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US: Federal energy regulators smooth the way for liquefied natural gas terminals

WASHINGTON, December 7, 2004 — After scores of private meetings with Big Oil giants such as ExxonMobil and ChevronTexaco, the Federal Energy Regulatory Commission is aggressively undermining the authority of state and local governments to reject dozens of proposed liquefied natural gas facilities all across the country.

The energy companies' influence with FERC and its chairman, Pat Wood III, is evident in schedules, letters, e-mails and handwritten notes obtained through the Freedom of Information Act by the Center for Public Integrity. The documents indicate an extremely close relationship between the commission and the industry it regulates.

Over the past three years, FERC's current four commissioners have met privately at least 83 times with executives and lobbyists representing oil and gas companies active in the LNG trade. In comparison, FERC has met privately only a handful of times with opponents of specific LNG projects.

Industry access seems to be paying off. For example, despite state and local opposition, FERC recently asserted its authority to unilaterally permit the construction and operation of LNG facilities. (California is currently in the process of challenging that decision in court. ) Top FERC officials have also supported more LNG imports in speeches and presentations. The agency has even announced a "new regulatory approach" that "remove[d] economic and regulatory barriers to the development of onshore LNG import terminals."

The US Coast Guard provides security for an incoming LNG tanker. (photo: Donnie Brzuska/USCG)

Further, a bill expected to be introduced early in the next session of Congress would cement in law the regulatory agency's role as the sole authority over LNG terminals.

Some high-ranking members of Congress have already weighed in on the issue, however. Last month in a giant congressional appropriations bill, three paragraphs granting FERC authority over state powers to site LNG facilities were slipped in without debate by Republican leaders. Senate Energy Committee Chairman Pete V. Domenici, R-N.M, slipped the LNG provision into the massive spending bill, an aide to the senator told the Los Angeles Times this weekend.

Several officials who have opposed LNG projects, such as Sen. Lincoln Chafee, R-R.I., and Rep. Barney Frank, D-Mass., were unaware of the change. Although the language would not carry the weight of law, it puts the leaders on record in favor of FERC's position on the matter.

The agency's power grab comes at a propitious time for the industry. With natural gas demand expected to rise dramatically during the next 20 years according to the Energy Information Administration, FERC officials justify their role by saying that an uptake in the LNG trade can increase supplies, especially in big consumer regions like New England.

"I think it helps customers a lot to give them cheap gas," said Wood. "It is a supply and demand response. The demand has gone up because of the positive environmental attributes, so the supply has to go up."

More than 40 LNG projects are currently slated for all of North America, dotting the Pacific and Atlantic coastlines of the United States.

LNG is the liquefied form of natural gas. Cooled to below minus 260 degrees Fahrenheit, LNG takes up 1/600th of the volume of natural gas in its vapor form. Pumped into enormous tankers—some large enough to fuel ten million homes for a day in one shipment—LNG is imported from countries as near as Trinidad and Tobago, America's biggest LNG supplier, or as distant as Algeria, Nigeria, and Qatar.

Proponents argue that LNG is a clean fuel and that better shipping technology and the high prices for domestic natural gas make it an attractive option for Americans.

Critics worry about the safety risks— including potential terrorist attacks—associated with LNG facilities. If a spill from an LNG tanker ignites, it could endanger surrounding communities, according to several experts interviewed by the Center.

Although natural gas can only burn in a certain concentration in the air, most experts agree that a "pool fire"—an LNG tanker spill onto water that evaporates and ignites in the air—is the industry's most serious hazard.

"It will be like a gasoline pool fire," said Jerry Havens, a professor at the University of Arkansas. "LNG will evaporate much faster and it will burn much hotter."

"It is highly unlikely that anyone could cause a spillage of all those tanks at one time," said Havens. "But if you could cause damage to one tank, and it caught fire, there is a potential for a very large fire that could endanger the rest of the ship."

Wood said he takes such worries seriously.

"Some of these proposals are being proposed in my own hometown [Port Arthur, Texas], so I have a very strong personal interest in the security and the safety of these facilities," said Wood.

While there has not been a serious tanker spill, there have been 13 serious LNG terminal accidents worldwide, including a 1944 fire at an LNG plant near Cleveland, Ohio, that killed 128 people, according to the Congressional Research Service. The most recent accident was an explosion at Algeria's Skikda LNG terminal, killing 27 people, in January 2004.

Communities around the country cite those risks in opposing planned LNG facilities in their neighborhoods. Meeting Behind Closed Doors

From June 2001 to May 2004, FERC's current four commissioners had at least 83 private meetings, including meals, with executives and lobbyists representing oil and gas companies that are active in the LNG trade. The Center did not receive schedules for past commissioners during that period.

Wood accounted for at least 33 of those meetings with LNG interests, either by himself or with other commissioners. Among those Wood scheduled meetings with were lawyers and lobbyists representing some of the more controversial LNG projects in Massachusetts and California.

"I want to know what is going on before I read it in the paper," Wood told the Center for Public Integrity. "If we regulate you, we want to know what is going on. We want to hear it from you first."

Besides the private meetings with FERC's top brass, energy executives have pushed hard for new policy regarding LNG facilities at public sessions held by the agency. For example, FERC held a day-long public meeting with the National Petroleum Council, a federal advisory committee packed with oil and gas officials, to discuss speeding up the permitting process for LNG terminals.

Big Growth Coming

Before the public meeting, Wood also had a private meeting that included his former boss, Jerry Langdon, a former FERC commissioner and now an oil executive, who was representing the NPC to discuss the report.

Langdon helped secure Wood's first job with Pres. Bush, writing in 1994 to the then Texas governor about his past legal advisor at FERC. Langdon and Martin Allday, another former FERC Commissioner, wrote to Bush, "Because we both have seen first-hand (in spades) the ability, integrity, energy and dedication to service that Pat Wood exemplifies, we recommend that you consider appointing him to the [Texas Public Utility Commission]. You simply could not do much better from our way of thinking."

Wood later recalled to the Dallas Morning News that the "letter was sitting on Bush's desk when I went in to see the governor after the inauguration."

"I have been in the energy industry since 1989," Wood told the Center. "You are going to know people. But the burden of mine is to make decisions based on what is good for the public."

The roughly 40 LNG facilities on the table nationwide include plans by such oil and gas titans as BP and El Paso Corp. As a group, 18 of the companies behind the proposals have made more than $31 million in campaign contributions and reported spending more than $227 million on lobbying the federal government since 1998.

Oil and gas companies not only lobbied on the LNG trade, but also for more focus on unconventional exploration technology, a proposed Alaskan natural gas pipeline, and many other provisions in a massive energy bill that is now stalled in Congress.

They've also donated heavily to like-minded legislators. Rep. Lee Terry, R-Neb., and the other nine lawmakers who co-sponsored a previous version of the bill increasing FERC's power, have received more than $794,000 in campaign contributions from the oil and gas industry since 1998.

President Bush, who has received more than $1.7 million from the oil and gas industry from 1998 through mid-year 2004, is also a proponent of LNG. His campaign Web site promoted LNG terminals to meet U.S. demands for natural gas. Small Communities Targeted

At the moment, the continental United States has only four LNG terminals—with another located in Puerto Rico—that can receive LNG and transform it back into gas for consumption.

Many of the new LNG facilities would be located near small communities like Fall River, Massachusetts, and Galveston, Texas—a tactic, critics say, designed to minimize opposition to the controversial facilities.

"I think it is no accident that the industry has chosen places like Fall River, which tend to be lower-income, working class communities where they don't expect educated opposition," said Mayor Ed Lambert. The New England mill town has tried to prevent a proposed LNG terminal from being built inside its city limits.

Fall River has enlisted several top political allies in its opposition to the LNG project, such as Gov. Mitt Romney, former presidential candidate Sen. John Kerry, D-Mass., and Sen. Edward Kennedy, D-Mass.

FERC says it holds hearings in local areas as part of the pre-filing process for LNG terminals sited nearby. "Many people are invited from the local area in the process and many do participate," Wood told the Center.

As part of the application process in some communities, FERC has held "technical conferences" with companies proposing LNG terminals as well. People can attend, but only if they sign non-disclosure agreements. In addition, records that could include potential hazards and safety risks to the area are sealed under a clause called "critical energy infrastructure information." Entire pages of LNG project documents have been exempted from public view.

Some of the private meetings were also part of the pre-filing process. "There are rules that limit informal meetings once an application has been triggered," Prof. Richard Pierce of George Washington University told the Center. Pierce, an expert on government regulation, explained that pre-filing has existed for more than 30 years at FERC and other government agencies as a means of expediting the approval process. Licensees are expected to communicate potential projects to the relevant regulatory agency, in this case FERC, through communications and meetings.

After an evaluation period, FERC typically seeks public comment. Bryan Lee, acting director of external affairs for FERC, suggested that public participation was not necessarily limited, since FERC holds public meetings and posts notices as part of the approval process. Becoming an official participant in the approval process requires a responsibility to contact and inform all involved parties; many members of the public, Lee suggested, may not be prepared to assume the mandated requirements. "You can't just zip out an email," Lee said.

Lee also pointed out that many of the companies had other business before the commission. "Just because the meetings had companies involved in LNG doesn't mean the meetings were about LNG." However, Lee was unable to specify which of the roughly 80 meetings the Center identified involved LNG or at what point in the process they took place. FERC did not provide an estimate of the number of meetings commissioners held with opponents of LNG projects.

The process, says Fall River Mayor Lambert, doesn't seem conducive to getting feedback.

"My sense has been that FERC's intent is to site these facilities and make them happen. They are not in the business of preventing them," he said. Coast to Coast

If the LNG companies expected cooperation from the targeted towns, they miscalculated. Local communities are marshalling opposition to the industry's liquefied natural gas plans.

  • In Harpswell, Maine, residents voted against an LNG facility being sited in their community, which has encouraged many developers to look north in Canada for new LNG terminals.

  • In St. Andrews, Canada, the town council has asked the local Passamaquoddy Tribe, which partnered with an energy company, to void its LNG proposal sited on nearby land.
  • In Mobile Bay, Ala., ExxonMobil shelved its plans for an LNG terminal after opposition from the state's governor, Bob Riley, as well as community residents.
  • Texans in Galveston voiced anger during a recent public hearing at BP officials who negotiated confidentially for community land to site a LNG facility nearby.
  • Organized by Greenpeace, a flotilla of California politicians and environmentalists protested ChevronTexaco's proposal for an LNG facility near the Coronado Islands, off Mexico's Pacific coast.
  • In Coos Bay, Ore., a citizen group, Coos County Citizens for Representative Government, has brought in independent experts to speak to residents about the potential dangers of a nearby LNG project.
  • Environmentalists and fishermen have expressed skepticism over a possible floating LNG facility in Long Island Sound, N.Y., a joint venture between Shell and TransCanada Corp.

But the industry is flexing some muscle. In Fall River, Gordon Shearer, the C.E.O. of the Weaver's Cove LNG project, a joint venture between energy consultants Poten & Partners and oil giant Amerada Hess, continues to push for his firm's facility. The Weaver's Cove project has hired Baker Botts, FERC Chairman Wood's one-time employer, to help make its case. The joint venture's attorney at the firm, Bruce Kiely, met privately with Wood twice during 2003—once for lunch in August and the second time to pre-file the project's application in December. Both Shearer and FERC Commissioner Suedeen Kelly were present at the December meeting.

Freedom of Information Act requests by the Center for Public Integrity for materials exchanged between FERC and Weaver's Cove representatives at Baker Botts have been held up by the agency. Upon the law firm's request, the records were labeled as "critical energy infrastructure information" and sealed from the public. FERC has yet to decide whether it will release the materials to the Center. On Monday, December 6, 2004, the Center filed suit against FERC to obtain the material.

FERC has since pressed for an LNG terminal in Fall River. Its application is one of the first to cross the agency's desk since the new LNG "open access" policy was announced in late 2002.

According to Mayor Lambert, FERC has minimized the danger by saying the risk of terrorism is small and manageable. "Says who? I think that is an outrageous statement to make in this post-9/11 world," said Lambert.

Practically speaking, Lambert also considers the project an impossibility. "Tankers cannot get past the old bridge," he told the Center. "The Massachusetts Highway Department has notified FERC that the new bridge will not be finished until 2010, which makes this application process an absolute farce. . . . Even if the bridge was not an issue, it would take six years of dredging to make this project feasible."

Weaver's Cove's representatives at Baker Botts dispute Lambert's safety charges and emphasize New England's need for natural gas.

Another high-profile battle is taking place in Long Beach, California. The California Public Utilities Commission has butted heads with FERC and Sound Energy Solutions, a subsidiary of Mitsubishi Corporation, which wants to build an LNG terminal in the city.

"We think there are a lot of safety concerns with this project because it is located in a densely populated area," Harvey Morris, CPUC's principal counsel, told the Center. "This particular facility is being sited on 'landfill,' which is the most unstable in regard to earthquakes. It is near twenty-seven different active earthquake faults, according to the project sponsor itself."

CPUC argue that it's the state—not the federal government—that is responsible for natural gas facilities, according to state law.

"We are basically being told that we do not even have the right to decide for the safety of our citizens, even though this does not involve interstate commerce," Morris said. "Where states have historically regulated intrastate gas facilities, FERC has no basis to regulate this and no basis to oust our authority."

FERC argues that regulatory authority "rests exclusively with the federal government."

In a March 2004 press release, the agency noted that it had "clarified its authority in an order responding to the California Public Utilities Commission's claim that California has jurisdiction over LNG facilities within its borders." CPUC has since demanded a rehearing of the decision.

The FERC chairman had a private meeting with lawyers representing SES to discuss "Mitsubishi LNG project jurisdictional issues" just over two months before the agency made the announcement.

"It was no different than the pre-filing meetings we have had all along," said John Burnes, one of the lawyers Wood met with.

SES's advocates also had another meeting with Wood in June 2003 to discuss the LNG terminal.

Burnes soon after co-authored an article in the trade publication, Public Utilities Fortnightly, praising FERC's decision as "a strong and decisive order" while taking apart CPUC's argument in June 2004. One for the Future

In 2002, LNG imports only constituted one percent of the United States' consumption of natural gas. But by 2020, LNG imports could climb to 20 percent of America's supply, according to energy analysts.

LNG delivers only a small percentage of natural gas in the U.S., but it is a staple in other nations around the world. For example, LNG provides nearly all of Japan's gas needs.

Though heavily favored by Washington, several LNG projects so far have been scrapped due to local opposition across America. Industry representatives complain of "NIMBY" syndrome, or "Not In My Backyard," from residents who live near proposed LNG sites.

"It is fair to say that a project of this order and magnitude will always come across this kind of opposition," said Gordon Shearer of Weaver's Cove. "We don't like coal, we don't like nuclear power plants, we don't like wind, and we don't like LNG, so what is the energy strategy for the New England region then?"

FERC still has its work cut out for it. Right now, 12 applications for LNG projects slotted across the country have been filed with the agency and more than a dozen are planned.

LNG's opponents are not letting up either. "I have said before we will bleed the project with a thousand paper cuts if necessary," Lambert told the Center. "Our confidence is growing."

Alexander Cohen contributed to this report.

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