Long Beach LNG Proposal Caught in Political Squeeze

While its sponsors continue to talk confidently, the proposed liquefied natural gas (LNG) receiving terminal in the Long Beach, CA, harbor Monday was suspended in a political vise about to be squeezed between the city political leaders and the separate Port of Long Beach. Port officials are dragging their feet on completing a final environmental impact statement and report (EIS/EIR) jointly with FERC. That final report now is not expected to be released until the first quarter next year, if ever.

The port's chief officer told the city council and mayor last week that he won't assign additional staff to finalizing the EIS/EIR until it gets a "clear understanding" from the city's elected officials that they are prepared to support the project. Indicating there is still a lot of work that needs to be done on the environmental documents, the port chief said the city's energy department has not reached an agreement with the project sponsors, something he said was a precondition to the port approving the project.

A letter from the Port's Harbor Commission president to the city council and a subsequent reply from Long Beach's newly elected mayor and former Southern California Edison Co. president, Bob Foster, publicly sounding his opposition to an LNG facility in the harbor, have thrown into question whether the EIS/EIR and ultimately the terminal project will ever be decided. "There are a lot of different ways this thing could go," a port spokesperson told NGI.

Monday the port was still awaiting more definitive word from the city council, and the spokesperson said the harbor commission ideally would like the council to vote on the project. Negotiations between the city and Sound Energy Solutions (SES), a Mitsubishi-ConocoPhillips joint venture proposing to build and operate the LNG facility, have been ongoing for more than two years without any resolution, and in the meantime a lease agreement between the port and SES expired earlier this year.

Tom Giles, COO at SES, Monday said that discussions with the city were "quite far along, so we don't know of any reason why the EIR should be delayed at this point." In a letter to Giles with copies to the council members and port commissioners, Long Beach Mayor Foster called the SES proposed terminal "ill advised." His letter told the energy company that he would not support its LNG proposal. Foster added that LNG will "assuredly play a part in meeting California's projected demand for natural gas in the coming years, but via projects that utilize offshore technologies and processing locations that minimize risk to our state's population centers."

SES's Giles downplayed Foster's stance because: (a) the mayor doesn't have a vote in the Long Beach nine-member city council system, and (b) the council has already directed the city to cut a deal with SES and complete the environmental processing. "The EIR is close to being finished, and we look forward to getting that done," Giles said. "And then, instead of talking about things you don't know about, you can talk about things that someone has written down and can accurately be examined."

As far as the new timing on the final EIS/EIR, Giles said it will depend on what the city council and the port do next. Like most of the stakeholders, he thinks the final report won't be released until next year. In regard to the stalled negotiations between the city energy department for supplies and a pipeline through the city, the port spokesperson said there doesn't have to be an agreement before the EIS/EIR is completed and released. "I think we would want something in place, however, regarding a lease with SES."

In reality, the EIR could be issued, certifiied, and a permit to build the project issued, but the Port still has to reach a lease agreement with SES, regardless of whether the city reaches an agreement.

Theoretically, a permit could be issued and a lease with the port secured without the city's approval, but that would not work politically. "I think that would be difficult," the port spokesperson said."Obviously the mayor is the leader of the city council, but since the letter from the port was addressed to the entire city council it should give an overall response."

Since the draft EIS/EIR were issued last year, port President James Hankla said his staff and the port's lawyers have spent "significant time" analyzing the public comments on the document. "It now appears that further substantial time and resources will be required in order to finalize an appropriate and legally defensible EIS/EIR," Hankla wrote in a Dec. 4 letter.

Three years ago, SES told the port that any "final agreement will involve SES and the city's energy department entering an arrangement for the benefit of the citizens of Long Beach, the Gas and Oil Department, the port and SES." Hankla said that at present, no agreement has been reached, and Giles acknowledged there had been no negotiations recently.

"The failure of the city council to enter into an agreement with SES relating to pipeline and long-term natural gas supplies suggests that the city does not support the project," Hankla said. "If this is incorrect, we need to be so advised as soon as possible," he told the city council in his letter.

Copyright 2006 Intelligence Press Inc. All rights reserved.

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