By Chris Lane
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According to documents filed with the SEC, Crest also will get percentage of revenue from the terminal -- with at least $2 million guaranteed annually.
In 2002, the project picked up another key investor: Michael S. Smith of Colorado bought a 60 percent interest in the venture, which was renamed Freeport LNG L.P. Smith had made his money from an energy company he founded and sold two decades later for $410 million.
Like Daniel, Smith is politically connected. He's been a key backer in the campaigns of Senator Ben Nighthorse Campbell of Colorado and has given $72,900 to federal candidates since 1996.
The contributions and political connections have helped LNG terminal developers enjoy a strong alliance with the Bush administration. Our national energy policy resulted from Vice President Dick Cheney's secretive powwow, which Allbaugh, Daniel's future business partner, attended. The policy specifically identifies LNG as a growth industry. And the pending Bush energy bill makes a point of speeding up the permitting process for LNG terminals. It would also weaken states' abilities to block the projects, says Brendan Bell of the Sierra Club.
Energy Secretary Spencer Abraham and the energy regulatory commission both support new terminal construction. In December 2002, FERC loosened long-standing controls on liquefied natural gas prices. Under the new rules, terminal operators could determine their own rates and customers, greatly enhancing potential profits.
The Bush administration's enthusiasm for LNG as an energy source was helping well-connected insiders. But the feds weren't nearly as enthusiastic about issues of terminal safety, especially in one key area: the threat of terrorism.
Jerry and Jeanne Masters bought their Quintana cottage in the aftermath of one of the biggest scandals in the island's history. Jeff Reynolds, who owned the popular restaurant Jeff's on the Jetty, was convicted of murdering a tenant and sentenced to 40 years in prison.
The Masterses, who'd been friendly with the restaurateur, bought his house. Last summer, they purchased a restaurant of their own, a long-neglected spot on the main road. They named it the Quintana Yacht Club and threw their life savings into fixing it up.
In many ways, the couple is the antithesis of the feisty Cornelison. Jerry, a Freeport councilman and pipe fitter at Dow Chemical, is soft-spoken and friendly, with a politician's love of corny puns. Jeanne is more likely to roll her eyes than go into a long rant.
But they've found themselves on the same side of the LNG battle. The Masterses' cottage sits about 600 feet from where the LNG tankers will deposit their precious fluid. And, despite the assurances of the developers, the couple is convinced that puts them right in the burn zone.
Freeport LNG insists that all it needs is a 900-foot buffer between the terminal and the islanders. (Their lead technicians are mostly former Enron workers who handled the company's overseas LNG projects.) Rose Irwin, a 77-year-old widow who emphatically does not want to sell, would be forced to leave the house her husband built. Everyone else, the technicians say, should be just fine.
By federal calculations, they're right. Freeport LNG's application explains that terminals must create "exclusion zones" to separate people from LNG and its fire potential. But the zones are based on a small accident: a single pipe spilling its contents for ten minutes. The feds do not require that the company factor in a tank rupturing or even a bigger spill.
Congress instructed the energy regulatory commission almost three decades ago to develop regulations for putting LNG terminals only in remote spots. The agency never did, says Powers, the San Diego engineer.
"They're still operating as if it's 30 years ago, when the worst-case scenario was a broken pipe," says James A. Fay, a professor emeritus of mechanical engineering at the Massachusetts Institute of Technology. "That presumes the kind of problems with spills of LNG will be small-scale, chronic events -- rather than what everyone believes now is the major issue, and that's terrorism."
Nor do federal regulations take into account a spill from a tanker. Jerry Havens, a professor of chemical engineering, has studied LNG as director of the Chemical Hazards Research Center at the University of Arkansas. He believes the worst threat would be a large release from a ship. A hole in an LNG tanker similar to those terrorists punched into oil tankers in the Middle East could be devastating. "Such LNG releases, onto water, would be uncontained and therefore spread, resulting potentially in very large fires," he wrote in an e-mail to the Press. "The size of such fires might pose dangers to population up to perhaps a mile away under worst case spill conditions."
The experts agree a hole of that size would spill just one-fifth of the contents of an LNG tanker. Havens can't speculate as to what a bigger spill would mean; it's probably not five times as big, he says, but it needs further study.
Fay, who conducted some of the first studies of LNG fires in the 1970s, recently analyzed a project planned for Maine. He found that people within three square miles were at risk of severe burns from a tanker spill. The attacks on tankers in the Persian Gulf, he says, show how easy it is to blow a hole into the side of a ship. "It's a whole new ball game, but FERC hasn't stepped up to the plate. They're still trying to facilitate these permits and get these things built."