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West LNG Perspectives Shared by Expert, FERC Member

Anyone who hopes to site a liquefied natural gas (LNG) terminal on the West Coast should be realistic about the time and effort it may take, a FERC commissioner and a regional expert said in separate presentations last week in San Francisco.

If a second LNG receiving facility is built on the West Coast of North America, it won't have the same impact as an interstate pipeline in terms of steady, added daily supply. Capacities will vary seasonally and among multi-year periods, according to David Maul, a western natural gas expert who spoke at the two-day Law Seminars International conference last Tuesday.

On the first day of the "Energy in California" meeting Marc Spitzer, one of five members of the Federal Energy Regulatory Commission (FERC), endorsed the possibility of federal permitting of potential LNG projects that would apply a programmatic -- as opposed to ad hoc, case-by-case -- environmental review.

"If we continue to have gridlock where the states deny LNG authority under the Coastal [Zone] Management Act and nothing is getting built, maybe we need to revisit this," Spitzer said.

Facilities such as the existing Sempra Energy Costa Azul terminal in North Baja California, Mexico, and the proposed Bradwood Landing project in Oregon will have highly variable capacities over time depending on global and domestic gas availability/price factors, consultant Maul told NGI during the second day of the conference.

A former California Energy Commission gas expert and adviser to the panel's vice chairperson, Maul made a case for LNG being viable in the West in the midst of lower prices and more plentiful domestic supplies in the United States and Canada. He thinks the analyses will look at new gas supplies' economic viability in comparison to coal-fired power generation -- not by comparing potential LNG imports to domestic pipeline gas prices at any given period of time.

Spitzer acknowledged that individual project proponents want their days in court, so to speak, to make their arguments for a specific site, so the change will not be an easy sell. Nevertheless, in giving conditional approval to the NorthernStar Natural Gas Bradwood Landing LNG project in Oregon earlier this month, Spitzer said FERC commissioners discussed this idea, which was promoted in a recent letter from Oregon Gov. Ted Kulongoski.

Spitzer said the concept most likely would not require congressional action but would require substantial changes in the operations at FERC.

Noting that the Bradwood case is still within the time span for which rehearings can be sought, Spitzer said people in Oregon are against the prospect of some of the LNG supplies flowing to California. "Parochialism exists everywhere," he added, "and it is understandable in these very contentious days." He added that a number of LNG terminals approved by FERC will not be built because the states won't go along under their powers in the federal coastal management law.

In giving his assessment, Maul ran down a list of nearly a dozen proposed western LNG projects and only one is really moving ahead at this time -- NorthernStar Natural Gas' Bradwood Landing proposal.

Maul noted that three separate offshore LNG projects proposed for Southern California are all in a state of limbo -- two put on hold to await what will happen with the state's greenhouse gas (GHG) emissions rules, and a third (with which he is involved as a consultant), Esperanaza Energy, trying to secure more financial backing before it goes forward with the siting process, which can eat up millions of dollars. Even Sempra's Costa Azul will not receive regular commercial shipments of LNG before the first quarter next year, Maul said.

With what he called "very minor pipeline connections in California," Maul said the Sempra terminal "will not add much capacity to California, but it adds another supply source to the Southwest" through it connection to interstate pipelines in Arizona.

Maul called the Jordan Cove and Bradwood projects in Oregon the "interesting ones." Jordan Cove, along the Pacific Coast at Coos Bay, OR, has a draft environmental impact report from FERC that he characterized as having a seeming green light from the federal regulators' standpoint, even though it is located near an airport runway and involves a 300-mile pipeline connecting it with existing interstate lines serving California and the Pacific Northwest. "This is what causes people to say FERC has 'never found an LNG project it doesn't like,'" Maul said.

"Gov. Kulongoski wrote what I thought was an excellent letter, proposing a programmatic environmental impact statement for Oregon," Spitzer said. "Instead of having five potential sites, the federal government could consider choosing one, and the governor would go and then get that sited. That's different from the status quo in which each plant is evaluated individually on its merits. It is an interesting concept and would require a change of FERC policy.

"Now each case stands on its own, and certainly if you are a litigant, you want your case heard."

In regard to the natural gas industry generally, Spitzer said that for those now questioning market-based approaches in the energy space, natural gas has been a success covering three decades in terms of a deregulated market approach, including the opening of the interstate natural gas pipeline system. "Market forces in natural gas have saved the American consumers, I believe, trillions of dollars, and the fact is that with our gas policies, if you consider the price spikes and the global demand, domestic production of gas is up almost 10% based on market conditions.

"In order to have the gas reach the market, you need to have an interstate pipeline system, and FERC has certificated more miles of interstate pipelines in the past two years than the prior 10 years combined. This was a response to market."

In praising a proposed policy before California regulators that would not make a distinction between sources of gas, whether from LNG or new pipeline supplies, Maul said, "California is going to continue to use a lot of natural gas [particularly with GHG emission regulations] and LNG can help contain the price we pay for natural gas. LNG offers an opportunity for price constraints on what we pay."

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