Liquid Gas Continues to Fuel Debate

Southern California has become a key testing ground for the future of liquefied natural gas in the United States, as the state grapples with political and environmental disputes over what would be the nation’s first West Coast import terminal.

Four companies are looking at potential sites along the coast -- Long Beach, Camp Pendleton and two offshore locations near Ventura County -- where massive tankers could dock and deliver LNG from gas fields in Australia, Southeast Asia and other gas-producing nations. Competition is keen: The first company to start operating an import terminal could control a sizable share of California’s lucrative natural gas market.

An order issued last week by the Federal Energy Regulatory Commission in Washington paves the way for a legal battle between federal and state regulators over who has the final say on whether one or more of the terminals is built.

Both energy firms and environmental groups are waiting to see how California deals with the competing LNG projects and mounting safety fears in communities where the projects are proposed.

Gov. Arnold Schwarzenegger has not taken a public position on the projects, although his secretary of resources, Mike Chrisman, said in an interview last week that he believes the state needs at least one LNG import terminal.

“I would say we need more natural gas, because the predominance of our electricity generation is through gas-fired plants,” Chrisman said, adding that the state Resources Agency will carefully study safety and environmental questions. The agency includes several state panels and departments with key roles in environmental reviews, such as the Lands Commission, the Coastal Commission and the Energy Commission.

Chrisman said he plans to visit Australia in July to examine their gas fields: how gas is extracted, and how it is chilled and condensed so that it can be shipped overseas in the form of LNG. He also will visit the South Korean port city of Inchon to see how LNG is unloaded from ships.

Some scientists and environmentalists believe that too little is known about LNG’s flammability to build facilities in populated areas. Such concerns prompted the recent cancellations of two planned LNG terminals in the state, in Vallejo in the Bay Area and in Eureka on the north coast.

Representatives of 25 environmental groups with a range of views about LNG will meet in Santa Monica today to discuss strategies.

“There does seem to be strong consensus on one point, that FERC is wrong in exerting exclusive jurisdiction,” said Joel Reynolds, senior attorney with the Natural Resources Defense Council.

The strongly worded June 9 FERC order reasserts the agency’s earlier contention that it holds the power to approve LNG terminals, rather than the state’s own regulatory panel, the California Public Utilities Commission.

The order denies the requests of several state agencies that it hold a new hearing to review who has final authority over Mitsubishi Corp.’s plan to build a $400-million LNG terminal in the Port of Long Beach to open in early 2008.

The tussle over that authority is attracting attention from other coastal states. Four LNG terminals operate in the United States, and only one, in the Boston suburb of Everett, Mass., is in a populated area. But more than 30 proposals for projects are pending nationwide as rising natural gas prices and a dwindling domestic supply spark interest in importing gas in liquid form.

In its order, FERC maintains that such imports are subject to federal rather than state control, because LNG is a matter of foreign commerce.

“This order serves the public interest by providing uniform federal oversight of siting, construction, operation and safety of facilities to be used to import foreign LNG to meet the nation’s critical energy needs,” it states.

That view troubles some state officials, including Peter Douglas, executive director of the California Coastal Commission, which has the authority under federal law to review projects along the coast.

“I do not think this latest order is helpful,” Douglas said Friday. “They seem to be sending a signal that they are going to trump states’ rights and the states’ ability to protect coastal resources.”

PUC staff attorney Harvey Y. Morris said his office has 60 days after the order was issued to file a petition for judicial review with the U.S. District Court of Appeals in Washington.

“We are considering our options,” Morris said. “We have to study this order and confer with the commissioners, so we have no official position at this time.”

State regulators initially tried to persuade Mitsubishi to apply to them for a permit to build its proposed Long Beach terminal, but the company instead filed an application with regulators in Washington.

“We’ve got a dispute between two agencies, and we’ll be glad when it’s over with,” said Tom Giles, executive vice president of Mitsubishi subsidiary Sound Energy Solutions. “What we can’t have is uncertainty. We’re anxious for it to be resolved.”