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New LA Salt Dome Storage to Target Growing LNG Gas

Bobcat Gas Storage said last Wednesday that it will develop a new, independent salt-cavern gas storage facility in Port Barre, LA. The project anticipates increased Gulf Coast gas volumes arriving in the form of liquefied natural gas (LNG).

The high-deliverability project will be sited near Eunice, LA and the Henry Hub, two of the premier gas trading centers in the Gulf Coast region. Bobcat is being developed by Port Barre Investments, LLC. Port Barre Holdings LLC and Port Barre Investments, LLC , which are owned by Haddington Ventures III, LLC. Larry W. Bickle is a Haddington managing director and a gas storage development veteran. Formerly a backer of market area storage, Bickle said, "I guess I'm coming back to storage on the Gulf Coast, but not just anywhere on the Gulf Coast," Bickle told NGI. (Incidentally, Haddington-backed Western Hub Properties is in the process of selling its Lodi Gas Storage facility in northern California to ArcLight Capital Partners.)

Bobcat is located in the transition zone between the production area of South Louisiana and the market area for several pipes in central/northern Louisiana, which Bickle said is the right place to be to take advantage of LNG supplies and available pipeline capacity to get gas to market. Bobcat is proposing two salt caverns with total working capacity of 12 Bcf, with injection capacity of 600 MMcf/d and maximum withdrawals of 1 Bcf/d. Commercial operations are anticipated during the fourth quarter of 2007. Bobcat will connect with the interstate systems of Florida Gas Transmission, Williams Gas Pipelines -- Transco, Gulf South Pipeline, ANR Pipeline Co. and Texas Eastern Transmission Co. and the intrastate pipeline system of Cypress Pipeline with minimal pipeline construction, backers said.

"We weren't just looking for storage in the Gulf Coast, we were looking for storage in that transition zone," Bickle said. "We've defined that as a band about 50 miles wide that roughly parallels the coastline and is 100 miles or so inland. That's where Bobcat turns out to be, and it's major attribute is that it's perfectly located in that transition zone. Storage is about location, location and location. This one is the best location except for Egan, and it's not too far behind Egan. In fact, in some ways I'd say given my choice between the two I'm not sure which one I'd choose."

Bobcat has permits from the state of Louisiana to construct three salt cavern storage wells and associated facilities. To expand the market reach and flexibility of the project, Bobcat will seek additional authorizations from the Federal Energy Regulatory Commission to construct and operate the facility under Section 7(c) of the Natural Gas Act, including market-based rate treatment.

According to Bickle, the Gulf Coast is the place to be right now both for storage and for LNG receipt terminals. Haddington Ventures also is a limited partner backer of an LNG terminal at Port Lavaca-Point Comfort, Texas, which currently is expecting FERC certification in May 2006. The terminal is to be located on an 89-acre tract of "manmade" land in Calhoun County, Texas.

"These people who are chasing the idea of bringing LNG in to the East Coast, I think that's a mistake," Bickle said. "That's a strategic mistake because you're brining the gas in at the end of a [pipeline] twig, and if the twig can't use it right there it's pretty darn hard to get it back into the main [pipeline] trunk of the tree to get it somewhere else.

"Because you're bringing it in to such a small demand, you can saturate the area very easily, and that depresses both the price and volatility, and that depresses the value of the gas and the value of storage," he said. "Because of that and because of the fact that you've got all of this paid-for fixed cost that gives you pipeline access to the Gulf Coast, it's pretty clear to me that the right solution economically and the right solution from an environmental wealth of the nation standpoint is to use this infrastructure that's already in place. So you bring the gas to the Gulf Coast just as it's always come in from the Gulf Coast."

John M. Hopper is president of competing storage developer Falcon Gas Storage, which has two reservoir facilities in Texas and is developing another in Alabama. While obviously an advocate of market area storage, Hopper doesn't believe that salt cavern storage facilities are right for an LNG market. He maintains that salt cavern facilities don't have the capacity to absorb and hold the quantities of LNG necessary to smooth out market peaks. "Look at the forward curve. What you see is a pretty significant off-peak to peak premium... Gas is worth a lot more in the winter than it is in the off-peak, but the difference in that premium has expanded... The cash-to-futures premium has just gotten almost ridiculous."

Hopper told NGI that LNG in the Gulf will significantly depress prices at Henry Hub. High-capacity -- not high deliverability -- storage is what will be needed to hold the large volumes of LNG-derived gas that will come into the Gulf during off-peak periods, he said.

Prospective customers of the Bobcat project seeking additional information may contact Jamie Craddock at (713) 320-0561. Additional information is available at http://www.bobcatstorage.com .

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