Fast-track legislation in Congress may soon make California dependent not only on foreign oil, but on a finite supply of imported natural gas, a necessity for heating and making electricity in the absence of energy alternatives. Legislation passed by the House late last month would expedite construction of a liquefied-natural-gas import terminal in Long Beach, but at the same time prevent California from protecting consumers against price manipulation. The prospect of LNG coming to California also has raised concerns for local residents about safety and for renewable-energy supporters that it will stymie such technologies as wind and solar power. Sound Energy Solutions, a subsidiary of Japan’s Mitsubishi Corp., has proposed an LNG terminal in Long Beach that will quickly supply more than 15 percent of the state’s gas when it opens and almost a third of Southern California’s. Large energy firms that produce gas abroad will chill it to minus 260 degrees Fahrenheit for shipping in liquid form across the ocean to the terminal, where it will be gradually reheated and put into pipelines. State energy regulators fear that Sound Energy Solutions will gain an excessively large energy-market share and exercise undue “market power” unless they can oversee the facility under a state-issued license. “All of Europe and Japan have some sort of an anti-hoarding check,” said Harvey Morris, principal counsel to the California Public Utilities Commission (PUC), regarding foreign nations that import LNG. Without economic regulation, Morris and others worry that LNG could leave state residents vulnerable to another 2000-2001-style energy crisis, in which companies ripped off billions of dollars from Californians through manipulative techniques, including withholding power from the market when demand was high. A report last month by the Energy Ventures Group in Washington, D.C., bolstered that concern by concluding that LNG importers will become “pivotal suppliers,” similar to the power generators that caused the state’s energy crisis. To head off the potential for high prices, the report urged policymakers to consider alternatives to LNG, which it said could add up to $4 trillion to the U.S. trade deficit by 2025. Companies already bring LNG to five U.S. terminals, and some 40 are proposed nationwide. Meanwhile, exporting nations want more money for their resources. Last month saw the fifth annual meeting of the Gas Exporting Countries Forum in Trinidad and Tobago, which provides a place for gas-rich nations — like Russia, Indonesia, and others expected to supply California — to discuss their interests. In California, the prospect of LNG is particularly troubling, said Morris, because Southern California Gas Co. is terminating contracts for some gas now imported through pipelines from the interior Southwest. Moreover, the company plans to make incoming pipelines bi-directional so gas can flow from California to points east. Against this backdrop, the House passed energy-policy legislation last month with provisions to prevent federal and state regulators from protecting consumers against potential price manipulation. President Bush last week backed the pre-emption of state authority, and the Senate is expected to pass a similar bill this summer. “If you love Enron, you’ll love this bill,” said Rep. John Dingell, D-Mich., who unsuccessfully argued for stronger anti-fraud provisions in the legislation. The bill also will “undermine the ability of states to ensure that LNG terminals are sited and operate safely,” said Rep. Anna Eshoo, D–Palo Alto. The pre-emption is intended to head off a lawsuit the PUC filed last year to assert California’s authority to regulate the safety and economics of the terminal. The commission challenged the Federal Energy Regulatory Commission after it claimed exclusive licensing authority over the proposed terminal and sought to bar the PUC from exercising any power over the project. Passage of the bill — crafted by House Energy and Commerce Committee Chairman Rep. Joe Barton, D-Texas, and Rep. Richard Pombo, R-Tracy — would make that suit moot by expressly pre-empting California and other states from licensing LNG terminals. House Republicans believe that pre-emption will help expedite LNG-terminal permits. “We need more energy for America,” said Barton. “I wish we could produce it within our shores, but it does not look like that is going to be possible.” Pombo has taken more than $279,000 from energy and natural-resources interests since being elected to Congress in 1993, according to the Center for Responsive Politics. Barton has garnered some $1.8 million from those industries since winning a House seat in 1989, more than half of it from oil and gas companies. In Southern and Baja California, companies have proposed several terminals. Sempra Energy, the parent company of Southern California Gas Co., began building an LNG terminal south of Rosarito Beach in Mexico earlier this year. The PUC already has approved pipeline modifications to bring the gas across the border. The PUC, said Morris, recognizes the need for LNG, but wants to protect Californians’ safety and pocketbooks. North of the border, Sound Energy Solutions seems to be pulling ahead in the race to site terminals on the basis of its promise to provide LNG as a vehicle fuel to replace dirty diesel trucks, buses and heavy equipment. Vehicle-fuel companies would pick up LNG at the terminal and ship it in insulated trucks to vehicle fleet yards in the area. Sound Energy Solutions air-quality consultant Erik Neandross, vice president of Gladstein, Neandross & Associates, says that LNG vehicles that meet the 2010 standards for diesel vehicles already have been tested successfully and will be commercially available by 2007. They will emit less soot and smog-forming nitrogen oxides than diesel vehicles sold that year under a dirtier standard, he said. LNG also costs less than diesel, said Ken Kelly, chief executive officer of Applied LNG Technologies in Amarillo, Texas, a major supplier of LNG to bus and truck fleets in Southern California. Based on the LNG clean-air strategy, Gladstein, Neandross & Associates has lined up letters from businesses and public agencies in Southern California asking the Federal Energy Regulatory Commission to approve the terminal. For instance, the Mojave Desert Air Quality Management District and Omintrans, a public-transit agency in San Bernardino County, have weighed in on behalf of the proposal based on discussions with Gladstein, Neandross. However, an analysis by Bill Powers, an engineer who heads the Border Power Plant Working Group in San Diego, shows the air-quality benefits will become negligible as diesel vehicles meet new standards. Powers is a member of Ratepayers for Affordable, Clean Energy (RACE), a coalition of environmental, community and human rights groups scrutinizing the need for LNG. He presented his air-quality analysis to officials at the South Coast Air Quality Management District in a contentious meeting last month attended by Gladstein, Neandross and leading environmentalists in Los Angeles. AQMD officials told Powers that he was wrong, said Cliff Gladstein. “We do think natural gas is cleaner,” confirmed Chung Liu, AQMD deputy executive officer. However, even though LNG vehicles may have an edge over diesel fuel on tailpipe emissions, the RACE coalition believes that bigger issues are at stake. Producing LNG has major impacts in foreign nations, and it pumps out more global-warming gases because of emissions from ships, according to RACE. Most important, however, LNG has the potential to blow away renewable power — such as wind, geothermal and solar — which is finally gaining a competitive toehold in California due to higher natural-gas prices. “LNG is blocking renewables and will lead to more fossil-fuel dependence,” said Rory Cox, communications coordinator for Pacific Environment, a Bay Area environmental organization that is part of RACE, at a recent protest of the proposed terminal in Long Beach. RACE has asked the PUC to hold evidentiary hearings on the need for LNG in California and to examine the bigger picture of how it should fit into the state’s overall energy and environmental plan for the future. The coalition believes that LNG importers could easily flood the market with imported gas, lowering its price long enough to decimate the state’s renewable-energy industry, which offers a sustainable course for California. The price then would rise as world production of gas peaks by 2030 and then declines, according to Jean Laherrère, a geologist who spent his career supervising worldwide oil and gas exploration for the French energy company Total. The Coalition for Clean Air shares those concerns, but worries too that unless California has an adequate supply of natural gas for power plants, state utilities will turn to coal plants in other states for electricity, said Todd Campbell, policy director for the coalition. They pollute more and emit more greenhouse gases than natural-gas power plants, he said. Local community groups fear an accident at the Long Beach terminal. A study by ABS Consulting for the Federal Energy Regulatory Commission found that a catastrophic breach in an LNG facility could create a fireball as far as a mile downwind. Sound Energy Solutions executives point to decades of safe LNG operations in other nations, including Japan. Long Beach activists counter that U.S. ports are more of a lightning rod for terrorism. A confidential report on LNG shipments in Boston Harbor outlines extensive security precautions, including underwater inspections by scuba divers, a shutdown of wharfs and a bridge under heavy police guards, and a flotilla of armed security vessels for every LNG tanker ship that arrives. Gas prices in New England are among the highest in the nation.
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