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California Suffers Perpetual Energy Crisis

Government must allow companies to work on expanding supply

California risks tumbling into yet another energy crisis. The only answer is increased supplies, which require new investment – including in facilities for liquified natural gas. In late July California energy demand broke the record set five years ago. There were no blackouts, but later this summer “There is a slight possibility we’d have to get back into forced interruptions,” warns Jim Detmers, who administers the state’s electricity grid.

Additional power requires genuine electricity deregulation, more efficient environmental controls, and construction of new energy infrastructure. For instance, natural gas can help light California, but while the United States consumes a quarter of the world’s supply, it possesses only 5 percent of reserves. Cooling natural gas to liquify it yields LNG, which is easily transported. Yet, observes Federal Reserve Chairman Alan Greenspan, “Our limited capacity to import liquefied natural gas effectively restricts our access to the world’s abundant supplies of gas.”

Unfortunately, the Sierra Club and 26 other environmental organizations oppose constructing new LNG facilities in California. Some activists want people to revert to a pastoral lifestyle and conserve energy. Equally significant is the classic NIMBY problem: not in my backyard. Joseph Desmond, deputy secretary of the California Resources Agency, believes that California needs two LNG terminals. Only a few of the projects being advanced around the country have much chance of running the regulatory gamut.

One contender is Sempra Energy. Sempra, with subsidiaries San Diego Gas and Electric and SoCal Gas, would impose the cost on ratepayers rather than shareholders.

Yet the project would be built in Mexico, allowing the Mexican government to control access to the imported gas. Opposition politicians want to relocate the project. Critics have challenged permits granted by the central government. Californians might ultimately benefit from increased Mexican supplies, but they would shoulder the cost without any guarantees.

Moreover, several California counties have sued Sempra for allegedly manipulating prices during the state’s last energy crisis. In fact, California’s energy problems were largely self-inflicted by officials who bungled electricity deregulation. But true or not, such charges hinder Sempra’s LNG bid.

ChevronTexaco has proposed two offshore terminals. Both are well behind in the permitting process.

One, near Tijuana, faces the uncertainties of any Mexican operation. The second may end up near the San Onofre nuclear power plant and the Marine Corps’s prime training ground at Camp Pendleton.

Mitsubishi has proposed to construct a terminal in Long Beach, south of Los Angeles. But the firm’s reputation is poor and state and federal agencies are fighting over regulatory control.

Environmental and traffic concerns have sparked opposition. Port officials worry that some operations would have to be suspended when LNG tankers unloaded their cargoes, as in Boston. While LNG’s safety record is good, an accident or terrorist incident would be particularly disruptive because Long Beach handles as much as 25 percent of the nation’s seaborne commerce.

Among the more innovative ideas is one that comes from BHP Billiton, which would create a terminal at Cabrillo Port, 14 miles offshore. The project could easily connect to an existing gas pipeline.

The regulatory hurdles are a bit higher, but the benefits seem bigger. With little work necessary on land, there would be no added pollution and traffic in populous areas.

The facilities wouldn’t even be visible from the coast. Given its distance from shore, the safety risks to Californians would be minimal.

A similar initiative comes from Crystal Energy, which has suggested using an existing offshore oil platform. However, the Platform Grace, which ceased production in 1995, is old and would require significant reconstruction. The company also has had financing difficulties, even running late on its annual platform lease payment. Sometimes hysterical opponents attack LNG’s safety. Yet problems have been few and safety technologies have evolved greatly. America’s worst LNG accident, in 1944 in Cleveland, was due to war-time shortages of stainless steel alloy.

That LNG critics have to go back decades to find even one American fatality in a LNG accident is telling evidence of the system’s good safety record. Advanced LNG facilities use proper design to prevent leaks, containment procedures to restrict any spills that occur, safeguards to detect and limit problems, and safety zones to moderate any damage.

An offshore site, like that being advanced by BHPB, offers even greater safeguards. The Congressional Research Service reports that LNG released over water would create a “flameless explosion.”

Steve Meehan, BHPB’s project manager, figures that the “largest area of potential hazard is three to four miles.” That means the BHPB facility would have a buffer of 10 miles.

California needs more energy. The most populous state in the world’s richest nation should not again be teetering on the brink of an energy crisis. Government needs to allow companies to get to work expanding supply.

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Written By

Doug Bandow is Vice President of Policy for Citizen Outreach and the author of Leviathan Unchained: Washington's Bipartisan Big Government Consensus (forthcoming, Xulon Press). He is a former Special Assistant to President Ronald Reagan.

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