Rarely has a major industry miscalculated so badly as backers of liquefied natural gas did while they spent much of the last four years currying favor from Gov. Arnold Schwarzenegger and his aides and associates.
As a result, LNG could be a dead idea in California.
Even though headlines will still be made by a plan for building an LNG import terminal off the Ventura County coast, they will likely be moot. This is especially true for Schwarzenegger’s imminent up-or-down decision on that project.
No matter what he does, two April state commission votes against the offshore LNG terminal have deprived his decision of real significance. Schwarzenegger cannot change the fact those two votes will mean a delay of at least a year or two and maybe longer before this or any other such project again reaches the final stages of permitting.
The last time LNG proposals suffered a similar delay – when a lawsuit stymied a terminal in Santa Barbara County in the early 1980s – a worldwide glut of natural gas ensued, prices plunged and the entire project collapsed before anyone actually voted on it.
There is just as much potential for a new gas glut today, especially if plans move forward for a pipeline bringing gas from northern Alaska across Canada to the upper Midwest.
If that happens, no one will ever need LNG, with its distant sources where natural gas is cooled to a subfreezing liquid and then carried long distances by tanker before being turned back into its original gaseous form.
All this demonstrates how grossly sponsors of the four currently active California LNG proposals have blundered.
From the start, they figured just about all they’d need for state government approval was cooperation from Schwarzenegger & Co. They went after this aggressively. They also hustled the initial project into key hearings before brand-new state officials.
The industry was successful with the governor, who insisted he still believes in LNG even after the state Lands Commission voted 2-1 to deny a lease for pipelines across state tidelands in Ventura County. That didn’t keep two newly elected Democratic state officials barely known to BHP Billiton, the Australian energy giant behind the Ventura County plan, from delivering the decisive no votes.
Here’s how thoroughly things were greased with the Schwarzenegger administration:
The governor made the natural gas industry’s leading Washington lobbyist, Joseph Desmond, chairman of the state Energy Commission in 2005. Desmond would lose the job when the state Senate refused to confirm his nomination, but he held office long enough for the commission to issue the only government report that ever claimed California needs LNG.
LNG sponsors took high Schwarzenegger aides on a lengthy junket to Australia. They handed a $1 million contract to a political consulting firm where former Schwarzenegger communications director Rob Stutzman is a partner.
Soon after Desmond lost his Energy Commission post, he became a top official of a firm seeking to build LNG terminals in California and Oregon. Another LNG hopeful hired the recently resigned executive officer of the state Public Utilities Commission. And Billiton’s law firm hired former Schwarzenegger legal affairs aide Richard Costigan.
Yet all this ignored the other elected decision-makers whose okay is as necessary as Schwarzenegger’s.
Of course, until this year no one could even be sure who else to lobby, as both Lt. Gov. John Garamendi and state Controller John Chiang, together the majority of the three-member state Lands Commission, took office only last winter.
Nor did Billiton worry much about the state Coastal Commission, whose decision on this can be appealed to the U.S. Secretary of Commerce.
Ominously for Billiton and other LNG hopefuls, the new officials’ stated reasons for their votes suggest they will be reluctant to approve any LNG plan.
“LNG does not fill any immediate proven need,” said Garamendi, noting federal natural gas forecasts indicate there is no impending shortage here. “The natural gas pipelines coming into California now have excess capacity and everything we know indicates there will be adequate supplies for decades to come.”
And now even Schwarzenegger seems to waver a bit in his support for huge LNG projects, whose massive costs would eventually be paid by all natural gas users in California. “I have not really seen all the studies,” said Schwarzenegger, who will rule on the Ventura County project even though he can’t reverse the April commission votes.
He then conceded the Billiton project would produce millions of tons yearly of the greenhouse gas carbon dioxide merely in the shipping process, allowing, “Everyone is going to look at it very carefully.”
Yes, hours later his press secretary denied the governor’s mind had changed on LNG.
But the bottom line is that where it once looked all but certain that California would get at least one LNG plant and maybe two, now the prospects for any LNG terminal in California look all but dead.