THE WALL STREET JOURNAL: Energy Bill May Tilt Fight Over Gas Plants: Wednesday 3 July 2005

LONG BEACH, Calif. -- Jim Spellman and Jose Morales have little in common except what they don't want in their backyards: a gas plant.

Mr. Spellman is a retired lawyer living in this city's tony Belmont Heights area. Mr. Morales is an auto mechanic living in its low-income Willmore neighborhood. They both oppose plans for a liquefied-natural-gas plant at the Port of Long Beach. "It's just too dangerous," says the 44-year-old Mr. Morales. Mr. Spellman, who is 64, adds, "The whole damned city would suffer."

People like Messrs. Spellman and Morales have made California the latest battleground over where to build plants that receive the supercold liquefied gas and convert it back to vapor. LNG is billed by supporters as a way to meet the U.S.'s growing energy needs with a source that is less polluting than other fossil fuels such as coal. But few residents and civic leaders want LNG terminals nearby, in part because they see them as potential terrorist targets, and environmentalists say they would keep this country dependent on fossil fuels.

Dotting the Coast

At least five LNG plants proposed for on or off the coast of California and its neighbor, Mexico's Baja Peninsula, have been contested. Japan's Mitsubishi Corp. and ConocoPhillips, of Houston, together are proposing a terminal in the Port of Long Beach. Two more terminals are planned off Southern California's Ventura County coast: one by Australia's BHP Billiton Ltd. and the other by a partnership of Crystal Energy LLC, of Houston, and Australia's Woodside Energy Ltd. Another two are planned just south of the California border: Chevron Corp. of San Ramon, Calif., plans one off the Tijuana coast, and Sempra Energy, of San Diego, has broken ground on a project called Costa Azul, about 10 miles north of Ensenada, Mexico.

The protests aren't limited to the California sites. Opponents of the Mexico projects have sued to block them, but so far without success. Most of the suits have been filed against the Costa Azul project on behalf of Bajamar, a development that caters largely to Americans seeking second homes. In addition, hundreds of California surfers petitioned Gov. Arnold Schwarzenegger, asking him to pressure Sempra to abandon the project because it would ruin "Harry's," a popular surfing point. Surfer-environmentalist Serge Dedina, who recently visited the site, says Harry's has been covered with boulders for the LNG plant.

It's not just the West Coast. Opposition has surged against proposals for more than 15 LNG terminals throughout North America, by the Federal Energy Regulatory Commission's latest tally. Last month, FERC approved two LNG terminals in Massachusetts and Texas, but rejected one in Rhode Island amid community opposition.

The energy bill Congress passed last week could make it harder for opponents to stop onshore plants. The bill, which President Bush is expected to sign next week, gives FERC final authority over onshore siting of LNG plants, blocking states like California, which now has no LNG terminals, from vetoing such proposals. States would still have veto power over offshore sites, which are also reviewed by the Coast Guard.

Court Battle

Impetus for that provision came, in large part, from the fight over the LNG terminal in Long Beach. The California Public Utilities Commission last year filed a challenge with the Ninth U.S. Circuit Court of Appeals in San Francisco over a FERC decision to be the sole arbiter of the Long Beach terminal. That appeal is pending.

Joining the PUC as interveners in the court case was a group called Long Beach Citizens for Utility Reform, says Bry Myown, a member of the group. Supported by Messrs. Spellman and Morales and other residents, the group has lobbied against the terminal at city meetings, and gained support from some local politicians. An anti-LNG faction of the city council recently failed on a 5-4 vote in its bid to end negotiations for the terminal with SES Terminal LLC, a joint venture of Mitsubishi and ConocoPhillips.

"This is not just a Long Beach issue, but a U.S. and global trade issue," says city Councilman Frank Colonna, adding that the Port of Long Beach and adjoining Port of Los Angeles move almost half the container cargo in the U.S.

Thomas Giles, president and chief executive of SES, says onshore LNG plants have operated safely around the world for decades and that the Long Beach terminal would be heavily fortified. Mr. Giles says the plant would cost $450 million and open by 2009.

Monitoring Demand

Much is at stake in how the LNG battle plays out in California. During an energy crisis in 2001, natural-gas prices spiked as high as $10 per million British thermal units from about $2. Gas prices in California are now at the national average between $7 and $8.

Even more demand is likely, energy experts say, after Gov. Schwarzenegger announced in May a state policy of cutting global-warming emissions. The governor's advisers say the state could curb emissions by using more natural gas.

The Republican governor has signaled willingness to consider LNG to help meet the gas needs. He appointed as his chief energy adviser, Joe Desmond, a former consultant to the oil and gas industries who has been supportive of LNG. Mr. Desmond says the governor is reviewing which sites he might support.

California lawmakers are considering a bill backed by the California Coastal Protection Network and about two dozen other groups that would require the state to assess whether LNG is needed and evaluate where and how any terminals should be built. That may run afoul of the federal energy bill, but supporters aren't pulling back. "In any event, I say pass the legislation and let [the U.S.] sue us," says Susan Jordan, director of the California Coastal Protection Network, an environmental group in Santa Barbara.

Ultimately, economics may determine how many LNG plants California can sustain. Sempra's Costa Azul, the furthest along, would initially process as much as one billion cubic feet of natural gas a day, with half that capacity leased to Royal Dutch Shell PLC. By comparison, California typically uses about six billion cubic feet of natural gas a day. The $800 million Sempra plant scheduled to open in 2008 could provide gas to the Mexican and U.S. markets, and could be expanded to process 2.5 billion cubic feet of gas a day, Sempra officials say.

Write to Jim Carlton at jim.carlton@wsj.com