LNG: Effects of La. Veto Might be Felt Across Gulf of Mexico

Louisiana Gov. Kathleen Blanco's veto last week of a proposed liquefied gas terminal has forced project managers to bolster protection for fisheries -- a move that could have broad implications for the industry.

New Orleans-based Freeport McMoRan Inc. announced today it would re-engineer its Main Pass Energy Hub project to involve more fish-friendly technology. The project site, roughly 16 miles off the mouth of the Mississippi River, will remain the same, company officials said.

Blanco, a Democrat, had threatened for months to block any new LNG terminals that involved the use of an LNG conversion technology called "open-rack vaporizers" (ORVs). Such technology, also called "open loop," requires the daily use of hundreds of millions of gallons of seawater to convert super-chilled LNG into a saleable gas.

Scientists with the National Marine Fisheries Service and the Louisiana Department of Wildlife and Fisheries have warned that operation of open-rack vaporizers in the warm-water Gulf of Mexico will destroy fish eggs, larvae and other small organisms that are drawn toward water intake pipes. High-value species that would be susceptible to harm from ORVs include red drum, snapper, tuna, crab and shrimp, according to fisheries regulators who have studied potential effects from LNG terminals.

While Blanco's veto applies only to the Main Pass Energy Hub, its implications could be felt broadly within the industry and lead to reconfigurations of a half-dozen other LNG projects proposed for the Gulf of Mexico. "Certainly we're disappointed in the governor's decision," said Bill Cooper, executive director of the Washington, D.C.-based Center for Liquified Natural Gas, which has advocated for use of ORVs in the Gulf of Mexico. "We'll have to wait and see if it has a broader scope."

In a letter to the U.S. Maritime Administration, which has permitting authority over offshore LNG terminals, Blanco said she will continue to oppose the licensing of facilities that use the "open loop" technology and will allow only terminals that employ a more expensive, but less potentially harmful, technology called "closed loop."

"Until studies demonstrate that the operation of the open-rack vaporizer will not have an unacceptable impact on the surrounding ecosystem, I will only support offshore LNG terminals using a closed loop system having negligible impacts to marine life," Blanco wrote in the letter to acting Deputy Maritime Administrator Julie Nelson.

Coast Guard saw 'minor' long-term effects

Blanco's veto of the terminal comes on the heels of a final environmental impact statement, completed by the Coast Guard in March, which found that the terminal would have "minor long-term adverse impacts" to fisheries resources due to the operation of the open-rack vaporizers.

Blanco also said she would continue to block LNG terminal projects in Louisiana waters until industry agrees to allow the state to share in revenues derived from the facilities. "This is only right," she said in a statement. "Louisiana has learned a tough lesson in not receiving a share of the offshore revenues from the oil and gas industry. We cannot make the same mistake" with LNG.

Under federal licensing provisions, governors whose states would be affected by LNG terminals can veto any project they believe will harm broader state interests. Three Gulf Coast governors -- Blanco, Alabama's Bob Riley (R) and Mississippi's Haley Barbour (R) -- pledged last year that they would oppose new LNG terminals that posed a threat to fisheries or other resources.

While he did not exercise his veto option on the Freeport McMoRan project, Riley said over the weekend that he supported Blanco's decision. "Governor Blanco and I have been discussing this for several weeks and we're both in agreement. I strongly support her veto and commend her for this decision," Riley said. "Our concern is not with the company, but rather the open-loop technology it plans to use."

In a statement issued this morning, McMoRan Exploration Co. officials said they will amend the Main Pass Energy Hub project to meet Louisiana's tougher requirements. "As a result of Governor Blanco's action, McMoRan will undertake to obtain approval of its MPEH project using closed loop technology," the company said, adding that revisions to its permit application could be "processed expeditiously."

At the same time, McMoRan co-chairmen James Moffett and Richard Adkerson maintained that open-rack vaporizers are "an established technology" in other parts of the world and would pose "negligible environmental impacts" to Louisiana's marine resources. They also warned that by requiring closed-loop systems, states will "exacerbate the growing energy crisis in our country" because closed-loop systems must heat process water via combustion.

"It is essential that our industry continue to pursue the use of this technology to ensure conservation of scarce energy resources," Moffett and Adkerson said in a statement.

Groups weigh veto's implications

Under its reconfigured design, the Main Pass Energy Hub will consume approximately 1 percent of its annual throughput of natural gas, or 3.5 billion cubic feet, to heat water for its closed-loop vaporizers, officials said. On average, the building and operating costs associated with closed-loop terminals will run operators an additional $20 million to $40 million per year, according to the industry-funded Center for Liquefied Natural Gas.

The implications of Blanco's veto, and the endorsement of her veto by Gov. Riley, could be felt widely by the LNG industry, which has proposed a number of open-loop terminals for the region, including one for offshore Alabama. That project, known as Compass Port, has been proposed by ConocoPhillips for 11 miles south of Dauphin Island and, like McMoRan's Energy Hub, calls for use of open-rack vaporizers. Riley has until June 11 to render a veto decision on that project.

Permits for one additional Gulf of Mexico terminal, Shell's Gulf Landing facility, remain tied up in federal court after the Gulf Restoration Network and several other groups challenged the permits on grounds they violate the Deepwater Port Act and the National Environmental Policy Act.

Aaron Viles, campaign director for the New Orleans-based Gulf Restoration Network, praised Blanco's decision. "She didn't waver. At the end of the day, she did exactly what she said she was going to do a year ago," he said. Viles added that he expects the other LNG terminals proposed for offshore Louisiana with open-rack vaporizers will have to go back to the drawing board.

"I wouldn't anticipate any more of them being approved in the Gulf of Mexico," he said.

Other groups, such as the Coastal Conservation Association which represents recreational fishers and hunters, also endorsed Blanco's decision, stressing that the McMoRan project and other LNG terminals can win favor in Louisiana, but without posing an unnecessary threat to fisheries.

"We recognize the need for these terminals to provide an important product for America. But we also realize that this goal can be achieved without taking such a huge risk with our marine resources," said Walter Fondren III, CCA National Chairman. "As long as open-loop systems -- and the risk they represent to our marine life -- are off the table, CCA is not opposed to McMoRan Exploration developing this facility."

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