Natural gas projects in a race for survival: elimination of Long Beach sets stage for LNG selection.

The field of those vying to build the first liquefied natural gas import facility on the Southern California coastline has been slimmed by one contender, intensifying the competition to make it to market first.

Constrained natural gas supplies in California and high prices have created a market for new LNG terminals. The terminals would convert the liquid into gas and then deliver it through pipes to homes and businesses, where it would be used for winter heating, among other uses.

Last week, a plan to build a natural gas terminal in the Port of Long Beach was scrapped when the

Long Beach Board of Harbor Commissioners killed off the Sound Energy Solutions Inc. project because of an inadequate environmental impact report.

That leaves four other proposed projects in Southern California: another off the shore in Long Beach, two in the Oxnard area and one off the shore of the Malibu area. Unlike the shelved Long Beach plan, the remaining four Southern California proposals call for offshore docking stations, where the LNG would be unloaded from ships.

The real key to the situation, however, appears to be yet another LNG project, this one in Mexico. Sempra Energy's onshore facility in Baja California is currently under construction and could be online by 2008.

Experts say it is unlikely that all four remaining proposed facilities in Southern California are necessary. In 2003, the California Energy Commission issued a policy report that noted the West Coast region--from Washington State to Baja California--needs only one or two LNG facilities in total, said Claudia Chandler, assistant executive director of the CEC. Given that Sempra's Baja project is nearly completed, the first project of the remaining four will likely satisfy the needs of the West Coast.

"Companies would be looking at that saying, 'Jeez, does this make economic sense to be the third one in the door?'" Chandler said.

According to CEC data, the state produces only 18 percent of the natural gas it uses.

The Sempra Energy project, called Energia Costa Azul, is an onshore development being built about 14 miles north of Ensenada. It is about 65 percent complete and scheduled to be finished early next year, said Art Larson, a spokesman for Sempra.

When it is operating, the terminal will process about 1 billion cubic feet of natural gas per day; however, Sempra is looking at expanding the project.

Primarily, Energia Costa Azul will serve Baja California, but excess natural gas from the terminal will be sent to California, Larson said.

"It could fill the need," Chandler said. "A lot depends on what we haven't seen--the contracts (for LNG)."

Oxnard plan advancing

With the Long Beach port plan shelved, attention has turned to the 225,000-square-foot Cabrillo Port project, which is being planned by the Australia-based mining company BHP Billiton Ltd. Other than the Baja facility, it is the furthest along, having gone through four years of environmental reviews.

According to Kathi Hann, public spokesperson for the project, the final environmental report on Cabrillo Port will be ready in February or March.

"We are not running any kind of race," Hann said, "but the market drives how many projects are built."

Cabrillo Port would be built about 14 miles off the coast of Oxnard. Ships would dock at the port and LNG would be regassified on a platform there and then sent to the mainland via an undersea pipeline.

Hann says her firm has participated in 13 public hearings for the project, but is still facing opposition from environmental groups that say the facility could harm marine life. Additionally, there is concern that BHP Billiton could have trouble with its LNG supply, given that the natural gas could come from politically unstable East Timor.

Other projects include Crystal Energy LLC's offshore Oxnard proposal, Esperanza Energy LLC's offshore Long Beach proposal, and Woodside Petroleum Ltd.'s offshore Malibu proposal.

Crystal Energy, which is a subsidiary of NorthernStar Natural Gas Inc., is in the very early phase of filing applications for its plan to turn an abandoned oil platform into an LNG terminal, Chandler said. Meanwhile, Esperanza Energy, a subsidiary of Tidelands Oil & Gas Corp., announced in March 2006 that it would conduct a feasibility study on building an offshore facility in the Long Beach area. However, the Long Beach activists that mobilized in opposition to the Sound Energy Solutions project appear ready to fight any other Long Beach LNG project.

Perhaps most enticing to environmentalists is Woodside's proposal, which involves an offshore buoy docking system that would be less intrusive than a large platform. Chandler said that Woodside has submitted applications for the project but its proposal is not complete.

Chandler said she could not comment on the viability of the projects because the CEC is involved in the approval process of the projects, which ultimately would be approved by the Coast Guard and the governor.

By DANIEL MILLER

Staff Reporter