Malcolm Allen Investigation into Proposal of Sound Energy Solutions, Inc. to Construct and Operate a Liquified Natural Gas Terminal at Port of Long Beach

IV. Potential Impacts of the Project on Public Safety, the Environment and California Energy Markets

The LNG project proposed by SES raises several significant public policy issues for Californians over which this Commission has regulatory authority and statutory obligations.

LNG projects by their nature present significant environmental and safety hazards. Although LNG technology has improved in recent years, LNG facilities continue to present significant risks to the public because of the potential for catastrophic events resulting from terrorist attack, human error or earthquake. The proposed project site lies in a region of high seismic activity. Twenty-seven active earthquake faults lie within 100 miles of the site and three are within five miles.¹ The site is within two miles of high-density residential and commercial neighborhoods, schools, major transportation corridors and tourist destinations, including the Queen Mary, numerous hotels, the Aquarium of the Pacific, and a marina.

In addition, the SES project may potentially affect the operation of natural gas markets in California. The project would provide up to ten percent of the state's daily natural gas requirements. Control over this supply by a single provider could permit an exercise of market power and attendant pricing impacts. This concern is underscored by FERC's Market Oversight and Enforcement Section, which recently found that in the Southern California gas market "even small amounts of unused capacity can affect prices during periods of supply-demand imbalance."²

The facts available to the Commission at this time suggest a compelling state interest in the project. This Commission may ultimately support the project or some modified version of it because it would provide some of the state's near-certain need for future natural gas supplies. But the Commission has a responsibility to assure that if the project is ultimately approved and constructed, it does not unduly compromise public safety or the effective and efficient operation of California energy markets.

¹ Source: SES' Resource Report No. 6, pages 8-9. ² Comments filed by Market Oversights and Enforcement Section, FERC Docket RP00-241, October 31, 2001, page 4.