LNG permits prove tough
Broadwater partners have abandoned previous plans
By John Henry
Even corporate powerhouses don't always get their way.
That's worth noting as the final stage approaches in the approval process for Broadwater Energy's proposed liquefied natural gas terminal in mid-Long Island Sound. Whether the controversial project goes forward remains to be seen, but in recent years the corporate behemoths behind it -- Royal Dutch Shell and TransCanada Corp. -- abandoned plans for three other terminals. As with Broadwater, each of these projects was fiercely opposed by local community groups.
It's a measure of the challenges facing energy companies in building terminals for receiving imported liquefied natural gas, or LNG, that even heavyweights like Broadwater's two backers have yet to see any of their LNG projects proposed for this country materialize.
"It is very difficult to build new terminals in the U.S. because of strong local resistance to siting" of such facilities, notes James Jensen, an energy consultant based in Weston, Mass.
More than 40 additional LNG import terminals, including Broadwater, are approved or proposed for North American waters, but experts doubt whether more than a dozen will get built, partly because of siting difficulties. Five such terminals now operate in the United States, out of approximately 60 worldwide.
The approval process for Broadwater advanced this month when the Federal Energy Regulatory Commission's staff issued its final environmental impact statement on the project, concluding that, with recommended mitigation measures in place, it would result "in limited adverse environmental impacts."
Now, FERC commissioners must decide whether to issue a permit for the facility. Then, the New York State Department of State must determine if it complies with the state's coastal zone management policy.
If anybody wields clout in the energy business, it would seem to be Broadwater's partners.
Royal Dutch Shell, a company registered in Britain but headquartered in the Netherlands, was ranked as the world's eighth largest publicly traded corporation by Forbes magazine last year, behind only Exxon Mobil among the international oil and gas companies. TransCanada, Canada's largest natural gas pipeline company, was No. 537.
Moreover, Shell is the world's largest private producer of LNG, participating in operations that, it says, provide more than a third of the total global supply. That gives the company a competitive edge in building LNG projects, according to Mr. Jensen, who says, "If they don't have supply, most of these terminal proposals aren't going anywhere."
Until Broadwater, Shell and TransCanada had never collaborated on an LNG project. Why they are 50-50 partners in the proposed $700 million-plus venture is readily understandable.
"We wanted a partner that knew the pipeline business," says Broadwater Energy senior vice president and Shell executive John Hritcko Jr., noting that TransCanada is the largest shareholder in the Iroquois natural gas pipeline, which runs from Canada to the New York area, crossing under the Sound. A 22-mile underwater pipeline would connect Broadwater's terminal with the Iroquois, feeding additional fuel to the nation's most lucrative markets: Long Island, New York City and southwestern Connecticut. Shell, of course, would supply the gas.
The two partners must hope Broadwater fares better than their previous attempts to build LNG terminals.
In 2003, Shell withdrew from a proposed venture with engineering giant Bechtel Corp. to build an LNG terminal on San Francisco Bay that reportedly would have supplied 17 percent of California's demand for natural gas. Although community criticism of the project on environmental and safety grounds had been mounting for months, Shell said only that the facility no longer "fit within its strategic plans."
Last March, Shell dropped plans to build a $700 million LNG terminal off Louisiana in the Gulf of Mexico that would have sent out as much gas as Broadwater. Unlike the California project, this one, known as Gulf Landing, had received federal approval and construction was said to be imminent.
It was one of several LNG terminals proposed for the Gulf of Mexico by various companies that drew intense opposition because of the facilities' "open loop" design. They would have used billions of gallons of Gulf water to warm LNG, which is super-cooled for transport by tanker and then must be heated for conversion back to gaseous form.
"The impact on fisheries would have been devastating," says Darryl Malek-Wiley, an environmental justice organizer for the Sierra Club in Louisiana. "The natural gas is so cold that the water would have been 30 degrees colder when it went out" of the regasification facility.
Shell says it scrubbed the project because it determined that the development of competitors' LNG terminals planned or under construction in the area could meet regional requirements. (Broadwater, unlike Gulf Landing, would use a "closed loop" system in which water for warming LNG would be continually recycled, according to Mr. Hritcko.)
TransCanada has suffered its own setbacks with LNG terminals. A proposal to build a $350 million project near Portland, Maine, which the company would have undertaken with ConocoPhillips, was voted down in 2004 by residents of the village where the facility was to be located. Some of them saw the project as a threat to the local fishing industry.
In its own country, TransCanada is participating with another Canadian company in a proposed LNG terminal along the St. Lawrence River in Quebec province. It illustrates the problems that can plague such projects.
The four-year-old joint venture, known as Cacouna Energy, has received approval from the national and provincial governments. Yet its backers still lack a supply contract for LNG, and they are considering design modifications so as to cut anticipated construction costs, which have ballooned by about a third -- to nearly $1 billion.
As if that weren't enough, the Canadian government's fisheries agency had proposed a June-to-September ban on construction of the terminal to protect the threatened population of beluga whales in the St. Lawrence during their calving season there. That didn't sit well with Cacouna Energy.
"You have to be able construct in the summer," says project spokesman Andrew Pelletier. "We believe there are ways to do it without negatively impacting beluga. There'll be mitigating measures to protect them."
The fisheries agency now awaits Cacouna's possible design modifications for the project. "When we get the proposals, we'll re-evaluate," says Gordon Walsh, an agency official in Quebec.
So, is Broadwater Energy daunted by all these setbacks? Not at all.
"We think of all the projects we've gone through so far," says Mr. Hritcko, "this one has passed with flying colors on all measures -- safety and security, the environment and economic benefits to the region." Compared with Shell's previous proposed LNG terminals, he adds, there's "a much higher probability" Broadwater will be built.
We'll see.
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