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AES Says Bahamas LNG Project Remains on Track

An AES Corp. official said on Monday that the Ocean Express Pipeline and LNG project in Florida and the Bahamas remains on track despite the decision last week by Florida Power & Light (FP&L) to cancel a request for proposals process (see Daily GPI, June 2).

FP&L, which serves more than 4.2 million customer accounts in Florida, was soliciting proposals for a minimum of 400,000-600,000 MMBtu/d of regasified LNG for a 15-25 year term starting any time between Jan. 1, 2007 and Dec. 31, 2010. The utility company was expected to be the anchor customer for the winning LNG project out of three proposed terminals and pipelines. Power demand in the state is driving substantial gas demand growth, and FP&L is the largest power company in Florida. But the utility called off its RFP last Wednesday, stating that it could not get the economic terms and conditions it desired.

AES's Aaron Samson, director of the Bahamas project, said it's hard to characterize the FP&L decision as a positive move, but given what he called the utility's track record of favoritism for bids by its own affiliates, AES considers the market situation for its project "unchanged."

"We don't think that suspending or canceling the RFP really changes any of our plans," Samson said in an interview with NGI. "We don't think it necessarily favored us anyway, and seeing it end unresolved is not a negative aspect. We don't think it changed things much at all. It wasn't a surprising thing given that their affiliate had both of its sites rejected by the environmental commission in the Bahamas" (see Daily GPI, May 6).

"I think you can get your own flavor for FPL's RFPs and how they've been awarded in the past and understand that we don't think this is necessarily a negative thing."

Samson said going forward AES will continue negotiations with all the customers in Florida, FP&L being the largest. "This is a big market with humongous growth that is still going to need to be satisfied, and no other conventional supply programs can compete with the LNG option coming from the Bahamas," he said.

However, getting FP&L back to the bargaining table may take some doing. The utility has a preset goal of transforming the LNG market, according to Samson. "They were trying to effectively commoditize the LNG market through this RFP contracting scheme and if they couldn't get a price that looked like it only matched the commodity component of their existing pricing, they weren't going to make that long-term commitment.

"I think their intention was to buy a big chunk of gas only at commodity costs on an existing pipeline transportation and commodity structure. They were not going to enter into a firm take-or-pay obligation on a huge chunk of natural gas deliveries."

Regardless of the utility's plans, Samson said the $750 million Ocean Express project is likely to gain final approvals from the Bahamas soon and meet an in-service date in mid to late 2008. He said the project has been delayed in part because the Bahamas government has no experience when it comes to LNG.

Making matters even worse has been the illness of its prime minister. "It also doesn't help when the prime minister has a stroke and has to take time off. It's a big decision we didn't expect would happen while he's not actively in office. He's returning to work on a reduced schedule, and we'll see what the process will bring. We're still confident that we've met all the requirements that the Bahamian government asked of us."

AES Corp. is planning to build its 1 Bcf/d LNG terminal on a 100-acre island called Ocean Cay, which is about nine miles from any populated island. That location has benefited it significantly but the project has not been without opposition or regulatory delays.

"This project has a long history of waiting so we've actually missed a few opportunities that we've had for supply agreements, but right now we are in active discussions with a number of tolling parties and LNG suppliers," said Samson.

"We're optimistic with the prime minister coming back to work in the next several months this will be resolved and we'll have this project in construction toward year end or early next year."

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