The Extreme Price of LNG.....

Ventura County Star

t http://www.venturacountystar.com/vcs/opinion/article/0,1375,VCS_125_4265851,00.html
Pricing of LNG a question not yet even asked

By Thomas D. Elias
November 25, 2005

A decision from state officials on whether to build California's first in-state liquefied natural gas facility and where to put it might come as early as the first part of next year, unless a lawsuit by opponents can somehow delay it.

The early-book favorite is a plan by Australia's energy giant BHP Billiton for an LNG receiving facility set a few miles off the shore of Ventura County near Oxnard. All gas moving through this plant into the state's network of pipelines would come from Billiton's own fields in the Timor and Arafura seas near Darwin, Australia.

Similarly, all gas coming to the LNG facility already under construction by San Diego's Sempra Energy near Ensenada in Baja California, Mexico, will come from the Far Eastern gas fields of its partner, Shell Trading, a wing of the Shell Oil Co.

And if the Long Beach Harbor LNG plant jointly proposed by Japan's Mitsubishi Corp. and the Texas-based Conoco/Phillips oil company ever gets approval, all gas it provides would come from fields developed by the old Phillips Petroleum Co. before it merged with Conoco.

All these plants will receive the gas in subfreezing liquid form, then warm it and convert it back to a gaseous state.

State officials from Gov. Arnold Schwarzenegger on down accept as gospel truth contentions from the sponsoring companies that California must have energy from these foreign LNG sources in the near future. No evidentiary hearing has ever been held on the issue, and unless the courts force one soon, it will be time for Californians to stop worrying about whether we get LNG and focus instead on the next question: How much will it cost?

With that strong possibility in mind, does anyone smell something fishy in the exclusive supply arrangements set up for each of the planned LNG plants?

None would be equipped to take natural gas from anyone but its own project partner or another wing of its own company. Essentially, one part of the operation can charge the other whatever it likes, and that price will be passed on to California consumers.

This is very unlike the way most businesses operate. Normally, they buy from the lowest-price supplier who provides needed levels of quality.

Yes, there are exceptions: If you open a Chevron gasoline station, you will presumably buy gasoline only from Chevron, then sell it to your customers. But they can go elsewhere if they don't like the price or quality.

There's nothing compelling authorities to allow any of the LNG receiving plants now proposed to be, in effect, a franchise handling only products of the company that builds it. For an LNG facility would put its supply of natural gas into the general pool of fuel going to all Californians. They would be, in effect, public utilities and -- unlike a service station -- would operate without foreseeable competition.

Allowing each of them to accept liquefied gas from only one source guarantees that each plant will get its product either from another part of the same company or from a partner invested in the plant, sharing in its profits.

This guarantees high prices in perpetuity for any Californians who get the gas -- which is all of us, since once regasified, LNG would be mixed with all other natural gas going to consumers.

Yet, not a single public official has voiced even a squeak of protest over the monolithic, monopolistic nature of every planned California LNG venture. Not one has pointed out that LNG plants on the East Coast and in other countries are usually set up to take supplies from all comers, assuring the public they serve that they are going after the lowest-price energy available.

What's wrong with California officials, from the governor on down, who pay no attention to the critical matter of pricing? Have they learned nothing from watching public fury over the swift rise in gasoline prices?

Or do they stay quiet and quiescent because all are Schwarzenegger appointees, and he gets a steady flow of big campaign donations from companies like Sempra -- parent of Southern California Gas and San Diego Gas & Electric -- and Chevron Corp.?

The upshot: It's high time for a lot of hard questions about liquefied natural gas, from whether it's needed to how much it will cost and who might supply it. But state officials right now are universally unwilling to ask.

-- Thomas D. Elias is a columnist and author. His e-mail address is tdelias@aol.com.