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Cheniere, PPM Ink Major LNG Deal; RFP Begins for LNG Sendout Offers

Cheniere LNG Marketing and Scottish Power PLC subsidiary PPM Energy Inc., announced a 10-year purchase and sale agreement last week, giving the Cheniere Energy marketing affiliate the ability to sell to PPM up to 600,000 MMBtu/d of gas at a Henry Hub-related index price and calling for Cheniere to allocate to PPM a portion of the liquefied natural gas (LNG) that it procures under certain long-term supply agreements.

"PPM Energy is delighted to have been selected by Cheniere to purchase long-term LNG supply into the U.S. Gulf Coast market," said PPM CEO Terry Hudgens. "PPM considers this an important strategic relationship that links its growing gas storage supply and marketing business to Cheniere's leading LNG terminal business. LNG will become a vital part of U.S. natural gas supply over the next several years, and PPM will be well positioned to offer LNG along with domestic supply and storage services to its growing gas customer base."

Cheniere LNG Marketing President Keith Meyer credited PPM for helping to pull long-term LNG supply into North America. "PPM's network of storage capacity and its natural gas marketing platform are assets that complement Cheniere's LNG receiving network and Cheniere LNG Marketing's LNG procurement business."

Cheniere's marketing affiliate has signed a long-term contract for 1.5 Bcf/d of regasification capacity at the Sabine Pass terminal and for 1 Bcf/d at Cheniere's Corpus Christi LNG terminal in Corpus Christi, TX.

Meanwhile, Cheniere Energy Inc. also announced last week that it is taking offers from potential customers for 500 MMcf/d of regasification capacity at its Sabine Pass LNG terminal, which is under construction in Cameron Parish, LA. The Sabine Pass capacity offering will close on May 15. Total and Chevron already hold 2 Bcf/d of capacity at Sabine Pass (1 Bcf/d each). The terminal has a rated peak capacity of 2.6 Bcf/d and is expected to have average sendout of 1.8 Bcf/d with 480,000 cubic meters of LNG storage space.

"Most notable is that with [this request for proposals], investors should get the first visible confirmation in some time of where the market for regas capacity truly resides," said Credit Suisse analyst Carl Kirst in a research note to clients.

"Why RFP and why only 500 MMcf/d?" Kirst asked. "We believe Cheniere has received many soft indications of interest but nobody willing to cross the finish line given what appears to be a good deal of available capacity. In this game of poker, Cheniere has reserved capacity for itself creating a possible scarcity factor to get shippers to sign on. In short, we see this as a way of Cheniere safely testing the water. If it works well, look for possibly a larger tranche at Corpus, particularly if it gets much more than 500 MMcf/d in firm interest."

The Sabine project includes a $350 million, 16-mile, 42-inch diameter pipeline that will carry up to 2.7 Bcf/d of gas from the terminal at the Texas-Louisiana border to interconnections with other pipelines in southwestern Louisiana. Sabine Pass is expected to be operational in early 2008. In July 2005, Cheniere applied to the Federal Energy Regulatory Commission seeking authorization to expand the facility's rated capacity to 4 Bcf/d. The expansion capacity is planned to be operational in 2009.

Corpus Christi LNG is permitted with a rated capacity of 2.6 Bcf/d and received an initial authorization to commence construction from the Federal Energy Regulatory Commission in December 2005. Site preparation activities are expected to commence in the second quarter of this year, and the terminal is expected to be operation in 2010.

The Corpus Christi terminal will be located adjacent to the Sherwin Alumina plant on 600 acres of land along the La Quinta Ship Channel in San Patricio County, TX. Cheniere plans to construct a 24-mile, 48-inch diameter pipeline from the terminal to eight interconnecting pipelines in South Texas. The 2.7 Bcf/d pipeline portion of the project is expected to cost $60 million. The project also would include three one-mile, 30-inch diameter pipelines to serve the Sherwin Alumina plant.

Kirst said he does not expect construction to begin on the Corpus Christi terminal until a third-party anchor contract is in place.

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