STATEMENT OF CAPT. DAVID SCOTT ON THE COAST GUARDâââÃ

Before being allowed to trade in the United States, operators of foreign flag LNG carriers must submit detailed vessel plans and other information to the Coast Guard’s Marine Safety Center MSC) to establish that the vessels have been constructed to the higher standards required by our domestic regulations. Upon the MSC’s satisfactory plan review and on-site verification by Coast Guard marine inspectors, the vessel is issued a Certificate of Compliance. This indicates that it as been found in compliance with applicable design, construction and outfitting requirements.

The Certificate of Compliance is valid for a two-year period, subject to an annual examination by Coast Guard marine inspectors who verify that the vessel remains in compliance with all applicable requirements. As required by 46 U.S.C. 3714, this annual examination is required of all tank vessels, including LNG carriers.

The Coast Guard has long recognized the unique safety and security challenges posed by transporting millions of gallons of LNG or “cryogenic methane.” Accordingly, LNG vessels typically undergo a much more frequent and rigorous examination process than conventional crude oil or product tankers. LNG vessels are often boarded by marine safety personnel prior to U.S. port entry to verify the proper operation of key navigatio n safety, fire fighting and cargo control systems.

In addition to undergoing a much more rigorous and frequent examination of key operating and safety systems, LNG vessels are subject to additional measures of security. Many of the special security precautions the Coast Guard has established for LNG vessels derived from our analysis of “conventional” navigation safety risks, such as groundings, collisions, propulsion or steering system failures. These precautions pre-dated the September 11, 2001, tragedy and include such things as special vessel traffic control measures that are implemented when an LNG vessel is transiting the port or its approaches, safety zones around the vessel to prevent other vessels from approaching nearby, escorts by Coast Guard patrol craft, and, as local conditions warrant, coordination with other federal, state and local transportation, law enforcement and/or emergency management agencies to reduce the risks to, or minimize the interference from, other port area infrastructure or activities. These activities are conducted under the authority of existing port safety and security statutes, such as the Magnuson Act (50 U.S.C. 191 et. seq.) and the Ports and Waterways Safety Act, as amended.

Since September 11, 2001, additional security measures have been implemented, including the requirement that all vessels calling in the United States must provide the Coast Guard with a 96-hour advance notice of arrival (increased from 24 hours advance notice pre-9/11). This notice includes information on the vessel’s last ports of call, crew identities, and cargo information. The Coast Guard now subjects LNG vessels to at-sea boardings, where Coast Guard personnel conduct special “security sweeps” of the vessel and ensure “positive control” of the vessel is maintained throughout its port transit. This is in addition to the safety oriented boardings previously described.

Of course, one of the most important post-9/11 maritime security developments has been the passage of the Maritime Transportation Security Act of 2002 (MTSA). Under the authority of MTSA, the Coast Guard developed a comprehensive new body of security measures applicable to vessels, marine facilities and maritime personnel. Our domestic maritime security regime is closely aligned with the International Ship and Port Facility Security (ISPS) Code. The ISPS Code, a mandatory requirement of the SOLAS Convention, was adopted at the IMO in December 2002 and came into effect on July 1 2004. Under the ISPS Code, vessels in international service, including LNG vessels, must have an International Ship Security Certificate (ISSC). To be issued an ISSC by its flag state, the vessel must develop and implement a threat-scalable security plan that, among other things, establishes access control measures, security measures for cargo handling and delivery of ships stores, surveillance and monitoring, security communications, security incident procedures, and training and drill requirements. The plan must also identify a Ship Security Officer who is responsible for ensuring compliance with the ship’s security plan. The Coast Guard rigorously enforces this international requirement by evaluating security compliance as part of our ongoing port state control program.

Presently there are six shoreside LNG terminals in the United States and its territories: the export facility in Kenai, AK and import terminals in Everett, MA; Cove Point, MD; Elba Island, GA; Lake Charles, LA; and Penuelas, PR. Regulations developed under the authority of the Ports and Waterways Safety Act assign the Coast Guard the responsibility for safety issues within the “marine transfer area” of LNG terminals. These regulations are codified at 33 C.F.R. pt. 127. The “marine transfer area” is defined as that part of a waterfront facility between the vessel, or where the vessel moors, and the first shutoff valve on the pipeline immediately before the receiving tanks.

The Department of Transportation’s Pipeline and Hazardous Materials Safety Agency has jurisdiction from that point inland. Safety issues within our purview in the marine transfer area include electrical power systems, lighting, communications, transfer hoses and piping systems, gas detection systems and alarms, firefighting equipment, and operational matters such as approval of the terminal’s Operations and Emergency Manuals and personnel training.

New “Maritime Security Regulations for Facilities” found at 33 C.F.R. pt. 105, were developed under the authority of MTSA. These regulations require the LNG terminal operator to conduct a facility security assessment and develop a threat-scalable security plan that addresses the risks identified in the assessment. Much like the requirements prescribed for vessels, the facility security plan establishes access control measures, security measures for cargo handling and delivery of supplies, surveillance and monitoring, security communications, security incident procedures, and training and drill requirements. The plan must also identify a Facility Security formerly Research and Special Programs Administration’s (RSPA) Office of Pipeline Safety Officer who is responsible for ensuring compliance with the facility security plan. The six existing U.S. LNG terminals were required to submit their security plans to the Coast Guard for review and approval last December, and full implementation of the plan was required by July 1, 2004. These reviews have been completed, and the terminals’ compliance with the plans have been verified by local Coast Guard port security personnel through scheduled on-site examinations. In contrast to our safety responsibility, whereby our authority is limited to the “marine transfer area,” our authority regarding the security plan can, depending upon the particular layout of the terminal, encompass the entire facility.

The issue of constructing new shoreside LNG terminals has been controversial, due in large part to public concerns over the safety and security of LNG vessel operations. The Federal Energy Regulatory Commission (FERC) exercises siting authority for LNG terminals, primarily pursuant to Natural Gas Act authority that the Department of Energy has delegated to FERC However, the Coast Guard plays an important role in the siting process. As required by 33 C.F.R. 127.007, an owner or operator who intends to build a new LNG facility, or who plans new construction on an existing facility, must submit a “Letter of Intent” to the Coast Guard Captain of the Port (COTP) in whose zone the facility is located. This letter must be submitted no later than 60 days prior to construction and must provide information on: the physical location of the facility; a description of the facility; the characteristics of the vessels intended to visit the facility and the frequency of visits; and charts that show waterway channels and identify commercial, industrial, environmentally sensitive, and residential areas in and adjacent to the waterway to be used by vessels en route to the facility, within 15.5 miles of the facility.

The COTP reviews the information provided by the applicant and makes a determination on the suitability of the waterway for LNG vessels. Factors considered include: density and characteristics of marine traffic in the waterway; locks, bridges, or other man made obstructions in the waterway; the hydrologic features of the waterway (e.g., water depth, channel width, currents and tides); natural hazards, such as reefs and sand bars; and underwater pipelines and cables.

Both the Coast Guard and the FERC recognize that the “Letter of Intent” process, which dates from 1988, does not, in its current form, adequately take into account the security concerns of our post 9/11 environment. First, of course, is the fact that a “60 day prior to construction” deadline to provide information to the local COTP is far too late in the game. FERC will have completed the bulk of its National Environmental Policy Act (NEPA) Environmental Impact Analysis work before the terminal is authorized by the Commission and construction is allowed to commence.

Thus, “late- in-the-game” comments by the Coast Guard could be disruptive to an authorized facility. Secondly, and more importantly, the existing regulations are focused primarily with conventional navigation safety risk management issues such as traffic density, hydrologic characteristics of the waterway, etc. They do not focus on port security risk management issues, and in particular, they do not directly require an analysis of the consequences of an LNG spill on water.

To address this problem, on February 10, 2004, the Coast Guard entered into an interagency agreement with FERC and the Pipeline and Hazardous Materials Safety Agency to work together in a coordinated manner to address issues regarding safety and security at waterfront LNG facilities, including terminal facilities and tanker operations, avoid duplication of effort, and to maximize the exchange of relevant information related to the safety and security aspects of LNG facilities and the related maritime concerns.

Pursuant to this interagency agreement, FERC is now requiring terminal applicants to contact the local Coast Guard COTP as soon as they commence their “pre- filing”, or submit their conventional application to FERC, and provide the COTP with the information required by 33 C.F.R. § 127.007.

The Coast Guard has agreed to begin evaluating that information upon receipt, and advise FERC of its findings in ample time to include this information as part of the Environmental Impact Statement (EIS). Upon completion of the evaluation, as required by 33 C.F.R. § 127.009, the COTP issues a “Letter of Recommendation” to the owner or operator of the proposed facility, and to the state and local government agencies having jurisdiction, as to the suitability of the waterway for the proposal.

The FERC and Coast Guard are also working cooperatively to address the port security component of the EIS. In addition to an evaluation of conventional navigation safety risks, future EISs will also include a security assessment that takes account of the risks of the marine transportation component of the proposal, using the hazard distances established by the spill consequence models described in the recently published Sandia Report.4 A joint USCG-FERC Team is now developing guidance on conducting security assessments for proposed shore side LNG terminals. This guidance will be informed by the FERC’s site specific modeling, the concentric “Zones of Risk” hazard distances discussed in the Sandia Report, as well as the current MTSA security regulations in title 33, Code of Federal Regulations, existing Coast Guard guidance on Area Maritime Security Plans, and widely accepted risk based decision making (RBDM) assessment methodologies that have been proven effective, such as the model the Coast Guard used to evaluate the re-opening the Cove Point, MD LNG terminal several years ago. One very important product of this assessment will be to identify the level of Coast Guard, and other federal, state and local resources necessary to ensure the risks of the operation can be managed responsibly. This means providing a deterrent presence sufficient to reduce the risks of an incident to a level acceptable to federal, state and local port stakeholders, as well as ensuring sufficient resources are ava ilable to deal with the consequences of an incident, in the unlikely event one were to occur. The assessment will identify both current resource levels and the resources necessary to mitigate the risks to the aforementioned level of acceptability. We expect this guidance to be completed and distributed by early this spring.

The Coast Guard is also working on the changes necessary to bring the existing “Letter of Intent” and “Letter of Recommendation” regulations up to date, specifically by requiring the waterways management information to be submitted to the COTP at the time of FERC “pre-filing” or conventional application, and adding specific requirements for a port security assessment, in addition to the waterways management information, to be presented to the COTP for evaluation.

It is important to note that the Freeport, TX and Sabine Pass, LA Final EISs did include an evaluation of the LNG spill consequence aspects of the projects, using the spill model FERC developed and modified based on a study by ABS Group Consultants5. A security assessment is now being conducted for terminals proposed for Providence, RI (Key Span) and Fall River, MA (Weavers Cove LNG) using the hazard distances established in the Sandia Report, and the Coast Guard’s Port and Waterways Safety Assessment risk assessment tool. The results of these assessments will be provided to the Commission for their consideration of these projects.

The Coast Guard’s authority to regulate deepwater ports (DWPs) derives from the Deepwater Port Act of 1974 (DWPA) and the regulations pertaining to the licensing, design, equipment and operation of DWPs at 33 C.F.R. pts. 148, 149 and 150. Originally pertaining only to oil, MTSA amended the Deepwater Port Act to include natural gas. This Act allows for the licensing of deepwater ports in the Exclusive Economic Zone along all maritime coasts of the United States.

The Secretary of Homeland Security and the Secretary of Transportation delegated the processing of deepwater port applications to the Coast Guard and the Maritime Administration (MARAD), respectively. MARAD is the license issuing authority, while the Coast Guard is the lead on the application review, and has primary jurisdiction over design, equipment and operations. The MTSA amendments to the DWPA established a specific time frame of 330 days from the date of publication of a Federal Register notice of a “complete” application to the date of approval or denial of a deepwater port license. Among other requirements, an applicant for a DWP license must demonstrate consistency with the Coastal Zone Management Plan of the adjacent coastal states.

The Coast Guard and MARAD, in cooperation with other federal agencies, must comply with the requirements of the National Environmental Policy Act in processing DWP applications within the timeframes prescribed in the Deepwater Port Act. Currently, the Coast Guard is processing nine DWP applications, including two that have already been licensed: Chevron-Texaco’s Port Pelican project and Gulf Gateway Energy Bridge LLC (owned by Excelerate) project, both of which are located offshore of Louisiana. We are anticipating several more applications within the next several months.

To expedite the application review process, and more efficiently coordinate the activities of the numerous stakeholder agencies, the Coast Guard entered into a Memorandum of Understanding(MOU), involving more than a dozen agencies, including FERC, the National Ocean Service, and the Environmental Protection Agency. The MOU obliges the participating agencies to work with each other and with other entities as appropriate, to ensure that timely decisions are made and that the responsibilities of each agency are met. Briefly, these responsibilities include: assessing their particular role in the environmental review of DWP licenses; identifying agency contacts for the proposed project; meeting with prospective applicants and other agency representatives to identify areas of potent ial concern and to assess the need for and availability of agency resources to address issues related to the proposed project; and identifying environmental issues and concerns related to the proposed project that need to be addressed in order for the lead agency to meet its obligations.

While conventional crude oil DWPs have been in operation around the world for many years, LNG DWPs are an emerging concept; currently there are none in operation anywhere. There are a variety of different designs under development that borrow from designs and technology that have been time-tested in the crude oil and the LNG industries. Proposals include ship-shaped hull designs similar to existing Floating Production, Storage and Offloading units, platform based storage and regasification units, gravity based structures, and innovative docking structures that attach directly to the LNG carrier as it ties off to a single point mooring. Because this is a new concept, the Coast Guard’s regulations apply a “design basis” approach, rather than mandate a series of prescriptive requirements. Under a “design basis” approach, each concept is evaluated on its own technical merits, using relevant engineering standards and concepts that have been approved by recognized vessel classification societies and other competent industrial and technical bodies. In addition, the Coast Guard’s DWP regulations require that all LNG DWPs develop and implement a security plan that addresses the key security plan elements provided in 33 C.F.R. pt 106 (“Maritime Security: Outer Continental Shelf Facilities”).

Thank you for giving me this opportunity to discuss the Coast Guard’s role in LNG safety and security and our relationships with other stakeholder agencies. I will be happy to answer any questions you may have.