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LNG to Compete Against Renewables, Conservation Alternatives in Northwest

Even though local and state regulatory attitudes are positive -- particularly compared to California -- liquefied natural gas (LNG) development for the Pacific Northwest may not be able to compete against renewable and conservation alternatives, along with new western onshore natural gas supplies, according to speakers at a western energy conference Thursday.

There are also questions about who is going to plan, pay for, and build the added pipelines and power transmission lines needed to accommodate new energy sources, according to several speakers at the Law Seminars International conference, "Buying and Selling Electric Power in the West," in Seattle.

Noting that the permitting climate for LNG siting in Oregon where there are five separate proposed projects is much better than states such as California and Massachusetts, Harvard Spigal, a Portland, OR-based energy attorney, said "it is nothing like the reaction you get to LNG in Long Beach, CA, for example. Oregon is taking an open-minded approach on LNG siting, and there is not a lot of population or industry near some of the most advanced sites (up-river along the Columbia)."

At this time, the most likely contender is one of the two up-river sites inland from the mouth of the Columbia River, Spigal said. One project by Northern Star has an application to the Federal Energy Regulatory Commission, and the other one at Port Westward is in the pre-FERC application phase.

Generally, the Pacific Northwest has a 3 Bcf/d natural gas load, to which the proposed LNG projects would inject up to 1 Bcf/d of added supplies, and energy attorneys, such as Edward Finklea, with Cable Huston Benedict Haagensen & Lloyd in Portland, think such a project could have a major dampening effect on runaway wholesale gas prices.

"This region has had a tremendous advantage for many years of playing off the two supply sources (Western Canada and the U. S. Rockies)," said Finklea, who thinks eventually added supplies in the Rockies will force Northwest Pipeline to expand the capacity on its interstate pipeline into the Northwest and will further promote a basis price differential for wholesale gas between Sumas, WA, at the Canadian-U. S. border and Henry Hub.

For the Northwest to tap the added Rockies supplies -- competing with future Eastern markets -- the region needs "more capacity from south-to-north on Northwest Pipeline," Finklea said. "When the Northwest Pipeline system is inevitably constrained, it is more often than not constrained south-to-north -- not north-to-south. It isn't constrained from Sumas coming into the I-5 corridor [in Washington and Oregon]; it is more often constrained coming from Wyoming to Stanfield, OR."

Finklea said the same sorts of constraints on the Northwest power grid are equally evident on the interstate natural gas pipeline system in the region.

"So, that's a question that is out there, and Williams [Pipeline Cos.] will come in with its first rate case later this year since 1997," he said, noting it should include monies for capacity expansion, requiring more expensive looping of parts of the line.

For LNG in the Northwest, there needs to be sufficient demand and adequately priced contracts to justify the construction of a terminal, said Portland attorney Spigal. "These terminals are very expensive -- in the neighborhood of $500 million.

"A lot of the uncertainty on the ability to permit LNG terminals was eliminated with the new federal Energy Policy Act, because FERC was given exclusive jurisdiction, and I think most lawyers would agree with that." (Although he noted that states are not excluded; they can determine local fire, safety-related and load location issues.)

"States won't be determining need or the underlying adequacy of sites," said Spigal, noting that local opposition and safety issues won't be a major factor in the Northwest. What will be a key is whether the price LNG attracts in the region will be enough to make an LNG terminal economic. Ultimately, the amount of added natural gas-fired electric generation in the region will determine if LNG is economic, he said.

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