Lands Commission rejected Australian company's project

April 11th, 2007

Mark Martin, Chronicle Sacramento Bureau

Wednesday, April 11, 2007

(04-11) 04:00 PDT Sacramento -- Gov. Arnold Schwarzenegger voiced his support for liquefied natural gas in California on Tuesday, a day after a state commission voted to deny an Australian company's bid to build the state's first liquefied natural gas terminal off the Ventura County coast.

Although Lt. Gov. John Garamendi and state Controller John Chiang were the deciding votes in a 2-1 decision against BHP Billiton, Schwarzenegger said he would continue reviewing the project and that "liquefied natural gas should be a part of California's energy portfolio,'' according to a statement he released after the end of the state Lands Commission meeting.

The meeting Monday marked what could be the first of many such decision-making hearings for public officials on LNG during the next few years, as three other proposals for California are being pursued by other energy companies. Representatives for those companies were quick to note Tuesday how different their projects were from BHP Billiton's, all saying their projects would be far less harmful to local air pollution.

"We're very sensitive to the air pollution concerns,'' noted David Maul, who is working for Esperanza Energy, a subsidiary of a Texas oil and gas firm that wants to build an offshore LNG terminal 15 miles southwest of the Port of Long Beach.

The projects are all coming at a critical time for state energy policy, as electricity demand is expected to grow and Schwarzenegger and the state have begun a push for a significant increase in the use of renewable energy.

Natural gas is used to produce 40 percent of the state's electricity, and although it is the cleanest-burning fossil fuel, it is nonetheless a large emitter of greenhouse gases.

The Lands Commission shot down the BHP-Billiton project, which called for a terminal to be built 14 miles offshore of the Southern California coast, after a meeting in Oxnard (Ventura County) that didn't end until after 10 p.m.

Both Garamendi and Chiang, who are Democrats, stated concerns with the amount of greenhouse gas emissions and local air pollution as major factors in their votes against the project.

"The governor and the Legislature have enacted statutes to reduce California's carbon footprint and move us from fossils fuels toward cleaner, renewable alternatives,'' Chiang said in a statement. "I do not think this project is something that carries out the spirit of our new, groundbreaking laws."

The decision, with a Schwarzenegger administration official casting the lone favorable vote, is a major setback in BHP Billiton's four-year effort. Although the Coastal Commission is set to issue or deny a permit to the project Thursday and Schwarzenegger also will have say, the project is not feasible unless the company gets approval from the Lands Commission.

The president of the company's LNG division said in a statement Tuesday it was evaluating its options, but offered no specifics.

Paul Thayer, executive director of the Lands Commission, said the company's only option, unless it changed its proposal and began the application process again, was to appeal the decision through the courts.

Schwarzenegger aides insisted Tuesday that the governor had not made a decision on BHP Billiton's proposal, although he has spoken favorably about the project in the past and his appointee, Anne Sheehan of the state Department of Finance, voted for the project at the commission hearing Monday.

The governor's press secretary, Aaron McLear, said Sheehan's vote shouldn't be construed as support from the governor for its position.

Even if BHP Billiton's project fails, there are three other LNG proposals in California, and Schwarzenegger suggested in his statement that he would welcome at least one terminal in the state.

"Natural gas is the cleanest-burning fossil fuel and an LNG facility to serve our state would make California less vulnerable to variations in supply and price," the governor said.

The other projects include a proposal by a Houston company to convert an unused oil drilling platform 12 miles offshore near Oxnard, one by another Australian company that would be 22 miles south of Malibu, and the Esperanza Energy project.

The commission vote has also brought renewed interest in changing the permit process for LNG terminals. Garamendi complained that state officials should be allowed to review all of the projects at once and decide which one is best, instead of deciding on each project individually.

A Bay Area lawmaker said he would try again to push legislation changing the process.

Sen. Joseph Simitian, D-Palo Alto, has introduced a bill that will require the state to do further study on whether more natural gas is needed and determine which sites would be best for a terminal. Similar legislation failed the last two years under opposition from LNG companies.

Simitian has argued that the current process - in which each company faces separate votes at separate times on their project - doesn't make sense, given that California seems unlikely to ever have more than one or two LNG terminals, if any.

"If I was hiring someone, I wouldn't take the first person who applied,'' he said. "I would look at all of the applicants together and then choose the best one.''

E-mail Mark Martin at markmartin@sfchronicle.com.

This article appeared on page B - 1 of the San Francisco Chronicle