Proposed liquefied natural gas (LNG) terminals spawn fierce local opposition because of the significant costs these terminals impose on their surrounding communities. These costs are twofold. First, the volatile nature of natural gas creates a significant risk of physical harm for any community in close proximity to the terminal. Although the exact consequences of an accident or terrorist attack affecting an LNG terminal are not known, the potential risks are staggering. One study found that a serious explosion could produce heat sufficient to cause second-degree burns at a distance of greater than half a mile.1 Second, LNG terminals can cause environmental damage due to the effects of increased large-ship traffic in the area.2
In contrast to these extremely localized costs, the majority of the benefits derived from constructing an LNG terminal are quite diffuse. Although LNG terminals can provide both additional jobs and revenue to a community, many benefits derived from an LNG terminal are due to the increased supply of LNG to the entire region.3 Any reasonable increase in the supply of natural gas will reduce both gas prices and gas price volatility for all natural gas consumers in the region.4
The disparity between the localized impact of the costs and the diffuse benefits of LNG terminals raises an important question: How should a decisionmaking process consider and balance local and regional interests when deciding where to locate an LNG terminal? To address this issue, one must address several underlying concerns. For example, should we expect a local community to bear all of the costs-including the risk of extreme physical harm and destruction of property-while the entire region receives the benefits? If so, how should we decide which community? If not, how should a decisionmaking process effectively account for these local interests without allowing them to dominate?
Prior to the enactment of the Energy Policy Act of 2005 (EPAct), the answers to these questions were heavily disputed.5 One possible answer is to support LNG terminals only in locations where the local community approves of the terminal or in remote locations that would not subject a local community to the costs an LNG terminal would impose on the surrounding area. The latter suggestion fails because, in general, siting LNG terminals in remote locations is prohibitively costly and often not possible due to the deep port requirements for LNG tankers.6 This restriction does not foreclose the possibility of siting terminals only in communities with sufficient port facilities that willingly accept these industrial complexes. At first glance, approving siting decisions only if the local community grants its consent appears feasible because there are multiple communities in the Gulf Coast region that would willingly accept LNG terminals.7
The benefits and feasibility of structuring a decisionmaking process with this constraint begin to unravel in the face of regional demand requirements for natural gas. A substantial number of the proposed LNG terminals are slated for development in California and New England because of the infrastructure supply constraints these regions face due to insufficient natural gas pipelines connecting these regions with the gas-producing regions of the country.8 Constructing LNG terminals in the Gulf Coast region will address these supply constraints only if additional natural gas pipelines are constructed, and therein exists a problem. Constructing LNG terminals along the Gulf Coast, where citizens more willingly accept the terminals, would only transfer the costs of LNG terminals from unwilling communities on the West Coast and in New England to residents along the required, newly constructed pipeline routes.9 In addition, this new pipeline construction would likely expand the number of citizens facing the direct costs of importing and transporting natural gas. Ultimately, this expansion would complicate, rather than simplify, the problem of addressing these direct, localized costs. …