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LNG Grabs Larger Share of NE Power Market

LNG Grabs Larger Share of NE Power Market

The birth of a New England power plant will spawn more imports of LNG to the United States. Last week it was announced that Sithe Energies Inc. will feed its 1,600 MW Mystic Station in Everett, MA, with LNG imported by nearby Cabot LNG Corp.

Sithe and Cabot LNG, a wholly owned subsidiary of Cabot Corp., made a 20-year gas sales and purchase agreement valued at more than $4 billion. Cabot LNG subsidiary Distrigas of Massachusetts will be the principal supplier of gas to fuel Mystic Station. Cabot will supply Mystic with 70 Bcf/year, which is equivalent to 25 LNG cargoes per year. "This agreement provides our Mystic Station facility with a reliable, long-term energy source at an attractive and preferential price. As a result, Sithe will be the lowest-cost, most environmentally sound power generator in Boston and New England," said Sithe CEO William Kriegel.

Mystic Station is expected to begin commercial operation in 2002. Cabot LNG will make the necessary infrastructure upgrades at its LNG import terminal, also in Everett, to accommodate the requirements of the new customer. Cabot will bring in LNG from Algeria, which has proven gas reserves of more than 130 Tcf, and from the world's newest LNG export facility in Point Fortin, Trinidad, a location with proven gas reserves exceeding 20 Tcf.

Cabot LNG CEO Gordon Shearer said the price of the LNG is indexed to market prices. The deal benefits from the Cabot facility and the power plant being so close that pipeline transportation is unnecessary. Shearer said the Mystic volumes represent about 55% to 60% of what Cabot is running through its terminal currently. However, plans call for expansion of the terminal and additional LNG supply commitments.

Cabot LNG is a 10% shareholder in the Trinidad LNG plant, and currently contracts for 60% of the plant's supply. In addition, the owners of the Trinidad plant are considering a proposal that would triple the Trinidad facility's capacity to convert gas produced off the country's coast into LNG for export to the United States and Europe.

LNG imports to the United States have been on the rise (see NGI Jan. 17). Last year's third quarter 1999's saw a significant percentage jump in LNG imports. According to the U.S. Department of Energy's Office of Natural Gas & Petroleum Import and Export Activities, total gas imports grew by 15% over the third quarter of 1998 while LNG imports were up a strong 221% over the same period.

Shearer attributed the continuing rise in LNG importation to an abundance of LNG in the Atlantic now that a number of LNG developments have come on line. Also, the U.S. market is attractive to LNG sellers relative to Europe and Asia. Shearer said he expects LNG import growth to continue. Within five to seven years he said the United States could be importing 2 Bcf/d of LNG, up from about 1 Bcf/d currently.

Cabot LNG is wholly owned by Boston-based Cabot Corp., a global specialty chemicals manufacturer. Cabot LNG is also the parent company of Distrigas of Massachusetts Corp., which imports and resells LNG to gas utilities, independent power producers, marketers and others in the northeastern United States. Last August it was announced that Cabot LNG would be separated from Cabot Corp. through the issuance of a targeted stock as a value-enhancement initiative (see NGI Aug. 23). Joe Fisher, Houston

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