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Government and industry are uniformly touting imports of liquefied natural gas as a key remedy to the fast increasing gap between natural gas demand and domestic production, which has resulted in U.S. natural gas prices being the world’s highest. Yet only four import terminals now exist in the United States: in Everett, Mass., Cove Point, Md., Elba Island, Ga., and Lake Charles, La. Some 40 terminal projects have been proposed, but only a few have been approved to date. In addressing the need for increased importation, America’s regulatory system must deal with jurisdictional interests and the fear of terrorist attacks. Thus far, community opposition has significantly impeded the siting of new import terminals. The perception of liquefied natural gas as catastrophically dangerous, particularly in the aftermath of 9/11, has generated emotional debates. FEDERAL COORDINATION Federal agencies generally have worked together on these issues. Under the Natural Gas Act, the Federal Energy Regulatory Commission approves onshore liquefied natural gas import facilities. FERC is jurisdictionally vigilant regarding their siting, construction, and operations. Offshore terminal approval, however, has been placed in the hands of the U.S. Coast Guard and the Maritime Administration. The Coast Guard also is charged with ensuring the security of vessels traveling to and from any facility onshore as well as offshore. FERC retains its traditional power over interstate pipelines that connect any terminal to the interstate grid, including the quality of the vaporized gas. Thus far, FERC and the Coast Guard have harmonized their roles in practice and through an interagency agreement in February 2004 that also includes the Department of Transportation. FERC seeks to address state and local concerns through its pre-filing process. Although parties may have vehement disagreements regarding a particular project, the FERC process has been designed to be inclusive and responsive to all views. For example, officials and agencies from Louisiana, Massachusetts, Rhode Island, and Texas currently are participating in pre-filing proceedings before FERC. STATE STRUGGLES Nevertheless, in contrast to the general cooperation among federal agencies, the relationship between federal and state regulators is more complex and, on occasion, more adversarial. On the one hand, some states seemingly accept FERC’s regulatory authority without dispute. The chairman of the Maryland Public Service Commission, for example, emphasized that, in his view, FERC has exclusive jurisdiction over onshore liquefied natural gas terminals. By contrast, FERC’s relationship with the California Public Utilities Commission has been marred with discord. The battle was sparked when the state commission challenged FERC’s “exclusive jurisdiction” over a liquefied natural gas terminal proposed in Long Beach. The California dispute has displayed heated exchanges between FERC Commissioner Joseph Kelliher and California Public Utilities Commission President Michael Peevey, ranging from predictions of dire gas shortages for California to accusations of the feds depriving local communities of a say in their own security. (And California is not alone in its jurisdictional concerns. A member of the Texas Railroad Commission, which deals with oil and gas, also has expressed general concern about ceding complete control to FERC.) The narrow pre-emption issue raised in California’s Long Beach case is whether states have concurrent siting jurisdiction with FERC, at least where the gas will be consumed solely within the state. A ruling for California in an appeal filed last week in the D.C. Circuit surely would complicate the governmental approval process. Even if federal courts side with FERC, states dissatisfied with FERC’s pre-filing process may seek to affect terminal siting determinations under other laws. One such law is the federal Coastal Zone Management Act, empowering states to create programs for coastal land use and development. Once the U.S. secretary of commerce approves such a program, the state may refuse to sanction a proposed liquefied natural gas terminal affecting its coastal zone. FERC may not issue an unconditional license to a terminal in the face of such a state objection. Although the commerce secretary can overrule a state if he concludes that the terminal project is consistent with the Coastal Zone Management Act or otherwise necessary for national security, a state can challenge the secretary’s decision in federal court. Such challenges are rare, however. Other federal laws also provide states with tools to affect liquefied natural gas terminal proposals. For example, a project may require permits from a state under the Clean Water Act. The ongoing saga of the Islander East Project in Connecticut, albeit involving a gas pipeline, demonstrates how a state’s opposition to a liquefied natural gas terminal could pose profound hurdles under various federal statutes. The legal tapestry of siting considerations also extends to the local level. This applies particularly to use of land or water resources owned by states or local governments or by the likes of a port authority. Notably, FERC’s eminent domain authority does not apply to gas import facilities approved under Section 3 of the Natural Gas Act. Consequently, even local governments sometimes can block import terminals. For example, the “no” vote of 56 percent of the 3,440 Harpswell, Maine, voters to lease 68 acres owned by the local government thwarted a terminal project for the gas-hungry Northeast. Thus, increasing the nation’s number of import gas terminals requires navigating a variety of federal, state, and local regulatory authorities. FEAR OF TERRORIST ATTACKS Regardless of the allocation of jurisdictional responsibilities, the safety of a liquefied natural gas terminal — including tankers en route — has emerged as the most critical siting issue. After 9/11, the greatest perceived fear, founded or not, is that of a terrorist attack on a liquefied natural gas tanker causing a devastating fire that spreads death and destruction over a wide radius. Notably, for weeks after 9/11 and again during the Democratic National Convention in July 2004, liquefied natural gas shipments into Boston Harbor were suspended. How to assess the risks and consequences of a liquefied natural gas “incident” has proved a scientific and legal challenge. Broad application of two post-9/11 studies focusing on Boston Harbor yielded an avalanche of criticism regarding the assumptions used to model risk consequences. Federal regulators went back to the drawing board to develop scientific risk-assessment models in making siting determinations. In May 2004, FERC released a study by ABS Consulting, a marine expert consulting group, that evaluated some available scientific literature on (a) how liquefied natural gas spills on water, (b) vapor cloud formation, (c) thermal radiation in case of a pool fire or ignition of the vapor cloud, and (d) the effects on proximate people and structures. In making terminal siting determinations, FERC intends to rely on what the consulting group considers the best “conservative” models (that is, the “most accurate” methodology possible even if it tends to overestimate the consequences of a release). The Coast Guard intends to apply them in reviewing liquefied natural gas tanker operations for such terminals. The ABS Consulting study does not address the risks and probabilities of events — such as a terrorist attack — that could cause a breach of containment in a liquefied natural gas tanker. Indeed, FERC rebuffed the study’s postulation of one- and five-meter holes in applying the proposed models on the grounds that such considerations exceeded the scope of the study. Such hazards are being addressed in a separate study commissioned by the Department of Energy from the Sandia National Laboratories. While the Sandia study’s conclusions may be released later this year, its analysis will remain under wraps on security grounds. FERC plans to employ this study, coupled with the ABS Consulting models and other safety and security assessments, in making site-specific determinations. In comments filed with FERC, the consulting group itself suggested use of the Coast Guard’s risk-based decision-making process in assessing the probabilities of a containment breach. FERC has treated the ABS Consulting study as a baseline in an evolving process. It solicited public reactions to the recommended science and, despite allowing only two weeks, received numerous comments. FERC responded by adopting a number of technical corrections to the consulting group’s models. Besides emphasizing the omission of risk analysis, some of the comments criticized the consulting group for evaluating each event separately — release, pool spreading, evaporation, and ignition — instead of an interconnected chain of events, thereby compounding the effects of already conservative models. FERC responded that this type of analysis allows for ad hoc revisions as new science develops. Other comments focused on ABS Consulting’s failure to account for the effects of liquefied natural gas tanker characteristics, such as a double-hull structure. FERC declined such an approach, given the complexity and difficulty in validating the scientific models used. FERC justified its use of the consulting group’s recommended models as providing a conservative scientific basis for evaluating individual liquefied natural gas terminal proposals. As science evolves, FERC likely would be amenable to reassessing this baseline. Some in the industry fear that this approach — allowing scientific standards to evolve too readily — may encourage FERC to bow to political pressure to employ excessively “conservative” science. FERC’s direction, however, appears to strike a good balance between industry proponents of new terminals and stakeholders opposed to new terminals on safety and security grounds. FERC has employed the ABS Consulting models in two recent instances. One case, on July 30, 2004, involved the noncontroversial Final Environmental Impact Statement for the Freeport liquefied natural gas terminal in Texas. In another more controversial case, FERC in August applied the models in its draft Environmental Impact Statement for the Weaver’s Cove terminal project in Massachusetts. We seek to underscore the importance and scientific complexities of sorting out risks and consequences of any liquefied natural gas terminal site. Developing much-needed energy infrastructure should not be influenced by naked assurances of safety from the industry nor by public scare tactics from those seeking to block import terminals. Government officials charged with making these important decisions, regardless of how the jurisdictional turf disputes ultimately are resolved, must thoroughly understand relevant science and make judgments based on reasoned analysis about our safety and security. Jacob Dweck and Katherine Yarbrough are partners in the D.C. office of Sutherland Asbill & Brennan. Steven Sparling is an associate. All three practice with the firm’s liquefied natural gas group. They appreciate able contributions by associates Sonia Boutillon and David Wochner and summer associate Michael Brooks.

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