Post 1197: FERC asks if PGE-supported LNG pipe really is going to be built

[Hans Laetz, Newsgroup Editor]

The Federal Energy Regulatory Commission has its doubts over whether
the Coos Bay LNG terminal will be built. FERC has asked Oregon LNG if
it is really serious about building the proposed associated nat gas
pipeline across Southern Oregon to connect to the California intertie
near Klamath Falls OR.

Last Friday, the feds asked Oregon LNG when or if it will conduct an
"open season" for the pipeline -- the legal term for signing up
customers to binding contracts. As the Sutherland LNG Legal Blog
noted, FERC said that "[c]onsidering the uncertainty of the outcome of
the environmental analysis, the fact that [Oregon LNG] ha[s] not
attempted to garner the critical project information that [it] would
obtain through holding an open season, and the passage of over a year
and a half since the filing of the application, we must reassess
whether Commission staff’s continued efforts and analysis are
appropriate under these circumstances."

The Oregon LNG terminal and pipeline are Pacific Gas & Electric's LNG
play. The lack of progress on filing regulatory paperwork indicates
Coos Bay may be going the way of Clearwater at Ventura, which also
languished in "The Dog Ate My Homework" land for years until a bullet
was finally dispatched.

In other words ... the feds are asking PG&E et al: are you really
going to build this, or is this a waste of our time?

More context now, from the Coos Bay Register-Guard newspaper:

One down, LNG fight turns to 2 other proposals |
Liquefied natural gas terminals are still being considered for Astoria
and Coos Bay despite opposition

BY WINSTON ROSS
The Register-Guard
Posted to Web: Sunday, May 16, 2010 11:40PM
Appeared in print: Monday, May 17, 2010, page A7

COOS BAY — The battle cry of opponents of three liquefied natural gas
terminals proposed for Oregon went out within hours of the news
earlier this month that the financiers of the Bradwood Landing project
on the Columbia River had pulled the plug on it: One down, two to go.

Conservationists concerned about the terminals’ environmental impacts
and safety issues hailed it as a victory. And they saw it as a
harbinger of doom for the two other projects still on track, one
that’s also on the Columbia River near Astoria and one in Coos Bay.
LNG isn’t needed here, they said, and the one-two punch of public
opposition and heightened state scrutiny ultimately will chase
investors away, especially in this economy.

“This is an indication that LNG has no place in Oregon,” said Brett
Vandenheuvel, executive director of the conservation group Columbia
Riverkeeper. “The companies face tremendous opposition, not only grass-
roots, but from state agencies taking a very close look at these
projects. It’s very difficult to force them down the public’s throat.”

But that’s only one way to look at it, say industry experts, state
officials and the developers of the two remaining proposed projects.
Bradwood Landing, they say, faced some obstacles that were either
unique to that proposal or that the company created for itself, by
trying to push it through regulatory hurdles instead of redesigning
elements that didn’t mesh with local land use laws.

Both of the remaining two projects have taken more cautious
approaches, their representatives say. They agree that there’s only
room for one terminal on the U.S. West Coast, but both say they’re
confident that they have the best proposal in hand.

Whether Bradwood’s demise is good news for Oregon Liquefied Natural
Gas’ proposal in Astoria or the Jordan Cove Energy Project in Coos Bay
is something of a crap shoot. At the simplest level, Bradwood’s news
could mean two completely different things: Either it’s easier for
Jordan Cove or Oregon LNG to get approved because there’s less
competition for investors, or it’s tougher because a virulent
opposition movement can shift its resources to battle the remaining
two projects.

Just as the answer to that question is still up in the air, so are a
host of other variables that keep energy developers up at night,
including how attractive foreign-imported LNG will be when the time
comes to start signing checks to build the project.

Shifting supply and demand

Even two years ago, energy experts were noting a shift in the supply
and demand equation for domestic vs. foreign natural gas. New
technology allowing better access to shale gas wells in the Rocky
Mountains plus greater demand in foreign markets for LNG that is
produced overseas has conspired to drive down the selling price of
natural gas here.

Plus, the same economic woes that have led to tighter financing for
projects such as LNG terminals has dropped the price of natural gas to
abysmal levels: $4 per million British thermal units, as compared with
$11 in July 2008, according to Philip Budzik, an oil and gas analyst
with the U.S. Energy Information Administration. During the same
period, the number of oil rigs in U.S. territory jumped from 361 to
528, while the number of natural gas rigs dropped from 1,475 to 953.

Even with oil prices waning as a psychological effect of the spill in
the Gulf of Mexico, “oil is a better play than natural gas,” said
Budzik. “On a BTU basis, it actually returns more money.”

If it’s cheap to buy American-made gas, then why would anyone want to
build a big expensive terminal to have it shipped here from overseas?

The projects’ developers say there’s no way to know until the time
comes for investors to decide whether to actually plunk down hundreds
of millions of dollars on a terminal. Oregon LNG’s chief executive
officer, Peter Hansen, said he’s confident that demand for natural gas
and all forms of energy will continue to rise over time, despite
volatility in individual commodity prices.

Bob Braddock, Jordan Cove’s project manager, agrees, adding that the
decline in new gas development actually bodes well for the industry
because it eventually creates a supply gap that a West Coast terminal
could help close.

Another variable that could affect the proposed natural gas terminals
is how tough the state will make it for the developers.

Gov. Ted Kulongoski has made it abundantly clear that he’s not happy
with two key elements of the way LNG terminals are sited in Oregon.
One, the energy bill passed by Congress in 2005 stripped states of
their authority in making the basic decision about whether a project
belongs on their turf; and two, the Federal Energy Regulatory
Commission doesn’t consider need as one of the factors it uses to
determine whether to approve a project.

Michael Carrier, Kulongoski’s natural resources adviser, said the
state agencies that are working through the myriad permits the two
projects need to obtain are maintaining a neutral position in their
decision-making.

“Our fight has never been with the companies trying to build these
things,” he said.

But Carrier also said the state’s dissatisfaction with the feds’
“casual, cavalier approach” to licensing terminals means Oregon will
put the projects to “the highest level of scrutiny.”

“If FERC won’t do it, we’re going to ensure that these projects are
subjected to the review they deserve,” he said.

In Braddock’s opinion, state agencies have sent a clear message to
developers doing their best to interpret ambiguous regulations on
unprecedented proposals: Oregon is going to make this difficult.

“We can never assume that bureaucrats who are nonelected do not
respond to political pressure,” Braddock said. “They do. It’s a
question of how much they do. How will they shift the line based on
political forces?”

What’s the best location?

Another variable affecting the LNG picture in Oregon is the pending
construction of a new pipeline from Wyoming, which means more
available natural gas from domestic sources and potentially less
demand for foreign imports.

But Braddock contends that that pipeline isn’t sufficient to serve the
Pacific Northwest because it won’t be available to the Interstate 5
corridor. His project’s pipeline would link to the one from Wyoming
and be able to reach Oregon and Washington.

Finally, there’s the two-part question of where the best place is for
a terminal, and whether one’s needed at all. Hansen says his Astoria
location is the ideal one, because it’s situated right on the huge
deepwater port that is the Columbia River. He doesn’t see Jordan Cove
as much of a competitor, he said, because that project’s proposed
pipeline traverses a long, difficult route across the Coast Range,
ultimately to a connection in California.

“It doesn’t serve the Northwest market at all,” Hansen said. “It’s
located in Oregon, but that’s about the only Oregon connection it’s
got.”

Braddock disputes that point, arguing that Jordan Cove will serve
customers here and in Washington and that Oregon LNG’s project is too
far from California for it to tap into the Golden State’s customer
base. He also said Hansen is most likely too far behind in the
permitting process to be ready for uneasy investors by the time they
need to make a final decision about whether to spend money bringing
LNG here.

“These decisions will be made within the next 12 months or so,”
Braddock said. “They will only make this decision in your favor if
your project will be ready when they need you to be ready.”

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