California exploring LNG options

Valdez-sponsored LNG summit hears from regulators, project proponents

Kristen Nelson

Petroleum News Editor-in-Chief

The bottom line is what price producers will accept for North Slope natural gas, Alaska Gov. Frank Murkowski said June 28. That price has never been determined, he said in Valdez at an LNG summit sponsored by the City of Valdez and the Alaska Gasline Port Authority. The state owns one-eighth of the gas and has to be a major player in how to bring gas to market, he said, and is open to all proposals with legitimate financing options.

In addition to the governor, U.S. Senators Ted Stevens and Lisa Murkowski participated, along with former Alaska Gov. Walter Hickel, Alaska Senate President Gene Therriault of Fairbanks and Alaska Representatives John Harris of Valdez and Jim Whitaker of Fairbanks.

Also at the table were representatives of the Alaska Gasline Port Authority, the Alaska Gas Development Authority and Yukon Pacific, groups proposing LNG projects, and companies proposing Alaska LNG receiving facilities in Mexico. Potential gas buyers included Korea Gas, a representative from the Office of the Japanese Consulate and officials from California.

Commissioner Jim Boyd of the California Energy Commission described California as “potentially a very large customer” for Alaska’s natural gas. The state’s power plants are gas-fueled and historically the state has only provided 12-15 percent of its own natural gas. California has an energy action plan, he said, and that plan specifically mentions LNG. The governor’s Natural Gas Working Group, established two years ago, has begun quietly educating people about LNG, Boyd said, starting with California agencies which would deal with LNG facilities in the state.

David Maul, manager of the office of natural gas and special projects at the California Energy Commission, said California needs new infrastructure to bring in natural gas: “either pipelines from the East or … a pipeline from the West: gas by land or gas by sea.”

That new infrastructure — either “more pipeline capacity or LNG” — will be needed to meet California needs by 2008. The state’s biggest concern is states to the east — Arizona, New Mexico and Nevada — which also need pipeline capacity.

“We’re at the end of several very long, very leaky straws,” Maul said. “And those straws can leak a lot of gas. We need more pipeline capacity in the other states to make sure that they stop leaking and they get the gas to California.”

LNG delivered to the West Coast could help California’s supply needs, and also those of other western states, he said. “We looked at scenarios that involved LNG to Baja and LNG to California and two different cases involving LNG in Northern California and Southern California.”

While LNG offers multiple benefits to California, there are unresolved issues.

Agencies need to determine how to deal with LNG facilities and there would need to be a clear permitting process. Maul said state agencies are working together on regulation and permitting issues, and are also working with the Federal Energy Regulatory Commission.

But, he said: “My view is the public’s perception of risk is the single biggest issue facing LNG facility development in California.”

Sempra Energy, parent of Southern California Gas Co. and San Diego Gas and Electric, is permitting an LNG facility in Baja, said Greg Bartholomew, the company’s director of strategic planning and analysis.

He said there is a lot of interest in putting LNG terminals on the West Coast, with as many as five projects proposed for Baja. There are quite a few projects proposed for Southern California, he said, perhaps 50 percent of which haven’t been publicly announced. “People are moving very aggressively here, trying to create LNG terminals,” he said and that is a reflection of “how severe the natural gas problem is in North America.”

Sempra expects to have the remainder of major permits for its Costa Azul project in Baja by the end of July, with construction starting in the fourth quarter.

Sempra is talking to numerous supplies of LNG for Costa Azul, he said.

“But certainly with regards to Alaska, there’s no doubt you are behind.” The competition is fierce from all over the Pacific Basin, he said: “So if Alaska really intends to have an LNG project it needs to have extremely strong convictions and be able to … move quickly.”