After nearly a five-year wait, AES Corp.’s proposed $800 million liquefied natural gas (LNG) import project in the Bahamas is expected to get a green light from the Bahamas government within the next two weeks. The company said the government is putting the finishing touches on an agreement that will pave the way for construction to begin in the next couple of months.

“It is now about to receive its final approval that will allow it to go into construction,” said Aaron Samson, director of the AES project. “The ultimate thing that we want to happen is to get the agreement signed and we expect that shortly…We are down to technical and typo issues on cleaning up a document for execution, which we think will happen next week or the week after.

“The step after that is to put the project’s commercial components in place,” he said. “We have a bunch of preliminary site activity construction to get going over the next couple of months, which is about six to eight months worth of work, and then hopefully we will be ready to go forward.”

AES plans to build two 160,000 cubic-meter LNG storage tanks and an 842 MMcf/d regasification facility on a 90-acre man made island, located about 65 miles east of Miami. The project also will include the 76-mile Ocean Express Pipeline, which will transport regasified LNG to Ft. Lauderdale in southern Florida, where it would interconnect with Florida Gas Transmission (FGT). Approximately 41 miles of the pipeline would be located in U.S. waters and already has been approved by the Federal Energy Regulatory Commission.

Samson noted that a three-year construction period would put the terminal in service in late 2009 or early 2010. He also acknowledged that despite the difficulties AES has faced in getting the project through the regulatory process, it now faces perhaps an even greater struggle lining up LNG supply. LNG supply issues have hindered the development of other North American LNG projects, including Anadarko’s Bear Head LNG project in Point Tupper, NS. Problems lining up supply forced Anadarko to sell its LNG project earlier this month to U.S. Venture Energy for $125 million (see Daily GPI, July 11).

“Our schedule is to have it in service in late 2009 or early 2010 so the supply window should be better then,” said Samson. “It’s still not optimal. Optimally, I guess, you would be wanting to be working on a project in 2011 or 2012 to find some supply today.”

However, he said unlike many other LNG projects, Ocean Cay LNG has the advantage of being in the closest proximity to the premium market in the United States. “The biggest advantage we have is that this is the first new LNG project on the East Coast of the United States that has all of its approvals in place and is in a positive basis area,” he said. “Florida is the fastest growing market in the United States and has a significant cost of gas. Look at the basis in Florida in the last couple of weeks. Florida is now setting a trend of being 30-40 cents over New York. It’s a constrained market that continues to grow and this is the best solution for it. I think it is very attractive compared to stuffing more gas into the multitude of LNG projects planned for the Gulf of Mexico.”

Samson said the agreement with the government of the Bahamas will cover the regulatory and fiscal issues of the project. He said it will impose a number of fees on AES, averaging more than $25 million/year initially with escalators plus additional throughput fees. “It’s significant dollars, but it is not material to the project.”

Minister of Agriculture and Marine Resources Leslie Miller told The Bahama Journal this week that the agreement will provide $25 million per year in lease and license fees initially, escalating to as much as $87 million/year in the later years of the agreement. In addition, AES will pay about $50-70 million/year in throughput fees based on current prices and projected demand and will be required to pay $500,000 annually for training, environmental protection and community projects, Miller told the Journal.

Interest in preserving tourism as its main industry was the major sticking point hindering agreements between the government of the Bahamas and LNG companies, including AES and Suez Energy, which is planning its own LNG project near Freeport on Grand Bahama. Suez grew tired of waiting for action from the Bahamas government and earlier this year decided to build an LNG terminal offshore Florida that would utilize its previously planned and FERC-approved pipeline project that originally was destined for its Bahamas LNG terminal (see Daily GPI, Feb. 10).

Miller, who has favored LNG development from the beginning, told the Journal that the catalyst that prompted the Bahamas to change course came from a study by the International Monetary Fund and the World Bank that advised the Bahamas to approve a regasification terminal to assist in diversification of the Bahamian economy.

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