Senate gives FERC, not states, power over gas terminals

Senators yesterday rejected 52-45 an effort to give states greater powers to block the construction of terminals to import natural gas, a win for oil and other energy companies that want easier access to a growing market.

The energy bill crafted in the Senate grants the Federal Energy Regulatory Commission, or FERC, the final say in determining where liquefied natural gas (LNG) terminals are built as a way to encourage their construction.

Natural gas can be supercooled to a liquid, put on ocean-crossing tankers and brought to terminals in the United States that change it back to a gas for use in homes or to make a variety of industrial products.

Because of safety concerns, some senators wanted states to have a greater say in where LNG terminals are built.

Senators from coastal states, both Democrat and Republican, mounted the strongest opposition to the LNG provision in the Senate bill, a similar version of which is also included in the energy bill passed earlier by the House.

Sen. Dianne Feinstein, whose home state of California would be the site of several proposed LNG terminals, offered the amendment to allow governors the ability to veto an LNG project or mandate that certain conditions are met before approval.

Critics fear LNG sites will be tempting terrorist targets, even if, as Sen. Jack Reed (D-R.I.) said, gas imports are a "promising new source of supply." KeySpan Energy has proposed building a site in Providence, Rhode Island.

"In a post-Sept. 11 world, however, we must consider the substantial safety and security risks associated with siting LNG marine terminals in urban communities and requiring LNG tankers to pass within close proximity to miles of densely populated coastline," Reed said.

Reed cited a study by Sandia National Laboratory that stated that an attack on an LNG tanker could cause a fire so hot it would "burn skin and damage buildings nearly a mile away."

State and federal power battles aren't unusual in energy debates, and supporters want FERC to have authority over LNG to overcome "not in my backyard" local concerns. The energy bill has led to jurisdictional turf battles over the siting of electric power lines, for example, in addition to the debate yesterday on LNG terminals.

The National Governors Association wrote Sens. Pete Domenici (R) and Jeff Bingaman (D), both of New Mexico and the respective chairman and ranking member of the Senate Energy and Natural Resources Committee, in support of the Feinstein amendment.

"As stewards of state resources, governors must have the authority to determine what is in the best interest of their state," the NGA wrote.

But supporters countered that states will continue to have a say in the process through existing laws, such as the Coastal Zone Management Act and the Clean Water Act, which require, as Bingaman noted, that state laws are followed.

Sen. Lamar Alexander (R-Tenn.), who has emerged as one of industry's biggest backers on the natural-gas issue, called the FERC provision "the most important provision" in the bill to alleviate high natural-gas costs.

There are only four LNG terminals in the United States now in operation. But with demand for natural gas expected to grow by 30 percent in the next decade, a rise that domestic production is not expected to meet, more than 40 LNG terminals have been proposed here.

Experts agree that most of those facilities won't be built. An LNG terminal can cost as much as $1 billion to build. But one industry estimate says that LNG imports will grow to provide around 20 percent of the total natural gas consumed in the United States.

As industries prepare to invest more than $100 billion to create a global natural-gas market, lobbying groups in town have paid closer attention to the issue and, in response, so have lawmakers. LNG was barely an issue during the discussion last Congress over energy legislation.

Major oil companies such as Exxon Mobil and ConocoPhillips have proposals to develop LNG terminals, and their main trade association, the American Petroleum Institute, is among the founders of the Center for Liquefied Natural Gas. The group claims more than 60 LNG producers, shippers, terminal operators, trade groups and natural-gas consumers as members.

Industry counters safety concerns such as the ones expressed on the Senate floor yesterday by noting the long safety record of LNG transportation, which has been ongoing to some degree for decades.

Debate over natural-gas supplies may continue today. Alexander was considering introducing an amendment that would allow states the ability to "opt out" of federal moratoriums on offshore drilling and potentially reap hundreds of millions of dollars in royalty payments from drillers.

In a reversal of yesterday's LNG debate, coastal-state senators are likely to argue for maintaining federal jurisdiction in this case, arguing the provision would lead to drilling in the Outer Continental Shelf that could place coastlines at risk.
Federal jurisdiction is appropriate because an oil spill in Virginia, for example, could be carried by currents to shorelines in North Carolina, say supporters of the moratorium. The moratorium has been in effect for more than two decades.

Groups that rely heavily on natural gas, such as the chemical and agricultural industries, have lobbied aggressively to open more areas to drilling in hope of reducing prices, which are now double what they were in the 1990s.

The chemical industry estimates that high gas prices have led to 90,000 job cuts as production moves overseas where prices are lower, according to the "energy fact of the day" released by the Senate Energy Committee before the LNG debate.

Alexander's bill would allow natural-gas-only leases and would not apply to the eastern coast of Florida.