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Suez LNG Cargoes to U.S. Fixed Until 2008

Aside from a few spot cargoes over the next two years, Suez Energy North America, operator of the liquefied natural gas (LNG) import terminal in Everett, MA, and the second largest importer of LNG in the United States, said it expects to see no increase in the number of LNG shipments that it brings to North America until 2008 due to a number of limitations both on the supply and delivery ends of the LNG chain.

The company had 99 LNG cargoes come to North America in 2005, including 69 to the Everett terminal near Boston and 30 to most of the other North American terminals, including to EcoElectrica in Puerto Rico, Cove Point in Maryland through a subcontract with Statoil, Lake Charles in Louisiana and Elba Island in Georgia. However, CEO Bill Utt said there are limitations on Suez's ability to increase the sendout of Everett.

"We brought about 210 Bcf into Everett last year (about 575 MMcf/d), and for us that was a record," Utt said during a briefing with reporters Wednesday. Even though peak vaporization at Everett is listed at more than 1 Bcf/d, there are limitations created by pipeline bottlenecks into Algonquin Gas Transmission and Tennessee Gas Pipeline that prevent sendout from exceeding about 750 MMcf/d.

"We have signed agreements with [the pipelines] to send out more, but that won't happen for another two to three years because they have to loop the pipeline and add compression.

"But you also have to think about the logistics," he said. "The tanks we have are about 3.6 Bcf, and every cargo I bring in is 3 Bcf, so we have to bleed that down to where the residual gas in the tank is pretty low before I can bring another ship in. The more gas we bring in, the more complex the logistics are across the system [particularly] if we have a weather event or a forced outage at the Mystic Power Station (1,600 MW) next door, which drops 200 MMcf/d of demand off the system. If it takes 15 days to get from Trinidad to Boston, we'll have five ships in the queue, so our logistics are very tough.

"We spent the last five years getting it from 23 cargoes in 2001 [to 69 cargoes last year]. That next increment of logistics is really a very difficult thing to get to," he added. "We're starting to hit the [limit] of practical capacity, and that's why we've announced the Neptune project in Boston Harbor."

Suez's Neptune project, which is awaiting regulatory approval, would be located about 10 miles offshore Gloucester and would provide an average of about 400 MMcf/d of supply and a peak sendout of 700 MMcf/d into Algonquin's HubLine pipeline system in Boston Harbor (see NGI, Feb. 21, 2005). The specialized ships that would be built for the Neptune project would have onboard regasification but also would be capable of delivering LNG directly into any of the existing LNG terminals in North America, including Everett. As a result, Suez considers Neptune basically an expansion of the Everett LNG operations, said Utt.

Neptune is one of two offshore LNG import terminals that the company is planning along the East Coast. The second project would be located offshore Florida. After waiting for more than a year for the government of the Bahamas to act on its application for an onshore LNG terminal in Freeport on Grand Bahama Island, Suez has decided to pursue an alternative that would be located offshore Florida at the end of its proposed Calypso pipeline system, which already has a FERC certificate (see related story).

Suez said its existing LNG supply contracts would be enough to support the Neptune terminal but more LNG supply would be needed to support projects off Florida and Massachusetts.

Suez's vision is to create a big arbitrage LNG play in the Atlantic Basin. To an extent, the company already has done that by negotiating swap deals with Gas Natural in Spain that cut millions of dollars of transportation costs by swapping LNG from Algeria with LNG from Trinidad.

Suez also holds 2.1 billion cubic meters/year of capacity at the LNG import terminal in Zeebrugge, Belgium, and plans to utilize that capacity in arbitrage plays in the future. But currently, its supply is pretty much maxed out.

"I think our supply mix is pretty well fixed from a planning standpoint through 2008," said Utt. "It can modulate plus or minus a few cargoes, but as far as what we have under contract that is committed, it is pretty fixed right now."

Suez has agreements for flowing supply with Atlantic LNG in Trinidad and Sonatrach in Algeria. It also has a deal for future LNG supply with Yemen and is negotiating for supply from Qatar and West Africa.

Suez holds about 60% of the output of Atlantic LNG's Train 1 in Trinidad and about 10% of the output of Train 2 (each train totals 152 Bcf/year). The company also has medium-term offtake of about 40% of Train I and 23% of Trains 2 and 3. It opted out of Train 4, but has an option to buy a 10% ownership stake in Train 5 (it owns a 10% stake in Train 1).

Clay Harris, CEO of Suez LNG North America, said the company expects to exercise that option on Train 5, but he thinks the government of Trinidad will "take a breather" before moving forward with Train 5 late in 2006. Harris said Trinidad wants to conduct a closer examination of its gas reserves, its future demand and the structure of its contractual and tax relationships with the liquefaction project and the producers that support it. As a result, it's somewhat unclear what Suez's role will be in Train 5 and when that expansion project will get under way.

But Suez also is working out supply agreements elsewhere, Harris said. Its European affiliate has a deal with Sonatrach in Algeria that will be replaced by a contract with Qatargas, he said. Suez also signed an agreement last year to take 133 Bcf/year of LNG per year from a new liquefaction plant in Bal Haf, Yemen. Shipments are expected to begin in 2009. In addition to the nine vessels already under Suez's control, the company plans to have three new vessels built. Going forward, Suez expects to play a much larger role in the worldwide LNG business, which is expected to grow 12% per year through 2020.

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