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Louisiana Governor Vetoes McMoRan's Main Pass Energy Hub

Louisiana Governor Kathleen Blanco last week denied McMoRan Exploration Co.'s application to build a liquefied natural gas (LNG) project -- the Main Pass Energy Hub (MPEH) -- offshore of Louisiana because of concerns about the future environmental impacts on her state's fisheries as well as the lack of financial compensation from the developers.

The proposed project is still awaiting a ruling on its Deepwater Port license application. Blanco's concerns for the proposed LNG project include revenue sharing for the states and the use of open rack vaporization (ORV) technology, which uses seawater to warm the LNG instead of natural gas. Earlier this month, Blanco denied McMoRan's application for those two reasons. The move could hamper the development of other LNG facilities in the region.

McMoRan filed an application in February 2004 for a license under the U.S. Deepwater Port Act, which is administered by the United States Coast Guard and the Maritime Administration (MARAD) with input from relevant federal and state agencies and interested parties. The application process included numerous studies and analyses, culminating with the March 10 publication of a Final Environmental Impact Statement (FEIS). Public hearings were completed on March 23. Governors in adjacent coastal states (Louisiana, Mississippi and Alabama) had the ability to veto the project until May 8, 2006 with a record of decision scheduled from MARAD by mid-2006.

The FEIS evaluated potential impacts associated with MPEH and concluded that the environmental impacts of the project, including the use of ORV technology, would be expected to result in minor long-term adverse impacts. Despite the conclusions supporting the MPEH application with ORV technology in the FEIS, the favorable recommendation by the EPA, substantial additional information provided by McMoRan to the State of Louisiana and McMoRan's commitment to environmental monitoring conditions, on May 5, Blanco stated that until additional data are collected and evaluated, Louisiana will require the use of a "closed loop" regasification system, which uses natural gas rather than seawater to warm the LNG.

"After considerable consultation with biologists, conservationists, business developers, and Governor Bob Riley of Alabama and Governor Haley Barbour of Mississippi, I have come to the conclusion that insufficient evidence exists at this time to approve this application for an open rack vaporizer (ORV) system," Blanco said. "The Freeport McMoRan application is only one of many pending LNG projects. We must avoid the harm presented by the cumulative impact of multiple offshore LNG facilities."

In order to move forward with any LNG expansion, Blanco said that in addition to the use of closed loop technology, she also is seeking LNG revenues from the project. "I will insist on Louisiana receiving a share of the revenues gained from LNG projects," Blanco said. "This is only right. 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."

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 NGI, Feb. 20).

Blanco reiterated that the closed loop system has proven to be "environmentally sound," adding "What's good for the Atlantic is good for the Gulf. Let's go back to the drawing board and come up with a solution that is in the long-term interest of Louisiana."

As a result of Blanco's action, McMoRan said it will undertake to obtain approval of its MPEH project using closed loop technology while it continues to address concerns about the more efficient ORV technology. The significant studies completed to date should enable the revisions to the MPEH permit application to incorporate closed loop technology to be processed expeditiously.

"The ORV technology is an established technology used in 80% of the world's LNG regasification facilities," said James R. Moffett and Richard C. Adkerson, co-chairman of McMoRan. "It is essential that our industry continue to pursue the use of this technology to ensure conservation of scarce energy resources. Requiring the use of more costly closed loop systems, which would consume an incremental 3.5 Bcf per annum for MPEH alone, will only exacerbate the growing energy crisis in our country. The environmental impacts of using ORV technology at our MPEH facility would be negligible and would avoid burning a large volume of natural gas, which our country and our region so desperately need. This is an important project for the State of Louisiana and our region and we look forward to continuing our work with the federal government and coastal states to support ORV as the best available technology."

The MPEH terminal would be capable of regasifying LNG at a rate of 1 Bcf/d. The company said additional investments are being considered to develop significant onsite cavern storage for natural gas in the large salt dome structure at this site and for pipeline connections to enhance gas delivery from Main Pass to a broad range of markets in the United States. The proposed design includes 28 Bcf of initial cavern storage availability and aggregate peak deliverability from the proposed terminal, including deliveries from storage, of up to 2.5 Bcf/d.

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