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LNG Update: Two Steps Forward; One Back

Two proposed LNG projects got some good news in the past thirty days while two more may be headed for ultimate failure. In California, Governor Arnold Schwarzenegger has issued his formal disapproval to United States Maritime Administrator Sean T. Connaughton for the licensing of the BHP "Cabrillo Port" LNG deepwater port planned for construction off the coast of Ventura County, California. Despite this, the governor did make it clear that he recognizes and supports the state’s need for an increased LNG supply. Schwarzenegger’s letter said, among other things, “While I believe strongly that California needs to expand its access to natural gas resources, specifically Liquefied Natural Gas (LNG), I am disapproving this application based on my review of the Environmental Impact Report/Environmental Impact Statement (EIR/EIS) that are required by state and federal law, respectively. Specifically, the Cabrillo Port LNG project as proposed would result in significant and unmitigated impacts to California’s air quality and marine life.”

The setback is the third such event to impact BHP’s ambitious plans. The proposed liquefied natural gas (LNG) terminal 20 miles off the coast of Southern California already had faced an uphill battle for approval in the wake of the U.S. Coast Guard Environmental Impact Report (EIR). In that report, released in March, the Coast Guard stated that the terminal “would be a serious environmental and safety risk for the region.” Later, the California State Lands Commission decided to deny the required lease for the proposed terminal. Citing environmental concerns, commissioners put up yet another roadblock for BHP Billiton LNG International, the firm that hopes to build the $800-million offshore terminal. The commissioners, in a 2-1 vote, also said that they did not believe that the facility was in the best interests of the state. BHP has since countered by saying that the terminal would provide a reliable source of clean energy.

Meanwhile, across the country in Massachusetts, a subsidiary of Excelerate Energy L.L.C., has received its deepwater port license from the United States Maritime Administration (MARAD) on May 14, 2007. The approvals are the culmination of over 3 years of project development and licensing efforts for the world’s second deepwater liquefied natural gas (LNG) importation facility. Northeast Gateway will be the first new LNG importation facility to serve the East Coast in more than 25 years.

According to a Northeast Gateway press release, Excelerate Energy will construct and own the deepwater port, which will be operated by Skaugen Offshore and will accommodate Excelerate’s proprietary Energy Bridge Regasification Vessel (EBRV) fleet operated by Exmar NV. The port’s infrastructure will feature two submerged turret loading buoys supplied by Advanced Production and Loading. With peak deliveries of up to 800 million cubic feet per day of natural gas, Northeast Gateway can deliver about 500 million cubic feet per day of natural gas into the New England market during normal operations, or approximately 20 percent of the New England market’s current annual natural gas consumption. Construction is slated to begin May 2007, which will allow the facility to commence natural gas deliveries into Massachusetts and the rest of New England by year’s end.

Back in California, and as the governor all but turns out the lights on another LNG deal, a Texas-based energy firm has presented the initial details of their own proposed LNG offshore facility. Esperanza Energy hopes to build its own floating liquefied natural gas terminal off the coast of Long Beach and has said recently that it will begin seeking approval for the project in the near future. The proposed terminal would be located in about 1,000 feet of water, some 15 miles from the Port of Long Beach. Hoping to succeed where others have failed, Esperanza has pitched its plans to the Long Beach City Council and has met with the city’s mayor. The proposal follows a Sound Energy plan which has become mired in red tape and ultimately, its siting was rejected by the Port of Long Beach Harbor Commission earlier this year. Esperanza hopes to learn from the process experienced by others and avoid the same sort of problems which seem to plague other California proposals. The offshore facility could, if approved, eventually supply as much as 15 percent of California's LNG needs.

All the way across the country again, opponents of the Broadwater project in Long Island Sound are digging in their heels during the regulatory review process. The project’s backers are not giving up, however, and an expanded effort to “educate” the media kicked off this week as the debate over safety and security issues at the proposed offshore facility started to ramp up again. With widespread political opposition to the project -- many candidates ran platforms which specifically aligned themselves against it last fall -- the project’s sponsors have their work cut out for them.

The Maritime Administration has issued six deepwater port LNG licenses to date and is currently reviewing eight applications (three applications are proposed off the coast of California). Nevertheless, it has been shown time and time again that with LNG, “all politics are local.” In California, Esperanza officials will need to convince local residents and politicians that they can succeed where others have failed. In Massachusetts, former Governor Mitt Romney’s last act before leaving office was to approve the two facilities proposed for Massachusetts waters. Arguably, his approvals were far more important than anything MARAD could bestow upon the projects. As Romney plunges deeper and deeper into the presidential sweepstakes this year, those (approval) decisions, for better or for worse, will follow him into the campaign. The lesson here, however, is that federal approvals of offshore and land-based LNG facilities, while important, often take secondary importance to local wishes. That maxim is playing itself out daily in today’s domestic energy game.