Within days of its decision earlier this month to drop a preliminary proposal for a coastal liquefied natural gas (LNG) receiving terminal in northern California, a Calpine Corp. official indicated the company continues to talk with all of the major LNG proponents in North America.

The company, in fact, is talking with prospects in the Pacific Northwest and elsewhere that haven’t filed for federal approvals yet, or publicly identified their projects.

“We have a pretty far-flung LNG initiative at Calpine, and we’re trying to attack it from a number of fronts,” said Calpine’s San Jose, CA-based Brad Barnds, an executive in the power plant fuels group. He called the dropping of the Humboldt Bay LNG proposal “unfortunate” because it was what he called an “anchor” of the company’s western strategy. Barnds made the comments last Friday in an interview with NGI/Power Market Today.

“We’re in discussions with all the different developers, and we’re clearly interested in getting access to the capacity, and in some we might be interested in talking about an equity position, so we’re looking at being a participant in some of the existing projects. But we have not identified any projects, per se, that Calpine would develop itself at this point. There are some projects that we might try to negotiate some sort of equity stake, in addition to a capacity position.”

Calpine’s large appetite for natural gas is well documented and it has acquired more than $1 billion in reserves in western Canada and northern California. A user of an average of 2 Bcf/d now, Calpine projects it will need 3 Bcf/d by late next year or early 2006. That represents eventually about 5% of the nation’s demand for natural gas to satisfy its portfolio of plants that will total about 30,000 MW by the end of ’06.

As a “cornerstone” of the merchant power plant developer’s future strategy, LNG is seen as a means of wiping away the lingering perception that natural gas is not going to be available in ample supplies and prices are going to continue to be too volatile for investors to build new natural gas-fired generation plants. Elimination of this perception is a key to Calpine’s future, according to Barnds, who indicated that potential buyers and local regulatory commissions in the markets it is trying to operate in are “hesitant to enter into deals” in some cases because of the volatile wholesale gas prices.

On a broad basis and with Calpine’s diversified gas portfolio, Barnds said the company thinks it offers “a number of different attractive attributes,” one being that the company is very interested in a long-term, fixed-prices for gas. “We’re one of the few large consumers willing to take a long-term, fixed-price, and that dovetails with our corporate goal to sell 65% of our plants’ output under long-term power contracts,” he said. “In many cases we need to have long-term, fixed price on the power and that necessitates long-term, fixed-price gas so we can be competitive in a number of the markets in which we are trying to sell power.”

From a global standpoint, Calpine is able to offer spark-spread participation to its suppliers, he said. “By that I mean, we could allow a supplier to tie the price of their gas to the price of power. So we have a variety of pricing options we could make available to the supply community to attract them to our markets,” said Barnds, putting on his sales pitch.

With little warning, Calpine announced late last Wednesday it was dropping its plans for developing a LNG terminal and other facilities in the far northern end of California in Humboldt Bay, following an outpouring of mostly opposition from some 900 citizens who packed a municipal auditorium the previous evening in Eureka, CA (pop 26,000).

The council never officially turned down the energy developer’s request for an exclusive right to assess a site on part of a little used airport because Calpine dropped its request before a second, follow-up citizens’ meeting scheduled for the next day (March 18).

“Calpine has withdrawn its plans to proceed with a LNG terminal at Samoa Point, in Eureka, and is ceasing development activities,” a company spokesperson said in a prepared statement that noted the company “values it relationships with the communities where its plants are located,” so it wants at least a clear majority of support. The inference is that it was not getting majority support in Eureka.

“Based on feedback from the local community and public officials, we believe this decision is best for all parties,” said a Calpine vice president involved in the proposed project, Ken Koye. “The Eureka City Council, the city staff and community leaders are to be commended for their time and effort in considering the project. We appreciate those who worked with us to explore the potential for the project.”

After sniffing around Humboldt Bay, the second largest natural harbor on the West Coast, Calpine only recently began examining the second site, which was closer to the opening of the harbor, and thus would require less dredging than original potential site farther inside the bay.

Part of Calpine’s very preliminary conceptual plans included the development of a 220 MW electric generation plant, partially to supply the estimated 20 MW of power needed for the LNG terminal operations, and a 30-inch-diameter, 155-mile natural gas transmission pipeline using the existing corridor of a 12-inch-diameter supply line that runs northwesterly from Red Bluff, CA, in the north-central Interstate-5 highway corridor to the Humboldt County area.

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