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Alabama Board Grants Falcon's MoBay Storage Hub Petition

The Alabama Oil and Gas Board has granted the petition of MoBay Storage Hub LLC to establish the North Dauphin Island Gas Storage Facility, a 50 Bcf high-deliverability, multi-cycle (HDMC) underground storage operation designed to serve as a hub with multiple pipeline connections at the eastern end of the Gulf Coast, MoBay said last Thursday.

At a special hearing on Tuesday, the board also approved the horizontal and vertical boundaries of the gas storage facility and appointed MoBay as facility operator. MoBay, an affiliate of Falcon Gas Storage Co. Inc., will convert the depleted North Dauphin Island unit as part of Phase I of the MoBay Storage Hub project. Phase I will provide 50 Bcf of working gas capacity with direct interconnects to the Gulfstream pipeline, Southeast Supply Header (SESH), Transco Pipeline and Gulf South Pipeline systems.

MoBay received approval for the project from the Federal Energy Regulatory Commission in December 2006 (see NGI, Jan. 8, 2007). Early this year, about two years after Falcon first started talking to the state about leasing the three depleted gas reservoirs, it was awarded the lease. Falcon had been the only bidder seeking to lease the reservoirs in Alabama waters north of Dauphin Island. Falcon's bid was $3 million/year for the 50-year lease of the reservoirs, which includes a 2.5 cent/Mcf injection charge. Falcon will pay the state $15 million up front for the first five years of the lease (see NGI, Jan. 14).

Falcon originally had talked of having the facility in service this year. It now is targeting the second quarter of 2010 to have Phase I operating.

"The State Oil and Gas Board's approval is another important milestone in the MoBay Storage Hub's development," said MoBay COO Edmund Knolle. "We look forward to working closely with the board, the Alabama Department of Conservation and Natural Resources and other federal, state and local agencies as we move forward with developing the nation's eastern-most natural gas trading hub."

Earlier, MoBay said it had contracted with 14 customers to provide more than 40 Bcf of HDMC storage service under multi-year contracts. The facility will have 1 Bcf/d of injection and withdrawal capacity at Coden, AL (see NGI, June 26, 2006).

In addition to the FERC and State Oil and Gas Board approvals, MoBay has received permits and approvals under sections 10 and 404 of the Clean Water Act, section 7 of the Endangered Species Act, section 401 Water Quality Certification, Coastal Zone Consistency, Air Permits from the Alabama Department of Environmental Management and other federal, state and local permits and approvals.

MoBay also has been granted tax abatement by the Industrial Development Authorities of Bayou La Batre and Dauphin Island, AL. MoBay executed a long-term storage lease with the state of Alabama in February covering 25,000 acres over the North Dauphin Island, Northwest Dauphin Island and Northeast Petit Bois reservoirs. All three depleted naturally occurring reservoirs lie under the shallow waters of the Mississippi Sound in South Mobile County, AL. MoBay began Phase I development in July with the plugging and abandonment of 10 production wells and the removal of the Northwest Dauphin Island platform. MoBay plans to complete facility engineering and refurbishment of the existing North Dauphin Island platform later this year. Project financing for the remainder of Phase I development is expected to close in early 2009.

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