IMPORT-RELATED

PROJECT SITING
AND REGULATORY
ISSUES 16

INTRODUCTION
Governments, energy consumers, and policy makers
around the world do not question the need to secure access
to reasonably priced, clean, and abundant supplies of
energy—whether crude oil, natural gas, coal, nuclear, wind,
solar power, or electricity produced from one of these sources.
However, this does not necessarily mean that they embrace
the infrastructure through which energy is delivered. Ideally,
energy transportation and infrastructure should be “close, but
not too close” to customers—that is, close enough so that
transportation and distribution costs remain moderate, but
not so close that it is on top of them. However, over the past
few decades, what constitutes acceptable closeness has been
evolving. Increasingly, local communities embrace the concept
of “not in my backyard” (NIMBY).
When it comes to the siting and construction of unsightly
and potentially hazardous energy-producing or delivery
infrastructure, the policy dilemma is that the negative impacts
from the infrastructure are felt most acutely by the host
community while the benefits are spread over a much wider
spectrum of the population. Opposition to these projects is
increasingly the norm as opposed to the exception and is not
simply limited to a few environmentally sensitive and wealthy
areas such as Southern California. Cynics have observed
that the NIMBY movement is evolving into a BANANA
(build absolutely nothing anywhere near anyone) or even a
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NOPE (nowhere on planet Earth) movement with regard to controversial

infrastructure siting.
Even so, the public’s attitude toward the construction of LNG import
terminals in the vicinity of their communities is only one of the concerns
that terminal sponsors must consider when scouting for locations. While
it is difficult to build an LNG terminal in a designated location without
the support of the local community, it is impossible to do so if the site
does not have certain physical and economic characteristics. This narrows
dramatically the list of suitable sites. The onus is on terminal developers to
identify locations that have the appropriate physical characteristics, that
are located in a high-value market (assuring the developer that a profit can
be made through the sale of gas in the region), and perhaps most important,
that minimize the opposition of local residents and municipal, state, and
federal authorities.

LNG IMPORT TERMINAL DESIGN BASIS

Codes and regulations
Different countries have different standards and specifications that
govern the design and construction of LNG facilities. Given the potential
for a major incident arising from the improper handling and storage of large
quantities of energy, government authorities in every LNG-importing country
have enacted codes and regulations regarding the design, construction, and
operation of LNG facilities and the tankers that serve them. Countries that
are considering the introduction of LNG into their national energy mix usually
borrow regulations from countries with established codes of practice. Such
regulations include the following:
• In the United States, the major design and operating criteria are
found in the National Fire Protection Association’s (NFPA) “Standard
for the Production, Storage, and Handling of LNG” (NFPA 59A) and
“LNG Facilities: Federal Standards” (49 Code of Federal Regulations,
part 193). In addition, the United States has codes governing the
waterfront facilities and LNG tanker transits administered by the
U.S. Coast Guard (33 Code of Federal Regulations, parts 127 and 165).
• In Japan, provisions for LNG facilities are detailed in the High Pressure
Gas Control Act (HPGCA), the Gas Utility Industry Act (GUIA), and
the Electricity Enterprises Act (EEA). The GUIA applies if the LNG
facility is used only for the gas industry; the EEA is applicable if the
 Import-Related Project Siting and Regulatory Issues 369

LNG facility is used only for the electric industry; and the HPGCA
covers all cases that do not fall under the first two categories.1
• In Europe, the primary governing standard is EN 1473, “Installation
and equipment for liquefied natural gas—design of onshore
installations.” EN 1473 covers many of the same aspects of LNG
siting as NFPA 59A does in the United States. However, the European
standards do not generally provide for prescriptive exclusion zones
for public protection, but rather require that the developer undertake
a site-specific hazard analysis in support of the final design and
siting. Under the umbrella of EN 1473, individual countries may have
their own additional codes and requirements.
Although host countries have unique siting and permitting regulations,
they incorporate many common requirements. Each country mandates
that LNG receiving terminals operate according to the highest safety,
environmental, and security standards. A prospective site must meet
or exceed these regulatory criteria while providing a technically and
commercially viable location on which to construct an LNG import terminal.
The focus of the regulatory review can also vary among jurisdictions. For
example, in the United States, primary siting authority for interstate facilities
(which covers all LNG import terminals) is
vested in FERC to ensure uniform national
siting standards. However, in the United
Although host countries have
Kingdom, the siting authority usually
rests with local county council planning unique siting and permitting
boards, which will consider the national regulations, they incorporate
or transnational siting standards and will many common requirements.
also turn to other national agencies (e.g.,
the United Kingdom’s Health and Safety Each country mandates that
Executive) for technical input. LNG receiving terminals
operate according to the
Location, location, location highest safety, environmental,
Sufficient available land—that can and security standards. A
be used for industrial purposes and prospective site must meet
is close to a deepwater port that can or exceed these regulatory
accommodate LNG tankers—is an
absolute prerequisite for short-listing criteria while providing a
a location for an LNG terminal. The technically and commercially
site must be able to accommodate viable location on which
the planned LNG storage and sendout
equipment (including future expansions) to construct an LNG
import terminal.
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and have reasonably close access to the pipeline grid. Usually, LNG terminal
developers identify multiple sites as potential locations and then enter into
a process of elimination based on various criteria to determine the most
suitable location. These criteria include the following:
Land area. LNG import facilities are composed of tanker berthing
facilities, storage tanks, vaporization and sendout equipment, pipelines,
and miscellaneous facilities (e.g., power generation and gas-metering
equipment). Even though these installations take up a lot of space, it is
difficult to pinpoint the minimum amount of land needed, because that will
be contingent on several details, including the following:
• The number and size of the LNG storage tanks, the type of
containment system, and the size of the resulting tank footprint
• The host country’s thermal radiation and vapor dispersion exclusion
zone requirements or other hazard assessment protocols
• The adjacent land uses
The terminal developer must also be able to identify and secure a
corridor for the pipeline spur that connects the regasification facility to the
regional pipeline grid.
Seismic. It is important to determine whether the site under
consideration will be affected by seismic activity. In parts of the world—in
particular, Japan—some existing terminals are located in earthquake-prone
areas. The plant can be designed to counter the effect of seismic shocks or
peak ground accelerations, although these adaptations can translate into
expensive civil and structural designs requiring elaborate foundations under
the critical equipment and tankage.
Safety. LNG is considered a hazardous material because of its cryogenic
properties, dispersion qualities, and flammability.2 According to a staff report
by the California Energy Commission,
The extreme cold of LNG can directly cause injury or damage.
Although momentary contact on the skin can be harmless, extended
contact will cause severe freeze burns. On contact with certain
metals, such as ship decks, LNG can cause immediate cracking.
Although not poisonous, exposure to the center of a vapor cloud
could cause asphyxiation due to the absence of oxygen. LNG
vapor clouds can ignite within the portion of the cloud where the
concentration of natural gas is between a 5 and 15% (by volume)
mixture with air. To catch fire, however, this portion of the vapor
cloud must encounter an ignition source. Otherwise, the LNG vapor
cloud will simply dissipate into the atmosphere.3
 Import-Related Project Siting and Regulatory Issues 371

On the ocean, LNG disperses and evaporates at a much faster rate

than on land, since water acts as a heat source for the liquefied gas, and
a spill at sea cannot be contained. On land, terminals employ a series of
impoundments and other designs to contain spills and limit their effects
on other equipment—especially to reduce or eliminate the possibility that
the spill effects will travel outside site boundaries. Spills on land evaporate
much more slowly as heat transfer is inhibited by the freezing of the ground
beneath the spill.
The design must ensure adequate distances between the following parts
of an LNG terminal: the storage tanks, the berthing and unloading facilities,
the vaporization process area, and the other parts of the facility. LNG
facilities may be required to have a prescribed exclusion zone—that is, an
area surrounding a facility in which an operator legally controls all activities.
Exclusion zones ensure that public activities and structures outside the
immediate LNG facility boundary are not at risk in the event of an LNG fire
or the release of a cloud of flammable vapor.4
There are two types of exclusion zones: thermal-radiation protection
(from LNG fires) and flammable vapor-dispersion protection (from LNG
clouds that have not ignited but could migrate to an ignition source).
Thermal-radiation exclusion distances vary by country. In the United States,
they are determined by applying the NFPA standard for the production,
storage, and handling of LNG and by using a computer model that accounts
for facility-specific and site-specific factors, including wind speeds, ambient
temperature, and relative humidity. The required distances ensure that heat
from an LNG fire inside the storage tanks’ bunds, for example, would not be
severe enough at the property line to cause serious public injury. Computer
models that consider average gas concentration in air, weather conditions,
and terrain roughness are used to determine safe distances to ensure that
vapors created by an LNG spill will be diluted below flammable levels before
leaving the site.5
LNG import terminal developers always prepare an LNG spill prevention,
containment, and countermeasure plan that describes spill prevention
practices, spill-handling and emergency notification procedures, and staff-
training requirements. All of a plant’s safety and security manuals are
submitted to the host country’s energy regulatory authorities for review and
comment before the relevant regulatory body gives permission for terminal
construction to go ahead. Notably, the safety and security parameters of the
terminal sponsor are likely to be even more stringent than those prescribed
by energy regulatory bodies. No multinational or state-owned petroleum
company or gas and power utility would be willing to risk its reputation or
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endanger life and property by designing a terminal with less than the highest
safety and operating standards, in addition to the financial consequence of
being held accountable in the event of an accident.
LNG receiving terminals have excellent safety records and consistently
meet the stringent safety and environmental requirements that are imposed.
However, as M.W. Kellogg noted in its feasibility study for a proposed LNG
receiving terminal in Turkey, “One should not overlook the probability of
opposition by local and national groups that may not fully understand the
nature of the process.”6 Usually, LNG import terminal sponsors will consider
possible objections from such groups and attempt to establish lines of
communication with the local community and other interest groups very early
in the development process, to demonstrate that the impact of the proposal
on the local environment and community has been carefully considered.
Without question, LNG safety is hard to explain to the public as it involves
elaborate technical analysis and design; the opposition to LNG terminals
is rarely concerned with factual discussion and can readily scare the local
population with nightmarish scenarios of conflagration and destruction. A
general distrust of government agencies and energy companies can make
siting LNG facilities a challenging experience, notwithstanding the presence
and enforcement of highly protective regulatory requirements.
Port access. To be considered for location of an LNG terminal, a
prospective site must be near a deep shipping channel with a suitably
sized turning basin. Because LNG tankers are very expensive to operate,
the proposed location should be relatively unaffected by or protected from
extreme weather conditions and severe oceanographic conditions that could
delay tanker transit and unloading operations for more than a few days of
each year.7
Although it is possible to dredge both the ship channel and the unloading
berth, dredging can be extremely expensive and may add significantly to the
project’s construction costs. It can also be very difficult to find a nearby
disposal site to dispose of the dredge spoils (particularly if it is contaminated
with toxic material). The environmental aspects of dredging can raise issues
during the permitting process. Other environmental considerations include
air quality (from gas-fired vaporizer and tugboat and LNG tanker emissions),
water quality (from ORV discharges and ship and tugboat operations), and
the environmental impacts associated with the construction of the pipelines
connecting the terminal to the transmission grid.
 Import-Related Project Siting and Regulatory Issues 373

REGULATORY ISSUES
Terminal-licensing procedures
The first step taken by a company planning an LNG import terminal at
a designated location is to sign a basic engineering and design contract
and employ an environmental consultant. The contractors will work with
the developer to determine whether the designated site is suitable, by
conducting technical and environmental assessments of the site and by
comparing and contrasting it with other nearby locations. After a site is
chosen, a contractor will determine the extent of the civil work required in
order to prepare the site and prepare preliminary designs of the terminal’s
berthing, storage, and regasification facilities. The developer will also design
the pipeline that connects the terminal to the gas grid, assessing alternative
routes from an environmental and safety perspective, unless arrangements
are made with the grid operator to perform this work. At this point, the import
terminal sponsor will generally also have opened an informal dialogue with
the regulatory agencies.
The developer will usually establish a line of communication with local
political officials to address and allay their concerns as early as possible. In
addition, the developer will initiate contact with other interested political,
community, and/or environmental advocacy groups. Organized interest
groups often view an LNG import terminal in their community as inimical
to the interests of the local population. If they feel that their concerns are
not being adequately addressed by the company and local elected political
officials, a project could easily be derailed.
Once the design scope and environmental assessments are in hand, the
developer usually submits an application to the national energy regulatory
body or appropriate government entity for a license to build the terminal.
This application will provide a detailed description of the project, including
its safety and security features and its environmental impacts, especially
effects on water use and quality, air quality, vegetation and wildlife, cultural
resources, geological resources, soils, land use, recreation, aesthetics, and
noise. This assessment will also look at the impacts associated with the
terminal’s construction activities. It may discuss alternatives, including
alternative means of supplying gas, alternative sites considered and the
reason for choosing the specific site, alternative layout considerations
within the chosen site, and alternative pipeline routes. The regulatory
authority generally takes an applicant’s environmental report as the
starting point for preparing the government’s own environmental review.
The relevant national regulatory body will solicit additional information
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and/or clarification from the applicant as needed, and will accept public
comments on the application.
Provided that all the safety, security, and environmental criteria of
the host country are met, the energy regulator will usually issue a final
authorization approving the construction of the project. This authorization
will generally incorporate conditions with which the developer must comply
during both the construction and the operational phase of the project.
The authorization for the 1.5 Bcf/d (15.5 Bcm/y) Cameron LNG terminal in
Hackberry, Louisiana, required that Cameron LNG meet over 50 conditions,
covering design, construction, other permits, and so forth; these conditions
have to be satisfied before the terminal was permitted to begin construction
and start operations. Particular concerns included the proposed location
of the terminal, dredge disposal arrangements, and LNG storage and
containment provisions and the attendant thermal-radiation and vapor-
dispersion exclusion zone calculations. These authorizations can also be
the subject of legal challenges by aggrieved parties; once seen as limited to
the United States alone, such legal challenges are spreading rapidly to other
host countries, notably the United Kingdom and Italy.

Terminal access
Historically, LNG import terminal sponsors had proprietary access to
the receiving facilities that they built. Proprietary access to LNG receiving
terminals was—and in many cases still is—considered to be essential by
participants in the LNG chain, who are understandably reluctant to sign a
20-year take-or-pay LNG purchase contract with an LNG importer without
a guaranteed market outlet. Traditionally, Asian city gas and power utility
companies, either publicly owned (e.g., Taipower in Taiwan) or privately
owned (all utilities in Japan), built LNG terminals to ensure a steady supply
of gas to their own customers.
Proprietary access to LNG receiving terminals also has been one of the
underpinnings for financing the entire project. As described in chapter 2, the
regulatory bargain granted proprietary or monopolistic rights to a utility in
exchange for being subject to government regulation of the prices or tariffs
charged to customers, including the profits that the utility could earn from
the infrastructure it developed. In this scheme, the need for nonproprietary
access was unclear.
The opening of gas and power markets to competition is effecting dramatic
changes in LNG import terminal access in Europe and North America—and
even in the more conservative Asian markets. Pipeline gas and LNG imports
are no longer the sole province of the state gas and power monopolies. Other
 Import-Related Project Siting and Regulatory Issues 375

One of the drivers for the

firms are claiming the right to import
gas and/or generate electricity for sale development of offshore
into the market, rather than purchasing terminals was that they
gas or power from a state monopoly. In avoided many of the more
Korea and Spain, private companies are
building their own terminals to secure
controversial aspects of
the gas supplies that they need. These onshore facilities, especially
companies generally have the blessings of when it comes to overcoming
their host governments, which are anxious
the concerns about safety
to promote the private construction
of gas delivery infrastructure to meet and security that factor
burgeoning gas demand forecasts. heavily into onshore
Nevertheless, market liberalization terminal siting.
is a double-edged sword for LNG
import terminal sponsors. Gas market
liberalization is generally characterized
by the requirement that transmission—and often distribution—pipeline
operators offer open access or third-party access on a nondiscriminatory
basis to any qualified participant, often under terms and conditions, including
prices, regulated by the government. While host governments appreciate the
need for new LNG import infrastructure, they are also becoming aware that
few companies will bear the risk of investing in a liberalizing gas market and
invest the vast sums of money needed to build an LNG import terminal
unless they are guaranteed some access to the facility or they are allowed to
charge access fees that reflect the risks they have taken. Some companies
will not consider going through the laborious process of siting and licensing
a receiving facility and spending hundreds of millions of dollars to build it if
they are required by regulations to permit other companies—in many cases,
their competitors—to use it. Other terminal developers have positioned
themselves as infrastructure operators, willing to build terminals for third
parties on the premise that the terms of access can be freely negotiated and
allow the developer to profit from his or her efforts.
To that end, governments and regulatory bodies worldwide are looking
for ways to create a regulatory climate that is not only conducive to the
construction of new LNG terminals but also respectful of the spirit of gas
market competition. In Europe, for example, some governments appear
amenable to the idea of an import terminal sponsor’s using most of its
terminal capacity on a proprietary basis. However, the remainder must be
made available to third parties on a nondiscriminatory basis.8 Other European
governments have granted exceptions to third-party access on a use-it-or-
lose-it basis; the terminal operator can use the terminal for its exclusive
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importation, but if the terminal capacity is not fully utilized, the regulator
reserves the right to revisit the terms and conditions of the authorization and
may require the granting of third-party access, as has happened in the United
Kingdom. The United States has a stronger history of ensuring third-party
access to LNG receiving infrastructure but also needs additional sources
of gas to meet soaring demand. In 2002, FERC exempted LNG terminal
sponsors from having to provide open-access service. In addition, the U.S.
Congress passed legislation in 2002 that granted owners of offshore LNG
import terminals exclusive access to their facilities. The onshore terminal
open-access exemption was codified in the U.S. Energy Policy Act of 2005.

Offshore terminals
One of the drivers for the development of offshore terminals was that
they avoided many of the more controversial aspects of onshore facilities,
especially when it comes to overcoming the concerns about safety and
security that factor heavily into onshore terminal siting. However, while
these concerns may be lessened, they are not ignored by the relevant
agencies. Most offshore terminal proposals are subject to rigorous safety
reviews, although the approach used is more akin to that applied to other
offshore energy infrastructure, such as producing platforms, as opposed
to onshore terminals. Public concerns are not always assuaged by offshore
siting. The U.S. Coast Guard has indicated that it will subject the Broadwater
Energy offshore terminal (a permanent floating terminal) in Long Island
Sound to safety and security measures similar to those applied to LNG
tankers transiting to onshore terminals—in some measure responding to
strong local opposition, even though the terminal is nine miles from the
nearest land.
Offshore terminals also may incorporate novel technologies, including
ship-to-ship or similar cargo transfer methods, that require separate
certification and approval before they can be deployed. In contrast, onshore
terminals tend to use relatively well-developed technologies that do not
require additional certification.
Finally, offshore terminals face unique environmental issues that do not
apply to onshore terminals. Offshore pipelines, connecting the terminals
to the mainland, raise their own sets of concerns and issues that must be
addressed. The selection of vaporization technology has proven controversial,
even in the normally industry-friendly Gulf of Mexico state authorities have
threatened to veto projects that use ORVs because of potential impacts
on local fisheries, thereby forcing a move to gas-fired vaporizers and
consequently undermining the projects’ economics.
 Import-Related Project Siting and Regulatory Issues 377

NOTES
1
There are several cases in which the GUIA applies even though LNG is used both
as a residential and as a public utility fuel source for electric power generation.
In addition, requirements in the Factory Location Act and the Petroleum
Industry Complex Casualty Prevention Act are enforced for all LNG plants and
facilities. The Labor Safety and Health Law (for boiler, pressure vessels, etc.)
and the Fire Prevention Law (for facilities handling hazardous materials, e.g.,
petroleum) are also enforced to ensure the safety of all LNG facilities. The
Japan Gas Association (Standards for Safety of Facilities and Recommended
Practice for LNG Inground Storage), Japanese Industrial Standards, Japanese
Petroleum Institute, and Steel Structure Calculation Standards are also
specific codes and standards that supplement these laws.
2
California Energy Commission. 2003. Liquefied natural gas in California: History,
risks, and siting. Staff paper, p. 2.
3
Ibid.
4
Ibid.
5
Even if an LNG storage tank is breached, this does not automatically mean that
a fire will result. This can happen only when the concentration of LNG in the
atmosphere is between 5% and 15% and there is a source of ignition to light
the vapor cloud.
6
M.W. Kellogg. 1993. BOTAS Petroleum Pipeline Corporation New LNG Receiving Terminal
Study. Volume 1, p. 82.
7
Ibid., p. 84.
8
See, e.g., BG Group and Enel become partners in Brindisi LNG. 2003. BG press
release, June 24. BG Group and Enel will share 80% reserved capacity in their
6 MMt/y receiving terminal at Brindisi, located in southeastern Italy. The
remaining 20% will be subject to regulated third-party access by Italian energy
authorities. (In June 2005, BG announced that it had bought out Enel’s share
of the Brindisi LNG project.)