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Freeport-McMoRan Expects Decision on Main Pass LNG Project by May

Freeport-McMorRan Energy said Thursday that it expects to receive a decision by May on its deepwater port application for the Main Pass Energy Hub liquefied natural gas (LNG) import terminal and storage complex offshore Louisiana. Assuming a front-end engineering and design contract would be signed once the project is fully permitted, and a three-year construction window, the project should be commercially operational in mid-2009, said David Landry, vice president at Freeport-McMorRan Energy LLC, in an interview with NGI.

Landry, who has taken the lead role in directing the Main Pass project, noted that the open loop vaporization process (OLV) has been the most controversial environmental issue, but he believes the company has effectively dealt with that. The Coast Guard and the Maritime Administration (MARAD) restarted the clock on the Main Pass application in late December after a six-month hiatus to study OLV and other environmental concerns. The two agencies are now expected to publish a final environmental impact statement (FEIS) for the Main Pass license application and conduct public hearings on the FEIS in February.

Under the Deepwater Port Act, governors in the adjacent coastal states (Louisiana, Mississippi and Alabama) will have 45 days following the final public hearing to comment on the license application. After the 45-day comment period, MARAD has up to 45 days to issue a record of decision.

OLV has effectively stymied many offshore LNG projects because it involves the intake of millions of gallons of water daily, including any sea life in that water. The water is washed over LNG tanks in order to warm the LNG back into a gas. There have been concerns that the process will cripple the local fishing industry and will harm the marine environment because it will kill fish and other organisms.

Coastal state governors, which have veto power over deepwater port decisions, have opposed offshore LNG projects that use the OLV process unless it can be proved that they would not harm marine life. Landry said he believes recent studies do just that.

He also said Main Pass, which is located in Main Pass Lease Block 299 in 210 feet of water about 16 miles southeast of Venice, LA, is different than most other offshore import terminals because it is in deep water with existing structures anchored to the sea floor. It would utilize four existing platforms, bridges and other structures and would include construction of two additional platforms to support LNG storage tanks (totaling 145,000 cubic meters) and a ship berthing area.

"Our structures are located in very deep water. Consequently, we are able to lower the [water] suctions down to levels that have a minimum amount of marine life compared to more shallow intakes." He said marine life at those depths would be 10% of the life at shallower depths.

"By lowering suctions we immediately reduce impacts, and then by applying EPA-recommended technology on the screens, we then lower it even greater," said Landry. The screens are designed to exclude very small marine life. "If you stack all the design features that we've implemented in this project, we start from an insignificant adverse impact and reduce that down to probably 1% of that. If we put this data in the hands of the decision makers, we believe that the fears of major impacts will be relieved."

McMoRan Exploration spokesman Bill Collier said the governors' concerns about open loop vaporization "are going to be addressed... We feel like the studies that have come out have shown that to be the case and that the impacts for us are far less than what was estimated in the original draft EIS issued by the Coast Guard."

However, Main Pass faces other steep hurdles some experts believe will be even more challenging. The most significant of those will be lining up LNG supply. There have been concerns that the limited amount of global liquefaction capacity will doom many of the proposed U.S. regasification terminals. Landry expressed confidence that Main Pass would be successful in lining up LNG supply commitments from global producers in the near future, and he said that downstream commercial storage and sendout contracts also would be forthcoming with end users in the U.S. market.

Landry noted that Gazprom and Qatar plan to put a "vast amount of LNG" on the global market. "It is clear that LNG is going to be a global commodity and there is going to be stiff competition between [consuming] countries. But there is uncommitted supply by virtue of the expansion plans of Qatar and Gazprom," he said.

"As we come to the close of permitting we will also simultaneously formalize and announce the other aspects of the commercialization of [the project]. We just have not made any announcements, but we are working on the supply side simultaneously with the permitting side.

"We're at different points in our discussions with suppliers. Some are very advanced and others are not as advanced. We do believe that the permitting is important. That's about 80-90% complete right now, and the draft environmental impact statement indicated that there would not be any significant adverse impacts. We believe that with the final version of that coming out this process will rapidly proceed to conclusion."

Another hurdle will be on the delivery end of the project. Getting end users to sign long-term contracts for supply that's subject to geopolitical risk isn't easy. But Landry predicted that consumers will quickly become more confident in LNG when it's associated with onsite storage. The Main Pass Energy Hub would be developed over an existing salt formation in which storage caverns would be developed with a capacity to store 28 Bcf of natural gas. The terminal is expected to vaporize 1 Bcf/d of natural gas and have the capacity to deliver 2.5 Bcf/d out of storage.

"There's a different set of equations at play when the supply comes from a foreign country across oceans. Our facility allows the consumer to participate in LNG but at the same time have supply security because of our storage..."

He also said that delays in shipping to onshore ports due to security concerns can be very costly, but offshore ports will avoid those costs. "We've heard from the national oil companies that they value the ability to get quick turn around on their ships. Certainly our project offers that."

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