NGI The Weekly Gas Market Report
Is BHP Billiton, the global Australian mining and energy giant, down to its last strike in California after two state agencies turned an emphatic thumbs down on the company’s proposed $800 million, 800 MMcf/d offshore liquefied natural gas (LNG) receiving terminal? That’s the salient question hovering over the Southern California coast as BHP’s permitting and appeals processes play out.
After unsuccessfully attempting to get the California Coastal Commission vote on Thursday delayed and urging the federal Maritime Administration (MARAD) to halt its process in the eleventh hour, BHP Billiton LNG International Inc. has 30 days to appeal to the U.S. Commerce Secretary Carlos Gutierrez to overturn the state decision, but ultimately the clock is already ticking on the federal process.
Under the federal Deepwater Port Act, California Gov. Arnold Schwarzenegger has until May 21 to decide whether to approve or reject the LNG terminal proposal. If he approves it, approves with conditions, or fails to act, the state part of the process will be construed as an approval, and then the federal MARAD gives the final yea-or-nay by early July.
To date, after separate local public hearings along the Southern California coast the first two weeks of April, the U.S. Coast Guard has endorsed the 3,000-page environmental impact statement and report (EIS/EIR), even though it cites nearly two dozen environmental and safety problems. The California Lands Commission and California Coastal Commission separately rejected the environmental review, and the coastal panel strongly questioned the need for the project.
BHP LNG President Renee Klimczak told state authorities that California needs LNG imports to meet its future energy and environmental needs since gas is the cleanest of the fossil fuels. Further, she reiterated that state energy planners and regulators have indicated LNG should be in the state’s future energy mix to diversity sources and keep prices down.
Earlier this year, sponsors of a fifth California LNG proposal — an onshore terminal in Long Beach harbor — filed legal action against both the City of Long Beach and its Harbor Commission to recover excess permitting costs from the city and force the Port of Long Beach to complete a final environmental impact statement and report (EIS/EIR).
A legislative critic of the BHP proposal to build a floating receipt terminal 14 miles from a point on shore and 23 miles from its onshore pipeline connection called the Cabrillo Port project an unproven technology that would have environmental and safety risks that cannot be mitigated against. State Assembly energy/utilities committee Chairman Lloyd Levine raised fears of explosions and disruptions of the terminal similar to what BHP experienced in the Gulf of Mexico with one of its offshore gas production platforms that was ripped from its mooring and pushed 100 miles from its location by Hurricane Rita.
Industry stakeholders think LNG facilities have been forced by ever-stiffer regulations and building/operations standards to be “more innovative to provide cutting-edge technology” to exceed California’s very strict environmental quality standards. While technically it is accurate to raise doubts because there are no current offshore LNG receiving terminals, offshore oil/gas operations have been around a long time. But an uncharted area with LNG offshore is in the transfer of the liquid cargo to whatever regasification facility is used, since both are floating and subject to uneven movements.
There can be potential problems with cryogenic hoses used to transfer LNG from the ship to unstable regasification tanks, but the newest of the four competing projects, by Esperanza Energy, would eliminate the transfer hoses with a different technology. “Esperanza’s was designed to avoid the cryogenic hose issue,” said a consultant and former California Energy Commission LNG expert David Maul.”The LNG receiving facility attaches itself to the LNG carrier, eliminating any differential motion between the two that could cause the cryogenic hose to fail.”
Esperanza, a unit of San Antonio-based Tidelands Oil & Gas Corp., wants to develop two receiving platforms 10 miles off the coast at Huntington Beach, CA. Late in the mix, Esperanza said it hopes to file an application by the end of this year, thinking it can learn from the mistakes of the earlier applicants, according to one official.
The political attitude toward LNG generally and offshore receipt in particular has the other project sponsors scratching their heads and determining where they might need to shore up their permitting applications, each of which is a massive document for a massive undertaking that has already cost BHP tens of millions of dollars.
LNG backers early in the draft EIS/EIR process complained that critics were taking worst-case scenarios and consequences to overstate the risks inherent in the Cabrillo Port project. The Washington, DC-based Center for LNG presented testimony early in the process that concluded “improbable worst-case scenarios lead to overestimates of the resulting consequences.”
Each of the other projects has differences that presumably will make their environmental reviews different from BHP. A second Australian firm, Woodside Natural Gas Inc., proposes to use special LNG storage and regasification ships that would take the cargo from a trans-oceanic carrier out at sea and bring it to an offshore, underwater docking facility in which regasified LNG would be offloaded as a gas under water connecting to a subsea pipeline that would take the supplies ashore at a point along the coast near Los Angeles International Airport where an existing link to the SoCalGas transmission pipeline system is located.
The other offshore project is NorthernStar Natural Gas’s Clearwater Port, an existing idle offshore oil platform that would be converted to a storage/regasification facility and attached to an underwater natural gas pipeline to take the supplies ashore around Oxnard, CA. It would involve the same cryogenic hoses for transferring the supplies from the transport ship to the regasification facility that has caused concerns with BHP’s project.
Technically, the state coastal panel, which was established 35 years ago to oversee development of California’s 1,000-mile coastline, only acted on the narrow issue of whether the BHP project was consistent with federal and state coastal regulations. However, the panel’s executive director, Peter Douglas, indicated he thought the company should have filed for a coastal permit because, in the eyes of the regulators, the offshore terminal 14 miles from its nearest point along the coast is “coastal dependent” under the state law’s definition.
Besides numerous safety and environmental concerns, including what LNG operations and ship traffic would do to the whales and dolphins that regularly swim along a 50-mile-wide swath of the state’s coast, many public witnesses and some of the commissioners and staff disputed the state’s need for LNG imports, particularly with Sempra Energy’s new West Coast LNG terminal in North Baja California, Mexico, 60 miles south of San Diego, set to open next year.
The volume of opposition and the depth of the concerns raised leave the other three proposed offshore LNG proponents wondering how they could possibly convince local officials and citizens that LNG can be imported safely and without doing irreparable environmental harm.
BHP began last week at a state lands commission hearing in Oxnard, CA, touting 18 potential large buyers of its supplies along with nearly 100 groups supporting its Cabrillo Port Project, 14 miles offshore Southern California between Malibu and Oxnard in Ventura County. More than 250 local elected officials and citizens turned out at a U.S. Coast Guard hearing earlier in April with the majority opposing the project. The Coast Guard, MARAD and lands commission jointly completed the EIS/EIR.
Although it cited confidentiality regarding most of the specific organizations, BHP announced April 6 it had received nonbinding letters of interest to buy supplies from its LNG terminal from “18 large natural gas consumers and gas consumer groups” that had expressed interest in acquiring some of the potential Australian gas supplies. Las Vegas-based Southwest Gas Corp., “one of the largest municipal utilities in California,” and members of the California Independent Petroleum Association are among the 18 parties expressing interest in supplies from Cabrillo Port, BHP said.
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