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LNG IMPORT TERMINAL AND DEEPWATER PORT

SITING: FEDERAL AND STATE ROLES

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY POLICY, NATURAL

RESOURCES AND REGULATORY AFFAIRS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JUNE 22, 2004

Serial No. 108–238

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

TIM MURPHY, Pennsylvania

MICHAEL R. TURNER, Ohio

JOHN R. CARTER, Texas

MARSHA BLACKBURN, Tennessee

PATRICK J. TIBERI, Ohio

KATHERINE HARRIS, Florida

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland

ELEANOR HOLMES NORTON, District of

Columbia

JIM COOPER, Tennessee

BETTY MCCOLLUM, Minnesota

———

BERNARD SANDERS, Vermont

(Independent)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director/Communications Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON ENERGY POLICY, NATURAL RESOURCES AND REGULATORY

AFFAIRS

DOUG OSE, California, Chairman

EDWARD L. SCHROCK, Virginia

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

CHRIS CANNON, Utah

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

PATRICK J. TIBERI, Ohio

JOHN F. TIERNEY, Massachusetts

TOM LANTOS, California

PAUL E. KANJORSKI, Pennsylvania

DENNIS J. KUCINICH, Ohio

CHRIS VAN HOLLEN, Maryland

JIM COOPER, Tennessee

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

BARBARA F. KAHLOW, Staff Director

CARRIE-LEE EARLY, Professional Staff Member

LAUREN JACOBS, Clerk

KRISTA BOYD, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on June 22, 2004 ............................................................................... 1

Statement of:

Blossman, Jay, commissioner, Louisiana Public Service Commission; Kenneth D. Schisler, chairman, Maryland Public Service Commission; and

Joseph Desmond, deputy secretary, energy, California Resources Agency .................................................................................................................... 114

Garman, David, Acting Under Secretary, Department of Energy; Patrick

H. Wood III, chairman, Federal Energy Regulatory Commission; and

Rear Admiral Thomas Gilmour, Assistant Commandant of Marine Safety, U.S. Coast Guard, Department of Homeland Security ........................ 26

Markey, Hon. Edward J., a Representative in Congress from the State

of Massachusetts ........................................................................................... 13

Santa, Donald F., Jr., president, Interstate Natural Gas Association of

America; Philip Warburg, president, Conservation Law Foundation;

and Jerry A. Havens, distinguished professor of chemical engineering,

University of Arkansas ................................................................................. 139

Letters, statements, etc., submitted for the record by:

Blossman, Jay, commissioner, Louisiana Public Service Commission, prepared statement of ........................................................................................ 117

Desmond, Joseph, deputy secretary, energy, California Resources Agency,

prepared statement of ................................................................................... 129

Garman, David, Acting Under Secretary, Department of Energy:

Information concerning Coast Guard/MARAD LNG permits ................ 113

Information concerning delivered natural gas prices ............................. 63

Information concerning DOE veto authority ........................................... 79

Information concerning studies ................................................................ 99

Prepared statement of ............................................................................... 28

Gilmour, Rear Admiral Thomas, Assistant Commandant of Marine Safety, U.S. Coast Guard, Department of Homeland Security:

Information concerning discrete asset level comparisons ...................... 105

Information concerning firefighting equipment standards .................... 109

Information concerning selection of sites ................................................ 72

Information concerning the Deepwater Port Act of 1974 ....................... 75

Information concerning the Sandia report .............................................. 107

Information concerning U.S. flagged liquid natural gas vessels ........... 111

Prepared statement of ............................................................................... 54

Havens, Jerry A., distinguished professor of chemical engineering, University of Arkansas, prepared statement of ................................................ 166

Markey, Hon. Edward J., a Representative in Congress from the State

of Massachusetts, prepared statement of ................................................... 16

Ose, Hon. Doug, a Representative in Congress from the State of California, prepared statement of ........................................................................... 4

Santa, Donald F., Jr., president, Interstate Natural Gas Association of

America, prepared statement of .................................................................. 142

Schisler, Kenneth D., chairman, Maryland Public Service Commission,

prepared statement of ................................................................................... 124

Warburg, Philip, president, Conservation Law Foundation, prepared

statement of ................................................................................................... 152

Wood, Patrick H., III, chairman, Federal Energy Regulatory Commission:

Letter dated July 7, 2004 ......................................................................... 82

Prepared statement of ............................................................................... 38

(1)

LNG IMPORT TERMINAL AND DEEPWATER

PORT SITING: FEDERAL AND STATE ROLES

TUESDAY, JUNE 22, 2004

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ENERGY POLICY, NATURAL

RESOURCES AND REGULATORY AFFAIRS,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2 p.m., in room

2247, Rayburn House Office Building, Hon. Doug Ose (chairman of

the subcommittee) presiding.

Present: Representatives Ose, Schrock, Tiberi, and Tierney.

Staff present: Barbara F. Kahlow, staff director; Carrie-Lee

Early, professional staff member; Lauren Jacobs, clerk; Megan

Taormino, press secretary; Krista Boyd, minority counsel; and

Earley Green, minority chief clerk.

Mr. OSE. Good afternoon. Welcome to today’s hearing of the Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs. Today’s subject matter is LNG import terminal and deepwater port siting, Federal and State roles.

I want to welcome my friend from Massachusetts and my friend

from Virginia to today’s hearing. The way we will proceed is we

have four panels of witnesses today. The first will be Congressman

Markey, the second will be Federal witnesses, the third will be

State witnesses, and the fourth will be private individuals representing the private sector.

Now, we are conflicted because we have a series of votes that will

start shortly. To the extent we can get through opening statements,

we will do that. When the bells ring, we will recess, go over and

vote. Probably going to be about 35 or 40 minutes, and then we will

be back here to continue the hearing.

Now, in the course of this hearing, you will see a couple of

things. No. 1, we swear in all our witnesses. That is standard practice on this committee. It is the way it is whether Republicans are

in charge or Democrats are in charge. It is nothing personal, so just

get used to it. Once we have made our statements, we will go to

the witnesses. Each panel will be allowed to make their statements. Their written statements are entered into the record automatically. If you are a witness, you have 5 minutes to summarize

your statement. I have a heavy gavel given the number of witnesses we have today, and the 5-minute rule will be enforced. If

you are not done, then that is just too bad.

So any questions? Good.

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The transformation of the U.S. natural gas industry to a healthy,

efficient, competitive state has been a decades long and sometimes

contentious process of interdependent changes in law and innovation by industry. Nationally, we moved from a balkanized and poorly regulated industry to a free market model which brought lower

prices. Nevertheless, as witnessed recently and especially in certain

parts of the country, natural gas price levels are vulnerable to

shortage.

The 2000–2001 California electricity crisis was in part exacerbated by the deficiency of natural gas supply. Recent harsh winters

in the Northeast depleted natural gas storage and caused significant price swings which were felt nationally.

The United States, especially on the West Coast, is relying more

and more on natural gas. It is the fuel choice for electric power

generation because it is reliable and is much cleaner than other

fossil fuels. Natural gas is also used by individual citizens and by

industry, agriculture and transportation as a raw material. As a

critical resource used throughout the economy, shortages in natural

gas have a profound impact much more felt, or much more closely

felt than other commodities.

North American natural gas fuels are depleting at an increasing

rate. Even if new domestic natural gas comes on to the market,

most experts believe we will need even more.

Pipeline imports from Canada make up about 15 percent of total

U.S. consumption, but there, too, experts anticipate diminishing

sources.

California has particular reason for concern. In 2003, California

produced only 17 percent of its natural gas consumption. More

than half of California’s electricity generation is based on natural

gas. As coal plants are retired, this dependency is going to increase.

California is especially subject to price fluctuation because it is at

the far end of the pipeline grid.

For the economy of California and the rest of the United States

to flourish, there must be a plentiful, affordable energy supply.

Without it, our economy will go into decline.

I contend that increasing U.S. importation of LNG should be a

component of the solution, either with onshore or offshore facilities.

Enormous quantities of natural gas are located in places from

which it is impossible or impractical to export through pipelines.

These are known as stranded locations. The solution is increasing

shipment to the industrialized world in liquid form. One tanker can

carry enough material to power 10 million houses.

Today’s hearing is going to focus on the multiple Federal agencies that have various authorities over LNG, including agencies in

the Departments of Commerce, Defense, Energy, Interior, Homeland Security and Transportation as well as the Environmental

Protection Agency and the Federal Energy Regulatory Commission.

We are going to discuss today how the Federal and State regulatory framework is furthering policy goals, such as competitive

pricing, regional supply, safety and environmental integrity. We

are also going to discuss how involved Federal and State agencies

are working together and, finally, how they plan to overcome what

appear to be systemic barriers such as local community fears and

conflicting laws.

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I look forward to the testimony of our witnesses today. They include the gentleman from Massachusetts, Mr. Ed Markey, who is

invited to the witness table when I get through the rest of this list;

Mr. David Garman, who is the Acting Under Secretary of the Department of Energy; Mr. Patrick H. Wood III, the chairman of the

Federal Energy Regulatory Commission; Rear Admiral Thomas

Gilmour, who is the Assistant Commandant of Marine Safety at

U.S. Coast Guard, Department of Homeland Security.

Also joining us on the second panel, Jay Blossman from the Louisiana Public Service Commission; Chairman Ken Schisler from the

Maryland Public Service Commission; and Mr. Joe Desmond, who

is the Deputy Secretary for Energy for the California Resources

Agency.

And, the final panel, we are joined by Mr. Donald F. Santa, Jr.,

who is the president of the Interstate Natural Gas Association of

America; by Mr. Phillip Warburg, who’s president of the Conservation Law Foundation; and, by Dr. Jerry Havens, who’s the distinguished professor of chemical engineering at the University of Arkansas.

I am pleased to recognize my friend of Massachusetts for the

purpose of an opening statement.

[The prepared statement of Hon. Doug Ose follows:]

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Mr. TIERNEY. Thank you, Chairman Ose. I will try to be as brief

as I can.

I want to thank you for having these hearings and note it is an

important issue around this country. I know in your State you have

particular issues. We have some in our State, and Congressman

Markey is going to talk about Everett, Massachusetts in his district

and the LNG facility there. Just a couple of weeks ago, we were

informed that people were speculating they would like to put an

offshore facility a little more than 10 miles off the cost of Marblehead and Gloucester, which is in my district, and people are reaching out for a way to supplement our energy supplies and resources

in this country, particularly as we look at rising gasoline prices and

shortage of fossil fuels in other places.

We have to look at this in a number of different ways. One way

we ought to look at it is first determining what is our need, and

in doing that, we ought to look and see whether or not we have

some other way to reduce the need for fossil fuels and for natural

gas, whether it is through conservation or alternative sources, and

identify what the prospects are, the feasibility of getting these alternative sources and plans into place, when they might be effective and to what degree might they reduce our need for fossil fuels

and natural gas.

The other thing we have to be careful of course is not getting into

the kind of reliance on natural gas coming from unstable areas of

the world that we’re currently in with regard to oil.

So those are things we have to do. If we determine that we cannot displace the need for natural gas production to increase, then

obviously we have to look at all the other considerations, not the

least of which is safety, and I am sure there will be many questions

today about the safety of siting places both on land and offshore,

and offshore particularly with regard to the fact that it seems that

none of these technologies have ever been utilized or proved to date

and there is a great deal of speculation as to what will happen if

there is an incident and just whether or not they’ll work and how

they’ll work. We have to be concerned for communities that are

near these facilities and near where these ships are passing. We

need to be concerned for the fishing community, which makes their

livelihood out of the ocean, and what will happen if there is an incident at sea, the commercial shipping industry if they are too close

to the shipping lanes. Environmentalists are concerned with what

will happen to our air and our water and inhabitants of them.

All of these things come into play. From homeland security

issues on through environmental and safety issues at home, we

need to ask a lot of questions, particularly when the technology

itself on the offshore basis is as yet unproven. We need to know

that this regulatory process, while it might be streamlined, does

not do so at the expense of any of those other issues being fully

and completely addressed in the way that is safest and most meaningful for our citizens and the environment that we must live in.

So we want to move in that direction. I want to welcome Ed Markey, my colleague from Massachusetts here, thank him for the

work he has done. He has done great work in this area, both on

his Committee on Energy and Commerce and on his Committee on

Homeland Security, and he has taken the lead on many, many inVerDate 11-MAY-2000 11:29 Jan 03, 2005 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 D:\DOCS\97130.TXT HGOVREF1 PsN: HGOVREF1
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stances in energy and in safety. And, I think he will have a lot to

say. I look forward to his testimony and that of the other witnesses.

Thank you, Mr. Chairman, for exercising the oversight of this

committee, and I think in a very appropriate way.

Mr. OSE. Based on my friend’s introduction, the gentleman from

Massachusetts, we welcome Congressman Markey to our witness

table. Congressman, you heard the bells, but we are going to get

your statement in here. I read it. I was particularly interested in

the issue of the insulation, so I hope you dwell on that a little bit.

The gentleman is recognized.

STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MASSACHUSETTS

Mr. MARKEY. I thank the chairman, very much, Mr. Tierney,

members of the committee.

Let me begin by saying that LNG is an important component of

the energy supply in New England. It represents 20 to 25 percent

of all natural gas in New England, the LNG that comes in through

the facility in Everett, MA, and obviously it is a big part of our energy mix and it will be a big part of America’s energy mix as the

years go by.

The question then is where is the most appropriate place for

these facilities to be sited. I would suggest to the subcommittee

that this is an issue that Congress already considered 25 years ago

based in large part about the public safety concerns surrounding

the siting of the Distrigas facility in Everett, MA, in one of the

most densely populated parts of the United States, and the inherent difficulties in trying to address the consequences of an accident

or an act of sabotage at this facility.

At that time the Congress enacted a law, which I authored,

which tried to learn from the Everett experience by directing the

Secretary of Transportation to consider the need for remote siting

as part of the rules applicable to all new LNG importation terminals. The Secretary of Transportation unfortunately has chosen to

largely ignore this law and has failed to comply with congressional

intent regarding what factors the Department needs to take into

account in writing rules for the siting of new LNG facilities.

Now, this failure had very little consequence for more than 25

years as no new LNG importation terminals were being built, and

so this Everett experience was something that was illustrative but

not relevant in terms of this energy source. Today, however, with

dozens of LNG terminals being proposed around the country, this

failure to comply with the existing law can no longer be tolerated.

As I see it, there are currently four critical issues that need to

be addressed at the Federal level today. First, we need to have a

much better scientific and technical assessment of the consequences of a terrorist attack against an LNG tanker or an LNG

terminal. Such a hazard assessment is needed to better inform

Federal siting decisions with respect to any new LNG terminals

around the Nation. It is also needed to better inform State and

local emergency planning and response activities with respect to

existing LNG facilities.

14

Second, we need help from both the Federal Government and the

facility operator to defray the costs that local governments incur in

securing LNG or other critical infrastructure facilities from a terrorist attack.

Third, we need to get the Department of Transportation to upgrade its LNG siting regulations to comply with the congressional

intent that all future LNG terminals be remotely sited and demand

that the Department stop merely incorporating the National Fire

Protection Agency standards into its siting rules.

In the report language of the 1979 law, we wrote that one area

of particular concern to the committee has been the failure to adopt

comprehensive Federal standards regarding the siting, design, operation and maintenance of liquefied natural gas facilities. In 1972,

the industry consensus standard developed by the National Fire

Protection Association were incorporated into the Federal gas pipeline safety regulations supposedly as an interim measure pending

the development of comprehensive standards. Despite widespread

concern over the adequacy of these interim standards and the

growing importance of LNG as an energy source, the promised

comprehensive standards have never been adopted.

H.R. 51, that is the 1979 law, addresses this problem by identifying the criteria to be considered by the Secretary in developing

standards and setting firm guidelines for proposing and adopting

them, but they still continue just to incorporate the National Fire

Protection Agency standards 25 years later.

Fourth, we need the Coast Guard to undertake a more thorough

analysis of the safety of LNG tankers, including the issues of brittle fracture and insulation flammability.

Looking to the future, LNG is likely to become an increasing part

of our energy mix. Given that fact, Congress needs to ensure that

the Federal Government takes further steps to ensure that any future LNG terminals are sited in locations that prevent them from

becoming an active terrorist target.

At hearings to the congressional directive that the Secretary consider the need for more remote siting, looking at offshore siting alternatives and updating the LNG siting rules so that they reflect

sound science and decisions by Federal agencies as opposed to industry self-regulatory bodies is desperately needed.

Finally, a more thorough examination of the potential consequences of a terrorist attack on an LNG tanker needs to be done.

Perhaps the Sandia study will address this issue, but based on my

experiences with the previous Quest and ABS consulting studies,

I think the Congress needs to step up oversight in this area and

demand that the studies that are being funded by the Federal Government are scientifically sound and subjected to full peer review.

I thank you, Mr. Chairman, Mr. Tierney, for holding this hearing. You can see the tremendous interest which this subject is now

generating. It will only increase as the years go by.

Mr. OSE. I thank the gentleman for his participation in today’s

hearing. Given the time constraints, I propose that we recess, go

vote. I understand there is four votes. We would welcome you back

for questions if your calendar permits. I don’t have any control over

what goes on on the floor, despite the fact I am the chairman and

what have you.

15

Mr. MARKEY. If I may, I have a 10-page analysis which was done

on all of the issues that I would like to submit for the record.

Mr. OSE. Would you like to submit it to the record? Without objection, so ordered.

Mr. TIERNEY. Just 10 pages?

[The prepared statement of Hon. Edward J. Markey follows:]

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Mr. OSE. We are going to recess for 40 minutes. We will be come

back at 3 o’clock.

[Recess.]

Mr. OSE. All right. Welcome back. If we could have the second

panel consisting of David Garman; Patrick Wood III; and Rear Admiral Thomas Gilmour. Please join us at the witness table.

All right. Gentlemen, as I explained earlier, we are going to have

you rise, swear you in.

[Witnesses sworn.]

Mr. OSE. Let the record show that the witnesses answered in the

affirmative.

Our first witness on the second panel is Mr. David Garman, who

is the Acting Under Secretary of the Department of Energy. He is

joined by Patrick Wood III, who is the chairman of the Federal Energy Regulatory Commission; and, Rear Admiral Thomas Gilmour,

who is the Assistant Commandant of Marine Safety at the U.S.

Coast Guard in the Department of Homeland Security.

Gentlemen, we have received your written statements. They have

been entered into the record. I, in fact, have read them. We are

going to recognize each of you in turn for 5 minutes to make a summary of your written statement. We appreciate you joining us

today.

Mr. Garman, you are recognized for 5 minutes.

STATEMENTS OF DAVID GARMAN, ACTING UNDER SECRETARY, DEPARTMENT OF ENERGY; PATRICK H. WOOD III,

CHAIRMAN, FEDERAL ENERGY REGULATORY COMMISSION;

AND REAR ADMIRAL THOMAS GILMOUR, ASSISTANT COMMANDANT OF MARINE SAFETY, U.S. COAST GUARD, DEPARTMENT OF HOMELAND SECURITY

Mr. GARMAN. Thank you, Mr. Chairman, for inviting me to provide the Department of Energy’s perspective on the importation of

liquefied natural gas and the siting of the facilities necessary to do

it.

In addition to serving as the Acting Under Secretary, I also serve

as the Assistant Secretary for Energy Efficiency and Renewable

Energy. Put another way, I am responsible for those programs designed to help us use less gas than we otherwise would, either

through the development of energy-efficient technologies and

through the development of power-generation technologies using

renewable energy.

As bullish as I am about the future of these technologies, we will

still need increasing supplies of natural gas, and we must import

more gas to meet the demands of our growing economy.

We have a clash of values in this country, Mr. Chairman, as we

seem to want to pursue inexpensive energy services and environmental values simultaneously. As a consequence of environmental

regulations, most new electricity generation is coming from gas

plants. Also, as a consequence of environmental concerns, new gas

exploration and production from public lands in the intercontinental shelf is very, very controversial. Demand is climbing, supply

is falling, and price increases have predictably resulted.

In response to these higher prices, LNG imports have more than

doubled from 228 billion cubic feet in 2002 to 506 billion cubic feet

27

in 2003. Expressed in terms of the percentage of natural gas imported, LNG grew from 5.7 percent to 12.9 percent of U.S. gas imports in just 1 year. Overall imports have also been rising.

We currently receive 87 percent of our natural gas imports from

Canada, but we expect gas imported from Canada to decline as Canadian fields mature, and as Canada copes with its own growing

domestic demand. Alaska gas will certainly help, but even with

new supplies from Alaska, we will need to import more LNG.

The Northeastern United States is in perhaps the most difficult

position, lying where it does at the end of the interstate pipeline

system. Consumers there already suffer higher electricity and gas

prices than many other parts of the country. LNG is also providing

20 percent of New England’s gas demand annually and can provide

nearly 30 percent of New England’s peak-day requirements.

Given the situation we face, we need more LNG both in the

Northeast and around the Nation. And, it is critical that necessary

LNG import facilities receive appropriate permits and approvals in

a timely and orderly manner. We believe a uniform national policy

and Federal regulation of LNG import and related facilities best

serves this goal.

The Federal Government, pursuant to the Natural Gas Act, has

authority over the siting, construction and operation of LNG import

and export facilities. This authority is shared between the agencies

represented on this panel.

Chairman Wood will cover aspects of Federal authority and jurisdiction, so I will not repeat them, other than to say that the Department of Energy agrees with FERC’s perspective.

My fundamental point, and I will close with this, Mr. Chairman,

is that our economy depends on new supplies of LNG. The chairman of the Federal Reserve, Alan Greenspan, has personally and

repeatedly made this point. Therefore, we must not jeopardize our

ability to import the LNG we need by complicating the siting authority with a patchwork of regulatory regimes working at cross

purposes.

I will end with that and will be happy to respond to questions

either today or in the future. Thank you, Mr. Chairman.

Mr. OSE. I thank the gentleman for his testimony.

[The prepared statement of Mr. Garman follows:]

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Mr. OSE. Our next witness is the chairman of the Federal Energy

Regulatory Commission, who has been with us regularly on energy

issues. It is good to see him again.

Chairman Wood, welcome. You are recognized for 5 minutes.

Mr. WOOD. Thank you, Chairman Ose, Mr. Tierney. In my testimony I discuss some of the issues relating to the Commission’s

view of its jurisdiction vis-a-vis State regulators over LNG facilities. But, in my opening statement, I would like to focus on the

broader processes, because I think there is some incorrect information or just some misunderstanding about the broad role that goes

on in permitting these new facilities today.

Currently we do have, as the map indicates, four existing facilities in the continental United States. There is one in Puerto Rico

as well as an export facility in Alaska, and then a number of smaller ones.

Mr. OSE. We are going to recess for 5 minutes.

[Recess.]

Mr. OSE. We will reconvene.

Mr. WOOD. In addition, we have 13 pending applications before

the Commission, and then another—the bottom half of this chart

which is attached to my testimony—another 20 or 30 potential out

there, in the United States, as well as about half a dozen, maybe

8 to 10, being considered in Mexico and in Canada. There is a tremendous need to have the sufficient staffing at the Commission to

address these filings as they come forth to make sure that the safe

and reliable operations come out of these permitted facilities.

So we have established a stand-alone office in our Division of Energy Projects to make sure that we give these the proper review,

both the new permits as well as the existing ones. We, of course,

oversee the safety of the cryogenic facilities, and of the environmental conditions of the facility’s operations, as well as the safety

and security on an ongoing basis.

As to the new permits, which I think is the main focus of the

hearing today, we encourage parties to meet with the Commission

staff early on before they move forward into seeking permit authority from the Commission, and engage in a prefiling process.

The prefiling process is an effort to engage in a

nonconfrontational manner other agencies, State, Federal and

local, our sister agencies represented here as well as the DOT; to

also talk to local elected officials, to landowners, to environmental

groups to bring out all of the interests, again in a

nonconfrontational format, in advance of an application being filed

with the Commission. We found that this has worked very successfully in our hydroelectric licensing program, and that we want it

to be a useful tool for us in reviewing in a thorough but expeditious

manner any LNG siting facility that is brought forth.

And we did actually yesterday or last Friday approve the second

new LNG facility in the last quarter century, in Freeport, TX, that

did use this process. And it was a very successful and well-vetted

application that I think addressed all of the issues, including safety, that were raised throughout the year and 3 months that we

were reviewing it.

As a final point before heading off to questions, I did want to

mention the very involved role that a number of other agencies

37

played in the process besides the Commission. Attached to the back

of my testimony are charts of the two permits that have happened

on our watch at the Commission in 2002, and this one last week

in Louisiana and in Texas, that indicate the tremendous involvement of other sister Federal agencies, as well as State agencies and

local entities such as police departments and departments of transportation, both in Texas and in Louisiana. I think they have demonstrated, certainly to me, that there is broad consultation and

broad involvement of States to participate, but not in an overlapping format, but in a collaborative format in a way that we all do

what we are good at together to bring the process to a head

through the environmental impact review process.

So I would just recommend those to you, Mr. Chairman, to the

committee, for review as you look at the balance between State and

Federal entities with regard to our appropriate roles in reviewing

the permitting of new LNG facilities. I look forward to any questions.

Mr. OSE. I thank the gentleman.

[The prepared statement of Mr. Wood follows:]

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Mr. OSE. Our third witness on the second panel is Rear Admiral

Thomas Gilmour, who is the Assistant Commandant of Marine

Safety, the U.S. Coast Guard, for the Department of Homeland Security.

Sir, this I believe is your first appearance before our subcommittee, and as always, welcome. We have read your testimony. It has

been entered into the record. You are invited to summarize in 5

minutes.

Admiral GILMOUR. Yes, sir. It is my pleasure to discuss the Coast

Guard’s role in safety security of natural gas vessels and facilities

and how we are cooperating, as was said, with other Federal agencies.

The Coast Guard plays a major role in ensuring all facets of marine transportation of LNG, including vessel, shoreside terminals

and proposed deepwater ports, are operated safely.

Today I will briefly review the jurisdiction and partnerships the

Coast Guard uses to ensure the safe operation of vessels, terminals

and offshore ports.

As noted in the January 2004 Congressional Research Service report to Congress on LNG, the LNG tanker industry claims an impressive safety record over the last 40 years. Since international

shipping began in 1959, tankers have carried over 33,000 LNG cargoes without a serious accident at sea or in port. LNG tankers have

experienced groundings, collisions during this period, but none has

resulted in a major spill or compromise of a cargo tank. The LNG

marine safety record is partly due to a double hull design.

Today there are approximately 150 LNG vessels operating worldwide, although a majority of them are foreign flag. All LNG vessels

calling in the United States meet both our domestic regulations

and international requirements. Our domestic regulations for LNG

vessels were developed in the early 1970’s, and various vessel inspections are now codified in 46—Title 46 of the U.S. Code.

Our domestic regulations closely parallel international requirements, but there are more stringent requirements, such as a requirement for enhanced steels to deter brittle fracture in certain

areas of the hull.

Before being allowed to trade in the United States, LNG carriers

must submit detailed vessel plans and other information to the

Coast Guard, and upon the satisfactory plan review and onsite verification, the vessel is listed—given a certificate of compliance.

They are boarded by marine safety personnel prior to each U.S.

port entry to verify proper operation of navigational safety, firefighting and cargo control systems.

LNG vessels are also subjected to additional measures, many of

the special security precautions that predated the September 11

tragedy, and include such things as vessel control measures that

are implemented when an LNG vessel is transiting a port, or as

it approaches; safety zones around vessels to prevent other vessels

from approaching the LNG carrier; escorts by Coast Guard patrol

craft; and, coordination with other State and local organizations.

Since September 11th, additional security measures have been

implemented by the Coast Guard. We now subject LNG vessels to

at-sea boardings, where Coast Guard personnel conduct special security sweeps of vessels to ensure positive control of the vessel is

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maintained throughout its port transit. This is in addition to everything I just mentioned.

And, of course, the most important post-September 11 maritime

development has been the passage of the Maritime Transportation

Security Act of 2002 [MTSA]. The Coast Guard has developed a

comprehensive new body of security measures applicable to vessels,

marine facilities, and our maritime personnel. It is closely aligned

with the International Ship and Port Facility Code, which becomes

effective this July, or in about 10 days. Under the ISPF code, vessels, including LNG tankers, must have certificates, and we will

rigorously enforce this requirement on July 1st.

Regulations developed under the authority of the Ports and Waterways Safety Act assign the Coast Guard responsibility for safety

issues within the marine transfer area of shore-side LNG terminals, and this area is defined as a waterfront facility between the

vessel, or where the vessel moors, and the first shutoff valve of the

pipeline immediately before the receiving tanks. The rest of the facility is regulated by RSPA.

New maritime security regulations were developed under MTSA,

and these require the LNG terminal operator to conduct a facility

security assessment and to develop a threat-scalable security plan

that addresses the risks identified within the assessment. The six

existing U.S. LNG terminals have submitted their security plans to

Coast Guard review and approval last December. In contrast to our

safety responsibility, where our authority is limited to the transfer

area, our authority regarding security encompasses or could encompass the entire facility.

The Federal Energy Regulatory Commission has siting authority

for shoreside LNG terminals. However, our role is that we review

the construction of the existing facility and submit a letter of intent

to the Coast Guard Captain of the port where the facility is located.

The Captain of the port looks at the application of the owner and

operator and looks at those things adjacent to the facility in the

navigational waterway.

On February 10th the Coast Guard entered into an interagency

agreement with FERC and RSPA to work in a coordinated manner

to address these issues of safety and security in waterfront LNGs.

For deepwater ports, the Coast Guard authority to regulate these

ports is from the Deepwater Ports Act, and the regulations pertaining to licensing, design, equipment operation are found in Title 33,

in subchapter NN. MARAD is the licensing authority, while Coast

Guard is the lead on application review and has the primary jurisdiction over design, equipment, and operations.

To expedite the process and more efficiently coordinate activities,

the Coast Guard entered into an MOU involving more than a dozen

agencies, including FERC, Minerals Management Service, and the

Environmental Protection Agency. This MOU establishes a commitment on the part of all participating agencies to work together to

meet an aggressive time line mandated by the Deepwater Ports

Act.

Thank you for giving me the opportunity to discuss our role in

LNG safety. I will be happy to answer any questions.

Mr. OSE. Thank you, Admiral.

[The prepared statement of Admiral Gilmour follows:]

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Mr. OSE. As I explained earlier, what we do is we go by panel

through a series of questions. Each Member is allowed 5 minutes.

If there are sufficient questions, we will have multiple rounds. I

want to welcome the gentleman from Utah. And, I will commence

with the questions.

Mr. Garman, I looked in today’s Wall Street Journal, and the futures for heating oil are—excuse me, not for heating oil, for natural

gas are—least through May 2005 are over $6 per million BTUs.

Now, I am curious about from the DOE’s perspective what your

projections are for natural gas prices nationally for the next 24

months.

Mr. GARMAN. I think as the futures, current prices are also

around $6 per million BTUs. And, I think that it is a safe bet; $6

is about right.

Now, we are in reasonably good shape in the storage capacity

this year compared to last year. So we are hoping that we will be

heading into the heating season with an adequate or more than

adequate supply for the winter, which would bode well for price

stability during the winter heating months.

Mr. OSE. If today’s price is $6, both on the spot and the futures

market, what has been a historical price for natural gas?

Mr. GARMAN. They have ranged in years past from $2 to $4.

Mr. OSE. So, if it was $4, that $2 increment, what does that

translate to in terms of consumer expenditures compared to the

historical norm? Does the DOE have anything of that nature?

Mr. GARMAN. We do. It depends on, of course, how much gas you

use. It has forced some consumers to be more efficient, which is,

of course—if there is a silver lining in this dark cloud, it is that

higher prices do get consumers thinking about ways to use that energy more efficiently. And, that is something that we want to help

them with and have been trying to help them with.

But, it is a substantial—it can be hundreds of dollars per household during heating season, and additional fuel adjustment charges

for electricity purchased during the summertime for peak electricity use as well.

Mr. OSE. Well, I am specifically interested in those markets

where we have a deficit situation; for instance, California. I did a

back-of-the-napkin calculation last night. I am within one order of

magnitude, so that is quite a bit of variability, but I am not sure

of my math either, but it is somewhere on the order of $2 billion

in added consumer expense, if you consider having an LNG importation facility as opposed to not having an LNG importation facility. That is the difference in the dampening effect on price from

having an LNG facility. Are those in the ballpark?

Mr. GARMAN. You ask a tough question of a witness under oath,

Mr. Chairman.

Mr. OSE. You can say, I don’t know.

Mr. GARMAN. What I would like to do is to task the Energy Information Administration to work with your staff, and with reasonable assumptions in the matter of, I would say, a week or so come

up with some numbers that——

Mr. OSE. Why don’t we give you the markets and deficits that

we are particularly concerned about, and you and EIA can put that

number together. I am specifically interested about California, New

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England and Florida, being the ends of the pipe, so to speak, with

little, if any, domestic production.

Mr. GARMAN. Happy to do that, Mr. Chairman.

[The information referred to follows:]

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Mr. OSE. The gentleman from Massachusetts.

Mr. TIERNEY. Thank you.

Mr. Garman, I guess we are having a full day with your testimony to both committees. Thank you for being here. Thank the

other witnesses on that.

Admiral Gilmour, let me ask you, it is my understanding there

has never—no one has an offshore or deepwater port facility operating just yet; am I right?

Admiral GILMOUR. Yes, sir.

Mr. TIERNEY. The one that has been approved most recently, and

maybe the only one that has been approved, is the one in Louisiana?

Admiral GILMOUR. Yeah. We have two that have record decisions, and they are both in Louisiana. Yes, sir.

Mr. TIERNEY. How far offshore are those that were approved in

Louisiana?

Admiral GILMOUR. The Chevron-Texaco Port Pelican is 36 miles

offshore, and the El Paso Energy Bridge is 100 nautical miles offshore.

Mr. TIERNEY. When you were reviewing those for approval, was

there any standard distance offshore of how far it had to be before

you would reconsider your approval? Was there a point that you

wanted to get them beyond in order for it to be considered, or is

that just a factor that you weigh in with other things, and it could

be as close as a mile or two?

Admiral GILMOUR. There was no minimum distance, but I think

the closest is on the order of 10 miles, in that magnitude.

Mr. TIERNEY. I notice that there is a proposal off of the northeast

coast in my district for about 10 miles out. I want to know what

the considerations should be with respect to that siting. Just what

will you look at in terms of a fishing community, the commercial

shipping community, the environmental community, and the people’s landway on the land as to what dangers there might be there?

Admiral GILMOUR. Yes, sir. We would certainly consider all of

those factors. We haven’t received that application yet, but certainly the traffic part would be something we would look at, and

we have received questions and comments on the fishing side of

that. But I would add that there are a lot of offshore facilities in

the Gulf and a lot of fishing going on in the Gulf also, sir.

Mr. TIERNEY. Are there established standards for those considerations, or is it case by case? Do you have standards of how far it

has to be from a particular fishing ground or how far it has to be

from a shipping lane, or do you deal with it on a case-by-case

basis?

Admiral GILMOUR. No, sir. But there are other agencies that

would be concerned with a lot of those issues. I would add that due

to the significance of these particular structures, there would be

some sort of security zone around them when there was, you know,

a vessel present. So that would be a concern certainly to fishermen.

But I am sure that we would get that in our public hearings.

Mr. TIERNEY. Well, what would interest me is that we don’t even

know whether this technology will work or not. Am I right?

Admiral GILMOUR. No, sir. I think that the technology itself is

proven, it just hasn’t been done offshore yet.

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Mr. TIERNEY. In what context was it proven? Just theoretically?

Admiral GILMOUR. No, sir. There are a number of these kinds of

facilities operating onshore now.

Mr. TIERNEY. It is not done offshore, which I think would be a

substantially different situation, right?

Admiral GILMOUR. Different environment. Yes, sir.

Mr. TIERNEY. So there are none of them that are actually up and

operational, none of them that have been proven other than theoretically. So how is it that you go about establishing your standards for what you expect to happen or that could happen with respect to how they operate and what problems might arise?

Admiral GILMOUR. We have standards for our offshore structures. I think the structures are pretty well known—the standards

for the structures. And we are working with industry and—to meet

our regulations and other agencies to look at the natural gas side

of that operation.

The Louisiana offshore oil port is a similar type operation, obviously not operating for LNG, but for crude oil importation, and it

has operated quite successfully. But you are right. This is a different kind of operation.

Mr. TIERNEY. And so who is going to be—you talk about some of

these where the owner-operator is responsible for the safety plan.

Is that going to be the same case on the deepwater port?

Admiral GILMOUR. They are required to submit a plan, an operations plan, to us, and we indeed will review it.

Mr. TIERNEY. You are reviewing against nonexisting standards is

my concern. You don’t really have a set standard for this type of

operation because it has never been done before. So we are really

flying a little bit in the dark here.

Admiral GILMOUR. We have interim final rules in 33 CFR. So we

do have standards for that.

Mr. TIERNEY. You are going to apply them against 33 CFR?

Admiral GILMOUR. Yes, sir.

Mr. TIERNEY. You established the standards in that CFR. They

then develop the plan and submit them, and you measure it

against that?

Admiral GILMOUR. Yes, sir.

Mr. TIERNEY. That is with respect to all of the safety features?

Admiral GILMOUR. Yes, sir.

Mr. TIERNEY. Concerns terrorism threats?

Admiral GILMOUR. Well, terrorism threats would come under the

requirements in MTSA for offshore facilities, which we have on the

order of 40 in the Gulf that are currently being reviewed, and will

be applied by July 1st.

Mr. TIERNEY. But those are not 40 gas operations?

Admiral GILMOUR. No, sir. Those are oil production. They will

meet the same kind of plan for security as oil production platforms.

Mr. TIERNEY. Is there no difference in security considerations for

oil and gas?

Admiral GILMOUR. I wouldn’t say there weren’t any differences,

but they would be quite similar in the kinds of threats that they

would have. Yes, sir.

Mr. TIERNEY. I notice that my time is up, But I would like to explore that a little bit more at some other point. Thanks.

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Mr. OSE. The gentleman from Utah.

Mr. CANNON. Thank you, Mr. Chairman.

Mr. Garman, the chairman was talking a little bit about price.

And the current price is about $6 here in America. What has the

world price been? And I take it we influence world price, but can

you give a comparison about where world price is and what will

happen if we have more LNG facilities in America?

Mr. GARMAN. I will try. Actually there is not a fungible world

market price of natural gas in the same way that there is for oil,

for the very reason that oil is more fungible, it can move in and

out more freely, and the absence of LNG terminals in the United

States make it more of a regionalized market.

Anecdotally I am told that prices in the United States are

trending higher than they have been in, say, Europe. Europe is

maybe closer to $3.50 per million BTUs. As a consequence, this has

put large consumers of natural gas, particularly processed gas consumers, fertilizer plants, and others, in a really tough position,

even considering moving some of their operations overseas where

gas prices are cheaper than they are here.

Mr. CANNON. Did you say that current prices in Europe are $3.50

per million BTUs?

Mr. GARMAN. I would want to check on that. That is my recollection, somewhere around $3, $4. They are cheaper than they are

here.

Mr. CANNON. Largely because of LNG facilities.

Mr. GARMAN. Through pipelines with Russia, the former Soviet

Union, they have access to supplies that we obviously don’t.

Mr. CANNON. So it is going to take us a while to actually get

some LNG facilities and to transform ourselves. But the EIA predicts growth in short-term trade in LNG. How much LNG industry

growth is needed to create a vibrant and efficient LNG short-term

trading market?

Mr. GARMAN. Well, let me try to answer that question a couple

of ways. The National Petroleum Council, which Secretary Abraham commissioned to look at this situation we face, estimated sort

of—to have a balanced future, we probably need nine new terminals and nine expansions of three existing terminals in the years

ahead, between now and 2025.

The Energy Information Administration has a different estimate,

but is somewhat similar. They expect to see four new terminals in

the Atlantic Coast and Gulf in the 2007 to 2010 timeframe, and

then maybe expanding to 9 to 12 terminals between now and 2025.

So different assumptions, obviously, and different methodologies.

We are not going to need all 43 of those that are being talked

about, but we probably need somewhere between 5 and 15 terminals here.

Mr. CANNON. What efforts has DOE taken, including any in conjunction with the FTC or other Federal agencies, to educate State

and local governments and the public about LNG?

Mr. GARMAN. This was also one of the recommendations of the

National Petroleum Council. And we have been working with

NARUC to try to communicate to consumers the opportunities to—

safety aspects and considerations for LNG.

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Let me always put in my pitch for energy efficiency. We are also

using this opportunity to work with consumers to understand how

they can save and use, obviously, less natural gas for residential

uses and less electricity, which translates into lower—I mean,

these are part of—a balanced strategy, we think, is not only to

identify new sources of supply, new opportunities for importation

in LNG, but we also want to use what we have more efficiently and

remind consumers of the opportunities to do that as well.

Mr. CANNON. One final question. What is DOE doing to facilitate

importation of LNG from countries, especially Mexico and Canada,

our neighbors?

Mr. GARMAN. Well, we have—even though Mexico has supplies of

natural gas, we have tended to export natural gas, small amounts,

to them. As I have mentioned in testimony, we are a large—Canada is our largest provider by far, but we expect, or EIA expects,

in 2010 that their supplies will peak and start to decline as they

struggle to deal with their more mature fields, and also take care

of their own domestic demand.

So we have looked to Mexico. We have looked to Canada. We are

looking to Norway. We are looking to Peru. We are looking to a variety of different countries that aren’t necessarily the same countries that supply us with oil to try to provide us with our energy

needs for the future.

Mr. CANNON. Thank you, Mr. Chairman.

I yield back.

Mr. OSE. Thank the gentleman.

Mr. Garman, did I understand you correctly in your testimony

that you don’t think we can conserve our way to self-sufficiency in

natural gas?

Mr. GARMAN. No. As important as efficiently using the supplies

are, and as important as it is to develop new renewable energy resources to augment our supplies of energy, we still need more natural gas.

Mr. OSE. Commissioner Wood, to try and simplify things just so

I can understand them, I want to make sure that I have it clear.

FERC is responsible by derivation from DOE with siting and permitting—permit and siting questions for onshore facilities?

Mr. WOOD. Yes, sir.

Mr. OSE. And, Admiral, you are responsible for permitting and

siting facilities offshore in conjunction with MARAD?

Admiral GILMOUR. That is correct, sir.

Mr. OSE. As it relates to onshore facilities, it would seem to me—

and I have looked at that health care proxy, health care system

proxy, that defines the permitting process, and it would seem to me

that if FERC could say adopt a standard that says if you meet

these or this template, you will be approved, it would seem to me

that would expedite quite a bit of FERC’s considerations, or at

least narrow the questions to peculiarities about individual sites.

Has FERC said to industry or to the developers who do these

things: For an onshore facility, this is the type of template we expect?

Mr. WOOD. Specifically, no. However, the filings that we have

seen, again, the 13 that are before us in either the prefiling or filing process, do have a relatively similar approach, which is the cryVerDate 11-MAY-2000 11:29 Jan 03, 2005 Jkt 000000 PO 00000 Frm 00072 Fmt 6633 Sfmt 6633 D:\DOCS\97130.TXT HGOVREF1 PsN: HGOVREF1
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ogenics, which is the heart of the actual vaporization process, and

the continuing to keep it cold, if they are storing it in liquid form.

Those are relatively defined through the Transportation Department regs, back again to what Mr. Markey referenced, and those

were done quite a few years ago.

But those standards have been really the ones that define what

the onshore apparatus looks like.

Mr. OSE. Do they also address like setbacks from an adjacent development?

Mr. WOOD. Yes, for the new ones going forward. There is some

question about the historical ones, but for the going forward, after

the adoption of those regs, there are set-asides, or exclusion zones

is the term that is used in the regulations, if the liquid were to

spill and catch fire.

Mr. OSE. Do you have minimum setbacks under these exclusion

zones?

Mr. WOOD. Yes. And they vary based on the design. But the formula is known in advance, so if the design has, for example, a tall

concrete wall around where the fluid could spill out, and that wall,

in fact, can shield some of the adjacent area from the heat, then

the heat radius is smaller.

If the wall is smaller, if it is earthen than your heat radius can

actually go farther, so the exclusion zone would be larger in those

cases.

But it is actually a specific kind of formulaic approach that is

used, but it depends again on the actual design, which, as your

question indicates, there is not a standard onshore facility design

that, therefore, if you know you are going to build it this way, it

is 2,200 feet from this point to the edge of the property.

Mr. OSE. Well, the reason I ask the question is that I am a sufficient student of technology to understand that the more you can

use off-the-shelf technology that is standardized, the faster you can

get to market. And I am curious whether FERC is moving in a direction as it relates to the facilities themselves or the exclusion

zone to say, you use this type of technology, these are the parameters, or this type, or this type of technology, these are the parameters, where they can just pull it off the shelf and just basically

hunt for a site where it would fit.

Mr. WOOD. I think that idea has a lot of merit. It is not one that

we have adopted up to now.

Mr. OSE. I have the same question for the Coast Guard as it relates to offshore facilities. Has there been any effort to define a

template, if you will, or, as Mr. Tierney was driving at, the standards under which these facilities would be constructed?

Admiral GILMOUR. Yes, sir. I think that the regulations would

certainly for construction give a template of—and there are a number of gas-drilling offshore structures operating out there right

now. And we use things like class society rules, industry or recommended practices, and regulations that are used by MMS for

those kinds of things.

Now, as far as a template for siting, offshore distances and those

kinds of issues, we really haven’t done that. But we have through

the Sandia lab studies and the other studies that are being done

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by the gentleman to my right, with our assistance, I think we are

going to look at some of those issues.

Mr. OSE. This is my final point on this round—it would seem to

me that given the 330-day timeframe that you have to work with,

to the extent that you can say on day zero, before I walk in, Congressman Ose, this is the template you have, you can meet this

template, or you can meet that template, but if you meet one, then

these are the parameters, if you take this other one, these are the

parameters, you are not picking the winners or losers, you are just

saying what the parameters are, it just seems to me that would go

a long way toward making it easier for you to meet your timelines.

Admiral GILMOUR. Yes, sir. We are working on doing just that.

I think our biggest problem so far was putting together a staff to

address this issue at the same time the regulations were in effect.

Mr. OSE. I suspect that Mr. Tierney is going to followup, because

sitting up here, I didn’t hear you talk in response to his questions

about having a template. You talked about the unique characteristics of individual applications, but not about a template. So I don’t

mean to hijack your questions, but I suspect that is where you are

going back. But my time is expired.

Mr. TIERNEY. Well, yeah. I think you obviously are where I am

going on this. If you want to use industry regulations, the problem

that we have with the offshore, the deepwater ports, is there are

no examples, no experience on this. So am I wrong to think that

there is some problem with that, or some issues there about using

industry standards where they have not done it before; there are

no examples to point back to, and we are talking about whatever

assumptions the industry settles on from their experts that are

going to be used by the Coast Guard? It concerns me a bit.

Admiral GILMOUR. No, sir. But there are a plethora of shoreside

operations doing exactly the same operation. We need to adapt to

an offshore environment.

Mr. TIERNEY. But it is not exactly the same. The offshore environment is substantially different than the onshore environment,

the considerations are different, and the environment out there is

substantially different. So it has not been done before. Particularly

some of the models that I have heard talked about where the boat

will pull up and just hook up to an already-existing buoy of some

sort and pull up, that is not done on land, right?

Admiral GILMOUR. No, sir, but it is done in loop. I mean, we have

articulated lines in loop. So we do have some experience, although,

granted, not for cryogenic——

Mr. TIERNEY. So, again, I get back to, shouldn’t we be establishing independently our norms and our standards and the things we

are going to measure it against, and not necessarily just relying on

industry where we are coming up with something that is so totally

new on that? I would like to think that we are at least making an

effort to do that so we have our own standards to evaluate it

against.

Admiral GILMOUR. Yes, sir. I would say more than relying on industry, we are adapting existing standards to the offshore environment.

Mr. TIERNEY. But you did indicate that you are using industry

regulations and industry examples on that. So are you independVerDate 11-MAY-2000 11:29 Jan 03, 2005 Jkt 000000 PO 00000 Frm 00074 Fmt 6633 Sfmt 6633 D:\DOCS\97130.TXT HGOVREF1 PsN: HGOVREF1
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ently having evaluations done and having independent individuals

tell you how they might adapt that, and what differences there are,

and what concerns we ought to have, and how they ought to be addressed?

Admiral GILMOUR. Yes, sir. And we are working certainly in conjunction with all of the other regulatory agencies that have done

this kind of regulation on the shoreside for years. So, yes, sir, those

are the standards that exist that we are using.

Mr. TIERNEY. Bear with me, if you will, for a second, all three

of you, because I want to sort of walk through this.

With respect to a deepwater port, who has the ultimate authority? The Department of Transportation? Who is going to finally say

yes or no with respect to that?

Admiral GILMOUR. Yes, sir. We will.

Mr. TIERNEY. They are divided there between two agencies. One

is the Coast Guard, and the other is the Maritime Safety——

Admiral GILMOUR. The Maritime Administration. Yes, sir.

Mr. TIERNEY. And so you both recommend to the Secretary, and

the Secretary makes the final determination?

Admiral GILMOUR. Yes, sir.

Mr. TIERNEY. What role does the State play? And are they able

to have a veto on that, or only to contribute information?

Admiral GILMOUR. The State will work in—certainly their voice

will be heard in a number of areas.

Mr. TIERNEY. So do they have a veto, or do they merely have a

way to put their voice in and weigh in on some issues?

Admiral GILMOUR. Yes, sir. They will be able to weigh in on the

issues.

Mr. TIERNEY. But not make the final determination and not

change the direction. If the Department of Transportation decides

it wants to go one direction, the State wants to go into another,

DOT is going to make the final determination?

Admiral GILMOUR. Under oath, as the previous gentleman stated,

I think that is the case, but we can get written confirmation.

Mr. TIERNEY. If you can do that for me.

[The information referred to follows:]

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Mr. TIERNEY. Who else weighs in on it? Do you have at the tip

of your fingers there as to what other agencies weigh in, and what

do they weigh in about?

Admiral GILMOUR. Yes, sir. There are 11 other agencies, including NOAA on the fisheries issues and the EPA, etc.

Mr. TIERNEY. Bear with me and give me the etc. You told 11 or

13. Can you give them to me and what they weigh in on? NOAA

is weighing in on the fishing industry’s issues. EPA is weighing in

on the environmental issues. Conservation areas, are they weighing in?

Admiral GILMOUR. Yes, sir. And the folks that are sitting here

are looking at other areas, too.

Mr. TIERNEY. Well, Mr. Wood, what are you looking at when you

look at the offshore facility?

Mr. WOOD. Our contribution to the offshore, sir, is minimal.

Again, it is theirs.

Mr. TIERNEY. Mr. Gilmour, we are back to you. That didn’t go too

far in that direction. So what else have you got on it?

Admiral GILMOUR. If we had a question on an issue involving the

gasification part of a system that we weren’t familiar with, we

would go to someone in FERC or DOE and talk to them about the

system and get their input on that.

Mr. TIERNEY. So that is you reaching out to them. Are there any

automatic people that have to be consulted and automatically have

to weigh in on this? What about the issues around Showhegan, the

area that is set aside up in the New England area off the coast out

there, all of the conservation and environmental concerns up there,

does someone automatically get a right to weigh in on those, or is

that only if you reach out to them?

Admiral GILMOUR. Well, it would be like a number of other

issues. When FERC issues a facility, shoreside facility, you know,

there are a number of other agencies that look at the navigational

side, too. And when it comes out, it is sent to all of those other

agencies automatically. And I am sure that some of our Federal

agencies certainly that are worried about fisheries conservation

and/or national sanctuaries would——

Mr. TIERNEY. I don’t want to make this torture. I was going to

ask you if you would do me a favor. Would you submit to the committee a list of what State and Federal agencies as a matter of

right are engaged in the determination process for deepwater ports,

and which others might be an elective contributor if the Coast

Guard or Department of Transportation elects to do that? If you

can give me that, I would appreciate that. Thank you.

Admiral GILMOUR. Yes, sir.

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Mr. OSE. There is one aspect to this. If there is an offshore facility, FERC is charged with the responsibility for permitting and

siting onshore tanks to store the stuff transported on and for the

pipelines that service those.

Mr. TIERNEY. Right.

Mr. OSE. I am pleased to recognize the gentleman from Ohio.

Mr. TIBERI. Thank you, Mr. Chairman.

Just kind of following up on Mr. Tierney’s line of questioning

with respect to homeland security, Admiral, there has been concern, Admiral, in the past about security issues, that potentially a

terrorist attack could occur through attempting the use of LNG

tankers offshore to inflict harm on U.S. citizens. And, in fact, there

were—there was a Massachusetts link to this, at least a rumor

that maybe terrorists at one point in time were stowed away on a

tanker that landed in Massachusetts several years ago.

What is the Coast Guard doing to ensure safety with respect to

potential terrorist activity?

Admiral GILMOUR. Well, sir, you know, immediately after September 11, we did a number of things, and we are still doing. These

kinds of vessels are boarded offshore. They provide a 96-hour advance notice of arrival listing crews. And actually MTSA will increase those things that they are looking at. So we vet the crew

members, board them offshore, and then do a security sweep,

which includes identifying crew members, have positive control of

the vessel as it comes into port.

Again, as I said in my opening statement, we provide waterside

escorts to ensure the vessels do not approach too closely. We have

done that for a number of years for safety purposes. We have a

zone that does not allow, in many cases, other vessels to even be

transiting in the area.

The safety inspection, we look at critical systems such as firefighting, cargo and navigational equipment, but we have been

doing that from the very beginning for LNG vessels. The security

requirements for MTSA are based on the international ISPF codes,

ports and vessel security code.

So on the vessel side, we will also look at their security plan and

how they are adapting it both from their—on their way in and

when they are at the facility. We also will look at previous ports

they have been to determine if, after July 1st, they are ISPF-approved ports.

So we will look at the port that they have been to, we will look

at the crew as they come in, and we will look at their security plan.

And again, there is facility plans, both required both on the shore

side and for offshore platforms, on the offshore side.

Mr. TIBERI. Does the Coast Guard have a process in place to review protocols periodically based upon different types of threats

that may pop up?

Admiral GILMOUR. Oh, yes, sir. We are a member of the Intelligence Community, and we talk about those every morning. Yes,

sir, we do have those.

Mr. TIBERI. So you have a process in place where you review

that?

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Admiral GILMOUR. Yes, sir. That includes vetting of crew members and any threat streams that may be available to the Intelligence Community.

Mr. TIBERI. Thank you.

Mr. Wood, still on the subject of safety, I think that we would

agree that the international safety record of the LNG industry is

superb, quite impressive, and even including the onshore LNG storage sites in the United States. We have been very lucky.

Having said that, opponents and critics of the industry have—

like many others in the energy sector have been very critical in

using tactics to scare both community leaders and members of particular communities over the potential risks.

Has FERC, the Federal Government, thought about putting anything in place, a review process to work with local communities to

let them know about the scientific evidence of what exists today?

Mr. WOOD. Yes, sir. In fact, that is one of the strongest reasons

that we have to encourage applicants—again, this chart over here

I was describing a little earlier—has a number of applications

there, particularly the list on the bottom half, that have not yet

come before the Commission that are out there being talked about.

What we have encouraged companies to do, and, in fact, a number that are in the 13 that are pending before our Commission

have done, is engage in the prefiling process, which is a much less

confrontational, more collaborative format that worked pretty successfully on the hydropower side and gas pipeline side, and to use

here as well, to bring the communities in, as is being done by all

of these 13 now, to have open houses, to exchange information, to

bring Commission staff there, to bring them together with members of the community, environmental groups, elected officials, the

State resource agencies, to sit down and discuss, again, in a very

collaborative roundtable format the issues here, as well as give us

the opportunity to explain why this is important not just to the

community, but to the State and the region.

We found that there have been three highly publicized places

where local projects have been rejected in Maine, in Alabama and

in California. None of them came in and took advantage of the prefiling process at FERC. And we do think that there is a direct

nexus between community buy-in, community understanding, proper mitigation of safety concerns, of environmental concerns. A lot

of that getting worked out in advance makes it much easier for an

application to go through a process and be successful on the other

end.

Mr. TIBERI. Thank you, Mr. Chairman.

Mr. OSE. Admiral, along the line of Mr. Tierney’s line of questioning, I would refer you to section 9, paragraph (b)(1) of the

Deepwater Port Act of 1974 regarding the ability of Governors of

adjacent Coastal States to approve or disapprove of a license that

the Secretary may issue.

There is a specific prohibition in here in paragraph (b)(1) that

the Secretary shall not issue a license without the approval of the

Governor of each adjacent Coastal State. You might want to check

on that.

Admiral GILMOUR. Yes, sir.

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Mr. OSE. I also understand that in the memorandum that the

Department of Energy signed delegating authorities, that the Secretary retained the ability to disapprove the issuance of a permit

or siting decision?

Mr. GARMAN. That is correct.

Mr. OSE. So an applicant may end up getting a permit for an onshore, offshore facility and the Department of Energy—Secretary of

the Department of Energy could even then veto that?

Mr. GARMAN. It has happened one time.

Mr. OSE. 1989.

Mr. GARMAN. And it is a reserved authority that the Department,

in transferring these authorities to the FERC, has maintained for

itself.

Mr. OSE. But your authorities don’t extend to the offshore facilities in terms of the veto? They do or they don’t?

Mr. GARMAN. We still have authorities over the general question

of importing or exporting natural gas generically. So in theory,

whether the facility was onshore or offshore, DOE could exercise

authority to reject the importation of natural gas irrespective of its

method of importation.

Mr. OSE. If for no other reason, you have the storage tanks onsite that have to be sited, or onshore that have to be sited that you

could decline to issue a permit on?

Mr. GARMAN. I would like to have an attorney to check my answer.

Mr. OSE. We will direct that question to you in writing.

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Mr. OSE. Now a question in California has arisen where there

are some who believe that they have jurisdiction over these decisions. Mr. Wood, would you please step me through the FERC—I

want the cliff notes version—the FERC’s decision as it relates to

the ultimate authority on siting and permits for either interstate

or intrastate natural gas.

Mr. WOOD. Under section 3, which is the import-export authority

to which we have been delegating the import piece—we have export

duties as well—section 3 authority is really just the foreign commerce piece, so it is irrelevant whether that is interstate or intrastate, which after our decision in 2002 to forebear from reviewing

these under section 7 unless an applicant requests it, we just reviewed it under section 3 of the Natural Gas Act. That really is irrelevant as to interstate and intrastate. For that reason we have

the open question in California as to whether we have jurisdiction,

exclusive jurisdiction or the State had jurisdiction as well. We view

this as the ultimate use of the gas being in a single State or multiple States. Section 3 alone just deals with the import nature of

it. And so the review is based on a public interest standard.

Mr. OSE. Foreign commerce issue is what you are talking about?

Mr. WOOD. Exactly. Section 7 is a different provision that was

used to approve the existing operating facilities. We did it under

section 3 and section 7 in the 70’s. And we looked at the law there

and concluded that in fact that section 7 is not required to be the

reviewing standard. So to streamline it, but to make sure we are

still looking at these issues, we looked at section 3 as being sufficient. That is triggered by the import from a non-American site,

which all these would be, as opposed to an interstate commerce

problem.

Mr. OSE. You have a difficulty that is coming at you, if I understand you correctly, the duration of the permits for existing facilities, are they permanent?

Mr. WOOD. There is no time limit on these.

Mr. OSE. The facility that Distrigas has in Boston, that is a permanent permit?

Mr. WOOD. It has no limit. It is permanent.

Mr. OSE. Do the permits that you are considering now, have you

started to include a time limitation?

Mr. WOOD. We have not.

Mr. OSE. How is FERC going to go about effectively communicating to industry that this is the type of template we are looking for?

Mr. WOOD. Clearly the ones we have set up a standard. I think

you have to have a few data points about what is working in the

real world. We do have, and to answer your earlier question, the

technology of vaporization, the vaporizers and the storage tanks

are all relatively standard. And so the applicants, in fact, look for

a location that will actually be big enough to handle those and handle the exclusion zones that are associated with those technologies.

I will give some detail to you and submit it for the record. But the

types of plans that we have already approved apparently do come

from a relatively standard technology. It is not a standard where

you kind of walk into FERC and get a rubber stamp approval if

you have all these things met.

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Mr. OSE. That wouldn’t be a bad approach.

Mr. WOOD. Now I would say just on the two we have done since

I have been on the Commission, Chairman Ose, the issue is not

dominated about the actual facilities themselves and the exclusion

zones. Those have been relatively understood and accepted. And

then you have to get a relatively significant size piece of land to

be sufficiently buffered. It is the other issues that suface in the environmental review process under NEPA. It requires that issues

such as water discharges, dredging, air emissions, which this one

in Freeport was in the Houston air zone, so the State agency that

was delegated with Clean Air Act authority had to look at the impact on air of vaporizing gas. The impacts of navigation that the

Coast Guard is concerned with as well as the safety issues we are

concerned with, all these things are unique to the actual geography

of the place, and so it is hard to standardize that. If you put it

here, we still have to look at wetlands impacts, bird impacts, archeological impacts under the whole suite of environmental protection laws that we have in this country.

The bulk of what we have to do in looking at each of these is

not the actual footprint of the facility itself, but the surrounding

impacts that putting that footprint on a piece of land and ocean

has with regard to all the other things we need to consider. And

I think certainly, as I mentioned to the gentleman from Ohio, the

way to streamline that is to start in an early phase and work

through those things collaboratively with the agencies and citizens

in those areas, and that’s how you streamline a process.

Mr. OSE. On that particular point, I get many pieces of input

from lots of different sources, some of which are suggesting to me

that the prefiling collaborative effort is not very well organized at

present and could stand sufficient or significant improvement, to

share with you.

Mr. WOOD. Send them to me. We want it to be successful.

Mr. OSE. My question deals with those things that you know you

are going to have. You know you are going to have a tanker come

into a facility. You might have it onshore, in which case you have

to have a harbor that has sufficient draft to hold the vessel. You

have to have exclusion zones. You have to be able to turn that vessel. Why can’t you do—let me back up a minute. Mr. Tierney hit

on a needs assessment earlier in terms of where do we need these

facilities. Mr. Markey also mentioned it, where do we need these

facilities. It doesn’t seem like rocket science to me to go into those

regions and identify the different spots where you have existing infrastructure you could plug in. My question really becomes why

could you not do, in effect, a programmatic environmental document of that nature that takes 95 percent of this stuff off the table?

Mr. WOOD. That’s a good question. The question is, do you expend a lot of effort picking a preferred LNG part as we did in your

home State in the 80’s and then no one ever showed up at the

party. Is that an effective use of the Federal resources, or do we

look at what someone who is quite willing to make a half-billion

dollar investment at a minimum, those type of operators who, in

my experience with the 13 we have in the door, have done a significant amount of homework in advance. We don’t rubber-stamp that,

to be sure, but it does help that someone who is putting significant

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investment into these big projects is going to look at the dredging,

the harbor issues, the navigation issues, the potential wetlands

issues, wildlife issues; where does the dredge go; what kind of pipelines are we tying into; is there sufficient downstream capacity to

actually hold this big slug of gas as it goes into the grid. I mean,

those kind of things, quite frankly, are being thought through by

all the applicants that we have seen come in our door so far. And

while I think there is certainly room for improvement, I would

think that picking preferred spots might be counter productive, it

is kind of a role we got away from on gas pipeline.

Mr. OSE. I don’t think it is rocket science. It seems to me that

industry knows where those spots are and where the infrastructure

is.

So that brings me to a question to Admiral Gilmour. From a harbor standpoint, from a vessel working in the waters of the United

States, it seems to me that the manner in which that vessel works

isn’t going to vary from one place to the next. I mean, you are not

going to want boats approaching it. You are going to need a turning radius of X, you are going to need a draft clearance of Y. Why

is it not possible to set up that kind of a template under a programmatic basis or otherwise so that people can get on with frankly taking a process that in your case is 330 days, but in FERC’s

case might be endless, and telescoping it down? Is that possible?

Admiral GILMOUR. The applications that we have, we are again

trying to work with industry to develop things that—the things

they should address as early as possible regarding some of those

issues. I would say to a degree, depending on how they decide to

gasify, there may be different kinds of environmental impacts that

they would have to address in their environmental impact statement, but in general——

Mr. OSE. But the gasification facilities are going to be onshore.

Admiral GILMOUR. If you are talking to the onshore side, then

yes, sir, I would say it is quite standard what they would address

on the onshore side.

Mr. TIERNEY. There is at least one prototype that would have the

gasification process on the ship?

Admiral GILMOUR. Yes, sir.

Mr. TIERNEY. There is one prototype. It is the one I understand

that some people are contemplating off the shore of Gloucester and

Marblehead and up that way, would be to hook up with the buoy,

hydraulically pull up with that liquefied on board and put it right

in and just flow right into the pipe, right? And the thing would be

contained in the ship.

Mr. OSE. Gasify it on the ship, am I right?

Admiral GILMOUR. There is one such application. So there would

be—in that case they would require no cooling. They would not

have to use water to help cool and send it over the side. So it would

be a different kind of situation than doing it on the fixed platform.

But from the shore side, yes, sir. I think industry pretty much

knows the kinds of things they need to address with us. I would

say the only unknown or not unknown, but perhaps issues that we

need to look at and in fact are looking at are some of those that

Congressman Markey brought up.

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Mr. OSE. If I walked in your office today, could I go to some place

and get a defined set of parameters that you would expect me to

meet for an offshore facility?

Admiral GILMOUR. Seeing that we have only approved two of

them, no, sir. We couldn’t hand you something and say, if you fill

all the blanks here. From a security side, I would say to a large

degree, yes, but what we would encourage is to have people to come

in and look at the issues with us and we can talk about areas

where we have had problems before.

Mr. OSE. Gentleman from Massachusetts.

Mr. TIERNEY. Is there a ship that we know about that we have

already seen that has the gasification process on board? Does such

a thing exist or is that in construction?

Admiral GILMOUR. I really don’t know the status of that vessel.

I think it’s under construction.

Mr. TIERNEY. Mr. Garman, I ask you, are there studies within

your Department that indicate what Department of Energy at least

thinks is the necessary amount of liquid natural gas that will have

to be imported and then further studies that indicate how that

amount might be decreased by the conservation or alternative fuels

progress and what reasonable expectation we have of meeting that

progress by certain dates and how it might be impacted? Are those

types of studies around?

Mr. GARMAN. I think it’s fair to say that the Energy Information

Administration studies made an attempt to understand what we

could reasonably expect to achieve through efficiency and conservation efforts in its modeling of future gas needs.

Mr. TIERNEY. Would you think that would be in English so that

Members of Congress would understand those studies and what

they’re modeling and what their assumptions were?

Mr. GARMAN. I, too, am perplexed and overwhelmed by EIA modeling efforts.

Mr. TIERNEY. If it is, I would ask you to please submit it. If it

isn’t, I would like you to submit it with a scientist to interpret it.

Mr. GARMAN. I will try to interpret it.

Mr. TIERNEY. I would like to see what it is they thought are the

projections and see how reasonable those might be and what goals

we might have set for people to get to the place where we need to

get. I would appreciate that. Why don’t I yield?

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Mr. OSE. Mr. Garman, the estimate for the 2007 to 2010 timeframe that specified I think we needed four——

Mr. GARMAN. Energy Information estimate, that we would need

four new facilities in the Atlantic and the Gulf by the 2007–2010

timeframe.

Mr. OSE. And the estimate of supply and demand and balance in

the market is based upon—and pricing that might be affected is

based upon those new facilities being built?

Mr. GARMAN. Yes.

Mr. OSE. If those new facilities aren’t being built—that is what

Congressman Tierney and I actually have to endure is the outcry

that comes from a pricing perspective. So if the assumptions on the

EIA study are that price is going to be X because these facilities

are being built or on-line, if those facilities aren’t on-line it is a

whole different ball game, is it not?

Mr. GARMAN. That’s correct.

Mr. TIERNEY. If they don’t go on-line, what are our prospects of

making up the difference by either conservation or alternative fuels

and the feasibility of moving those? And that would be helpful if

you put those in the reports to us.

Mr. GARMAN. What will happen if those facilities are not built,

prices will climb and consumers will conserve, because they will be

responding to a price signal.

Mr. TIERNEY. Unless you develop an alternative source of energy

for them within that timeframe to take up some of that need or unless they get conservation conscious overnight. There might be

goals we could set or ways to at least help us in our policy decisions in what we ought to be pushing for, whether we should be

going for liquid natural gas or understanding that some of the

siting things might be difficult. What should we be pushing out in

the meantime in case that doesn’t happen?

Mr. GARMAN. Our approach is to plant many seeds.

Mr. TIERNEY. Let me do a little leg work for Congressman Markey here. He didn’t ask us to do this, but I thought he had some

reasonable questions to ask. Who in the Federal Government tests

the insulation on LNG carriers for fire resistance?

Admiral GILMOUR. Sir, in things like that, they would be tested

to industry standards.

Mr. TIERNEY. Who does make the determination?

Admiral GILMOUR. Independent organizations for whoever would

require it. In our case it would be the Coast Guard.

Mr. TIERNEY. That’s your job. The Coast Guard is responsible for

making sure that LNG carriers have fire resistant insulation?

Admiral GILMOUR. Yes, sir. We are required to ensure that they

have the proper type of insulation that meets certain requirements.

But I wouldn’t say necessarily in all cases it had to be fire resistant, I guess is where I am going with that.

Mr. TIERNEY. There are LNG carriers out there where the insulation isn’t fire resistant and that is OK with the Coast Guard?

Admiral GILMOUR. It would depend on how it were applied.

There are other ways to skin that cat, if you will. There are other

things you can do.

Mr. TIERNEY. And the Coast Guard makes the determination of

what is acceptable and what isn’t?

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Admiral GILMOUR. Absolutely.

Mr. TIERNEY. Do you use industry standards on that?

Admiral GILMOUR. Some of our own regulations and some independent labs test those, but I would say, you know, industry standards developed by you know API, ANSI, other third party type.

Mr. TIERNEY. And that is what the Coast Guard uses? None of

its own analysis?

Admiral GILMOUR. We have some of our own requirements and

we use industry standards in some cases.

Mr. TIERNEY. What hazard analysis has been done to examine

what would happen in the event of a fire on an LNG carrier ignited

the insulation or otherwise compromised it? Has somebody done

those analyses?

Admiral GILMOUR. We have looked at some point at just about

every kind of accident that could happen on any kind of vessel in

developing our regulations. So, yes, sir, we have looked at collisions, groundings, fires and developed criteria for all of those areas.

Mr. TIERNEY. What Mr. Markey is most concerned about is polystyrene.

Admiral GILMOUR. Yes, sir.

Mr. TIERNEY. You have done study or analysis to examine what

would happen if that particular product were ignited on an LNG

carrier?

Admiral GILMOUR. We could certainly know what the properties

of any kind of insulation material would be and how it would react

to flame.

Mr. TIERNEY. You know that because you have already had analysis done?

Admiral GILMOUR. We have either had analysis done or would

require analysis for a given application.

Mr. TIERNEY. As I understand it, Mr. Markey’s concern is that

polystyrene is being used on some ships and he is concerned that

people have not made this analysis. Can you help us out there?

Admiral GILMOUR. Sir, you are asking a very complex and difficult question that you would have to know where it was used,

how it were used and if it were encapsulated. There are a number

of complicating issues. So that the insulation itself might burn, but

if it were put into a steel container, you wouldn’t have that concern. Or if it were put into another environment, you wouldn’t have

that concern. So it is a very complicated question.

Mr. TIERNEY. Let me help you here. It’s not something I thought

of here. The Department responded to a letter that Mr. Markey

sent indicating that foam polystyrene insulation is not used on

LNG carriers precisely because it is susceptible to melting and deformation in a fire. Mr. Markey then indicated that he has since

found that statement to be inaccurate, that the LNG vessel manufacturer reports in a sales brochure that it uses that polystyrene—

there is more information that goes on. So my question would be

if it is used, as he seems to believe that it is, are there analyses

that you could provide to this committee as to what the effect

would be if it was compromised?

Admiral GILMOUR. We can look at that. I don’t know what context—and I am sure I will get the opportunity to look at his letter,

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but I don’t know what context that was in. But we can

certainly——

Mr. TIERNEY. It was in the context of this polystyrene being used

as insulation on an LNG carrier. At some point he is concerned

that it is going to be compromised and what results from that. I

don’t know what other context to put it in for you.

Admiral GILMOUR. As I stated earlier, we would have to look at

if we thought it indeed could happen. I mean there are a lot of——

Mr. TIERNEY. Will you provide that analysis to us with respect

to that polystyrene? If you have done analysis with respect to

polystyrene’s possible use or use on LNG carriers, would you provide that to the committee?

Admiral GILMOUR. We can discuss that issue.

Mr. OSE. Will you provide it or won’t you?

Admiral GILMOUR. Yes, sir.

Mr. OSE. We don’t want to discuss it, we want to see it. That’s

the difference. If you have a report, will you provide it to the committee?

Admiral GILMOUR. Sir, first of all, I don’t know the context of the

letter, so I don’t know we have an exact report that is going to address Congressman Markey’s issue, but we can provide an analysis

to you of insulation used on——

Mr. TIERNEY. Forget Mr. Markey for a second. I am going to

make a direct request. Will you provide to this committee any analysis that you have done with respect to polystyrene’s use on LNG

vessels?

Admiral GILMOUR. Yes, sir.

Mr. TIERNEY. That pretty much covers everything, whether you

think it is there or you don’t think it is there or if it’s there, what

you think is going to happen, and that should give us whatever we

need. I would appreciate that if you would do that.

Admiral GILMOUR. Yes, sir.

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Mr. TIERNEY. In the light of the post-September 11 threat, is

there any plan by the Department, Coast Guard in particular, but

the Department on the whole to review the safety standards applicable to LNG carriers, including fire safety standards, to determine

whether they need to be upgraded to better address the threat of

sabotage or terrorist attack?

Admiral GILMOUR. Yes, sir. There is a study through Sandia

Labs that we are working in conjunction with DOA that will look

at that threat.

Mr. TIERNEY. Are they still in process?

Admiral GILMOUR. Yes, sir.

Mr. TIERNEY. Will you provide those to the committee when they

are done?

Mr. GILMOUR. Absolutely.

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Mr. TIERNEY. I think my time is up.

Mr. OSE. I want to go back to the national fire standards that

were used in the original design criteria for the carriers, the vessels. Now there has been some comment and discussion here that

those were adopted I think in 1974. And have those standards been

updated periodically since then, Mr. Wood, Mr. Garman, Admiral

Gilmour?

Mr. WOOD. I am not aware of when they were adopted or when

they have been amended.

Mr. GARMAN. I do not know.

Mr. OSE. How contemporaneous are the standards—I can’t remember the exact phraseology, it is like the national fire safety—

National Fire Protection Association—those standards. How contemporaneous are they in terms of currency?

Admiral GILMOUR. Sir, I am not sure that those were applied to

the vessel side, but we can give you what does apply. And in fact,

we have updated fire fighting and fire protection capabilities since

1974.

Mr. OSE. I think that is at the heart of the question, is whether

or not we are using standards that are 30 years old or something

a little more current, and that would be a big help to us in terms

of addressing some of these concerns.

Admiral GILMOUR. We can provide that information to you, too,

sir.

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Mr. TIERNEY. Last question I have, if you have an old ship that

might have had some sort of insulation or problem, I think it has

since been decided that is not safe, is there a provision or process

by which they are asked to remove that? And if so, who then

checks and inspects to see whether or not that has occurred?

Admiral GILMOUR. Yes, sir. That would be the case, and we

would look at it and we would make that determination. You

must—you gentlemen must realize, though, the only vessels we can

apply standards to are those that come to the United States, that

trade with the United States, and that is what we will give our

analysis based on.

Mr. TIERNEY. There are about 150 of those?

Admiral GILMOUR. I am not sure there is that many. I think it

is in the 40 range that are trading currently with the United

States.

Mr. TIERNEY. And if there is a vessel that comes to a deepwater

port 12 miles out or 112 miles out, that would still be considered

within your jurisdiction and you would check on those?

Admiral GILMOUR. Absolutely. And most of those are new vessels

under construction.

Mr. TIERNEY. Only two of them under U.S. flag?

Admiral GILMOUR. Yes, sir.

[The information referred to follows:]

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Mr. OSE. I want to thank this panel for your patience and perseverance. I do want to emphasize the concept of a programmatic

template both for onshore and offshore facilities that would, I think

in the end, it might be a dime invested to save $5 worth of processing or resource allocation, and it just seems to me like it would be

a huge step. I am a little bit curious from the Department of Energy the parameters under which the Secretary would veto a siting

or permit decision made by FERC or Coast Guard-MARAD. Could

you share that with us?

Mr. GARMAN. Our only data point is that one experience in Alaska when there was a proposal, not a project, to export Alaskan natural gas to Japan. As I recall, the Department had a preference

that the export site occur at the Port of Valdez rather than closer

to Seward, which is what the project proponents had wanted.

FERC had approved the project. The Department of Energy disapproved it. And then FERC reapproved the project at the export

site at the Port of Valdez. That is the only experience that exists

on the record. I don’t believe there is set criteria, and I don’t know

the detailed history of why the Secretary at that time made those

decisions or the reasons he used.

Mr. OSE. It would be helpful to flush that out.

Mr. GARMAN. We will do a little investigation.

[The information referred to follows:]

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Mr. OSE. Final point. If you look around the Pacific Rim, that is

the source of significant supply or generation of natural gas. A lot

of that stuff is being flared off. Australia, as I understand it, just

entered into an agreement with China for a significant importation

into China. We are behind the curve here, gentlemen, and we need

that gas big time. To the extent that this committee can help you

expedite permitting or siting decisions, whether they be onshore or

offshore, I think we stand ready to do our share.

We thank you for your testimony today. We are going to take a

5-minute recess and will reconvene at 4:30 with the third panel.

[Recess.]

Mr. OSE. We are going to reconvene. I want to welcome our third

panel of witnesses today. We are joined by Jay Blossman, who is

the commissioner of the Louisiana Public Service Commission; also

by the chairman of the Maryland Public Service Commission, Mr.

Kenneth Schisler; and by the deputy secretary for energy in the

California Resources Agency from the Golden State, Mr. Joe

Desmond. Gentleman, you saw we swear our witnesses in. So if you

please rise.

[Witnesses sworn.]

Mr. OSE. Let the record show the witnesses have answered in the

affirmative. We have received your written statements and they

have been entered into the record. I have read them and reviewed

them accordingly. We are going to recognize you for 5 minutes to

summarize your testimony.

Mr. Blossman, you are first.

STATEMENTS OF JAY BLOSSMAN, COMMISSIONER, LOUISIANA

PUBLIC SERVICE COMMISSION; KENNETH D. SCHISLER,

CHAIRMAN, MARYLAND PUBLIC SERVICE COMMISSION; AND

JOSEPH DESMOND, DEPUTY SECRETARY, ENERGY, CALIFORNIA RESOURCES AGENCY

Mr. BLOSSMAN. Thank you, Mr. Chairman. It is my distinct

pleasure to be here today to address you on one important topic,

jurisdiction over siting of liquefied natural gas import facilities. In

my comments I will address State policies involved in siting LNG

import facilities.

Liquefied natural gas has long played a role in U.S. energy markets, but concerns about rising natural gas prices, current price

volatility and the possibility of domestic shortages are sharply increasing the demand for LNG imports. To meet this demand, dozens of new onshore and offshore LNG import terminals have been

proposed in coastal regions throughout the United States. There

are five onshore LNG terminals in the United States. In addition

to these active terminals, developers have been proposing numerous new LNG import terminals in the coastal United States.

Louisiana Public Service Commission is interested in the siting

of LNG regasification facilities because they have a potential of

representing a major capital investment in our State. LNG siting

in Louisiana will allow the State to leverage and even extend our

existing energy infrastructure. Our State has energy intensive

users of natural gas, and LNG terminals will expand a vital energy

resource needed to preserve these energies.

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The development of LNG is an important national energy concern in which Louisiana can make a significant contribution. According to a study done by Louisiana State University Center for

Energy Studies, the construction of an LNG regasification facility

in Louisiana has the potential impact of $2.2 billion and nearly

14,000 jobs associated with the construction of this facility. The

center also stated that there is a potential $220 million impact associated with the annual operation of an LNG facility in Louisiana

and the Gulf of Mexico, with an estimated 1,600 jobs associated

with that operation.

As it relates to economic opportunities for LNG development in

Louisiana, we are in a unique position. Louisiana is the second

largest producer of natural gas. It is the third largest consumer of

natural gas in the United States, beyond Texas and California.

Louisiana’s high natural gas consumption ranking is due to high

industrial use per customer. Louisiana’s industrial consumption

ranks second in the United States behind Texas. Proposed LNG

terminals will directly impact the safety of our communities and a

number of States and congressional districts, and they are likely to

influence energy costs nationwide.

Faced with the widely perceived national need for greater LNG

imports and the persistent public concerns about LNG hazards,

Congress is justifiably examining the adequacy of safety provisions

in Federal LNG siting regulations. The FERC grants the Federal

approval for the siting of the new onshore LNG facilities under the

Natural Gas Act of 1938. This approval process incorporated minimum safety standards for LNG established by the Department of

Transportation, which in turn incorporated siting standards set by

the National Fire Protection Agency. Although LNG has a record

of relative safety for the last 40 years and no LNG tanker or landbased facility has been attacked by terrorists, experts have questioned the adequacy of key LNG siting regulations relating to safety zones, marine hazards, and remote siting.

While the Federal Government is primarily responsible for LNG

terminal safety, State and local laws such as environmental, health

and safety codes can affect LNG facilities as well. Under the Pipeline Safety Act, a State may also regulate intrastate pipeline facilities if a State submits a certification or makes an agreement with

the Department of Transportation.

Regulation of interstate facilities remains the primary responsibility of Federal agencies. The Office of Pipeline Safety, however,

may authorize a State to act as its agent to inspect interstate pipelines associated with LNG facilities while retaining its enforcement

responsibility. State regulation of LNG safety siting ranges from

comprehensive to piecemeal.

Apart from State regulation aimed specifically at LNG facilities,

generally applicable State and local laws such as zoning laws and

permit requirements for water, electricity, construction and waste

disposal also may serve to impact the planning and development of

LNG facilities. With respect to LNG in particular, local laws have

been overridden by State legislation in the past. It should also be

noted that federally authorized LNG projects cannot be frustrated

by contrary provisions found in State or local law.

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I look forward to answering your questions, Mr. Chairman. I

think it is a very important part of the energy policy with LNG,

and I am here to support the Lake Charles facility. Thank you.

[The prepared statement of Mr. Blossman follows:]

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Mr. OSE. I thank you. I appreciate your testimony and the adherence to the time requirement.

We are pleased to welcome the chairman of the Maryland Public

Service Commission, Mr. Kenneth Schisler.

Mr. SCHISLER. Thank you, Mr. Chairman. I am pleased to be

here to testify. I will not read my statement. As you indicated, you

have it in the record.

But to summarize, my testimony primarily supports any change

to Federal law necessary to clarify that FERC and its sister Federal agencies have exclusive jurisdiction over the siting of new liquefied natural gas import terminal facilities. There certainly is a

role for States. But in terms of siting, given the importance of the

energy supply as an important global economic issue as well to the

United States, as noted by Fed Chairman Greenspan on several notable occasions, I believe that the siting issues are best left to the

Federal Government, where regulatory issues can be addressed, as

you mentioned, Mr. Chairman, the interest in having one template

for siting LNG. Imagine, if you will, if you had 50 plus different

templates for businesses seeking to site an import facility to have

to navigate through. These investments are hundreds of millions of

dollars of capital necessary to be raised in order to support one of

these facilities, and regulatory certainty certainly should take front

seat. And State issues, while certainly are addressed, I believe the

Federal jurisdiction is important to ensure that regulatory certainty.

State commissions regulate local distribution companies. We

have a lot of important work to do to ensure that intrastate business activity is taken care of. Maryland law as it relates to siting

facilities actually is nonexistent. There is no statute in Maryland

law relating to LNG siting. We do have a statute that in my interpretation is subordinate to Federal law to ensure the operational

safety of LNG facilities. But, until quite recently, there was no

question as to the exclusive nature of the Federal jurisdiction.

Recently—and FERC issued its order in the SES Long Beach

case determining, following principles of foreign commerce, asserting exclusive jurisdiction. That jurisdiction has been challenged by

the California Public Utilities Commission. The analysis would be

the same whether the jurisdiction was derived under interstate

commerce or foreign commerce, but I certainly agree with the

FERC in its order asserting jurisdiction.

Maryland’s experience with LNG started with the Cove Point facility, which is fairly close to the Nation’s Capital, about 50 miles

away. In 1978 to 1980, Cove Point received import shipments from

Algeria. Market conditions and pricing in Algeria caused that plant

to be mothballed in 1980. It was mothballed until 1994, when liquefaction facilities were added to that facility and it was used for

gas storage for peak periods until 2003, when Cove Point reactivated and began importing LNG. And to date nearly 60 deliveries

have been made into that facility.

In October 2001, just after the September 11 terrorist attacks on

our country, FERC approved the Cove Point facility. Obviously the

application had been underway for some time at that point. Immediately following that approval at the request of Maryland’s junior

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consider its approval and did reconsider its approval and reaffirmed its approval and reactivation of Cove Point. Following

Maryland’s statute to ensure the operational safety of the facility,

the Maryland commission in 2002 also approved the reactivation

and shipments began in 2003.

In terms of cooperation with local authorities, I have a letter

which I am happy to enter into the record from the office of Maryland State Fire Marshal noting the cooperation not only by the

Federal authorities but the owners of Dominion have had with

Cove Point. Cove Point is located very close to the Calvert Cliffs

nuclear power plant and those two facilities work in cooperation to

ensure the safety of the nearby community. Again, as noted by the

fact that Maryland endorsed the reactivation after the Federal

agencies completed their work, I have a great deal of confidence in

the Federal agency’s review. The role of the States is one more of

collaboration. And, through Federal-State partnerships and regulation, the Office of Pipeline Safety comes to mind, the air quality

issues, the certificate of public convenience and necessity as it relates to the onsite generation or cogeneration at Cove Point, we

have relationships and they work well. But, in terms of the exclusive siting, it is my belief that the regulatory certainty is paramount and therefore siting should remain vested in FERC exclusively.

[The prepared statement of Mr. Schisler follows:]

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Mr. OSE. I thank the gentleman. We will enter the letter into the

record as requested.

Our third witness on this panel is Mr. Joseph Desmond, a Deputy Secretary for Energy at the California Resources Agency. Sir,

welcome to our witness table and you are recognized for 5 minutes.

Mr. DESMOND. Good afternoon. The Governor’s Deputy Cabinet

Secretary sends his warmest regards.

You have before you today an important issue of direct concern

to both the Nation and the State of California. It is an honor to

appear before you to let you know what we are doing in California

as it relates to our need for sources of natural gas and consideration of liquefied natural gas import terminals. While California

has a very successful track record in aggressively promoting energy

efficiency and renewable energy, let me be clear: Our State has determined that we need to pursue additional sources of natural gas

supplies such as LNG. The State’s Energy Commission recently

completed a comprehensive review and assessment of our energy

situation and in its recent report identified the need to embrace additional sources of natural gas supply such as LNG.

California recognizes that the current record high natural gas

prices represent a significant cost to businesses and residential customers and it is imperative we seek out ways to ensure reliable

and competitively priced gas supplies for the future. To that end

the Secretary of Resources has directed State agencies to work together to develop the information necessary to provide the public

and decisionmakers information on various LNG issues and to provide an effective coordinated review of LNG import terminal applications.

Please be aware our interest in seeing LNG facilities developed

on the West Coast is balanced by our expectation that any development is done in a manner that protects the health and safety of

our citizens and the quality of our environment.

Currently, the State of California’s role in approving LNG terminals differs depending on whether the proposed project is located

onshore or offshore. For offshore LNG facilities, the lead State

agency to the State Lands Commission which works with other

State and Federal agencies. The Deepwater Ports Act provides that

the Governor of California has final review to approve or reject any

offshore LNG proposal.

For onshore projects, there are many State and local agencies

that are involved in the local permit process but ambiguities in the

law have given rise to recent jurisdictional disputes over onshore

permits.

As I mentioned earlier, we have already taken steps to organize

our agencies to effectively respond to new applications for LNG import terminals. First we started working with FERC over a year

and-a-half ago when we heard that California might receive LNG

applications. We responded with a 2-day training session on LNG

for all public agency staff members to provide them technical background.

Third, over a year ago, we established the LNG Interagency Permit Working Group of governmental agencies potentially involved

in the review of new LNG import terminals. That working group

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meets regularly to define roles and responsibilities, resolve issues

and establish a technically consistent information base.

Fourth, we have been identifying issues and taking action to resolve them on a timely basis at all levels of government. And last

we sponsored a comprehensive workshop on natural gas supply and

demand and infrastructure issues with FERC participating in the

event.

Based on our experience, I believe we can offer you several suggestions for action, particularly as they relate to Federal-State

roles. We have declared our intent to work collaboratively with our

Federal colleagues when reviewing LNG import terminal applications and have a long history of successfully working with them on

other energy projects.

Currently State agencies are conducting joint environmental reviews of the Long Beach LNG import terminal application with

FERC and the Cabrillo Port LNG import terminal application with

the U.S. Coast Guard. The Coast Guard has distinguished itself by

coming to California several times to establish a close working relationship at all levels of government by making their staff available

to work closely on an informal and formal basis. We have technical

staff and agencies capable of independently reviewing complex

projects and willing and able to conduct our work on a collaborative

basis with our Federal and State colleagues.

Not only do we work collaboratively, but we also try to make our

work transparent to the public. We have established several Web

sites to educate the public of both the permit application review

process and LNG in general. These themes of continued collaboration and working relationships and transparency are good guides

for the future.

So how does this apply to the issue at hand? First, we ask that

you look at Congress’ most recent action in this area when it

amended the Deepwater Port Act to permit it to be used for licensing. It is a good model that serves to reflect the current thinking

and actual practice on this issue. And second, we suggest that we

all look at ways to increase the transparency of our work so the

public can become better informed and more fully participate in the

process.

Our many decades of conducting reviews, holding local workshops and hearings, and posting as much information as available

on Web sites and mailing lists has taught us we often don’t fully

understand all the issues until we frequently meet with the local

communities. Local events are particularly useful in flushing these

issues out, particularly for those communities who have already expressed reservations about LNG safety.

Last, Federal agency rules that shield critical energy information

from the public should be reexamined to ensure they are necessary

as written or could be slightly relaxed and still meet legitimate security objectives, and I would be happy to expand on these further.

[The prepared statement of Mr. Desmond follows:]

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Mr. OSE. I thank the gentleman.

Mr. Blossman, you have in Louisiana an operating onshore facility. You have approved an offshore facility. My question is what

has been your experience in terms of working with the Federal permitting agencies in getting to a conclusion? Has it been positive,

negative or ambivalent?

Mr. BLOSSMAN. It has been very, very easy. The Public Service

Commission along with the Governor sent a letter to the FERC requesting the project, requesting approval, and it was done. I mean,

I guess it is easier to grant an expansion of our existing and a new

one when you have one there. So it was quite easy.

Mr. OSE. What about Port Pelican? Port Pelican is not an existing facility, is it?

Mr. BLOSSMAN. Not an existing facility, no, sir.

Mr. OSE. In terms of an expansion, FERC did all the analytical

stuff that they needed to do. The Governor weighed in with a letter

requesting approval and FERC agreed and they approved the expansion. But in terms of the offshore facility, is it your testimony

that the work with the Coast Guard and MARAD proceeded very

well, that they took into account local concerns, environmental

issues and the like?

Mr. BLOSSMAN. It is my belief that—we did not hear that there

was any problems with that.

Mr. OSE. How does the siting issues for other utilities in Louisiana differ from the siting consideration for an LNG facility, if at

all?

Mr. BLOSSMAN. As I stated, we use so much natural gas in Louisiana with our industries along the Mississippi River that the

siting for the LNG was, like I said, somewhat—it was easy. And

other sitings that we had for other things that the Public Service

Commission regulates, we haven’t had a whole bunch of problems

with that either other than what you all aren’t talking about, merchant plants with local community involvements about water. But

the opposition was virtually nonexistent.

Mr. OSE. Certainly over a long period of time in Louisiana communities have come to understand how to deal with these risks and

hazards that might come with them and they are just prepared for

them?

Mr. BLOSSMAN. Apparently so. I know there was some concern

and there is some concern about the LNG ships coming in the

Calcasieu River with the pilotage and the channel having to be

shut down when they bring a ship of that size into the port. But

other than that there is no major difficulty.

Mr. OSE. But that activity has transpired for any number of

years successfully?

Mr. BLOSSMAN. Yes, sir.

Mr. OSE. And you have never had any collisions?

Mr. BLOSSMAN. None whatsoever.

Mr. OSE. Now, Mr. Schisler, out at Cove Point you are 3 miles

from a nuclear power plant, as I understand it. In terms of taking

the plant out of mothball status, what was your experience in

working with Federal agencies to make that happen?

Mr. SCHISLER. Well, Mr. Chairman, I became chairman of the

Maryland Commission July 1 of last year, which was after the reVerDate 11-MAY-2000 11:29 Jan 03, 2005 Jkt 000000 PO 00000 Frm 00137 Fmt 6633 Sfmt 6633 D:\DOCS\97130.TXT HGOVREF1 PsN: HGOVREF1
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activation had been finally approved. However, I was a member of

the legislature and observer of the Commission’s activities, and actually member of the legislature on the Eastern Shore just across

the Chesapeake from the Cove Point terminal, and my observation

was that the reactivation was a smooth process. There was a fair

amount of cooperation already between State and Federal agencies,

and I think the evidence of that process is that the State was satisfied with it. The cooperation it received from the Federal agencies

was the Maryland Commission’s own endorsement of the review

process that Federal agencies undertook.

There was a fair amount of community information disseminated, particularly about the Coast Guard issues, with bringing the

LNG ships up the Chesapeake Bay, and that information was disseminated, community input welcomed and other issues resolved.

Mr. OSE. What’s the closest community to Cove Point?

Mr. SCHISLER. There is a community just south of the facility. I

believe it is Solomon’s Island and it is immediately adjacent to the

terminal property. However, the property is probably 1,000 acres or

so, and the footprint of the plant is located in the center of that,

and there is a substantial green buffer between the plant and the

nearby communities.

Mr. OSE. So your exclusion zone is the perimeter of the property

around the plant?

Mr. SCHISLER. That’s correct.

Mr. OSE. In terms of the impact on the price of natural gas in

Maryland, have you been able to quantify the dampening effect of

access to this natural gas?

Mr. SCHISLER. That would be very difficult to quantify the impact. But certainly having more diverse supplies in the mid-Atlantic region is a positive. Cove Point is proposing another expansion

to come on-line in 2008, and what that expansion would do likely

is make economic—some pipeline expansion in Pennsylvania and in

Virginia, and that would further add to the infrastructure available

in the mid-Atlantic both to increase the diversity of supply, increase competition. And obviously the benefits of competition could

realize lower prices for consumers. I wouldn’t want to speculate on

the price impacts of reopening that LNG terminal, but I would suggest that it would have to be positive for consumers.

Mr. OSE. Do you regulate the retail price of natural gas in Maryland? In other words, you set the pricing?

Mr. SCHISLER. Yes and no. We have a restructured gas market.

We have opportunities for consumers to go off of default service,

but we also have default service that is price regulated.

Mr. OSE. What is the price on default service?

Mr. SCHISLER. The only figure I want to venture here today is

the approximate wholesale price that we are hearing today. About

$6.

Mr. OSE. I am trying to quantify the impact of an LNG facility

and the natural gas that it brings to an area, just so that we have

some scientific or empirical data to do that. In terms of Cove Point,

you talked about the pipeline changes in Virginia and Pennsylvania. What about locally around Cove Point? What kind of

changes had to be accounted for?

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Mr. SCHISLER. The gas that is gasified from the LNG facility at

Cove Point immediately enters the interstate pipeline system on

the property at Cove Point and travels approximately 90 miles to

the main distribution of the interstate pipeline system. There are

several city gates along the way.

One of the things I was asked to prepare for today is what

changes needed to be taking place as a result of a reactivation.

Washington Gas Light has a gate that serves the Chalk Point

power plant, and the utility was on notice that the pressures would

be higher if LNG reactivated but there was some 20-year hiatus at

the facility. The utility needed to update some of its infrastructure.

But again the high pressures called for by LNG coming from Cove

Point were known.

So again that was a risk, I guess, that the utility took. There

were some gas quality issues that needed to be addressed, but

those were addressed to the satisfaction of the utility to ensure

first of all that water wasn’t entering the system through—from

the LNG that was being added—gasified and being added to the

system.

And finally because of we are now looking at LNG coming from

many nations around the world, there is concern about the BTU

content and the gas quality. And onsite at Cove Point, there is a

nitrogen facility such that if the BTU content of that gas is too

high for distribution in the system, nitrogen is added to reduce that

BTU content and to interstate quality range. And so there really

are no changes other than the anticipated changes necessary to

WTL gates off the interstate pipeline.

Mr. OSE. Did you have to take special security measures at Cove

Point?

Mr. SCHISLER. I asked company representatives that very question in terms of what—two-fold. One, what as a result of September 11 did they have to do different? And they reactivated after

September 11, so it was a general increased awareness. The secluded nature of the facilities on the Cove Point property lent itself

to ensuring—they never wanted anyone around that facility and

those facilities were fairly protected. The patrols, the level of security does increase as the threat level changes. I am not sure I could

recount all of those changes, but the security of the facility as an

inactive site was one thing.

Now there is gas on the site, there is heightened security. The

gas docks where the gas is offloaded in liquid form just into the

Chesapeake Bay used to be prime fishing. Now of course that is off

limit. There is an exclusion zone. Whether there is a ship at the

dock or not, fishermen, commercial fisherman are not permitted

within a 500-yard radius of the gas docks.

Mr. OSE. How do these security measures differ from other hazardous materials within the State and the transport thereof; for instance, chlorine, ammonia or gasoline?

Mr. SCHISLER. Mr. Chairman, I’m not sure that I’m competent to

answer those questions. Those would be questions more appropriately addressed by our environmental officials that regulate

those materials, and I wouldn’t want to venture a guess and be inaccurate.

Mr. OSE. And you have a storage facility also in Maryland?

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Mr. SCHISLER. Yes.

Mr. OSE. So you have the regasification facility, and you have a

storage facility?

Mr. SCHISLER. And at some point, Cove Point was also used a

storage facility.

Mr. OSE. Do the security measures at the storage facility differ

from those at the regasification facility?

Mr. SCHISLER. I don’t know the answer to that question.

Mr. OSE. Here is what is going on. I’ve got four votes over on the

floor. It’s likely to take 45 to 50 minutes.

Mr. Desmond, I need to move on to the floor. Are you able—are

the three of you able to wait for our return?

Mr. BLOSSMAN. Mr. Chairman, I have a flight at 7 a.m. out of

Reagan National, and I did not plan to stay.

Mr. OSE. 7 a.m.?

Mr. BLOSSMAN. 7 p.m.; I could stay if it was 7 a.m.

Mr. OSE. Well, I’ve gone through the questions I had for you. If

it would be possible, I’d like Mr. Schisler and Mr. Desmond to stick

around for our return.

Mr. Blossman, I understand your schedule requirements, and I’m

OK with dismissing you as a witness here. If we have additional

questions, we will submit them to you in writing, and we would appreciate a timely response accordingly.

Mr. BLOSSMAN. Absolutely, Mr. Chairman. Thank you very

much.

Mr. OSE. We will take at least a 45-minute recess here. So we

will be at back at 5:45 or shortly thereafter.

[Recess.]

Mr. OSE. The hearing will reconvene.

Mr. Desmond, you heard a long conversation earlier about trying

to identify programmatically a template for siting a facility, both

onshore and off. Has the California Energy Commission, which I

understand hierarchically reports through the Resource Agency——

Mr. DESMOND. That’s correct.

Mr. OSE. Has the California Energy Commission taken any affirmative steps to identifying locations with you where LNG import

facilities could be constructed?

Mr. DESMOND. No. It has left it to the marketplace to determine

which sites they would propose for review and permitting.

Mr. OSE. Similar to the questions that I posed to the previous

panel, has the Energy Commission taken any affirmative steps to

define the parameters under which they would otherwise approve

an LNG facility?

Mr. DESMOND. Yes, it has. The best evidence I can cite to that

end is the formation of the Interagency LNG Permitting Work

Group which pulls together all the relevant State agencies to identify their appropriate roles. This is where we have that sort of bifurcation of responsibilities depending on whether it is onshore or

offshore.

In the case of offshore, we have the State Lands Commission.

Also, now, we have enhanced that authority. And in the case of onshore, it tends to be the local siting which takes the lead, but we

still have all of the agencies from Fish and Game to Wildlife to

Local Air Quality Board, all of which have to do this.

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Now, in the case of the Long Beach onshore, I will tell you

they’re having to organize this information and put it together

jointly between the Port of Long Beach and FERC, is a flowchart

that identifies the appropriate roles in a template form identifying

which agency has to have which permit and what are the appropriate points of time in which the public can comment on each of

those steps.

The State has continued to go further. It is in the process of

crafting an action plan for the Governor to look at the issues

around the data requirements, the criteria that he would need to

apply in order to make the decisions that come about from the

Deep Water Port Act that requires him to either approach, disallow, approve with amendments or suggestions back or take no action. So California is actively involved in documenting this and

communicating it in a number of different forms.

Mr. OSE. Have you been able to work pretty cooperatively with

FERC in one case and Coast Guard and NARAD in the other?

Mr. DESMOND. FERC has been very cooperative, but there are

two areas which we think make some sense to revisit. The first is,

around the use of restricted information that we need to share with

the public—and it is the opinion of the folks working so far with

FERC that they have taken a broad view of that and some relaxation of the standards around the location of the facilities and the

discussion of the sensitivity on safety issues, particularly with respect to terrorism, would benefit the public evaluation of a proposed project. So that is one area.

The second area is that FERC has developed ex parte rules that

currently prohibit legitimate conversations between Government

organizations where both are pursuing the same public objective.

So in that case, we believe that the increased communication between the two respective agencies, the State and FERC, would increase the efficiency of the Government in accelerating the approval process for LNG import terminals.

Mr. OSE. Long story short, how many LNG terminals do you

think we need to build in California to maintain an appropriate

supply?

Mr. DESMOND. Long story short, I believe the market will support two facilities. And I say that because 1 billion—let me give

you some figures to put that into perspective. The average daily

consumption of natural gas is about 6 billion cubic feet per day.

Mr. OSE. In California?

Mr. DESMOND. In California, that is average. We have a peak demand of 10,000, but 6 billion cubic feet per day is average. A 1-

billion LNG import terminal then would supply about 17 percent

of the average daily need. And so you can see two 1-billion terminals could supply as much as 34 percent of the average daily or

something less.

I think the market fundamentals make it difficult to justify that

you would see more than two facilities over the next 10 years. But

that’s not to say that, over the long run, we would see a third or

a fourth added. And a lot of this will be due to where that gas is

sold. In the case of the Baja or, I should say, the Sempra proposal

down in Mexico, 50 percent of the output of that LNG terminal is

dedicated to the supply of Mexico. And it is then, because it is open

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season, we are competing for that gas with States such as Arizona

and Nevada with whom we share those pipelines.

It is possible it could support more, but as far as California’s

needs in the short term, we’re looking at price differentials to probably handle about two.

Mr. OSE. Has your analysis gone so far as to make some determination as to what the price of—what the target price for natural

gas in California should be?

Mr. DESMOND. The original IEPR report that we put out in 2003

is already much out of date in terms of our expectations of where

the price was. The State is in the process of updating that information. I have seen analyses from industry experts to indicate the

cost of delivered LNG into California being supported even if the

long-term price of natural gas was between $4 and $5.

At its current level, certainly it supports bringing the LNG terminals in. But we still go back to the basic question that California

needs new sources of natural gas supply, and there are four ways

that we can do that. Either there is going to be a new interstate

pipeline bringing gas in from Alaska or the Rocky Mountain areas,

increased instate production, instate gas storage or LNG terminals.

Mr. OSE. Or some combination thereof?

Mr. DESMOND. Or some combination of those, that’s correct.

Mr. OSE. If we don’t site them in California, I presume we rely

on our Mexican friends or our Oregonian friends?

Mr. DESMOND. If we don’t site them in California on the import

terminals, there is still the opportunity to bring natural gas in

from the Rocky Mountain areas, such as Wyoming or Alaska, but

that is a very long-term outlook, and I am not sure it would be delivered in time.

Likewise, we could look at siting additional terminals in the Gulf

of Mexico, in through Texas-Louisiana, and bringing that gas into

the existing pipeline, but already, California is competing for that

capacity and for that gas that is already there. So we still have the

issue of the physical infrastructure being very limited because California is at the end of that pipeline. So there are certain benefits

that come about from having access, essentially, to new sources,

not just the entire Pan-Pacific region that has that gas.

Mr. OSE. As I understand it, the cost to transport from the Gulf via pipeline is about $2 per million cubic feet. Is that accurate?

Mr. DESMOND. I don’t have those figures handy.

Mr. OSE. OK.

All right. I don’t have any further questions at this point. We

may well have some things that occur to some of the Members up

here post-hearing, to which we will certainly send them to you in

writing and hope for a timely response—and ask for a timely response.

I do appreciate you both taking time to come down and testify

and share with us what you have. If you have suggestions, we

would take them prospectively, too, in writing. Thank you both.

You are both excused.

Mr. DESMOND. Thank you, Chairman.

Mr. OSE. I want to call our final panel up to the witness table.

We have in our fourth panel, Mr. Donald Santa, Jr., who is president of the Interstate Natural Gas Association of America. We have

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Mr. Philip Warburg, who is president of the Conservation Law

Foundation. And our third witness is Dr. Jerry Havens, who is the

distinguished professor of chemical engineering at the University of

Arkansas.

Gentlemen, as you saw in the previous panels, we swear all of

our witnesses in. If you would please rise and raise your right

hands.

[Witnesses sworn.]

Mr. OSE. Let the record show that the witnesses answered in the

affirmative.

As we shared with the previous panels, we have received your

written testimony. And it has been read, and it will be part of the

record, and we invite each of you to summarize your testimony in

the 5-minute period.

Mr. Santa, you are first. You are recognized for 5 minutes.

Thank you for joining us.

STATEMENTS OF DONALD F. SANTA, JR., PRESIDENT, INTERSTATE NATURAL GAS ASSOCIATION OF AMERICA; PHILIP

WARBURG, PRESIDENT, CONSERVATION LAW FOUNDATION;

AND JERRY A. HAVENS, DISTINGUISHED PROFESSOR OF

CHEMICAL ENGINEERING, UNIVERSITY OF ARKANSAS

Mr. SANTA. Thank you, Mr. Chairman, and thank you for the opportunity to testify today.

I am Donald Santa, and I’m the president of the Interstate Natural Gas Association of America which represents the interstate and

interprovincial natural gas pipelines in North America. Our member companies deliver 90 percent of the natural gas consumed in

the United States. Our members also include the owners and operators of the four existing operational LNG terminals in the continental United States.

I’m also here today on behalf of the Center for LNG, a consortium that includes approximately 60 trade associations, LNG terminal operators, project sponsors, suppliers, transporters and others involved in the LNG business.

To begin with, let me place LNG in perspective. While the focus

of today’s hearing is LNG, we must develop gas supply from multiple sources to meet the existing and still-growing domestic demand for natural gas. LNG is not the silver bullet. It is one of several sources, all of which we need.

An important corollary to this supply message is the importance

of public policies that promote the construction of pipeline and storage infrastructure to help to meet demand.

Let me now comment on the existing regulatory framework for

LNG terminal permitting. Both FERC and the U.S. Coast Guard

are doing exemplary jobs with their responsibilities here in responding to the demands of the marketplace. I would especially

commend FERC on the recently issued Freeport LNG order authorizing the second of the new domestic terminals.

Now, let me address industry concerns. The first concern I would

highlight is safety and security and some of the misperceptions and

fears associated with that. It is very important that the industry,

the Congress, regulators and the administration show leadership

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on these issues in terms of developing an authoritative record with

respect to safety and security.

As has been mentioned, there are a number of Government and

other reports that either have been recently released or soon will

be released. For example, the Sandia report, commissioned by

DOE, will be out shortly. The DNV report, which is a private riskassessment group report, is coming out shortly. these reports will

help to establish the record for having a grounding for discussion

of security and safety.

Are there safety risks associated with LNG? Yes, there are. However, there are safety risks associated with a host of other undertakings that we undertake as individuals and commercially.

Against that, we must put this in perspective. Look at the exemplary safety record of over 30 years of the international LNG business, and also consider the focus that has been given to these

issues here in the United States by FERC, the Coast Guard, Department of Transportation, and other agencies.

Another concern for the industry is approval and siting issues,

with the first of these issues being jurisdictional conflicts. As has

been referenced today, there is an ongoing dispute between the

Federal Energy Regulatory Commission and the California Public

Utilities Commission over jurisdiction over LNG terminal siting onshore. We believe that FERC has a right, both as a matter of law

and as a matter of public policy. We believe that there is nothing

different about the facts of this case that would distinguish it from

other cases in which the courts have considered FERC’s Section 3

authority. And we also believe, as a matter of policy, it is important

that FERC have the exclusive jurisdiction over siting LNG terminals onshore.

While FERC has the exclusive jurisdiction for the threshold decision on authorizing construction of a project, it is very important

to point out that there are a host of other State and Federal authorities that apply to permitting these facilities. As a matter of

fact, with respect to the Freeport project that’s been referenced, I

looked at application for that project, and there were eight separate

Federal agencies, and 11 State and local agencies, that were part

of the process, and over 33 separate authorizations that were required.

The FERC process under the National Environmental Policy Act

provides a very inclusive process in which all of those agencies are

included as participating agencies. The FERC takes steps to be

very inclusive and cooperative with State and local agencies. And

in fact, our experience on the natural gas pipeline side has been

that, with respect to some of those authorities, particularly delegated authorities, such as the Coastal Zone Management Act, the

States end up having considerable leverage on that process.

Let me also talk about the economic consequences associated

with these decisions and the costs of delay and the costs of doing

nothing. A group affiliated with INGAA, the INGAA Foundation,

recently commissioned a report to look at natural gas infrastructure requirements in light of the current supply and-demand situation. That report, which will be released in mid-July, will include

a finding that, if you assume a 2-year delay for needed natural gas

infrastructure—being pipelines, storage facilities, LNG import terVerDate 11-MAY-2000 11:29 Jan 03, 2005 Jkt 000000 PO 00000 Frm 00144 Fmt 6633 Sfmt 6633 D:\DOCS\97130.TXT HGOVREF1 PsN: HGOVREF1
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minals—that the costs to the economy from that delay will be $200

billion between now and the year 2020. The cost alone in the State

of California over that period will be $30 billion.

Mr. Chairman, I would emphasize that the costs would be even

greater if nothing is done, if these facilities are not constructed.

Now let me briefly address legislation. There are provisions in

the pending comprehensive energy bill——

Mr. OSE. Mr. Santa, I just have to tell you, I have had a history

of enforcing the 5-minute rule, and you are a minute over already.

You have 30 seconds.

Mr. SANTA. Mr. Chairman, these facilities are very capital intensive. Delays can be fatal to these facilities and can be very costly

to consumers and the sponsors. It is very important that there be

a clear path, a consolidated path, for siting these facilities.

We thank you for the opportunity to testify on behalf of INGAA

and the Center for LNG and thank you for your interest in this

topic.

[The prepared statement of Mr. Santa follows:]

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Mr. OSE. Thank you, Mr. Santa.

Our next witness joins us from the Conservation Law Foundation

where he serves as president. That would be Philip Warburg.

Sir, welcome to our witness table. You are recognized for 5 minutes.

Mr. WARBURG. Thank you for the opportunity to appear before

the committee today. The Conservation Law Foundation is the oldest and largest regionally focused environmental advocacy group in

the Nation with offices throughout New England. We work extensively on energy, marine and coastal issues, and we approach those

issues with a regional New England perspective. We believe, however, that New England’s concerns regarding the siting of new

LNG terminals are widely shared by other parts of the Nation.

Recent proposals for new LNG terminals in New England have

been extremely controversial. In Maine, Massachusetts and Rhode

Island, several siting proposals are advancing rapidly on a community-by-community basis. They are not part of a coherent strategy

for evaluating the overall need for terminal capacity in New England, nor are they based on rigorously defined criteria for identifying potential sites.

From our organization’s perspective, this ad hoc approach fails to

provide an adequate basis for decisionmaking about individual proposals. It has also pitted New England communities against one

another in wrestling with the merits and risks of specific proposals.

During the 1990’s, the Conservation Law Foundation was the

leading advocate for replacing oil- and coal-fired power plants in

New England with less polluting natural gas facilities. Those efforts led to the building of over 9,000 megawatts of capacity at natural-gas-fired power plants, a very significant component of New

England’s overall power supply.

The environmental benefits of natural gas should not, however,

cause us to ignore or belittle the negative environmental impacts

that may be associated with LNG import facilities. We must soberly consider the public safety risks and other environmental hazards posed by these facilities. But before individual siting decisions

can be made, we all would benefit from a much clearer picture of

the actual need for added terminal capacity.

We therefore propose a two-pronged approach to the siting of

new LNG terminals in New England and other parts of the country. First, a regional needs assessment should be conducted, led by

key Federal agencies with the full involvement of State governments. This assessment can buildupon the wealth of existing analyses in determining a realistic level of need in order to avoid overbuilding or underbuilding of terminals.

It is essential that this assessment be based on a balanced approach that looks to increased efficiency and demand-side management of gas and electricity in addition to supply side answers, like

augmenting terminal capacity. The efficiency measures we favor do

not require anyone to sit shivering in the cold or sweltering in the

heat. We are talking about high-efficiency appliances, better building codes and smart building management that will reduce consumers’ bills without damaging the economy or lowering anyone’s

quality of life.

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Increased deployment of renewable energy resources like wind

and solar power can have the same salutary effect on fuel demand.

Every megawatt of renewable energy displaces a megawatt of production from conventional fossil fuel and nuclear power plants.

The many agencies working on LNG terminal siting literally

need to work off the same page in assessing LNG demand and the

corresponding need for additional capacity.

The second prong in our proposal is a regional siting approach

that will involve Federal, State, and local leadership in determining the actual site or sites for new terminals.

Community stakeholders should be included in an informed

participatory process that can translate the assessed regional need

for expanded LNG supplies into a coordinated effort to build appropriate LNG infrastructure. New facilities should not be approved

unless there is a clearly demonstrated need for the facility and a

very high degree of confidence that the facility is sited in the right

location—a location that takes both public safety and environmental protection concerns into account.

There is a real risk that LNG terminals will be sited in communities that either want them the most or are able to oppose them

least effectively. What we need is a proactive approach that gives

us tools to identify the best site or sites for these facilities from an

environmental and public safety standpoint. We also need an approach that would avoid unnecessary duplication of costly and environmentally damaging infrastructure.

I’d like to close by emphasizing that we do not believe that Congress should impose a moratorium on the current review of proposed LNG terminals. We strongly believe, however, that a regional evaluation should be undertaken before any new LNG import facilities are approved. Time for initiating a regional approach

is of the essence.

In light of certain remarks made earlier today, I want to be clear

on one final point: This regional approach that we are proposing

should harmonize with, rather than override, relevant State laws

regarding environmental protection and public safety. A coherent

and coordinated strategy should guarantee a meaningful role for

State government, particularly on siting decisions. Thank you.

[The prepared statement of Mr. Warburg follows:]

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Mr. OSE. Thank you, Mr. Warburg.

Our final witness on the panel is the distinguished professor of

chemical engineering at the University of Arkansas, Dr. Jerry Havens.

Sir, welcome to our panel. We have received your testimony; it

is in the record. You are recognized for 5 minutes to summarize.

Mr. HAVENS. Thank you, Mr. Chairman.

I also appreciate this opportunity. And I am speaking here today

as an individual and not an agent of my university.

I have, for some 30 years now, been studying methods for assessing the potential consequences of major accidental releases of LNG,

and my remarks here today are confined to the estimation of the

extent of danger to the public around such spills. I believe that the

potential danger to the public from LNG spills is mainly from the

very large fires that could occur. I want to emphasize that I am

talking about fires resulting from the spillage of several millions of

gallons of LNG. A single tank on a typical LNG carrier contains

6 or more million gallons of liquified natural gas. The fire from

such a spill, if it occurs on to water and was therefore uncontained,

would be very large, perhaps up to a half mile in diameter or larger

if more of the containment system failed.

We have no experience with fires this large, but we do know that

they could not be extinguished. They would just have to burn themselves out, and the radiant heat extending outward from the fire’s

edge could cause serious burns to people at large distances.

There are two ways that very large fires can follow a major LNG

spill. If LNG is spilled, it will rapidly evaporate, and the vapors

will mix with air to form a mixture in the concentration range of

approximately 5 percent to 15 percent LNG vapor. Such mixtures

of LNG vapor and air will inevitably form when LNG is spilled.

And if an ignition source, such as an open flame or a spark, is

present, as would be highly likely to accompany the violent circumstances that would cause such a release, a large pool fire would

result.

However, if no ignition sources are present in the flammable gas

mixture, a vapor cloud will result, and the cloud will spread downwind from the spill until it either contacts an ignition source or disperses harmlessly. The maximum distances of the danger zones extending from a pool fire or a flammable vapor cloud determine the

zones which would endanger the public.

It is the estimation of these distances, which are identified in 49

CFR 193 as pool fire radiation and vapor cloud dispersion exclusion

zones, that I want to inform you about, because such exclusion

zones are required in order to ensure that people are not exposed

to danger if such a fire should occur, and such requirements will

therefore determine the effectiveness of the LNG siting regulations

to provide for public safety.

I first began studying these questions in the 1970’s when, as this

committee knows, the first wave of interest in LNG importation arrived in the United States. I am privileged to have had an important role in the development of the current regulatory requirement

for determining vapor cloud exclusion zones. The computer models

currently required in 49 CFC 193 for calculating such exclusion

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zones were the result of developments by my associates and I at

the University of Arkansas.

I have also been involved in the development of the methods required in 49 CFR 193 for determining pool fire radiation exclusion

zones. In my opinion, the current requirements in 49 CFR 193 for

determining these exclusion zones are based on good science, and

they are adequate for their purpose. Indeed, the present regulations are the result of considerably more research on LNG safety

than has been performed for many other hazardous materials that

are routinely transported in very large quantity.

Furthermore, I believe it is important to emphasize that the hazards associated with LNG, aside from the localized dangers involved with handling any cryogenic fluid, are neither unique nor

extreme when compared with other hazardous materials. The potential dangers we are discussing here today are brought into the

present focus because the enormous amounts of energy that must

necessarily be concentrated to enable economical transport of LNG

across the world’s oceans.

However, the suitability of the methods required by the regulations for determining these exclusion zones, in my opinion, are not

in serious dispute. The problem lies in the specification of the LNG

spills that must be considered as possible. Current U.S. regulations

require that exclusion zones be calculated for spills in the

landbased portion of an LNG import terminal only. The regulations

do not currently apply to spills that might occur from the LNG vessel on to water.

Because spills on land are subject to a variety of control measures to limit the area and extent of the spill, such as dikes or impounds in the systems, exclusion zones in support of requests for

siting landbased LNG terminals are typically, in my experience,

less than about 1,000 feet. However, if exclusion zones were required to protect the public from LNG spills on to water from an

LNG vessel, either at the jetty or in route to or from the terminal,

there is good scientific consensus that the fire radiation exclusion

zones could extend to a mile or more if the entire contents of a single tank were rapidly spilled. And if the regulations were applied

to the determination of vapor clouds, they could extend to several

miles.

I want to emphasize the present regulations do not require the

address of spills from a tanker at the facility. It is very sobering

and surprising to me to realize that the ongoing LNG siting debate

regarding public safety comes down to this. And I sincerely hope

that those responsible for protecting the public recognize and seriously consider this very important question.

Since September 11——

Mr. OSE. Dr. Havens.

Mr. HAVENS. We no longer——

Mr. OSE. You are 2 minutes over your time. I am going to give

you 30 seconds to wrap up. OK, 30 seconds to wrap up.

Mr. HAVENS. 30 seconds?

Mr. OSE. Correct.

Mr. HAVENS. I must also tell you that I am very concerned that

spills from LNG vessels caused by terrorist attacks might not be

limited to the partial contents of a single tank on the vessel, as is

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widely assumed. Because of these concerns, I have written to the

Secretary of Homeland Security in late February to urge the Department to consider the vulnerability of LNG tankers. I am very

disappointed that I haven’t received any response from the Department of Homeland Security regarding my concerns.

Thank you. That concludes my comments.

[The prepared statement of Mr. Havens follows:]

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Mr. OSE. I thank the gentleman for his testimony.

Would you care to go first?

The gentleman from Massachusetts.

Mr. TIERNEY. Thank you.

Thank all the witnesses for your testimony. I appreciate it.

Dr. Havens, if we assume that there is a spill on water in one

of these deep water port proposals that are being made, you have

indicated that the vapor could go downwind for some unspecified

number of miles.

Mr. HAVENS. Well, 3 or 4 miles, as calculated for the entire contents of a single tank, which is about 6 million gallons.

Mr. TIERNEY. And if we had more than a single tank, would the

distance somehow correlate to the spillage?

Mr. HAVENS. If the amount spilled were twice as large, it would

not be twice as far, but it would be further.

Mr. TIERNEY. So if you had a whole tanker go up?

Mr. HAVENS. Well, it would be, in my judgment, probably physically impossible to spill the entire tanker rapidly. But nevertheless, if it were released, then it would be a danger that would extend greater than 3 or 4 miles. This is the vapor cloud exclusion

zone, not the fire radiation zone.

Mr. TIERNEY. In a proposal that suggests a site 10 miles offshore,

if you had a multicompartments spill, no ignition, so the vapors

were up, what is the likelihood in reaching land? What would be

the danger if it did? And is that something we should be concerned

about, reasonably?

Mr. HAVENS. And the distance is 10 miles?

Mr. TIERNEY. 10 miles.

Mr. HAVENS. Everything I know about this problem suggests to

me that there are no conceivable circumstances that I can consider,

even with the loss of the entire tanker, where the vapor cloud travel would be as much as 10 miles.

Mr. TIERNEY. Assuming that this is sited, as proposed, a distance

from fishing activity, how far would an exclusion zone reasonably

be put around this site to protect people on fishing vessels or, for

that matter, people on commercial vessels passing by?

Mr. HAVENS. Well, first of all, let me say that the idea of an exclusion zone to protect the public—and ordinarily, we are concerned

primarily with gatherings of people and so forth. So for example,

on a landbased facility, the approximate distance to schools or

gathering places would be much more sensitive than some other

areas.

Anyone in these exclusion zones, should there be a fire in that

vapor cloud, is going to be in severe trouble.

Mr. TIERNEY. So people in a fishing fleet out there, if they go too

close, how far ought the fishing fleet be kept away from this site?

Mr. HAVENS. Well, for a single tank spill, if it were spilled very

rapidly, the distances that have been calculated and actually have

even been published by the Department of Energy are 3 or 4 miles.

Mr. TIERNEY. And that is for both the fire, if it happened——

Mr. HAVENS. No, sir. That is for the vapor cloud distance. The

fire distance is somewhat less. Typically, it might be on the order

of a mile. And it would be at the distance of 1 mile that people

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would be subjected to heat radiation that would cause severe burn.

This is in about 30 seconds.

Mr. TIERNEY. Mr. Warburg, your organization obviously has

some concerns, I would imagine, about Stellwagen Bank, an area

like that. What questions would you like to ask Dr. Havens

through me about the dangers to that area? You don’t know what

questions yourself, you go right to the source. Sometimes I am willing to admit that I don’t know everything about this, and sometimes I don’t know the questions to ask to get where I want to go,

but I am suspecting that you do.

Mr. WARBURG. We are also at the stage of asking the right questions because I think we have not satisfied ourselves that there has

been a sufficiently rigorous process of looking at the environmental

and public safety issues pertaining to both the onshore and offshore

facilities.

I think we have to put the risks associated with the proposed offshore facility in perspective in that we are currently facing an onshore facility at Everett, MA, which exposes tens of thousands of

people, maybe more, to a very high level of risk if there were a

tanker incident. So that is a concern that we have.

We also have a concern about the various other heavily populated sites that are being considered in New England for the siting

of new LNG terminals, and this is where, again, we see that there

is a need for more coherent delineation of criteria vis-a-vis distance

from large population centers for the siting of any new terminals.

We are certainly concerned about the marine resource protection

issues raised by the offshore proposal. This is a proposal that really

only surfaced in the last 2 months. We certainly don’t have the information on the various risks that could be involved and the various levels of encroachment on the fishing community that placing

this kind of a facility would entail.

Mr. TIERNEY. Let me take a stab at it. Dr. Havens, are you familiar with Stellwagen Bank?

Mr. HAVENS. I’m sorry.

Mr. TIERNEY. Are you familiar with Stellwagen Bank off the

coast?

Mr. HAVENS. Off Gloucester?

Mr. TIERNEY. Off Gloucester, yes.

Mr. HAVENS. Yes.

Mr. TIERNEY. If there is spillage on to the water and say it did

get to flow over the Stellwagen Bank area, first the vapor and then

a fire, what damage, if any, to things under the ocean or to the

ocean itself?

Mr. HAVENS. Under the water?

Mr. TIERNEY. Right.

Mr. HAVENS. We are talking now about a vapor cloud fire, which

means that, if it were a flammable cloud and it extended out there

and it were ignited somehow, then it would flash through the

cloud. I would not expect that would have any effect on anything

in the water because it would be a very rapid fire.

Now, people that were exposed to that fire would be in serious

trouble.

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Mr. TIERNEY. And if it never caught fire, it would eventually dissipate into the environment, into the atmosphere, as opposed to

settling on the water?

Mr. HAVENS. That is correct.

Mr. TIERNEY. Do you want to jump in?

Mr. OSE. I am ready when you are.

Mr. TIERNEY. Mr. Warburg, what would your regional assessment process look like? How much time would it take? You said

you didn’t want to have a moratorium necessarily on LNG placements. So how would it be structured that you would have a regional assessment, as you suggested, to coincide with the placement process?

Mr. WARBURG. I want to clarify: I said that I thought there

shouldn’t be a moratorium on the review of proposals. I think there

should be a freeze on any decisions vis-a-vis particular sites. That’s

a very important distinction. We need all the information we can

get regarding the various environmental and public health impacts,

for example, the ones you have been raising vis-a-vis Stellwagen

Bank and the offshore site. We feel that there needs to be a look

at what is the need—and that means looking very creatively at

some of the issues that you raised with the representative of the

Department of Energy, namely, what can we expect from energy

conservation in the region? What can we expect from renewable energy resources in the region such that we, perhaps, need less of an

additional capacity for LNG import than we now assume?

Our concern is that we’re seeing one proposal after the other

placed on the table along New England’s coastline. There is no constraint right now on the number of facilities that conceivably could

be approved. And there is insufficient systematic consideration of

very vital factors, such as public health and safety.

Mr. TIERNEY. And how do you and your organization strike the

balance between what some will say is a serious need for that fuel

now against the risks that you propose?

Mr. WARBURG. We are, in principle, supportive of natural gas as

a transitional fuel, a cleaner-burning, less-polluting transitional

fuel, though a fossil fuel. However, we feel that we shouldn’t rush

to build major new infrastructure with all of the environmental

and public health implications of that infrastructure until we are

very sure we know what is essential and that we are not duplicating capacity.

Mr. TIERNEY. Thank you.

I yield.

Mr. OSE. Thank you.

Dr. Haven, I am curious about something. You heard me ask this

question of the previous panels, about a template for design. And

if I followup on your exclusion zone onshore from a facility, you are

suggesting that this 1-mile standard is sufficient? Is that correct?

Mr. HAVENS. No, I think that is not exactly what I said. I talked

about an exclusion zone that would be the order of a mile, and that

was for a pool fire rather than a vapor cloud problem.

Mr. OSE. And the vapor cloud was 3 to 4 miles.

Mr. HAVENS. About 3 miles. And these were spills on water,

spills on water.

Mr. OSE. I want to go onshore for a moment.

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Mr. HAVENS. Yes.

Mr. OSE. If you go onshore, if you were to say to Pat Wood, ‘‘Pat

come over here in the corner and tell me what kind of safety framework I need to set up for this site,’’ what would be the size of your

exclusion zone?

Mr. HAVENS. I would agree with the methodology that has been

followed in the siting of the present onshore terminals. And that

is this, they specify—they have to specify what—how much material might be spilled and that, usually, the assumption has to be

made that the largest transfer line in the facility, which would normally be the line that goes from the ship to the storage tanks, was

severed and that it remained pumping for 10 minutes. That kind

of a spill would be on the order of 50,000 gallons a minute, and it

is a very large spill.

However, on the land, there are a number of measures that are

taken so that, where that material might be spilled, there are

trenches and sumps and impoundment basins and all kinds of

things that keep that spill contained and minimize the resulting

pool fire or vapor cloud dispersion. And as a result of those control

measures, normally you wouldn’t expect the people to have accidents that would extend more than about 1,000 feet.

Now, my understanding of the regulations and my experience—

I’ve had a lot of experience in applying them for people—is that

you must calculate these distances, and then, as the terminal operator, you must own that property. If you don’t own that property,

you are not going to build the terminal.

The point that I’m trying to raise is that, if we are going to be

talking about protecting the public, the additional feature of protecting the public from spills associated with a marine site that are

from the tanker are controlling, in my view. Nevertheless, they are

not required to be addressed by the current regulations.

Mr. OSE. It’s the difference—your point is the difference between

risk and hazard, if I understand the terms correctly.

Mr. HAVENS. The difference between?

Mr. OSE. Risk and hazard. You think the methodology properly

quantifies the risk, but it doesn’t properly quantify the hazard?

Mr. HAVENS. No, what I’m saying is that the tools, the methods

that are prescribed in the regulations, which are computer models

which you have to tell how much you spill and what the atmospheric conditions are and so forth, and they spit out these exclusion

zones.

What I’m saying to you is that I believe that those tools are perfectly adequate. There is nothing wrong then.

But you can get any answer from those models that you want depending on how much material you spill and so forth. And at the

end of the day, I believe that the really vulnerable situation that

controls the public safety issue anymore, post-September 11, is the

LNG tanker.

Mr. OSE. Let me just dwell on something for a minute. On the

incident that you define where you had the 50,000 gallons spilled

in 10 minutes——

Mr. HAVENS. 50,000-gallons-per-minute for 10 minutes.

Mr. OSE. 500,000 gallons. You talked about a radius from that

point of 1,000 in any given direction?

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Mr. HAVENS. The 50,000-per-minute, 10-minute spill is required

on the land. On land, that spill would always occur into an impoundment basin, so it would not spread.

Mr. OSE. All right. That ends up being about 300 acres in size,

that site, if it is a 1,000 foot radius from that point.

Mr. HAVENS. No, no, no, the 1,000 feet is the downwind distance

beyond which the flammable vapor cloud would no longer be flammable. In other words, we spill the LNG into a ditch. All right? It

vaporizes and forms a cloud. The cloud drifts off downwind.

Mr. OSE. 1,000 feet in any direction.

Mr. HAVENS. No, downwind.

Mr. OSE. As it moves down in the wind.

Mr. HAVENS. In the wind, from that kind of spill, the models predict—and I agree with them—that the cloud would be harmless beyond about 1,000 feet. On land——

Mr. OSE. 1,000 feet from the point of spillage?

Mr. HAVENS. From the point of spillage.

Mr. OSE. Now, that would mean that you have a minimum-sized

facility of about 300 acres?

Mr. HAVENS. 300?

Mr. OSE. Acres. But it is my understanding that the facility in

Boston is nowhere near that size.

Mr. TIERNEY. Right.

Mr. OSE. So how do you deal with the situations you’re talking

about as the rules are currently applied? How do you deal with situations where you have a change in circumstances or a change in

risks on existing facilities?

Mr. HAVENS. Well, I think—let me say this again. I’m not sure

that I making the point that I want to make. I think the consideration of the exclusion zones for the landbased facilities, the land

side of the facility, is handled appropriately today.

My major point, the only one I’m really coming here to try to convey is that there surely is a danger to the public associated with

events that might occur from the tanker. And what I am saying is

that the current application of the law to the landbased facilities

will typically give exclusion zones within about 1,000 feet.

Mr. OSE. OK.

Mr. HAVENS. If they were applied to spills from the tanker of the

type that have already been considered, there is a scientific consensus that the fire radiation dangers would go up to about a mile.

Mr. OSE. Because of the lack of a containment?

Mr. HAVENS. Exactly. Because the LNG is not contained. It can

spread.

Mr. OSE. I’ve just been trying to get you on record on landbased.

I think I have succeeded here.

Mr. HAVENS. I’m having a little trouble hearing you for some reason.

Mr. OSE. I’ve been trying to get you on record as it relates to

landbased facilities, and you have been very clear, and I appreciate

that.

Mr. Santa, I want to talk about something. We have heard testimony earlier today that the capital investment in a facility of this

nature is somewhere on the order of $500 million?

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Mr. SANTA. The numbers that I have seen, Mr. Chairman, are

that, for a 1 Bcf regasification facility—that is the import terminal—the cast is in the range of $600 million.

However, I think, when you look at the capital that is involved

in this, you also need to look at upstream in terms of the waterborne transport and liquefaction facility, both of which are significant. I think the costs now are about $100 billion per tanker, and

for a 390 Bcf liquefaction facility, I think it is in the range of $1.5

billion to $2 billion.

Mr. OSE. So you are talking about $2.2 to $2.7 billion for the entire package?

Mr. SANTA. Yes, sir.

Mr. OSE. Now, if I am a lender and I’m out in the financial markets, I don’t give you $2.2 to $2.7 billion without you being able to

tell me, if something goes wrong, my investment is insured. Do you

have insurance for these facilities?

Mr. SANTA. I’m sure the facilities carry insurance. I think also,

in terms of the lenders on these or for that matter to the extent

that someone is financing it internally, there is the whole issue of,

to what degree do you have someone who is willing to contract for

the off-take of that facility to back-stop the deal?

Mr. OSE. My concern is the insurance. Because it seems to me

that, over and above all, the Federal agencies and their interests,

all the State agencies and their interests, and all the local agencies

and their interests, the insurers are going to go through your operation with a fine-tooth comb. Because if they are going to assume

a liability on the order of $2.2 to $2.7 billion just for the system,

let alone the impacts elsewhere——

Mr. SANTA. I believe there is a lot of commercial discipline that

is applied to these with respect to what one needs to borrow, finance this and insure it.

Mr. OSE. Give us some sense of that discipline. Do the insurers

delve into the types of insulation that goes into the tankers?

Mr. SANTA. Sir, I don’t know the answer to that, but we can get

that and supply that to you in terms of what may be applied there

in terms of their diligence on the tankers and other parts of the

infrastructure.

Mr. OSE. Do they delve into who crews the tankers, who is the

captain and all that sort of thing?

Mr. SANTA. I would think there are standards that are applied

in terms of that. However, again, I am not intimately familiar with

that, and we could supply that for you.

Mr. OSE. Do they rate exposures based on source of material, like

Australia is a less risky source than say Qatar?

Mr. SANTA. I don’t know for a fact, but that seems a reasonable

assumption that enters into that.

Mr. OSE. Where could I go to get answers to that question? I understand the Federal agencies and support their curiosity about the

safety and the operational integrity. But at the end of the day, the

people who are enforcing it, with all due respect, are the people

who have their capital at risk. And the insurance companies definitely have that. And I’m trying to get some sense from the industry, operational side, how rigorous that is. Where can I go to get

that information?

175

Mr. SANTA. I would think—well, sir, I don’t know, and we could

get back to the committee with that answer.

Mr. OSE. Why don’t I give you a written question to that effect?

Mr. SANTA. I would be happy to respond to that.

Mr. OSE. I will list the questions, from the operational side, that

I am curious about.

Mr. SANTA. OK.

Mr. OSE. Mr. Warburg, I’m actually sympathetic to your concerns.

I’m curious, where should we build LNG facilities? Describe for

me the geographic or the circumstantial location, separate and

apart from what State it is in or whatever. Give me a sense of

where we ought to build them.

Mr. TIERNEY. Mars.

Mr. OSE. Mars. That is a long pipeline.

Mr. WARBURG. I think we have to look very carefully at each individual site in terms of its particular characteristics. I think that

remoteness from major population centers should be one very, very

important criterion and one which is clearly not uniformly enforced

today, by FERC or any other agency. And that is a major concern

that we have.

That said, there are high-value natural resources that are at

stake in various non-urban locations, and we certainly want to look

very carefully at those to make sure that any terminal is built in

an appropriate manner and does not destroy valuable fisheries. For

example, along Maine’s coastline, one of the major concerns that

has come up——

Mr. OSE. Well, I have to—I’m curious about, in particular, up

along Maine, they get some northeasters that are pretty severe.

They have some storms up that way.

And I am trying to conceptualize—you know, we have nor’ easters up there. You have hurricanes in the Gulf. You have a very

steep drop-off on the coastal shelf of northern California. You have

a shallow one in southern California. I am trying to figure out

where is it that we should build these things, where is it we should

focus. I mean I can tell you for a fact because of the must offer requirements that seem to occur every winter, that we seem to be

short—that is inconsistent—that we are short in New England. I

know we are short in Florida. But I am trying to figure out where

can we put these LNG facilities in a manner—I am just curious as

to your feedback on that.

Mr. WARBURG. There isn’t a categorical answer. We want to turn

to FERC, as well as the relevant State agencies, to help us define

what the criteria should be. Clearly, there are dredging issues in

some coastal locations that we would need to look at as well, to

evaluate disruption of the natural environment.

One of the sites that is proposed in Maine is a rather precarious

site in terms of whirlpool activity as well as the need for dredging.

So I think there need to be broad criteria that define the outer limits of acceptability, again vis-a-vis proximity to major population

centers, and one has to look very closely at the particular environments at stake.

176

We are not categorically opposed to the construction of additional

natural gas facilities. We want to make sure of the need before

they are authorized to go forward.

Mr. OSE. Have you ever supported one?

Mr. WARBURG. Sorry?

Mr. OSE. Have you ever supported one?

Mr. WARBURG. The only natural gas facility in Massachusetts is

the Everett facility, which was built decades ago.

Mr. OSE. When you and I were young.

Mr. TIERNEY. 1972.

Mr. WARBURG. And we have major concerns about that facility

and we would like to explore the possibility of transferring that facility at some point to a less precarious location, because right now

it requires tankers to operate very close to downtown Boston and

other neighborhoods.

Mr. OSE. All right. Mr. Santa, what are the parameters that you

think—I mean out of all of us, you have practical operating exposure as to how this stuff works in the field. What do you think the

parameters of a design facility should be? What are the minimums,

if you will?

Mr. SANTA. I think the minimums are compliance with all of the

currently applicable State and Federal laws that apply to these facilities, all of which are considered as part of the FERC process and

collaboratively as part of the NEPA process before the Commission.

Mr. OSE. You are satisfied with the current process as it operates?

Mr. SANTA. I am satisfied with the legal framework, but I do

think there are difficulties because that while the Commission has

the NEPA process and includes all of the other agencies as participating agencies, there is the ability of other agencies who have separate legal authority, and particularly when it is State agencies

acting pursuant to delegated Federal authorities, such as under the

Coastal Zone Management Act or Clean Water Act, for those proceedings to become very, very protracted and also at times for some

of those other agencies to second guess things which the Commission considered as part of the certificate process. We have seen that

happen on several occasions with respect to interstate pipelines in

coastal areas, and I think there is no reason to believe it might not

also happen with LNG facilities.

Mr. OSE. There is a study done by DNV. When is that due out?

Mr. SANTA. I believe it is due out this summer.

Mr. OSE. We have the Sandia study that’s pending and the DNV

study that’s pending. Are there other studies?

Mr. SANTA. There is a study that FERC commissioned that was

released in May on which FERC is taking public comment.

Mr. OSE. Gentleman from Massachusetts.

Mr. TIERNEY. First, Mr. Chairman, let me make one clarification

on the record. One other Member has notified me that they wish

to put something on the record. Am I clear in indicating that you

had expressed 10 days for Members to put things on the record, 10

calendar days, and that will be members of the committee as well

as nonmembers?

Mr. OSE. All Members of Congress are welcome to submit things

to the record. Priority will be given to members of the committee.

177

Mr. TIERNEY. So 10 calendars days?

Mr. OSE. Yes.

Mr. TIERNEY. Sorry for that interruption. Mr. Warburg, you

heard me earlier ask the Department of Energy representative

whether they had any studies concerning the actual need for more

liquid natural gas and other studies that tell us where we might

go in the future with respect to conservation and alternative fuels.

Are you aware of any studies that this committee ought to have in

front of it that will give us information relative to those points?

Mr. WARBURG. We can provide you with some of those studies.

There are a number of studies that point to double-digit percentage

opportunities for electricy and gas savings resulting from energy efficiency investments. I should point out that a lot of those energy

efficiency investments could be achieved over a much shorter time

horizon than the construction of a new LNG terminal, and that is

a very important point in terms of the sense of haste and sense of

urgency that I have heard many people express today regarding

the construction of these new facilities.

Mr. TIERNEY. You anticipated my next question. I thank you for

that. You should get those to us with haste.

I would like to know how much of a timeframe, whether these

are realistic proposals you believe that would be put in as opposed

to pie in the sky stuff.

Dr. Havens, if I could followup with you, when a tanker comes

in to Boston Harbor through the channel, there are some very narrow channels there. I don’t know if you are familiar with that area

or not. So if we suppose for a moment that there is an incident that

happens, not while the tanker is actually at dock and unloading

but passing through, and there is a spill, could that spill affect

those neighboring communities if it is a vapor or if it’s a fire? Does

it change the fact that the vessel is moving when the spill occurs

as opposed to at the dock and there is no container area involved?

Mr. HAVENS. No. If it were in a narrow enough area that the

shore contained the spill, the lateral threat, then it would spread

down the channel, and so as a result the kinds of separation distances that I am talking about would apply to the tanker wherever

it is.

Mr. TIERNEY. If a tanker were heading down the channel near

shore and a spill happened and the gas went over to the shore and

it was spread out along the shore, if it ignited, all of those people,

communities on the shore would be at risk?

Mr. HAVENS. That’s right. We would have a moving exclusion

zone that would go along with the tanker.

Mr. TIERNEY. Except that we don’t, and that is the problem that

we have up there. We don’t.

Mr. HAVENS. We have no exclusion zone that applies to the tanker. Not a Federal requirement today.

Mr. SANTA. As we talk about spills, I think it is important to

bear in mind the—not only looking at what is the worst case scenario, but also the part of this what is the risk of analysis, what

is the probability of it happening. One thing that has not been

mentioned in this discussion is that LNG tankers are double hulled

vessels. There is an outer hull of steel, that there typically is an

8-foot separation between that and the containment vessel for the

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LNG; that vessel has an outer wall, insulation—we’ve talked about

insulation before and then an inner wall, so that there may be another foot before you actually get to the LNG. So in looking at the

probability that some event would lead to a puncture of the outer

hull, something would need to penetrate 8 to 9 feet in before getting to the LNG and the point that there was any puncture of the

inner hull, I think we just need to bear in mind.

Mr. TIERNEY. I don’t discount that at all. I still have in mind

what happened to the U.S.S. Cole and then of course the airline

situation for another on that, and I suspect both of those would

possibly create the kind of scenario would go through both hulls,

am I right?

Mr. SANTA. I am not saying it is impossible.

Mr. TIERNEY. Those two things come to my mind and make it

seem less unlikely than it might otherwise seem. Before September

11 and before the U.S.S. Cole, I might have said, well, when would

that ever happen? Mr. Warburg, did you want to add something to

that?

Mr. WARBURG. You anticipated my comment. One thing I learned

from my graduate statistics course was that rare events do happen

and sadly, post-September 11, we have learned that is a very real

fact. And even if we are talking about low-probability events, we

are talking about potentially catastrophic events and we need to

take all necessary measures to prevent those from happening.

Mr. TIERNEY. What I learned from my statistics course was try

to get through it and get out the other side of it. Is there anything

that Mr. Ose or I have not asked any of the witnesses that you

wish we had that you want to put on the record at this point in

time?

Mr. HAVENS. I would like to say that all of my concerns that I

related to you here today, none of them—we wouldn’t be talking

about them if September 11 hadn’t happened. A possibility of a terrorist attack on an LNG tanker I think is something that needs to

be seriously considered, because it involves questions that Congressman Markey brought up earlier today that get into technical

details about the construction of the tanker that all relate to the

vulnerability of that tanker to a terrorist attack.

Mr. TIERNEY. Mr. Warburg.

Mr. WARBURG. One final comment vis-a-vis Georges Bank and

the offshore facility. The Conservation Law Foundation in the

1970’s litigated and achieved a moratorium on oil and natural gas

drilling in Georges Bank, and we very much regard that area as

a cherished resource—one that we have to be very vigilant in protecting. So any consideration of a facility in or adjacent to that area

would need to be scrutinized very, very carefully in terms of the

possible environmental impacts.

Mr. TIERNEY. Mr. Santa.

Mr. SANTA. Earlier Mr. Warburg suggested a comprehensive regional assessment to determine need and determine the optimal

sites for LNG facilities. I would add that the policy that the FERC

has used for about the last 20 years with respect to interstate pipelines and other energy infrastructure is to let the market decide.

It is important to note that while that map over there shows 40

something proposed LNG facilities, in fact those facilities within a

179

particular region are all competitors of one another. The likelihood

is that a significant number of them, probably most of them, don’t

get built because given the significant capital investment involved,

unless someone has a market for the offtake for that facility in the

form of contracts or someone who is willing to accept the commercial risk associated with that, the facilities are not going to be

built. I would also——

Mr. TIERNEY. I have to refer you to my friends in the refinery

industry who don’t seem to think that way, who have been closing

down about 100 of them as late. So they obviously built them and

then made the decision later. So I am not sure that always flows

through. There are numerous incidents where people have built anticipating that the need was going to be there and then later on

found out that it wasn’t. And should all of these things with conservation and alternative fuels actually come into play after they

are built and they get surprised because public policy all of a sudden wakes up, then of course we will have that situation. And last,

I would think maybe there are some areas that as public policy we

would think would be more acceptable than others. If, in fact,

someone is going to fall by the wayside, ought we not have some

say in which ones fall by the wayside and which don’t?

Mr. SANTA. I would suggest to you if someone comes up with a

location that is not acceptable in terms of applying the current

laws that apply with respect to environment siting and others, that

facility could be rejected or if the regulatory gauntlet to get it approved proves to be too protracted and costly, the sponsor may not

proceed. We have seen instances where in the face of opposition,

both with respect to the facilities in Maine and also down in Mobile

Bay, sponsors have chosen not to proceed on facilities. So I think

that in fact the process does work.

Mr. WARBURG. I would like to add that I think we could look at

the construction of natural gas power plants as an example of a situation in which market forces caused facilities to be built that are

now lying idle. So we are very concerned that the market not be

allowed to govern the placement of facilities that, even under the

best circumstances, will be very damaging to the environment and

potentially damaging to public health and safety.

Mr. TIERNEY. Well, I want to thank all of you. It has been very

enlightening.

Mr. HAVENS. I would like to make another comment for the

record. The recent study that has been talked about today that was

commissioned by FERC, the ABS Group study which has just been

in—you will find my comments on the Web site—that report was

commissioned by FERC in order to answer the question—I know

this because I proposed to do the work for them—to answer the

question, what would be the danger zones associated with a single

tank spill from an LNG tanker? That report is on record by the

ABS Group specifying distances very similar to the ones I have told

you about. The question that I am anxious to find out is what

FERC intends to do with that information now that they have it.

Mr. TIERNEY. Thank you. Thank you, Mr. Chairman.

Mr. OSE. Do any of you know of any incident involving an LNG

tanker that compromised the safety of surrounding community or

environment?

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Mr. HAVENS. Anything about that would compromise——

Mr. OSE. One that has occurred. We have 30 years of operating

history on these tankers and their receiving facilities and their liquefaction facilities. Do you know of any incident in which loss of

life or something of that nature occurred related to these?

Mr. HAVENS. There have been a number of incidents, but they

were not large scale like we are talking about. They were contained. And I think the LNG industry in general, including the

shipping side, both sides has an exemplary record.

Mr. OSE. I am told in the Persian Gulf there was one of these

tankers that was hit and in fact the outer skin was punctured, but

the design worked and the inner skin held.

Mr. HAVENS. I believe that was a propane or an LPG tanker, and

that goes to some questions associated with the kind of insulation

that are used and so forth, and I don’t think we ought to probably

talk too much about that in this forum.

Mr. OSE. Mr. Warburg.

Mr. WARBURG. I would add that the political context has utterly

changed and that the past decades are not the right predictor of

the kinds of risks that we are talking about today, and I think we

have to be very cognizant of that fact. We are not talking about

routine tanker operations. We are talking about the risk of an intentional attack on a tanker as a terrorist target.

Mr. OSE. Something like Cove Point, which has reopened since

September 11, gives us our best empirical data base for that particular question, and we heard testimony earlier that things have

gone very well there so far.

Mr. Santa.

Mr. SANTA. I had been told of the LPG tanker incident in the

Persian Gulf that a missile was fired that Mr. Havens talked

about. Twenty some odd years ago in Staten Island, NY there was

a tank under construction where an incident occurred during the

construction where there was a fire and some workmen were asphyxiated. However, it had nothing to do with the fact that it was

an LNG facility. It was not an operational incident.

Mr. OSE. I want to thank our witnesses for joining us on this

fourth panel today. Clearly, I think this is perhaps the most well

attended hearing that Congressman Tierney and I have put together for obvious reasons. At the end of the day, I am not sure

we are closer to an answer than where we started, but I think we

have narrowed the question. We appreciate your participation in

this hearing and the education you have shared with us and we

will stay on course to try and find a solution.

We are adjourned.

[Whereupon, at 7:10 p.m., the subcommittee was adjourned.]

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