

"This is somewhat of a new process, and it takes a lot of collaboration with other agencies, and as we go we certainly learn more stuff," said Prescott. Despite the steep learning curve, the Coast Guard has a statutory obligation under the Deepwater Port Act to process these applications in 356 days following notice in the Federal Register.

One of the more significant realizations in recent months at the agency was the environmental impacts associated with construction of the massive gravity-based structures. The agency had to go back to ChevronTexaco after it issued a permit and require supplemental information on the construction of the gravity-based structure.

"The issues vary for each project, but we really needed more information regarding the fabrication sites [for the gravity-based structures]," he said. "The structures are very large. Basically you have to dig a big hole in the ground and there are lots of environmental concerns about such an endeavor. They have to do something with all that water and all that dirt."

Prescott said that for the Port Pelican LNG terminal, sponsored by ChevronTexaco, the gravity-based structure will be 1,000 feet long by several hundred feet wide and then 60 feet deep. A hole larger than the structure itself must be dug near a waterway so that the facility can be built in the hole, which would then be filled with water so the structure could be floated out to sea.

Another major impact would be on the local community where these facilities are built, said Prescott. "All those activities have to be considered and not only that, but if they are going into a small town of 500 to take on an operation like this that may employ a couple thousand people, they have to look at what impact it might have on the infrastructure of the community, the roads, schools, grocery stores, etc."

One of the issues that has been getting a lot of press is the use of the open-rack vaporizers on the offshore terminals. The vaporizers use seawater for heating. "That's been kind of overemphasized" as the reason for the statutory clocks being stopped on these projects, said Prescott. "But it is a contentious issue with [the National Oceanic and Atmospheric Administration] objecting to their use."

The clock currently is stopped on three offshore LNG projects: Pearl Crossing and McMoRan Exploration's Main Pass Energy Hub in the Gulf of Mexico, and BHP Billiton's Cabrillo Port offshore Oxnard, CA. The statutory clock was recently restarted on ConocoPhillips' Compass Port facility. The Coast Guard currently has nine terminals on file, including two that already have permits.

Prescott also noted that more recent LNG applications filed at the Coast Guard have onshore pipelines associated with them that will require additional impact documentation.

"We haven't found all this to [terminally threaten any of the projects]," he said, adding that the existing holds probably will be lifted soon because ExxonMobil, McMoRan Exploration and BHP Billiton have quickly been able to provide much of the required documentation. "The problem is they are trying to set up supply contracts. Just like if you were planning to have a house built, you wouldn't want to order the carpet before your new the house was going to be finished. Well, in this case it's not just the inconvenience of walking around your house without carpet; it's entering into 20-year contracts to take supply when you have no place to put that supply."

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