Delay in ship conversion, permits continue to plague LNG plant

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The 8 million gallon liquefied natural gas facility has faced controversy and stumbling blocks since before construction started. Rendering courtesy of PSE

Puget Sound Energy’s (PSE) liquefied natural gas plant (LNG), which is under construction on the Tideflats, continues to take shape without a required permit from the Puget Sound Clean Air Agency (PSCAA) at a time when its chief customer, TOTE Maritime, has yet again delayed the conversion of its Tacoma-to-Alaska container ships to run on the lower-emission fuel. 

Eyebrows are rising in state and local governments, and among critics, over the delays and the overall viability of the project.

PSCAA is requiring PSE fund a ground-to-ship study of the greenhouse gases generated during the process – from the extraction of the fracked natural gas, to the piping of the gas to the facility, to the process that will then super freeze the gas until it becomes a liquid that could then be used to fuel ships or stored for weather spikes. Industry folks call that “peak shaving.” That review will run into the early months of 2019, a time when the plant was expected to begin operation. The clean air agency also issued the company a notice of violation for starting work on the plant without the agency’s permit. It did not, however, order the plant to stop construction. A draft of the environmental review is due this fall, with a public comment period to follow and a final report projected by early 2019. Only then will the clean air agency begin the process to issue its emissions permit. The supplemental review of the previous environmental studies adds about a year to the plant’s timeline.

TOTE has since announced that the conversion from diesel to LNG of its Midnight Sun and North Star have been pushed back, with both set to be fully converted by late 2021. This is the second conversion delay. One of the two previous ships that were set to swap fuel sources sank, then its sister ship was later scrapped. 

The delay prompted Washington Utility and Transportation Commissioners, for example, to demand PSE update its plans on how the company will provide natural gas to heat homes and businesses for its two million customers if the plant further falls behind.

“PSE assumes that the Tacoma LNG facility will be completed and in operation prior to the 2019 winter season and may be needed to provide gas to meet core customer peak needs as soon as the 2021 winter season,” according to a UTC report. “However, even at this later stage in the project’s development, the project has ongoing and potentially significant permitting issues. Given that the plant is not completed or fully permitted, we agree with staff that the company’s assumption that a not-yet-operational resource will be available comes with some significant risk to the company’s gas supply for core customers. PSE’s next (resource plan) must address what the company will do in the event the LNG plant or pipeline upgrades are significantly delayed or cancelled.”

The 8 million gallon capacity plant wasn’t included in PSE natural gas projections until after the company signed a contract with TOTE to provide its ships with LNG. The plant would be the first conversion facility of its kind in the Northwest.

“The LNG plant is no longer a viable peak-shaving supplier or necessarily needed,” said Puyallup Tribal Chairman Bill Sterud. “The UTC is requiring PSE to leverage other resources for power in its long-range plan because of the uncertainty of the LNG plant’s completion. On top of that, TOTE has pushed back conversion of its two ships to LNG propulsion beyond 2021, more than two years past the original conversion timeline. There is clearly zero urgency to this project, which promises more harmful impacts to our homelands, tribal members and community than benefits or jobs to the region. The environmental review is flawed, and now we have proof that the business plan for this project is also flawed. It’s time to enforce the law and halt construction of this taxpayer-funded and rate-payer funded boondoggle.”

The Puyallup Tribe has fought against the plant for years, dating back to challenges of the plant’s environmental review about how the construction activity at the Superfund site could potentially leach toxins into the waterway and threaten the salmon runs. The Tribe and environmental activists have also questioned the safety of having a natural gas plant so close to sea level that is also within earthquake and lahar zones as well as in close proximity to densely populated areas of downtown. 

“While the Attorney General’s Office does not have a direct role in the siting or permitting of this facility, we are aware of the environmental and legal concerns that have been raised regarding the proposal,” according to e-mails from the Attorney General’s Office. “I want to assure you that our office is actively monitoring actions associated with this project. …. Because this project directly impacts the interests and lands of the Puyallup Tribe and other tribes, it is important that tribal governments are included in the decision-making process in a meaningful role.”

Those concerns, and the future of the waterfront in general, prompted the City of Tacoma and Port of Tacoma to start what will likely be a multi-year review of zoning rules on the working waterfront that is known as a subarea plan. That effort will also involve the Puyallup Tribe and Pierce County. PSE, in the meantime, continues to build without all its permits and under the face of fines.

“What sort of precedent does that set,” Sightline environmental researcher Tarika Powell said. “They aren’t worried about that fine. It is clear that PSE believes it will be negligible.”

She proposed a scenario that the equipment PSE is currently installing does not pass the standard for the clean air agency’s permit only to then receive a waiver to begin operations because the facility is already built. Fines, if any, would then be mediated down to pennies on the dollar rather than the standards being followed.

“No company should be able to have that power… That is why it is so important to stop construction,” she said. “This is just being pushed through without adequate explanation and adequate review.”

The big question is why is PSE so determined to build a $300 million natural gas conversion plant without all of the required permits and without an immediate need by its chief customer, TOTE. Powell has a theory that involves money.

The Australian-based owners of PSE, Macquarie Group Ltd., has reportedly been looking for a buyer to take over the state’s largest utility, after all. The investment group bought PSE’s holding company in 2009 for $3.4 billion. It has since been selling off other utility companies around the nation that it had gathered in the last decade. Any new deal could range between $2 billion and $4 billion depending on the scope of the overall package, according to news reports. A new, $300 million plant, she argues, could help sweeten the deal.

“I think they want to have the project to be part of that portfolio,” Powell said.

PSE spokesman Grant Rigel said the pending sale of minority shares in the utility and the plant’s construction aren’t related at all. It was always the plan by the shareholding group to have a 10-year investment.

“That period of time is coming to a close,” he said, so pondering a sale of those shares is occurring. 

The plant, he said, is needed to add natural gas capacity to the utility’s system as an insurance against spikes in demand caused by cold snaps or disruptions in the production of natural gas as well as to provide cleaner-burning fuel for ships that are being federally mandated to seek cleaner alternatives. He also noted that construction work at the plant is only underway on the non-emitting portions of the facility. Work to install the conversion equipment itself won’t start until the permit has been issued.

 PSE is now concentrating on providing all the data for the ground-to-ship emissions review so the study can be done on time and the permit can be issued so the conversion equipment can be installed and the plant can become operational.

“We are very hopeful that they make the process as efficient as possible,” Rigel said.

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