El Paso, Phillips to Deal LNG on West Coast

Houston-based El Paso Corp. signed a letter of intent last week to purchase liquefied natural gas from a new Australian LNG production facility to be built by Phillips Petroleum Co., which would provide up to 4.8 million tons of LNG beginning in 2005 for North American markets. El Paso and Phillips expect to complete a definitive agreement on the deal by mid-year.

The LNG would be shipped into North America to be re-gasified and sold as approximately 680 MMcf/d, offering an "important potential new source of natural gas for growing California markets and emerging markets in Mexico's Baja California," El Paso said in a statement. To support the project, El Paso is negotiating with several customers on long-term sales arrangements. No other details regarding the sales negotiations were provided.

Currently, El Paso and Phillips are jointly developing a new LNG receiving facility that will be located along the Pacific Coast, which would receive, store and regasify the Australian LNG. They are working with Mexican and U.S. authorities to establish the site of the new terminal and acquire regulatory permits. Existing pipelines would be used to transport the natural gas. Service from the planned terminal would begin service by 2005, when the LNG is scheduled to arrive.

"El Paso is committed to being a leader in providing new sources of gas to both California and Mexico," said William A. Smith, executive vice president of El Paso Corp. "This important project will use our marketing and risk management skills to create attractive long-term energy solutions for California and Mexico customers, and for the owners of Australian gas reserves. In addition, our proven project financing sills will minimize El Paso's capital exposure and generate significant new earnings for our shareholders."

The project is part of El Paso's announced goal in February, when it said it would become a leading U.S. LNG merchant (see NGI, Feb. 12). Currently, El Paso holds long-term terminal capacity at the Elba Island, GA and Cove Point, MD LNG terminals, which are being reactivated, and it is importing LNG at CMS Energy's Lake Charles, LA terminal. El Paso said it also has begun negotiations for long-term LNG supplies for other terminals under development.

Phillips' Australian facility will be built in Darwin using its Optimized Cascade LNG Process, now used at a Phillips-operated LNG plant in Kenai, AK. The Australian LNG facility will be supplied with gas from the Greater Sunrise fields in the Timor Sea. These fields contain gas reserves of approximately 9 Tcf.

Bill Parker, Phillips executive vice president of worldwide production and operations, said the El Paso deal "validates Phillips' vision for Timor Sea gas development." He said that with Phillips' "future gas sales to this LNG project, the Timor Sea will become a new center of production for Phillips, commercializing significant quantities of gas and condensate reserves."

Carolyn Davis, Houston

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