BP shelves isle LNG project
By Laura Elder
The Daily News
Published August 22, 2006
news.galvestondailynews.com
GALVESTON — Citing market conditions, BP has delayed controversial plans to build a $650 million liquefied natural gas terminal on Pelican Island.
Lawsuits, a shift in political support for the project and outcry from environmentalists and residents played no role in the decision, officials say.
“This is strictly a business decision that has nothing to do with either politics or litigation,” BP spokesman Neil Geary said.
Last week, the London-based energy giant informed city officials that a flood of competing terminals along the Gulf Coast and in the rest of North America prompted it to reconsider plans to build the plant on about 185 acres on the northeast corner of Pelican Island.
The Port of Galveston, which controls the land, stood to gain $2.75 million a year in revenue from the terminal.
BP said Monday that after a financial assessment it would halt work on the terminal and would not file a permit application with the Federal Energy Regulatory Commission “at this time.”
The company stopped short of saying it had scrapped the project and said it had renewed a three-year lease option agreement with the Port of Galveston. This is the third and final year of the three-year option. Under contract terms with the island port, BP at any time can activate a 35-year lease.
Crowded Field
BP’s announcement comes when the Federal Energy Regulatory Commission reports that about 40 LNG terminals are either before the regulatory agency or are proposed by the industry, including more than a dozen in Texas and Louisiana.
The Pelican Island terminal would have received shipments of natural gas in its super-chilled liquid form, converted the liquid back to gas and delivered it to consumers via pipeline.
When BP announced plans for the project, dubbed Bay Crossing, natural gas prices were high and volatile. Domestic natural gas supplies weren’t keeping up with demand. Meanwhile, increased supplies and lower production and transportation made liquefied natural gas, or LNG, more competitive with the domestic natural gas market. Meanwhile, natural gas was being celebrated as a cleaner burning fuel.
By 2025, total natural gas consumption would increase to nearly 35 trillion cubic feet, or 26 percent of the U.S. delivered energy consumption, according to the U.S. Department of Energy.
A race to build new U.S. terminals, which would receive LNG from Trinidad and Tobago, Qatar, Algeria, Nigeria, Australia and Indonesia, began.
Twelve Of 40
All along, analysts and federal officials said that even if companies secured the needed federal permits for their projects, only about 12 of the 40 LNG terminals being considered would ever be built.
Global issues involving financing and gas supply would determine which terminals were built and where, industry observers said.
BP, however, declined on Monday to elaborate about market issues.
Federal officials say LNG will play a huge role in the U.S. energy strategy.
“I would say that because of pressure on natural gas — the demand continues to increase, which drives up prices — LNG can make a real contribution for our comprehensive energy strategy,” said John Grasser, a spokesman in the U.S. Department of Energy’s office of Fossil Energy.
But just how many terminals are needed to meet that demand is unclear.
“I would say it’s safe to say less than 40 are probably needed in the short-term,” Grasser said.
Willing Partner
Finding port terminals in the United States willing to accept liquefied natural gas is tough. Safety is a big issue and such projects have met with resistance on the East and West coasts. Galveston is no different.
But in the Port of Galveston, BP found a willing partner.
In September 2004, the seven-member Board of Trustees of the Galveston Wharves, which governs the public docks, unanimously approved a lease option allowing BP three years to study the LNG terminal.
For the landlord port, in need of tenants and revenue, the deal was a coup. The port is receiving $50,000 in rent from BP under the lease option agreement. Rent would increase to $250,000 a year if LNG terminal operations begin. When vessel fees are added, the port stood to gain $2.75 million a year in revenue from the terminal.
Lingering Problem
But there was a problem. Port Director Steve Cernak and BP Energy executives had managed to keep the potentially controversial plan a secret for two years.
In April last year, island resident Nancy Saint-Paul filed a lawsuit against the Port of Galveston and city officials to stop BP from building the LNG terminal on Pelican Island.
The lawsuit asserts the public entities violated open meetings laws when they negotiated in private with BP for a lease option agreement. In the same week that the wharves board approved the lease agreement, city council voted to assume the lease should the wharves board dissolve.
After a bench trial in January, Judge John Ellisor of the 122nd State District Court ruled the city’s notice of a Sept. 20, 2004, workshop and regular council meeting was insufficient.
The legal issue is ongoing. Mayor Lyda Ann Thomas knew about the project weeks before it became public. She voted to approve the agreement by which the city would assume the lease if the wharves board dissolved. But in January, during the trial, Thomas said she had misgivings about the terminal.
Thomas did not respond to phone calls seeking comment Monday.
The secrecy with which the island LNG project was negotiated angered some residents.
Other Fears
Others feared the terminal would be a terrorist target or pose a danger to island residents.
Natural gas is combustible, so an uncontrolled release of LNG poses a hazard of fire, or, in confined spaces, explosion, according to a federally commissioned study. But the likelihood and severity of LNG accidents is the subject of intense debate.
Other residents supported the terminal and the jobs it would create. The project was expected to create about 500 construction jobs and provide tax revenue to local entities.
“I would like to be able to tell you the project is moving forward,” Cernak said. “But any time there is a delay, you need to be concerned. We stand ready and willing to work with BP in advancing this project forward.”
While BP said litigation wasn’t a factor in its decision to reconsider the Pelican Island terminal, Cernak said nothing could move forward until legal issues were resolved.
“This is also a project that remains under litigation and I think that has to play out too,” he said.
BP has proposed building a $600 million LNG terminal, called Crown Landing, in New Jersey. Residents there have challenged the project, which already has received federal approval.
BP said it would move forward with its Crown Landing project. |
