By Joshua Wolfson and Rob Shea
Jan. 14, 2003

In the wake of Shell's announcement that it will bail from the Mare Island LNG proposal, Vallejo City Manager David Martinez and Mayor Tony Intintoli are recommending that the City Council kill the project.

Although Shell's partner, Bechtel Enterprises, is planning to move forward, the project "is, in effect, dead," the city of Vallejo said in a written statement released Thursday afternoon, hours after Shell's announcement.

Intintoli said any future partner would come to the same conclusion as Shell. Therefore, any attempt to continue discussions with Bechtel would be fruitless. Bechtel's expertise lies in construction, not the handling of liquefied natural gas, he said.

"I will support a termination of further consideration of this matter," he said. "At this point, with an LNG partner having left, I think there is no reason to continue the discussion any further."

"Furthermore, my reading of the health and safety report has led me to conclude that the construction of such a facility in close proximity to a populated area is not appropriate," Intintoli said in the prepared statement. "The study indicates to me that there is a moderate chance of a maritime accident occurring within the vicinity of the proposed terminal that would likely affect populated areas of Vallejo."

Proposed for the southern tip of the island, the facility would include a natural gas-fired power plant; an LNG import terminal and regasification facility; a two- or three-tank storage facility in which LNG would be kept in its liquefied state; and a 35-mile pipeline connecting the facility to California's natural gas distribution system.

Since the proposal surfaced in May 2002, it has drawn opposition from community groups and individuals with concerns about pollution, safety, terrorism and the effect it would have on other development and the city's image. Proponents have argued that the facility would provide jobs and tax revenue for the city.

Councilwoman Pam Pitts said it's premature to write the project's obituary. Bechtel is in for the long haul, and the city may have some legal obligations to fulfill before pulling the plug on the LNG plant, she said. Plenty of questions need answering.

"The mayor can have an opinion, but he doesn't speak for the whole council," Pitts said. "The city took money to do a safety study. To cancel it before it's even presented? What's in the contract? What did we agree to?"

Pitts said she spoke to City Attorney Fred Soley Thursday afternoon, and Soley at that time hadn't heard about the recommendation coming from Intintoli and Martinez. Pitts also noted that Bechtel began the project solo, and Shell came aboard as a partner later.

Martinez and Intintoli said they are not interested in keeping the project alive while Bechtel searches for a new partner. As a result of Thursday's developments, city officials have canceled a Jan. 28 study session on the LNG facility and instead plan to have the Vallejo City Council vote that day on Bechtel's request to continue the project.

"It will be my recommendation that the request to continue be denied," Martinez said. "Given the many challenges facing the city, it's important for us to pull together and focus on the many other issues and projects on the table, such as the development of downtown, Mare Island, the waterfront and the auto mall."

Martinez said city staff had already been leaning toward a recommendation to kill the project, but today's announcement by Shell helped speed up the process.

Despite what appears to be an uphill fight, Bechtel spokeswoman Allison Abbott said her company does not plan to back out. "We are committed to moving forward on it. We feel there is a lot here for the city to evaluate before making a hasty decision."

"We hope we will have opportunity to talk with the city further about the potential benefits," she said.

In a written statement, an official from Shell Gas and Power said the Vallejo location "is not the best site" for the company.

"Regrettably, after taking a hard look at almost eight months of feasibility study results from Mare Island, we no longer see the potential for this site to fit within our long-term strategic plans," said Gus Noojin, president and CEO of Shell.

Abbott said the scope of the project would not change in Shell's absence.

"We started at looking at this opportunity without a partner," she said. "Certainly there may be companies that approach us. We don't feel there is a need to have a partner in place to move forward."

Stephanie Gomes, spokeswoman for the Vallejo Citizens for Planned Renewal, a grassroots LNG opposition group, said, "My first reaction is elation. It's a huge victory us. The community has worked hard."

"Shell saw the writing on the wall," Gomes said. "They got out before they got kicked out. The community opposition has been stiff and fierce."

Vallejo Citizens for Planned Renewal will continue to try "to bring the kind of businesses to Mare Island that will bring good jobs and clean businesses."

Shell spokesman Jimmy Fox said the company recently completed a comprehensive overview of a feasibility study. From the information collected so far, Shell determined that project didn't meet certain criteria described in the company's strategic plan for LNG site selection and development.

Fox declined to detail the criteria, saying such information was proprietory, but said they had to do with costs, location and size. He added that no one factor influenced Shell's decision, and he wouldn't say whether Shell now has information that it didn't know when it first proposed the project.

Abbott said Shell had been evaluating the decision to participate in the LNG project for some time, but informed Bechtel officials of its decision yesterday.

Intintoli said he learned of the decision Thursday morning. "The reason they gave was they had reviewed their portfolios of investment and this wouldn't work for them," he said. "I take that to mean the market."

Shell also has been looking at a site for a plant in Baja California, where the company wouldn't be subject to such requirements, Intintoli said.

Recent news stories about the LNG market have suggested that Shell was reconsidering its scope of participation, Intintoli said.

"I do understand from other sources that over the past few months in the newspapers there have been discussions about Shell's position in the LNG market," he said.

"If LNG is not feasible for Shell, I don't know why it would be feasible for anybody else."

Another obstacle is the expectation that it could take several years for regulators to determine whether to grant the facility a permit for the huge amount of dredging that would be required for the project, Intintoli said.

Last year state lawmakers passed a bill that will required energy plants to increase the amount of energy derived from renewable resources, according to Vallejo Community Development Director Al da Silva. While it is likely only one of many reasons in Shell's decision, "We think that this alone could be a contributing factor," he said.

Shell is pursuing plans for an LNG facility in Mexico, da Silva noted.

"They have not discontinued their interest in looking elsewhere," he said.

Despite Shell's decision to leave the project, a study of the economic benefits of the project should move forward anyway, said Kurt Henke, a member of the Citizens for the LNG Feasibility Study and president of the Vallejo Firefighters Association.

"I don't see any impact at all [of Shell's decision]," he said. "The message continues to be let get all those facts and put those facts before the voters and let the voters decided what they want to do."

Bechtel was committed to the project and still had the capital in place to complete it, he said. "Bechtel was the company that brought the project here in the first place."

Staff writer Lily W. Heyen contributed to this report.

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