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California LNG Project Gets Preliminary Environmental Nod; State Concedes Jurisdiction

October 10, 2005
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The controversial liquefied natural gas (LNG) terminal planned for the Port of Long Beach, CA, on Friday got preliminary environmental clearance to proceed with the project in a joint FERC-state review.

The staffs of the Federal Energy Regulatory Commission and Port of Long Beach concluded that the LNG import terminal proposed by Sound Energy, a U.S. subsidiary of Japan's Mitsubishi Corp., was an "environmental preferable/superior alternative that can meet the project objective."

The California Public Utilities Commission (CPUC) and other project critics have opposed the siting of the planned LNG terminal at the Port of Long Beach, arguing that it would pose a dangerous threat to the densely populated region surrounding the port in the event LNG was spilled as a result of a terrorist attack or accident.

The joint FERC-California draft environmental impact statement (DEIS) on the project also included a draft general conformity determination assessing the air quality impacts associated with the construction of the Sound Energy project. It concluded that the LNG terminal project conformed with the stated policies of the Port of Long Beach's Port Master Plan.

The $400 million Sound Energy project would have 700 MMcf/d of sendout capacity and a peak capacity of up to 1 Bcf/d. The proposed terminal would provide storage of up to 320,000 cubic meters of imported LNG to reduce fluctuations in the local natural gas supply. The project also consists of a 4.6-mile, 10-inch diameter pipeline to transport supply from the LNG terminal to ConocoPhillips' refinery facility in Los Angeles, CA.

The Sound Energy project was the center of a nearly 20-month long dispute between FERC and the CPUC over who would have exclusive jurisdiction over the terminal. The CPUC recently conceded that FERC has the authority over the siting of the planned terminal. It followed Capitol Hill's passage in early August of a broad energy bill that clarified that the jurisdiction over new LNG projects rested with federal regulators.

With the enactment of the omnibus energy bill in early September, "both FERC and the CPUC have agreed in very recent pleadings filed with the Ninth Circuit that the CPUC's jurisdictional issues were rendered moot," CPUC attorney Harvey Y. Morris revealed in a motion filed at FERC last Tuesday [CP04-58].

"Since the CPUC is no longer contesting the FERC's authority to preempt the CPUC's jurisdiction, the CPUC acknowledges that it does not have decision-making authority over the siting of [the] proposed project."

The concession brought to a close a contentious battle that began in early 2004 when the CPUC claimed it had jurisdiction over the import terminal proposed by Sound Energy. This prompted FERC to issue a declaratory order in which it asserted sole jurisdiction under Section 3 of the Natural Gas Act over the siting, construction and operation of project.

California regulators challenged the federal agency's decision at FERC, but the Commission did not relent. The CPUC appealed the case in the U.S. Court of Appeals for the District of Columbia Circuit, with the case later transferred to the U.S. Court of Appeals for the Ninth Circuit in California. Congress then jumped into the fray by clarifying in the broad energy bill that jurisdiction over new LNG terminals rested with FERC.

Although the CPUC has conceded the jurisdictional issue, the state agency has by no means given up its fight to have the planned LNG terminal relocated to a remote site in the state as opposed to the Port of Long Beach.

California regulators submitted supplemental evidence identifying potential safety risks associated with the Sound Energy project in their latest motion. The CPUC, based on this evidence, asked FERC to reject Sound Energy's application to locate the LNG project near a densely populated area surrounding the port, arguing that it was "contrary to the public interest." In the alternative, it urged FERC to schedule an evidentiary hearing into the matter.

"The CPUC recognizes the need for new LNG terminals along the West Coast in order to ensure sufficient supplies of natural gas, as well as to help put downward pressure on the price of natural gas," the agency said, but the "evidence accompanying this motion establishes that approximately 130,000 people living or working within three miles of the proposed site at the Port of Long Beach would be in harm's way, and many of them could be killed or incur second-degree burns if there were a terrorist attack, earthquake or human error, which caused the release of LNG."

Moreover, "there is vital infrastructure that could be destroyed at the Port of Long Beach if LNG were released at or near the proposed site. This potential disaster can be and must be prevented," the CPUC said.

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