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Viewpoint by Thomas Elias: LNG trying to sneak in California's back door

January 15, 2002

Chutzpah. That's the only word for plans by the Texas-based El Paso Corp. to push ahead with a liquefied natural gas terminal aiming to soak California consumers even more than the big pipeline company did last winter and spring.

The Federal Energy Regulatory Commission has not yet ordered rebates from El Paso for its actions last year, which doubled and tripled many California heating bills during the coldest months of that winter. But FERC has said El Paso and one of its subsidiaries set up highly questionable contracts that resulted in its pipeline from Texas to California running well below capacity, thus creating a false scarcity and driving prices through the roof.

The Houston-based El Paso knows California energy regulators are not pleased with it these days. But the firm still sees California as an unmatched cash cow. So it feels a need to avoid the authority of the state Public Utilities Commission and the state Energy Commission while still building a huge facility to bring liquefied natural gas here from a field it operates jointly with the Phillips Petroleum Co. in the Timor Sea north of Australia.


California authorities, of course, would be skeptical of LNG even if El Paso weren't involved. Some in this state still remember the abortive LNG project proposed in the early 1980s by a partnership of the Southern California Gas Co. and Pacific Gas & Electric.

That plant was planned for the Santa Barbara County coast at Point Conception before getting shot down by a combination of an Indian environmental lawsuit and a sudden worldwide glut of natural gas.

Had it been built, Californians would still be paying vastly inflated gas bills to compensate the companies for building an LNG shipping facility in Indonesia, the receiving plant at Point Conception and a dozen tankers to ferry the sub-freezing liquid gas in between.

Now El Paso wants to saddle consumers with the same kind of inflated prices. But knowing any such plan would be greeted skeptically here, the company has been most active in seeking permits in the Mexican village of Rosarito, on the Baja California coast south of San Diego.

Last winter's energy shortage is the pretext for building this plant, even though lawsuits by cities like Los Angeles, Long Beach and San Francisco charge El Paso with creating that shortage intentionally and artificially.

The firm has even sold local Mexican officials on the notion that the huge development is justified.

"The plant has a reason to exist," says Rosarito Mayor Silvano Abarca Macklis, even as his municipal government delays giving El Paso a building permit on environmental grounds.

El Paso has already bought a building site near an existing power plant about 20 miles south of the border — where only a short, straight pipeline addition would be needed to connect with California's gas delivery system.

Once the plant is built, it would be difficult to prevent Southern California Gas, San Diego Gas & Electric and PG&E from contracting for its supplies. This would likely have two effects: It would lock in steep energy price increases at the same time it makes California more dependent than ever on foreign supplies.

It also would set a precedent for companies like Sempra Energy, the parent of San Diego Gas & Electric and Southern California Gas, which also have been eyeing LNG developments in Mexico.

The entire concept represents almost unbelievable chutzpah, for the much-lower gas prices in effect today demonstrate more clearly than any lawsuit ever could that last year's shortage and price spike was completely artificial.

There is no demonstrated need for any LNG plant on the West Coast, other than the constant pressure to increase corporate bottom lines. But California is powerless to stop building projects in Mexico. One hope: The PUC could conceivably put the clamps on indirectly by signaling well in advance of construction that it will not allow any of California's big gas utilities to pay more for LNG than for supplies delivered via existing pipelines.

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