Alabama Governor's Veto Threat Sinks $1B ConocoPhillips Project

A second major liquefied natural gas terminal planned for the Gulf of Mexico has succumbed to veto pressure from state leaders opposed to an industry-favored vaporization technology that is seen as a threat to marine life.

ConocoPhillips has withdrawn plans for an LNG terminal 11 miles off Alabama's coast, Gov. Bob Riley (R) said today. The company withdrew its $1 billion Compass Port project after Riley held firm to his threat to veto permits issued by the U.S. Maritime Administration almost two months ago.

"As governor, I will not permit the establishment of any activity that I believe may adversely impact our marine resources if I have the power to stop it," Riley said in a statement.

Riley's opposition to the project stems from his belief that "open-rack vaporization" that converts LNG into gas poses an inordinate risk to his state's fisheries. Operation of such vaporizers require daily withdrawals of millions of gallons of seawater that passes through a labyrinth of warming pipes before being returned into the gulf.

Federal and state fisheries scientists have warned that the use of such technology, also called "open-loop," could draw large numbers of fish eggs and larvae into the terminal's water-intake pipes. Industry insists the open-loop systems do not pose excessive risks to fish, and that such terminals can be operated in an environmentally responsible way.

But industry assurances fell short of convincing governors in both Alabama and Louisiana, who have held firm to promises to veto "open-loop" LNG terminals. ConocoPhillips' withdrawal of the Alabama project comes one month after Louisiana Gov. Kathleen Blanco (D) vetoed a project employing the same technology 16 miles off the mouth of the Mississippi River (Greenwire, May 8).

The Louisiana project, pursued by New Orleans-based Freeport McMoRan Inc., has gone back to the drawing board and will be redesigned with a more fish-friendly vaporization technology, called "closed-loop," that recycles water and heats LNG through natural gas combustion, company officials said.

ConocoPhillips did not respond to phone messages before noon today. But according to Riley's office, the company will make similar revisions to its project so as to minimize harm to fisheries.

"I appreciate the open and candid discussions I've had with officials of ConocoPhillips throughout this process," Riley said. "My concern is not with the company, but rather the open-loop technology it planned to use off our coast. In Alabama, we continue to support the development of LNG, but not at the expense of our treasured marine resources and coastal environment."

Bill Cooper, executive director of the industry-backed Center for Liquefied Natural Gas, said Riley's opposition to the ConocoPhillips project was disappointing, and he warned that future state rejections of LNG terminals will exacerbate the gas supply crunch that has led to near-record domestic prices over the last year.

But he did not believe that the latest rebuff of open-loop systems in the Gulf of Mexico reflected a "landscape-level change" in the permitting environment for such terminals. "I don't know that we're seeing a larger trend at work -- yet," Cooper said. "The governors have to decide these things on a project-by-project basis."

At the same time, Cooper cautioned that as planning, design and construction costs escalate for LNG terminal developers in the United States, so does the prospect that such investments will be routed to other countries that are more amenable to oil and gas development. "The high-value commodity is subject to a global marketplace," he said. "Companies have to make their decisions based on how they can remain cost-competitive on a global basis."

Environmentalists praise Riley

Gulf Coast environmental groups were quick to praise Riley's steadfastness on the issue and expressed hope that a redesigned Compass Port LNG terminal would come with safeguards for fisheries.

"What we've always said is, 'Close the loop on LNG and we'll be OK,'" said Casi Callaway, executive director of the south Alabama environmental group Mobile Baykeeper. Callaway praised Riley -- a former Republican congressman who is close to the Bush administration and who generally supports its energy policy -- for standing up against a project many believed was ill-conceived.

"When he has looked at issues like this carefully, he has made very good decisions," Callaway said.

Pat Murray, conservation director for the Coastal Conservation Association, which represents sportfishers and conservationists, noted that Riley's opposition to open-loop LNG systems is consistent with a growing awareness of environmental issues along the historically industrialized Gulf Coast.

"The message being delivered by the Gulf Coast governors is simple: There is a better way, one that does not jeopardize the resources that so many people value so greatly," Murray said.

Copyright 2006 Greenwire. All Rights Reserved. Visit E&E Publishing for a free trial.

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