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El Paso Snags LNG Lease Option

El Paso Snags LNG Lease Option

In what would be the smallest of the four existing liquefied natural gas terminals in the United States, El Paso Merchant Energy got the go-ahead on a three-year lease option to build a facility on Radio Island in North Carolina. The North Carolina State Ports Authority unanimously approved the deal last week.

The option, if used, allows the Houston-based El Paso Corp. subsidiary to construct a $250 million LNG storage facility on about 46 acres of land on Radio Island, which is across the Newport River from the Port of Morehead City. Preliminary plans call for a facility that could store up to 3.5 Bcf, with a pipeline capacity of 250 MMcf/d. The Ports Authority said the terminal would be served by two-to-three ships a month.

El Paso spokesman Aaron Woods said the Radio Island facility would be the smallest of the four U.S. LNG terminals. The Cove Point, MD LNG facility can store up to 6.7 Bcf with a pipeline capacity of 750 MMcf/d. Earlier this month, El Paso Corp. announced it was considering construction of up to six LNG facilities in North America (see Daily GPI, Feb. 6).

Originally, the Ports Authority had set the lease for two years, but El Paso officials said they could not complete the permitting process in that time. The lease extends for 50 years and two additional 10-yeare periods are available. El Paso would own any improvements made on the property and would be required to pay applicable taxes on the improvements.

"This LNG facility will positively impact the entire State of North Carolina, but most especially eastern North Carolina, where the absence of natural gas has severely limited economic development and growth," said J. Richard Futrell, chairman of the Ports Authority's board of directors. "Three quarters of all industrial facilities have a requirement for natural gas as a prerequisite to locating their operation to a new area."

Erik Stromberg, executive director of the Ports Authority, said the option would give El Paso the opportunity to move the project forward through state and federal permitting processes. Noting that some residents were concerned about safety issues, Stromberg said that "preliminary input from the U.S. Coast Guard indicates that while there is risk involved, the risk can be (and is at other LNG facilities in the United States being) well managed within acceptable parameters."

The next step for El Paso is a hearing before the North Carolina Council of State next week, on March 6. The lease option goes into effect March 15 under the Ports Authority approval, and if the Council of State grants its okay, El Paso could begin the permitting process.

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