With utility bills soaring, Energy Commish eyes liquid natural gas

Californians may soon have something to distract them from high gas prices:
high utility bills.

State officials and a coalition of industry groups are trying to head off
this possibility with long term plans for bringing in large supplies of
liquefied natural gas (LNG) from overseas. While battles with
environmentalists have dominated the headlines about LNG, long-term price
volatility may prove to be a bigger risk.

Last Friday, representatives from the California Energy Commission presented
a draft energy report that outlined a potential two-part strategy for
keeping down Californians’ energy bills: driving down the demand side with
conservation while pumping up the supply side with imported LNG. While CEC
officials have not specifically endorsed such a strategy, they say the
report shows the state how to escape the crunch caused by the combination of
growing demand and flat domestic supplies.

“Once you let LNG expand, you’re going to see a significant amount of
cheaper gas coming into the continent,” Jairam Gopal, a supervisor with the
CEC’s Natural Gas Office told an audience at the meeting.
Gopal laid out a scenario in which Californians reduce their natural gas
consumption by between 2 percent and 8 percent a year between 2007 and 2015.

Gopal’s estimates are also based on a new LNG terminal being built by the
Southern California energy company Sempra near Ensenada, Mexico, which is
expected to go into operation in late 2007 or early 2008.

According to the CEC projections presented by Gopal, prices will only go up
slightly. The study projected residential supplies to rise from slightly
over $9 per million cubic feet in 2006 to just under $11 in 2015; for power
generators, the price would go from around $5 to about $7 per mcf over the
same period.

But Robert Freeling, research director of the advocacy group Local Power,
questioned this optimistic scenario, saying “The fact is the increasing
trend in prices has been going on for years.”

Freeling’s words were underlined on Wednesday, when the federal Energy
Information Administration (EIA) said that gas prices for home heating could
rise nearly 50 percent this winter.

Several attendees questioned the need for importing natural gas, given that
gas prices in California remain lower than in the rest of the country due to
pipeline access to gas from Canada and the Rockies. However, board members
countered that California needs to do something to increase the overall
supply to the country.

Al Lundeen, communications director for Californians for Clean Affordable
and Safe Energy Coalition (Cal-CASE), a coalition of industry groups pushing
the state to open up “at least one” coastal LNG terminal in the next few
years, said that his group is for both conservation and trying to get more
gas from the Rockies. But even if both of these things were done, they still
would not address California’s supply needs, he said.

“By embracing LNG today you don’t solve the current price problems created
by the hurricanes,” Lundeen told the Capitol Weekly. “But you are better
prepared for the next time something like that happens.”

“We turned to LNG because those were the people talking to us,” said CEC
commissioner Jim Boyd, at the meeting. “We need long-term electricity
contracts to get long term gas contracts. Perhaps that’s the dilemma.”

Of course, when it comes to power, there are usually several dilemmas to
choose from. For one thing, no one seems to want LNG importing terminals
located anywhere near them.

While Gopal’s estimates did not provide for new LNG terminals in California,
several have been proposed for locations including Oxnard, Malibu and Long
Beach. Gov. Arnold Schwarzenegger raised the hackles of environmentalists
and local activists in May of last year when he met with Australian Prime
Minister John Howard. Howard was in the state lobbying for the LNG terminal
that an Australian energy company, BHP-Billington, wants to build off the
coast of Malibu. BHP Billiton chiefs Don Argus and Phil Aiken also sat in on
the meeting.

Meanwhile, attempts by an American company, Crystal Energy, to build an LNG
terminal off the coast of Oxnard have prompted calls of environmental racism
by locals.

“They feel Oxnard is made up of blue collar workers and people of color,”
said Bill Terry, a spokesman for Saviers Road Design Team, a local
environmental group. “They don’t think we have the political will to resist
this.”

However, California may no longer have the ability to block such terminals.
The federal energy bill passed in July moved final authority on approving
off-shore terminals from state to the Federal Energy Regulatory Commission.

Much of the opposition to LNG terminals is based on safety concerns. LNG is
created when highly flammable natural gas is chilled to minus 260 degrees
Fahrenheit in order to be transported on tankers. It is then heated back
into gas and put into pipelines. The last major LNG accidents in this
country took place on Staten Island, NY, in 1973 and Cleveland in 1944. But
there were significant LNG accidents in Belgium and Algeria last year,
according to opponents.

LNG advocates are well aware of these concerns. A presentation created by
the political consulting firm Navigators, headed by Schwarzenegger
consultant Mike Murphy, for Cal-CASE in August of last year quotes newspaper
headlines that read “Are natural gas ships ‘boat bombs’ for terrorists?” and
“LNG fears strike chord.” The presentation recommended that LNG supporters
“put cross pressure on liberal and environmental groups