[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]





 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


                                 ______

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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana                  HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California                 DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky                  DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia               JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia          CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee       LINDA T. SANCHEZ, California
NATHAN DEAL, Georgia                 C.A. ``DUTCH'' RUPPERSBERGER, 
CANDICE S. MILLER, Michigan              Maryland
TIM MURPHY, Pennsylvania             ELEANOR HOLMES NORTON, District of 
MICHAEL R. TURNER, Ohio                  Columbia
JOHN R. CARTER, Texas                JIM COOPER, Tennessee
MARSHA BLACKBURN, Tennessee          BETTY McCOLLUM, Minnesota
PATRICK J. TIBERI, Ohio                          ------
KATHERINE HARRIS, Florida            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          JOHN F. TIERNEY, Massachusetts
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
CHRIS CANNON, Utah                   DENNIS J. KUCINICH, Ohio
NATHAN DEAL, Georgia                 CHRIS VAN HOLLEN, Maryland
CANDICE S. MILLER, Michigan          JIM COOPER, Tennessee
PATRICK J. TIBERI, Ohio

                               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


                            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

 
 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.
    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.
    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 
instances 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.
    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.
    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 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 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 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 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.
    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.
    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.
    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 cryogenics, 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 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 
independently 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.
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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?
    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.
    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 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.
    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?
    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, 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.
    [The information referred to follows:]

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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.
    [The information referred to follows:]

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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.
    [The information referred to follows:]

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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.
    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 land-based 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.
    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 U.S. Senator Barbara Mikulski and others, 
FERC was asked to reconsider 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 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 
reactivation 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?
    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?
    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.
    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 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 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 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 
risk-assessment 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 terminals--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.
    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 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 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 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.
    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.
    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?
    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?
    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?
    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.
    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.
    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 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 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?
    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.]
    [Additional information submitted for the hearing record 
follows:]

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