El Paso West Coast LNG Deal With Phillips Still In Negotiations

Negotiations remain on track in a deal between El Paso Corp. and Phillips Petroleum Co. that would bring liquefied natural gas (LNG) supplies from the Timor Sea to the U.S. West Coast by 2005, despite an announcement by Phillips that it would not invest in the needed gas pipeline without better tax breaks from the Timor government. In March, El Paso signed a letter of intent with a Phillips subsidiary contemplating a 17-year agreement to purchase LNG from a new production facility to be built by Phillips near Darwin, Australia, which would be fed by the new pipe (see NGI, March 12).

The two companies were expected by now to have executed a definitive agreement to provide for purchases of up to 4.8 million tons of LNG at market-sensitive prices beginning in 2005. However, Phillips pulled the plug on its proposed $500 million gas pipeline, indicating that it would not proceed unless it could resolve legal and taxation issues between Australia and East Timor covering production in the Timor Gap area of the Timor Sea. Australia and East Timor jointly manage the Timor Gap area, and Australian officials are attempting to act as intermediaries between the producers and Timor officials.

Despite the setbacks for Phillips, El Paso spokesman Mel Scott said last week that the company is "still in negotiations with Phillips at this time," and said the company was "confident that Phillips would resolve the issues with the East Timor government."

An agreement was supposed to be completed by the end of July between Phillips and Multiplex Constructions Pty Ltd. for construction of a 500-kilometer pipe from the Timor gas field to the Darwin port, but the deal fell through, Phillips said. While Phillips has deferred a decision to build the pipe, it said it would still begin production by 2004 of around 100,000 bbl/d of condensate and liquefied petroleum gas from its Timor reserves.

Phillips did not indicate where the Timor gas would be transported; however, Epic Energy, in which El Paso Corp. holds the majority stake, and Dominion Resources Inc. indicated they would continue with their plans to build a 2,800- kilometer pipe from Darwin to an existing gas processing facility in Moomba in central Australia. This gas probably would not be shipped to the United States.

El Paso has announced plans to bring LNG supplies to North American markets by developing new LNG terminals in the United States, Mexico and the Bahamas (see NGI, Feb. 12). The company holds long-term capacity at the Elba Island, GA and Cove Point, MD LNG facilities, which are being reactivated, and is importing LNG to CMS Trunkline's Lake Charles, LA LNG terminal. A contract for long-term LNG supplies from Trinidad has been finalized and negotiations are under way for additional LNG supplies from other countries.

Scott said that all of El Paso's current LNG projects remain on track, with final negotiations nearly completed on a proposed LNG site to be located in Baja, California. He did not indicate when the deal will be completed.

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