Regional LNG: Plan for Baja LNG plant hits snag: Report

The LNG terminal that Sempra Energy and Shell Oil plan to

develop in Baja California continues to be dogged by legal challenges that might delay construction of the project, according to the developer challenging Mexican federal permits, The San Diego Union-Tribune reported Friday.

At the same time LNG facility has become an issue

in the Ensenada mayoral election Sunday. Two major candidates are calling for the project to be relocated to a site far south of the city.

Sempra and Shell plan to develop the terminal at Costa Azul, 12 miles north of Ensenada and adjacent to the Bajamar golf resort. The US$600 million project includes a re-gasification plant, storage tanks, a breakwater and dock for ocean-going tankers.

The project is expected to supply natural gas to Baja California and Southern California.

Bajamar developer Roberto Valdes says a preliminary injunction to nullify permits for the LNG project has been granted in response to 15 legal motions he filed in a newly created branch of Mexican federal courts, the Fiscal and Administrative Justice Court.

"Until the courts make their final decision, and that could take three, four, five, six months, we can't know if the permits will be valid," he said.

This month, Carlos Gonzalez Castro, an Ensenada lawyer, sent copies of the injunction to Baja California Gov. Eugenio Elorduy Walther, members of his cabinet, Ensenada's mayor and the city's fire chief.

"Right now, the suspensions are in effect," Gonzalez said. "They can't take any action on the project because of the suspension in Mexico City."

Sempra Energy LNG President Darcel Hulse, however, said all injunctions have been lifted and dismissed.

"There are no injunctions against any permits," Hulse said yesterday. He said construction remains on schedule and should begin before the end of the year.

"Nothing's holding it up other than the process of building the access road and finalizing the supply agreements," Hulse said, adding that a supply agreement to

receive natural gas from Indonesia will be signed in August or September.

"It's been a long, long road, and it looks like it's well on track to happen just the way it was planned," Hulse said.

The status of the permits does not seem certain, however. Two federal permits -- a development permit and an environmental permit -- are key to development of

the project. A land-use permit from the city of Ensenada also is required.

Before Sempra and Shell decided to collaborate on a joint venture, both had been granted the necessary federal permits. Former Energy Secretary Felipe Calderon,

before being removed from office this spring, told The San Diego Union-Tribune the project will require new permits because the joint venture now is the project developer.

Hulse said that because Shell is joining the existing Sempra project, no new permits are required. Changes were required from Mexico's competitiveness commission, he noted, and they have been received.

Some Mexican energy officials have said the action by the Federal Court of Fiscal and Administrative Justice suspends not only the environmental permit but also the developmental permit. Others have been vague about the status and affect of the court action.

But George Baker, a Houston consultant specializing in Mexican energy issues,said the lack of precedent by the new court, which was created by President Vicente Fox, makes for judicial uncertainty.

"The rules are not yet fully known," Baker said. "It's premature to judge how this matter is going to be resolved."

Ensenada's mayoral election Sunday might further complicate matters.

The support for the project of Mayor Jorge Catalan Sosa of the National Action Party, or PAN, and his administration's granting of a land-use permit for the Sempra-Shell project has emerged as a major issue in the race.

Both major opposition candidates -- Rogelio Appel Chacon of the Institutional Revolutionary Party (PRI) and Sergio Loperena of the Democratic Revolution Party (PRD) -- have called for the project to be relocated far south of Ensenada at Punta Colonet.

Cesar Mancillas Amador, the PAN candidate, supports the site favored by Shell and Sempra.

A group of local businessmen has proposed creating a new industrial center at Punta Colonet to include an industrial port operation, a rail line and the LNG receiving terminal.(*)