CALIFORNIA LEGISLATURE
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE

INFORMATIONAL HEARING ON LIQUEFIED NATURAL GAS

PRESENTATION OF SOUND ENERGY SOLUTIONS ON THE LONG BEACH LNG IMPORT PROJECT

John H. Burnes, Jr.
VanNess Feldman, P.C.
1050 Thomas Jefferson St., N.W.
Seventh Floor
Washington, D.C. 20007

Counsel for Sound Energy Solutions

October 27, 2005

The Long Beach LNG Import Project

Sound Energy Solutions is proposing to construct and operate liquefied natural gas (LNG) import terminal facilities in the Port of Long Beach, California. The Long Beach LNG Import Project will receive imports of LNG from a variety of Pacific Rim sources and:

• Deliver up to 1 Bcf per day of natural gas to markets in southern California, particularly the Los Angeles Basin.
• Supply up to 150,000 gallons per day of LNG vehicle fuel for distribution to LNG fueling stations to fuel LNG-powered vehicles in the Ports of Long Beach and Los Angeles, and other areas in California.

BACKGROUND

On January 26, 2004, Sound Energy Solutions filed an application with the Federal Energy Regulatory Commission (FERC), seeking authority under Section 3 of the Natural Gas Act (NGA) to site, construct, and operate LNG import terminal facilities in the Port of Long Beach. The filing of the Application at FERC was preceded by over one year of community outreach activities during which Sound Energy Solutions conducted over 250 meetings to better understand community concerns and needs. The proposal to provide LNG vehicle fuel was developed during those meetings and responds to one of southern California’s most important environmental concerns – air pollution.

In July, 2003, almost six months before filing the application at FERC, Sound Energy Solutions also sought and was granted approval by FERC to participate in FERC’s National Environmental Policy Act (NEPA) pre-filing process. The pre-filing process is designed to encourage the early involvement of interested stakeholders, facilitate inter-agency cooperation, and identify and resolve issues before an application is submitted to FERC.

At about the same time, Sound Energy Solutions submitted an application to the Port of Long Beach for a Harbor Development Permit as part of the process for obtaining a lease for the site of the proposed LNG terminal facilities. After receipt of the application for a Harbor Development Permit, the Port of Long Beach agreed to conduct its review of the project under the California Environmental Quality Act (CEQA) as part of the pre-filing process. The environmental staffs of FERC and the Port of Long Beach have worked together, and in October, 2005 issued a joint Draft Environmental Impact Statement/Draft Environmental Impact Report (DEIS/DEIR) to satisfy the requirements of NEPA and CEQA.

PROJECT DESCRIPTION

Sound Energy Solutions is proposing to construct and operate LNG terminal facilities to receive LNG from ocean-going tankers, temporarily store the LNG in its liquid state, and deliver natural gas or LNG as liquid fuel to markets in the Los Angeles Basin and Southern California. The majority of the LNG will be vaporized through heating and the resultant natural gas will be delivered for industrial/residential use. The remaining LNG will not be vaporized, but will be distributed as liquid vehicle fuel to the region’s LNG fueling stations. Thus, the Long Beach LNG Import Project will provide a new source of natural gas, as well as an economic and readily available source of LNG vehicle fuel.

The proposed Long Beach LNG Import Project involves the construction and operation of LNG terminal facilities consisting of a ship berth and unloading facility, three LNG storage tanks – two principal storage tanks and one smaller LNG storage tank for the LNG vehicle fuel, vaporization and vapor handling systems, a natural gas liquid (NGL) recovery system, an LNG tanker truck loading facility (for liquid vehicle fuel deliveries), a 2.3 mile pipeline to deliver natural gas to a connection with Southern California Gas Company at its Salt Works Station, and a 4.6-mile pipeline to transport vaporized C2 (ethane) from the LNG terminal to Conoco-Phillips’ existing Los Angeles Refinery.[1] Approximately 0.8 miles of 66 kilovolt electric distribution lines and a new substation would be constructed, owned and operated by Southern California Edison.

PROJECT STATUS

The DEIS/DEIR concludes that the Long Beach LNG Import Project can be constructed and operated safely, and that the proposed project is the environmentally preferable/superior alternative that can meet the project objectives. The DEIS/DEIR also concludes that the proposed project would not result in a significant impact on public safety. The risk to the public from accidental causes is considered negligible. The multi-tiered security system, involving city, port, state, and federal authorities, further diminishes the low probability of a successful terrorist attack. If such an attack occurs, the DEIS/DEIR concludes that the potential impact to the public will remain within the Port of Long Beach industrial boundary and will not reach residential areas.

The recent issuance of the DEIS/DEIR is an important milestone for the Long Beach LNG Import Project, but much remains to be done. The DEIS/DEIR is a “draft” document and is subject to modification following the receipt of public comments. FERC/POLB have requested public comments be filed by December 8, 2005, and they have scheduled a joint public comment meeting in Long Beach on November 14, 2005. POLB has also scheduled additional public hearings on November 15 and 30, 2005, and December 1, 2005 at various locations in Long Beach to receive comments from a large cross-section of the City.

LOCAL, STATE, AND FEDERAL REQUIRED AUTHORIZATIONS

The proposed Long Beach LNG Import Project is a large, capital-intensive project that will be a significant addition to the nation’s energy infrastructure. The project is subject to numerous regulatory requirements promulgated by different federal, state, and local authorities. The joint DEIS/DEIR listed 39 separate major permits, approvals, and consultations that are needed for the project. FERC regulations require that an LNG terminal applicant identify all required federal, state, and local permits, authorizations, and consultations necessary for a project, and keep FERC advised of the progress in obtaining the necessary authorizations. Sound Energy Solutions has committed to funding necessary security/emergency management equipment and personnel costs that would be imposed on state and local agencies as a result of the project.

With respect to Sound Energy Solutions’ requested authorization under Section 3 of the Natural Gas Act, FERC will not issue a final authorization until the completion of its NEPA review. As noted, the DEIS/DEIR was issued in early, October, 2005, and public comments are due on December 8, 2005. There is no established schedule for the issuance of the Final Environmental Impact Statement/Final Environmental Impact Report (FEIS/FEIR), but based on prior FERC applications, it is expected that the FEIS/FEIR could be issued sometime in the first quarter of 2006. There is also no schedule for the issuance of FERC’s NGA Section 3 authorization, but it is also anticipated that a final order could be issued within 2-3 months after the FEIS/FEIR is issued.

The FEIS/FEIR will contain numerous conditions and mitigation measures that must be met before the proposed project can be constructed or commence service.

Significantly, FERC will require that Sound Energy Solutions receive a determination from the California Coastal Commission that the proposal is consistent with the Coastal Zone Management Act and that an amendment to the Port Master Plan be issued and Harbor Development Permit received before construction can commence. Thus, the site of the proposed LNG terminal facilities is subject to state and local control. Any authorization received from FERC under Section 3 of the NGA will not carry with it the power to acquire land rights through eminent domain.

The recently-enacted amendments to the NGA in the Energy Policy Act of 2005 (EPAct 2005) provides that the governor of a state where an LNG import terminal is proposed to be located can designate a state agency to consult with FERC regarding state and local safety issues. FERC is required to consult with the designated agency prior to issuing an order on an application for an LNG import terminal. EPAct 2005 also provides that the state agency may submit an advisory report on state and local safety considerations and requires FERC to review and respond specifically to the safety issues raised in the report before issuing an order authorizing the siting, construction or operation of an LNG terminal. Pursuant to EPAct 2005, the California Energy Commission (CEC) submitted a safety advisory report to FERC concerning the Long Beach LNG Import Project on September 7, 2005.

AIR QUALITY AND GAS SUPPLY

Sound Energy Solutions has submitted its application for an Air Permit to the South Coast Air Quality Management District and the agency’s review of the application is underway. Sound Energy Solutions is also participating in pilot programs to convert the estimated 1,400 terminal tractors that handle cargo in the Ports of Long Beach and Los Angeles to natural gas. Sound Energy Solutions’ goal is that the Long Beach LNG Import Project will be a zero emission industrial facility. To that end, Sound Energy Solutions is committed to securing any necessary Emissions Reduction Credits to “offset” emissions from the project.

Another objective of Sound Energy Solutions is to provide a reliable, competitively-priced gas supply to Long Beach Energy. Sound Energy Solutions is currently negotiating the terms of a favorable natural gas supply agreement with Long Beach Energy.

SCHEDULE

Assuming timely receipt of all other necessary approvals from other federal, state, local, and regional authorities, construction of the Long Beach LNG Import Project could commence by 2007, and the project could be placed into service by 2011.

[1] A small amount of C2 may have to be removed from the LNG to meet the heating value and gas quality specifications of Southern California Gas Company and the California Air Resources Board (CARB).