Don’t look now, but it’s the LNG invasion

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Vallejo Times-Herald (California)

And so it begins. Fully 23 years after the first attempt to bring liquefied natural gas to Californians disappeared in an unpredicted, unforeseeable worldwide glut of natural gas, all needed approvals are in place for the first of several LNG developments to start extracting California consumer dollars to pay for a new foreign-supplied fuel.

That’s today’s reality, now that the Mexican city of Ensenada has signed off on a permit allowing San Diego-based Sempra Energy to begin building an LNG receiving facility on the shore of a blue-water bay just north of town.

If all goes on schedule, by 2008 Sempra will import 1 billion cubic feet of natural gas yearly to its plant on the Costa Azur. That would amount to just over one-sixth of the natural gas now consumed in California. The gas will arrive from Indonesia and the Russian Far East island of Sakhalin via gigantic tankers supplied by British Petroleum and Royal Dutch/Shell Group. The fuel will be deep-frozen into an inert, non-flammable liquid in oil company facilities before it’s loaded onto ships, then warmed up into gaseous form again at the Sempra plant.

Some of the imported gas would be reserved for use in Mexico and some might flow to Arizona via an existing Sempra pipeline now carrying American suppliesto Baja California. But at least half would likely come to California under terms of an autumn decision by the state Public Utilities Commission.

Once Sempra starts construction, the pressure may become irresistible for California authorities to allow construction of other LNG facilities proposed off Long Beach and Ventura County. Some top Schwarzenegger administration officials were wined and dined earlier this year by proponents of those plans on an all-expenses paid tour of Southeast Asia and Australia.

There should be a lot of worries here for California consumers. For one thing, there’s the question of whether the Sempra project will lock in prices at least as high as today’s record levels.

Wholesale natural gas lately has sold for as much as $5.25 per million BTUs [one therm on your gas bill equals 100,000 BTUs], with the price marked up to almost $8 for residential customers. That’s about a 50 percent increase over 2002.

Sempra, as expected, insists that its new supplies of LNG will have to be competitive in order to be used. “We expect our gas to come in at about $3.50 or $4 per million BTUs,” said company spokesman Art Larson. “If our gas prices don’t compete in California, the gas won’t flow. It could go to Arizona.”

In short, Sempra claims it might let its $1 billion plant and pipelines – plus the expensive ships of BP and Shell – sit idle if prices dropsignificantly. Just such a price collapse occurred when the previous LNG effort was abandoned in 1981.

“I don’t believe for a moment that they would idle an LNG plant under any circumstance,” says Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights. “We’ve learned too much through the energy crises to believe companies like this one will take the hit if their big gamble goes bad. We also risk locking ourselves into a new dependency on foreign fuel.”

Heller referred to the record of energy companies during the electricity crunch early this decade, when the El Paso Co., owner and operator of the largest pipeline bringing gas to California, ran it far below capacity in order to drive prices up. At the same time, electricity generators were also manipulating the market, using methods that later resulted in several criminal convictions.

Heller and others worry that once Sempra provides California with an assured – at least for awhile – supply of natural gas, there will be no more reason for this state to encourage development of new domestic natural gas supplies or construction of new pipelines to bring any new American-produced energy here.

California evaded a situation much like this during the early 1980s, when a partnership of Pacific Gas & Electric Co. and the Sempra-owned Southern California Gas Co. sought to bring LNG from Indonesia through a terminal at Pt. Conception in Santa Barbara County.

A lawsuit by the Chumash Indian tribe, which claimed the Pt. Conception location is sacred to its religion, delayed that project long enough for a worldwide gas glut to develop, essentially pricing the LNG project out of the market. The difference this time would be that a costly plant would be in place, not to mention a fleet of LNG tankers.

There is no way any American can sue to stop construction of the newly-approved facility in Mexico. But the danger that it will consignCalifornia to a limitless future of dependence on needlessly high-priced foreign energy is almost as great as it was 23 years ago.

And that doesn’t even speak to the safety concerns many have about LNG receiving facilities and the tankers that serve them.
E-mail Tom Elias at: [email protected]

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