BILL ANALYSIS Ó 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 1496 - Simitian Hearing Date:
April 17, 2012 S
As Amended: April 10, 2012 FISCAL B
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DESCRIPTION
Current law requires the California Energy Commission (CEC) to
assess electricity infrastructure trends and issues facing
California and develop and recommend energy policies for the
state to address and resolve such issues as part of its biennial
Integrated Energy Policy Report (IEPR).
Prior law , the Liquefied Natural Gas Terminal Act of 1977,
authorized the California Public Utilities Commission (CPUC) to
issue a permit for the construction and operation of a liquefied
natural gas (LNG) terminal pursuant to a prescribed permit
procedure. The terminal was to be at a remote site selected by
the California Coastal Commission. (SB 1081 (Alquist), Chapter
855, Statutes of 1977, repealed in 1987).
This bill would require the CEC to conduct a study of the effect
of LNG imports and exports on the state's energy demand as part
of the periodic IEPR and require the CEC to update this study at
least 60 days prior to a hearing by the State Lands Commission
or the California Coastal Commission concerning a lease or
permit to license a LNG facility on the California coast if an
IEPR has not been issued within 180 days of the hearing.
This bill would require the CEC, on or before July 1, 2013, to
create a matrix on its Internet web site that describes each
existing or proposed LNG terminal located onshore or offshore in
California and information on facilities from Alaska south
through Baja California, including information on location,
ownership, description, capacity, cost, potential export
capacity, and links to environmental impact reports, to the
extent that such data is publicly available.
This bill requires a LNG project applicant to provide evidence
that it has consulted with the United States Department of
Defense on the impact of its project.
This bill would require, for a LNG project onshore or offshore
of California for which an application submitted to the Federal
Energy Regulatory Commission (FERC) or the United States
Maritime Regulatory Commission has not been deemed data adequate
by January 1, 2013, to include in the environmental impact
report a comparative analysis of feasible alternatives, an
analysis of potential disproportionately high and adverse human
health or environmental effects on minority and low-income
populations, and a full life-cycle analysis of the impacts of
the resulting greenhouse gas emissions.
This bill would require the CEC to impose a fee upon a LNG
terminal project applicant to cover the costs of implementing
the provisions of this bill.
BACKGROUND
California's Reliance on Natural Gas - The predominant fuel for
electricity generation in California is natural gas, which
provides 45% of California's electricity. Reductions in natural
gas use can be achieved through continued energy efficiency
programs and further developing and integrating renewable energy
resources into electricity supplies.
California imports approximately 87% of its natural gas supply,
primarily from gas fields in the Southwest, Rockies and Alberta,
Canada. The 13% of supply derived from in-state sources is
typically a lower quality gas, which must be blended with higher
BTU gas, such as propane, to meet pipeline and end-use
specifications. Additional supplies of in-state gas are
available, but remain untapped. Industry experts expect modest
growth in demand for natural gas in California for the
foreseeable future.
LNG as Alternative Supply - LNG is a natural gas that has been
cooled and therefore liquefied. Liquefaction reduces the volume
by a factor of 600, allowing it to be transported overseas by
tanker then re-gasified. LNG infrastructure would enable
California consumers to draw gas from major reserves around the
world - e.g., Alaska, Russia, Venezuela, Bolivia, Indonesia,
Australia and the Middle East. The CEC has suggested that
importing natural gas from other continents may help reduce
Canadian and U.S. natural gas prices. One LNG terminal could
supply approximately 10% of California's total natural gas
demand.
According to information on the FERC web site, there are nine
LNG receiving and re-gasification terminals in the United
States, but none are located on the West Coast and able to serve
California. Nationwide, seven terminals have been proposed but
not approved, including one in Astoria, Oregon, and the others
in the eastern and southern United States. In late 2008 an LNG
plant owned by Sempra Energy commenced operation in Baja
California. Seven LNG terminals have previously been proposed
for California but none have plans for moving forward, although
FERC still lists an Esperanza Energy site offshore southern
California as a potential site but not formally proposed.
LNG Export a New Focus for Terminals - LNG terminals in the
United States originated as import terminals when gas prices
were high and proven U.S. gas reserves were declining. Today,
the ability to extract natural gas from hydraulic fracturing has
greatly increased the ability to harvest natural gas, with U.S.
shale gas production doubling in the past two years, according
to industry data. At the same time, natural gas prices in the
U.S. have continued to drop, creating an incentive for companies
to look to exporting LNG if better prices are available abroad.
International demand for LNG is rising, in large part due to
Japan relying less on nuclear energy since the Fukushima
disaster and increasing LNG imports by about a third.
As a result, a growing number of LNG terminals are seeking
approval to operate as export terminals. As of February 2012,
FERC reported three proposed LNG export terminals - one in
Louisiana and two in Texas.
Current Permitting Process - The current permitting process for
offshore projects where the terminals are outside of California
waters makes the U.S. Coast Guard the lead federal agency and
gives the Governor authority to reject a project. The
California Coastal Commission has the responsibility to review
the project impacts in the coastal zone and on state lands. The
State Lands Commission has authority to issue coastal
development permits and leases for state lands.
COMMENTS
1. Author's Purpose . According to the author, this bill
will ensure that any LNG terminal established within
California's jurisdiction is done in a safe and responsible
manner after full review, including assessment of a
terminal's potential to export LNG as domestic natural gas
supply increases.
2. Needs Analysis Required . This bill requires CEC to
incorporate a LNG assessment in its biannual IEPR and
require an updated analysis of LNG assessments if a new LNG
project applicant proposes a project more than 180 days
since the last assessment. Although requiring a needs
assessment in connection with a LNG terminal, it does not
condition the permitting of an LNG plant on the
demonstration of need. The CEC needs assessment is
intended to inform the State Lands Commission and Coastal
Commission permitting process.
By way of contrast, powerplant siting does not require a
needs assessment. Prior to 1999, powerplant siting
included an analysis of need. This analysis was crucial
because once a powerplant was approved, utility customers
were responsible for all the reasonable construction and
operation costs, even if the plant sat idle. The
deregulation of electric markets was intended to shift the
risk of powerplant investment onto unregulated powerplant
operators. Because utility customers were theoretically
not saddled with the cost of idle or underused powerplants
a needs analysis was deemed unnecessary, and this provision
was repealed (SB 110, Chapter 581 of 1999; Peace).
3. Need for the Bill Changing ? This bill is substantially
similar to four prior bills introduced by this author that
did not pass that would have established requirements
related to LNG terminals. Prior bills were SB 426
(Simitian, 2005), SB 412 (Simitian, 2007), SB 376
(Simitian, 2009), and SB 37 (2011). Analysis of each of
the prior bills pointed to there being little to no
prospect of locating LNG facilities in California in the
near future, citing the state's aggressive push for meeting
energy demand with renewable energy sources diminishing any
likelihood of need for LNG. Prior analyses noted,
however, that future changes in energy consumption or
access to natural gas through pipelines could renew
interest in pursuing LNG terminals, prior analyses pointed
out, and legislation would ensure that California has an
application process in place and timely and relevant
information for review of project proposals.
With this bill, the author highlights the emerging trend of
converting LNG import terminals for export of LNG and
ensures that the biennial IPER address this trend and that
LNG application process consider a project's capacity for
LNG export. With increased U.S. supply of natural gas, low
domestic prices, and significant potential for increased
demand in the Pacific, it is very possible that companies
will start to look to the California coast as a prime
location for LNG export facilities. However, the same
environmental and safety concerns with LNG import terminals
may also impede plans for export terminals. Nonetheless,
if export projects are proposed for the California coast,
this bill would add a process for their review.
POSITIONS
Sponsor:
Author
Support:
None on file
Oppose:
None on file
Jacqueline Kinney
SB 1496 Analysis
Hearing Date: April 17, 2012