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Long Beach, Mitsubishi-ConocoPhillips Negotiating LNG Deal

With a joint federal-local port draft environmental impact report expected in September on the proposed liquefied natural gas (LNG) receiving terminal that would be the first along California's coast, the city of Long Beach and the joint venture LNG proponents are negotiating a gas supply deal for the city and eventually a 2.4-mile, 24-inch-diameter pipeline the city would own between the port-based terminal and Southern California Gas Co.'s transmission pipeline system.

The Long Beach Gas and Electric Department, which operates a municipal water-gas utility system and purchases the power supplies for the city's facilities, currently takes its gas supplies off Sempra Energy's SoCalGas system, and the head of the city-run energy department, Chris Garner, told NGI Friday he wants to continue taking supplies off of that system. Eventually the connecting pipeline between the proposed joint Mitsubishi Corp.-ConocoPhillips LNG terminal and the SoCal transmission system may be leased by the city to the Sempra utility, Garner said.

"I hoped to have a gas supply deal wrapped up next month," said Garner, referring to the talks that resumed earlier this month with Sound Energy Solutions (SES), Mitsubishi's local affiliate with the joint venture proposing to build and operate the LNG facility.

After some contentious city council meetings that lasted well after midnight with proponents and opponents squaring off, the Long Beach City Council in early June voted to resume negotiations with SES-ConocoPhillips. Garner eventually will have to take any deals he strikes back to the city's elected leaders.

In the meantime, the work on the joint draft environmental impact report (EIR) between the Port and the Federal Energy Regulatory Commission has continued with a September target for releasing the draft EIR. Garner said the city political leaders probably won't want to vote on any contracts until after the EIR is released.

Unlike most receiving terminals, the proposed Long Beach facility will not use seawater as the heat source to transform LNG back into a gas; instead, the proponents plan to use fresh water in a closed-loop system, so there are no discharges into the harbor. Similarly, the LNG that is offloaded into insulated, double-walled tanks experience some "boil off" of the methane as the LNG is held before undergoing the warming process, and those supplies are used to help operate the receiving site, similar to the use of the escaping methane from the LNG by the oceanic ships transporting it from its place of origin.

Long Beach's city-run gas utility already leases a supply transmission pipeline between the city and nearby Huntington Beach, CA, to SoCalGas, and it has hedged natural gas supply deals to take care of the majority of its supply needs. "We have a $10 cap on our gas supply, so we're still slightly below SoCalGas in price (weighted average cost of gas, or WACOG), so the price still floats with the market," Garner said. "The futures market now is about $9 for [wholesale natural gas] next winter, so the cap may come in handy."

The city is also watching closely what is coming out of Congress in the new comprehensive energy bill in the LNG title. He sees some requirements for "tight deadlines" (30-day turnaround) for pending LNG projects, requiring states in which the projects are proposed to submit local security costs surrounding the projects.

"We'll have to start working on that right away," he said. "Our main concerns in the energy bill are its LNG parts because it looks like it is taking away some of our local authority and that concerns us."

Meanwhile, the city council has authorized Garner to negotiate a gas supply deal and a pipeline deal, so he is focused on that. After the joint EIR draft has been released, he said he will take some deals to the city council for consideration. Separately, the council also has the local police and fire departments studying the overall safety issues surrounding the proposed facility.

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