updated 4/10/2007 12:11:08 PM ET 2007-04-10T16:11:08

An energy company was dealt a serious blow to its efforts to build a floating liquefied natural gas terminal off the Southern California coast when a state panel refused to grant a lease for pipelines essential to the project.

The 2-1 decision by the State Lands Commission late Monday was met with loud cheers by an estimated 900 people who packed an auditorium for the hearing. Many had spent the day rallying against the proposal and wore blue T-shirts emblazoned with the words "Terminate the Terminal."

"We're ecstatic," said Susan Jordan, director of the California Coastal Protection Network, which provided the shirts and helped organize the opponents. "This effectively kills it."

Patrick Cassidy, a spokesman for the terminal backers, Australia's BHP Billiton LNG International Inc., said the vote was disappointing but the company remains "committed to the process."

Monday's hearing was perhaps the most important in a series that will decide the fate of the terminal that would be built in the ocean northwest of Los Angeles, about 14 miles off Malibu and about 20 miles off Oxnard.

Under the $800 million project, chilled gas brought overseas by tanker would be heated, then piped ashore through two 24-inch diameter lines. From there, Southern California Gas Co. would pump it out to consumers. In all, the facility would process about 800 million cubic feet of natural gas every day.

BHP officials have said the terminal would supply an amount equal to 10 to 15 percent of California's daily consumption, bringing more reliability to the state's energy sources, and could ultimately lower prices. The company has said it hopes to get some of its gas supplies from an offshore gas field in Australia it operates with Exxon Mobil Corp.

Environmentalists, however, say there is no guarantee the project would be more reliable or lower prices because the gas could also be sold to other states.

Opponents also have argued the terminal would not meet clean air requirements and could be a terrorist target. A host of celebrities who live in Malibu, including Pierce Brosnan and Halle Berry, have protested the proposal.

The plan called for sub-sea lines, which would be laid about 100 feet apart, to be about 23 miles long but only cross about 4 1/2 miles of California land before reaching Ormond Beach in Ventura County.

Without the sub-sea pipelines, the terminal would essentially be inoperable.

The lone panelist who supported the proposal, Anne Sheehan, contended the project would help meet rising energy demand in California.

"I think for the future of the state and the energy needs, we've got to move it forward," said Sheehan, who represents state Finance Director Michael Genest, a Cabinet member to Gov. Arnold Schwarzenegger.

Commission Chairman John Garamendi, who is also the lieutenant governor, said he voted against awarding the lease permit because "serious questions remain about the project's safety and its potential impact on the environment."

Schwarzenegger has veto power over the project, but cannot overturn the commission's decision about the pipeline lease. He has not made a decision on what he'd do should the project move forward.

"It would be inappropriate for me to take a position on any application before the review process is complete, but I do believe that liquefied natural gas should be a part of California's energy portfolio," Schwarzenegger said in a statement Monday.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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